<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
----------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 25, 2000
[_] 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 Identification No.)
Incorporation or organization)
640 North LaSalle, Suite 295, Chicago, IL, 60610
(Address of principal executive offices, including zip code)
(312) 266-1100
(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 October 31, 2000:
Common Stock ($.01 par value) - 11,795,529
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<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 25, December 27,
ASSETS 2000 1999
------ ------------- ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and Equivalents............................. $ 347 $ 424
Accounts Receivable.............................. 2,278 2,969
Inventories...................................... 2,145 2,282
Prepaid Expenses and Other Current Assets........ 1,126 530
Current Portion of Deferred Tax Asset............ 288 288
-------- --------
Total Current Assets........................... 6,184 6,493
Property and Equipment, at Cost:
Land............................................. -- 3,904
Buildings........................................ -- 15,384
Equipment........................................ 34,949 33,115
Leasehold Interests & Improvements............... 69,176 53,854
Construction in Progress......................... 3,275 3,380
-------- --------
107,400 109,637
Less: Accumulated Depreciation and Amortization.... 39,220 42,621
-------- --------
Net Property & Equipment....................... 68,180 67,016
Leased Property under Capital Leases, Less
Accumulated Amortization of $2,480 in 2000 and
$2,329 in 1999.................................... 2,363 2,514
Non-current Portion of Deferred Tax Asset.......... 5,092 5,092
Other Assets and Goodwill, Less Accumulated
Amortization of $3,977 in 2000 and $3,897 in 1999. 16,579 18,374
-------- --------
$ 98,398 $ 99,489
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Current Portion of Long-Term Obligations......... $ 4,088 $ 2,435
Accounts Payable................................. 2,488 4,577
Accrued Liabilities.............................. 14,989 13,775
-------- --------
Total Current Liabilities...................... 21,565 20,787
Deferred Payments on Acquisition................... 438 1,000
Long-Term Debt..................................... 21,886 17,700
Long-Term Obligations under Capital Leases......... 3,529 3,713
Stockholders' Equity:
Preferred Stock, $1.00 par value, 10,000,000
authorized shares; none outstanding............. -- --
Common Stock, $.01 par value, 30,000,000
authorized shares; 11,795,529 and 11,762,561
shares outstanding in 2000 and 1999,
respectively.................................... 118 118
Additional Paid-In Capital....................... 61,276 61,178
Accumulated Deficit.............................. (10,414) (5,007)
-------- --------
Total Stockholders' Equity..................... 50,980 56,289
-------- --------
$ 98,398 $ 99,489
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<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 September 25, Ended September 27, Ended September 25, Ended September 27,
2000 1999 2000 1999
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues................ $37,079 $36,040 $105,751 $108,000
------- ------- -------- --------
Costs and Expenses:
Cost of Sales......... 12,054 11,416 34,828 34,325
Restaurant Labor...... 11,187 10,518 30,409 31,980
Other Operating Costs. 8,552 7,825 23,731 23,884
Pre-opening Costs..... 1,404 -- 3,233 --
Selling, General and
Administrative
Expenses............. 3,364 2,905 9,532 9,033
Depreciation and
Amortization......... 1,736 1,996 5,018 5,867
Write Down of Assets
and Restructuring
Charges.............. 1,900 -- 2,360 --
Loss (Gain) on Sales
of Assets............ 177 -- 36 (742)
Interest Expense...... 799 803 2,011 1,406
------- ------- -------- --------
Total Costs and
Expenses........... 41,173 35,463 111,158 105,753
------- ------- -------- --------
(Loss) Income Before
Income Taxes........... (4,094) 577 (5,407) 2,247
Provision for Income
Taxes.................. -- -- -- --
------- ------- -------- --------
Net (Loss) Income....... $(4,094) $ 577 $ (5,407) $ 2,247
======= ======= ======== ========
Net (Loss) Income Per
Common Share--Basic and
Diluted................ $ (0.35) $ .05 $ (.46) $ .19
======= ======= ======== ========
Weighted Average Shares
