<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 26, 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
Incorporation or organization) Identification No.)
640 North LaSalle, Suite 295, Chicago, IL, 60610
--------------------------------------------------------------------------------
(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 August 4, 2000:
Common Stock ($.01 par value) - 11,787,720
------------
<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>
June 26, December 27,
ASSETS 2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and Equivalents $ 376 $ 424
Accounts Receivable 2,732 2,969
Inventories 1,957 2,282
Prepaid Expenses and Other Current Assets 740 530
Current Portion of Deferred Tax Asset 288 288
-------- --------
Total Current Assets 6,093 6,493
Property and Equipment, at Cost:
Land - 3,904
Buildings - 15,384
Equipment 33,940 33,115
Leasehold Interests & Improvements 61,