Outstanding............ 11,795 11,767 11,790 11,764
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<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 25, Ended September 27,
2000 1999
------------------- -------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net (Loss) Income..................... $ (5,407) $ 2,247
Adjustments to Reconcile Net (Loss)
Income to Cash Flows from Operating
Activities:
Depreciation and Amortization....... 5,018 5,867
Amortization of Debt Issuance Costs. 132 --
Common Stock Issued in Lieu of
Compensation....................... -- 75
Loss (Gain) on Retirement and
Disposition of Assets.............. 36 (742)
Change in Net Current Liabilities
(Excluding Net Current Liabilities
Acquired).......................... (2,124) (3,455)
-------- --------
Cash (Used in) Provided by
Operating Activities............. (2,345) 3,992
Cash Flows from Investing Activities:
Expenditures for Property and
Equipment.......................... (20,086) (12,550)
Expenditures for Acquisitions (Net
of Cash Acquired).................. -- (10,596)
Additions of Other Assets........... (193) (265)
Proceeds from Disposition of Assets. 17,556 6,700
-------- --------
Cash Used in Investing Activities. (2,723) (16,711)
Cash Flows from Financing Activities:
Principal Payments on Obligations
under Capital Leases............... (153) (557)
Debt Issuance Costs................. (200) (475)
Payments under Deferred Acquisition
Agreement.......................... (562) --
Net Proceeds (Payments) under
Revolving Credit Agreement......... 5,950 (1,150)
Payments on Long-Term Debt.......... (772) --
Proceeds from Issuance of Long-Term
Debt............................... 630 15,000
Proceeds from Issuance of Common
Stock.............................. 98 --
-------- --------
Cash Provided by Financing
Activities....................... 4,991 12,818
-------- --------
(Decrease) Increase in Cash........... (77) 99
Cash, Beginning of Period............. 424 266
-------- --------
Cash, End of Period................... $ 347 $ 365
======== ========
The Change in Net Current Liabilities
(Excluding Net Current Liabilities
Acquired) is Comprised of the
Following:
Decrease (Increase) in Accounts
Receivable......................... $ 691 $ (229)
Decrease in Inventories............. 137 442
(Increase) Decrease in Prepaid
Expenses and Other Current Assets.. (596) 15
Decrease in Accounts Payable........ (2,089) (2,093)
Decrease in Accrued Liabilities..... (267) (1,590)
-------- --------
Change in Net Current Liabilities
(Excluding Net Current Liabilities
Acquired)............................ $ (2,124) $ (3,455)
======== ========
Supplemental Cash Flow Disclosures:
Cash Paid During the Period for:
Interest (Net of Amount
Capitalized)..................... $ 1,727 $ 726
Income Taxes (Net of Refunds)..... $ 156 $ (159)
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 25, 2000
(Unaudited)
(1) Basis of Presentation
The accompanying consolidated financial statements of Chart House
Enterprises, Inc. and subsidiaries (the "Company") for the quarterly and nine
month periods ended September 25, 2000 and September 27, 1999 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,
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 27, 1999.
Certain items previously reported in specific financial statement captions
have been reclassified to conform to the 2000 presentation.
(2) Restructuring Actions and Special Charges
In 1999, the Company recorded a restructuring charge and write-down of
assets totaling $4,890,000 in preparation for an expansion plan requiring
disposal of eleven Chart House restaurants whose operating results and
economics were not conducive to the long-term success of the Company. The
charges included:
<TABLE>
<S> <C>
Write-down of assets to be disposed........................... $4,286,000
Severance and other exit costs................................ $ 604,000
</TABLE>
Seven of the eleven restaurants were closed within the first six weeks of
2000. Three more locations were closed in June 2000. The Company anticipates
operating the remaining restaurant (located in Hawaii) until disposal of the
restaurant can be achieved through a sale agreement consistent with the
Company's existing lease terms. Of the ten closed restaurants, six restaurant
properties have been sold. The other four restaurants' assets remain for sale.
It is management's intention to sell these remaining assets during 2000.
The table below reflects the proportion of the Company's results of
operations contributed by the eleven restaurants identified for disposal:
<TABLE>
<CAPTION>
Q3 Year to Q3 Year to
2000 Date 2000 1999 Date 1999
----- --------- ------ ---------
in thousands in thousands
<S> <C> <C> <C> <C>
Revenue:................................ $ 507 $5,135 $5,328 $15,501
Net (Loss) Income:...................... ($35) $ 126 $ 154 $ 402
</TABLE>
5
<PAGE>
Negotiations for sales of the remaining five restaurant properties
continue. Due to changes in the real estate market since 1999, management has
revised its estimates of fair value less costs to sell. The losses recorded in
1999, when the decision was made to dispose of the assets, were recorded as
writedowns in net book value in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." The carrying value of the
remaining assets held for disposal at September 25, 2000 was approximately
$1,123,000, which reflects a write down in net book value of these fixed
assets of $636,000. This write down results from a revision in estimate of
proceeds to be received less costs to sell, from the original estimate made
during the decision to dispose of the assets. The write down of $636,000 made
in the third quarter, 2000 was included in the Write Down of Assets and
Restructuring Charges on the accompanying Consolidated Statement of
Operations.
The table below reflects the charges to the liability for severance and
other exit costs (included in Accrued Liabilities) for the period to date:
<TABLE>
<S> <C>
Liability as of December 27, 1999.......................... $ 604,000
Payments made for severance and other exit costs........... ($1,495,000)
Additional Restructuring charge............................ $ 2,006,000
------------
Liability as of September 25, 2000......................... $ 1,115,000
============
</TABLE>
The additional restructuring charge includes a charge of $1,264,000 made
during the third quarter, 2000 and is reflected in the Write Down of Assets
and Restructuring Charges on the accompanying Consolidated Statement of
Operations.
The number of employees terminated through third quarter 2000 as a result
of the restaurant closures was 232. The liability remaining at September 25,
2000 will absorb the exit costs and severance payments due 16 restaurant
employees working in the restaurant held for disposal.
The restructuring charge taken in the third quarter 2000 reflects exit
costs incurred or expected to be incurred for the remaining properties to be
disposed. Exit costs primarily include rent payments and disposal of
perishable inventory items. The liability as of September 25, 2000 reflects
management's best estimate of future expenses and losses on the restaurant
closings and disposals.
(3) Pre-Opening Costs
The Company expenses pre-opening costs as incurred. Pre-opening costs, or
start-up costs, are one-time activities related to opening a new restaurant.
Pre-opening costs of approximately $1,404,000 and $3,233,000 for the third
quarter and thirty-nine weeks ended September 25, 2000 primarily represent
salary-related expenses and training costs for new employees. The Company has
opened four of six restaurants scheduled to open in 2000.
(4) Debt Compliance
The Company is in compliance with all debt covenants as of September 25,
2000 after giving effect to waivers granted in connection with an amendment to
the Revolving Credit and Term Loan Agreement ("the Agreement") dated as of
November 9, 2000 ("the Amendment"). See Subsequent Event.
(5) Contingencies
The Company is contingently liable, in certain circumstances, for lease
obligations of properties subleased to third parties. Certain properties,
previously occupied and operated by the Company, have been subleased where the
Company is liable for lease payments should the sublessee default. The Company
is not aware of any monetary or material default under its sublessee
arrangements.
(6) 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.
6
<PAGE>
(7) Recently Issued Accounting Standards
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation: An Interpretation of APB
Opinion No. 25" ("the FASB Interpretation"). The FASB Interpretation, among
other things, requires the application of Opinion 25 to stock compensation
granted to a nonemployee member of the grantor's board of directors for
services provided as a director, if the nonemployee director was elected by
the grantor's shareholders. The FASB Interpretation was issued to eliminate
diversity in practice and has no impact on the Company's financial statements
as the Company's current practice is to follow APB Opinion No. 25 for stock
compensation granted to nonemployee directors.
In March 2000, the Emerging Issues Task Force issued Abstract No. 00-2:
Accounting for Web Site Development Costs, ("EITF No. 00-2"). EITF No. 00-2
provides guidance for accounting for costs incurred to develop a web site. The
guidance provides for separating costs into stages and requiring expense or
capital treatment in accordance with the provisions. The Company is currently
in compliance with this EITF.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101: Revenue Recognition in Financial Statements,
("SAB No. 101") which has been amended by SAB 101A and SAB 101B. SAB No. 101
provides guidance on the recognition, presentation, and disclosure of revenue
in financial statements filed with the SEC. SAB 101 outlines the basic
criteria that must be met to recognize revenue and provides guidance for
disclosures related to revenue recognition policies. The Company is currently
in compliance with SAB 101 as amended by SAB 101A and SAB 101B.
(8) Subsequent Event
The Agreement was amended on November 9, 2000. Pursuant to the Amendment,
capital expenditures are limited for the remainder of 2000 and interest rates
on outstanding debt will increase if certain leverage ratios are not
maintained through the remaining months of 2000. Pursuant to the Amendment,
the Company has no additional access to the revolving line of credit. The
Company is exploring various options to increase its credit availability or
provide other sources of liquidity, including one or more sales of capital
stock or issuances of subordinated debt. The Company has had discussions to
secure subordinated debt with a related party. No assurances can be given,
however, that any such transaction will be consummated, or regarding the terms
on which such transactions may be available.
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 quarterly and nine-month periods ended September 25, 2000 and September
27, 1999. The results of operations for the first nine months of 2000 are not
necessarily indicative of the results to be expected for the fiscal year
ending December 25, 2000. The dollar amounts in the table below are in
thousands.
<TABLE>
<CAPTION>
Thirteen Thirteen Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
September 25, September 27, September 25, September 27,
2000 1999 2000 1999
---------------- --------------- ---------------- ----------------
Dollars Percent Dollars Percent Dollars Percent Dollars Percent
------- ------- ------- ------- ------- ------- ------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ 37,079 100.0 36,040 100.0 105,751 100.0 108,000 100.0
Costs and Expenses:
Cost of Sales.......... 12,054 32.5 11,416 31.7 34,828 32.9 34,325 31.8
Restaurant Labor....... 11,187 30.2 10,518 29.2 30,409 28.8 31,980 29.6
Other Operating Costs.. 8,552 23.1 7,825 21.7 23,731 22.4 23,884 22.1
Pre-opening Costs...... 1,404 3.8 -- -- 3,233 3.1 -- --
Selling, General and
Administrative
Expenses.............. 3,364 9.1 2,905 8.1 9,532 9.0 9,033 8.4
Depreciation and
Amortization.......... 1,736 4.7 1,996 5.5 5,018 4.8 5,867 5.4
Write Down of Assets
and Restructuring
Charges............... 1,900 5.1 -- -- 2,360 2.2
Loss (Gain) on Sales
of Assets............. 177 0.5 -- -- 36 -- (742) (0.7)
Interest Expense....... 799 2.1 803 2.2 2,011 1.9 1,406 1.3
------ ----- ------ ----- ------- ----- ------- -----
Total Costs and
Expenses............ 41,173 111.1 35,463 98.4 111,158 105.1 105,753 97.9
------ ----- ------ ----- ------- ----- ------- -----
(Loss) Income Before
Income Taxes........... (4,094) (11.1) 577 1.6 (5,407) (5.1) 2,247 2.1
Provision for Income
Taxes.................. -- -- -- -- -- -- -- --
------ ----- ------ ----- ------- ----- ------- -----
Net (Loss) Income.... (4,094) (11.1) 577 1.6 (5,407) (5.1) 2,247 2.1
====== ===== ====== ===== ======= ===== ======= =====
</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.
The table below reflects the impact, (increase or (decrease)), on total
revenues resulting from strategic decisions implemented over the past two
years (in thousands):
<TABLE>
<CAPTION>
Q3 YTD
------- --------
<S> <C> <C>
Continuing Restaurants................................ $ 2,108 $ 6,047
New Restaurant Openings............................... 4,056 4,827
Angelo and Maxie's (acquired in Q2 1999).............. 239 3,643
Restaurant Held for Disposal.......................... (170) (316)
Permanent Closure of Restaurants...................... (5,194) (16,450)
------- --------
Total............................................... $ 1,039 $ (2,249)
======= ========
</TABLE>
At September 25, 2000, the Company operated 41 Chart House restaurants
(including the Peohe's restaurant) and three Angelo and Maxie's Steakhouses
("Angelo and Maxie's"), a steakhouse concept acquired in the second quarter
1999. Of these restaurants, one Chart House restaurant has been designated for
closure in conjunction with the 1999 restructuring. Management estimates that
this restaurant will be closed in 2000. Comparable restaurant revenue growth,
excluding the restaurant held for disposal, was 7.6% for the third quarter
2000, and 7.4% for the nine months ended September 25, 2000.
8
<PAGE>
Revenue growth at comparable restaurants is attributed to the renewed
interest in many locations following remodeling and the introduction of a new
menu.
Restaurant-level operating margins have changed since 1999 primarily due to
the acquisition of Angelo and Maxie's as well as the disposal of under-
performing Chart House restaurants. Cost of sales as a percentage of revenues
will be higher in 2000, as the ratio of Angelo and Maxie's restaurants to
total restaurants continues to increase. The menu at Angelo and Maxie's
contains significantly more beef items and larger portion sizes. This results
in higher food costs than have typically been realized at the Chart House
restaurants. Management continues to focus upon the success of our seafood
entrees at the Chart House restaurants, which generally results in a lower
cost of sales percentage. Restaurant labor as a percentage of sales has
increased in third quarter 2000 versus 1999, but is still below 1999 year to
date. The Company, along with many peers in the restaurant industry, has felt
the impacts of low unemployment rates across the country requiring higher
market wages to recruit quality employees. Other operating costs have
increased in third quarter 2000 compared to third quarter 1999 primarily as a
result of increased rental expense. The Company executed a sale-leaseback
transaction in June 2000 effecting increased rental expense of approximately
$400,000 per quarter. Despite this increase, year to date operating costs have
remained constant on fewer revenues. The remodeling of most of the Chart House
restaurants in 1999 and 2000 has relieved the Company of significant repair
and maintenance expense, which, in turn has been offset by marketing and
promotion expenditures. Insurance costs have risen significantly in the third
quarter. The Company expects this level of cost to continue for at least the
next 12 months.
The Company has incurred approximately $1,404,000 and $3,233,000 in
expenditures during the third quarter and thirty-nine weeks ended September
25, 2000 respectively, relating to the opening of new restaurants. These costs
primarily reflect salaries and benefits and training costs for new employees.
The Company has opened two Angelo and Maxie's in the third quarter, one
additional Angelo & Maxie's to date in the fourth quarter and plans to open
one additional Angelo and Maxie's before the end of 2000.
Selling, general and administrative expenses have increased for both year
to date 2000 with year to date 1999 and third quarter 2000 with third quarter
1999. This reflects Company initiatives in 2000 to expand its restaurant base.
The increase is primarily salary and related costs incurred to build a
corporate infrastructure to promote the new concept and restaurant growth.
Depreciation and amortization has decreased from 1999 due to the fewer
number of restaurants currently under operation. Further, a sale leaseback
entered in June 2000 eliminated depreciation for five buildings.
The Company incurred a $1,900,000 restructuring charge in the third quarter
2000 reflecting exit costs incurred and expected to be incurred for the five
remaining restaurants identified for disposal. The restructuring charge
includes a write down of assets of $636,000 and an additional restructuring
charge of $1,264,000. See Restructuring Charges and Impaired Assets for
further details.
Interest expense has remained consistent for the third quarter 2000 to the
third quarter 1999. The interest expense at September 25, 2000 does not
reflect $140,000 in interest capitalized. The increase from year to date 2000
versus year to date 1999 primarily reflects debt service on a $15 million term
loan secured in April 1999.
As a result of the foregoing, net income decreased by $4,671,000 from
$577,000 for the third quarter of 1999 to a loss of ($4,094,000) for the third
quarter of 2000. Net income for the thirty-nine weeks ended September 25, 2000
decreased by $7,654,000 from $2,247,000 in 1999 to a loss of ($5,407,000) in
2000.
9
<PAGE>
Restructuring Charges and Impaired Assets
In 1999, the Company recorded a restructuring charge and write-down of
assets totaling $4,890,000 in preparation for an expansion plan requiring
disposal of eleven Chart House restaurants whose operating results and
economics were not conducive to the long-term success of the Company. The
charges included:
<TABLE>
<S> <C>
Write-down of assets to be disposed........................... $4,286,000
Severance and other exit costs................................ $ 604,000
</TABLE>
Seven of the eleven restaurants were closed within the first six weeks of
2000. Three more locations were closed in June 2000. The Company anticipates
operating the remaining restaurant (located in Hawaii) until disposal of the
restaurant can be achieved through a sale agreement consistent with the
Company's existing lease terms. Of the ten closed restaurants, six restaurant
properties have been sold. The other four restaurants' assets remain for sale.
It is management's intention to sell these remaining assets during 2000.
The table below reflects the proportion of the Company's results of
operations contributed by the eleven restaurants identified for disposal:
<TABLE>
<CAPTION>
Q3 Year to Q3 Year to
2000 Date 2000 1999 Date 1999
----- --------- ------ ---------
in thousands in thousands
<S> <C> <C> <C> <C>
Revenue:................................. $507 $5,135 $5,328 $15,501
Net (Loss) Income:....................... $(35) $ 126 $ 154 $ 402
</TABLE>
Negotiations for sales of the remaining five restaurant properties
continue. Due to changes in the real estate market since 1999, management has
changed its estimates of fair value less costs to sell. The losses recorded in
1999, when the decision was made to dispose of the assets, were recorded as
writedowns in net book value in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." The carrying value of the
remaining assets held for disposal at September 25, 2000 was approximately
$1,123,000, which reflects a write down in net book value of these fixed
assets of $636,000. This write down results from a revision in estimate of
proceeds to be received less costs to sell, from the original estimate made
during the decision to dispose of the assets. The write down of $636,000 made
in the third quarter, 2000 was included in the Write Down of Assets and
Restructuring Charges on the accompanying Consolidated Statement of
Operations.
The table below reflects the charges to the liability for severance and
other exit costs (included in Accrued Liabilities) for the period to date:
<TABLE>
<S> <C>
Liability as of December 27, 1999........................... $ 604,000
Payments made for severance and other exit costs............ $(1,495,000)
Additional Restructuring charge............................. $ 2,006,000
-----------
Liability as of September 25, 2000.......................... $ 1,115,000
===========
</TABLE>
The additional restructuring charge includes a charge of $1,264,000 made
during third quarter, 2000 and is reflected in the Write Down of Assets and
Restructuring Charges on the accompanying Consolidated Statement of
Operations.
The number of employees terminated through third quarter 2000 as a result
of the restaurant closures was 232. The liability remaining at September 25,
2000 will absorb the exit costs and severance payments due 16 restaurant
employees working in the restaurant held for disposal.
The restructuring charge taken in the third quarter 2000 reflects exit
costs incurred or expected to be incurred for the remaining properties to be
disposed. Exit costs primarily include rent payments and disposal of
perishable inventory items. The liability as of September 25, 2000 reflects
management's best estimate of future expenses and losses on the restaurant
closings and disposals.
10
<PAGE>
Liquidity and Capital Resources
<TABLE>
<CAPTION>
Third Third
Quarter Quarter
2000 1999
-------- --------
(in (in
"000s) "000s)
<S> <C> <C>
Cash (used in) provided by
Operating Activities..... $ (2,345) $ 3,992
Expenditures for Property
and Equipment............ (20,086) (12,550)
Expenditures for
Acquisitions (Net of Cash
Acquired)................ -- (10,596)
Proceeds from Disposition
of Assets................ 17,556 6,700
Cash used in other
Investing Activities..... (193) (265)
Cash provided by Financing
Activities............... 4,991 12,818
-------- --------
Change in cash.......... $ (77) $ 99
======== ========
</TABLE>
The working capital deficit increased by approximately $3.8 million from
$11.6 million in the third quarter of 1999 to $15.4 million in the third
quarter of 2000. The majority of this increase is represented by the principal
payments of long-term debt becoming current and a decrease in accounts
receivable.
Capital expenditures for the third quarter of 2000 were primarily for the
remodeling and enhancements of several Chart House restaurants and the
construction of seven new Angelo and Maxie's restaurants scheduled to open
throughout the remainder of 2000 and 2001.
Proceeds received in the third quarter 2000 were used primarily to fund
capital expenditures and pre-opening expenses for five new restaurants that
have opened or are scheduled to open in third and fourth quarter 2000 and
early in 2001.
Long-term debt consists of borrowings under the Company's Revolving Credit
and Term Loan Agreement ("Agreement"). The proceeds of the term loan were
received in second quarter 1999. Quarterly principal payments of $750,000
under the term loan portion of the Agreement began with the first payment made
on June 30, 2000 and will continue through September 30, 2001. Quarterly
principal payments of $1,000,000 will commence with payment due December 31,
2001 and will continue through September 30, 2003. Quarterly principal
payments of $1,250,000 will commence with payment due December 31, 2003 and
will end with a final principal payment on March 31, 2004.
The Company was in compliance with all covenants of the Agreement through
September 25, 2000, after giving effect to waivers granted in connection with
an amendment to the Agreement dated as of November 9, 2000 (the "Amendment").
Pursuant to the Amendment, capital expenditures are limited for the remainder
of 2000 and interest rates on outstanding debt will increase if certain
leverage ratios are not maintained through the remaining months of 2000.
During the third quarter of 2000, the Company increased its borrowings
under the revolving credit portion of the Agreement by $10,900,000. At
September 25, 2000, the Company had outstanding borrowings of $25,150,000 and
available credit of $4,400,000 under the Agreement, which represented a
significant decrease from the credit available under the Agreement at the end
of the second quarter 2000. Pursuant to the Amendment, the Company has no
additional access to the revolving line of credit.
Thus, in order for the Company to meet its liquidity requirements and
remain in compliance with financial covenants for the next twelve months, the
Company is exploring various options to increase its credit availability or
provide other sources of liquidity, including one or more sales of capital
stock or issuances of subordinated debt. The Company has had discussions to
secure subordinated debt with a related party. No assurances can be given,
however, that any such transaction will be consummated, or regarding the terms
on which such transactions may be available.
11
<PAGE>
In conjunction with the 1999 restructuring, the Company intends to dispose
of the five remaining restaurant properties during fiscal year 2000. Cash
proceeds upon the sale of all remaining properties are estimated at $785,000.
Management is actively pursuing reasonable offers on each property; however,
no assurance can be given as to the likelihood or timing of such sales or that
estimated proceeds will be realized. The Company continues to honor its
obligations under the lease agreements for all five properties.
The Company currently projects total 2000 capital expenditures to be
approximately $25 million, however, this amount may vary depending on several
factors. These factors include, but are not limited to, the timing of
construction activities and compliance with financial covenants under the
Agreement. In order to fully implement the remodeling and expansion program,
the Company may require alternative sources of long-term financing. However,
no assurance can be given that such financing will be available or available
on terms satisfactory to the Company.
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.
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 intentions and abilities
to dispose of assets, remodel assets, or acquire assets, the intentions and
abilities to increase or decrease outstanding borrowings, the intentions and
abilities to control or mitigate changes in any operating costs, and the
intentions and abilities to maintain current levels of comparable restaurant
revenues or operating results. 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. Some of the known and unknown risks, uncertainties
and other factors referred to above include, but are not limited to, the
following: changes in customer demand due to economic factors, competitive
factors, pricing pressures, availability of employees, changes in demographic
trends, the ability to open new restaurants successfully and to successfully
integrate any acquired businesses, litigation involving employment, liability
and other issues, weather and other acts of God.
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<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).
Exhibit No. 10.5.2 Second Amendment to Chart House Enterprises, Inc.
Severance Pay Plan dated as of August 2, 2000.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter of which this
report is filed.
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)
/s/ Thomas J. Walters
By: _________________________________
Thomas J. Walters
President and Chief Executive
Officer
/s/ William M. Sullivan
By: _________________________________
William M. Sullivan
Executive Vice President and
Chief Financial Officer
Date: November 9, 2000
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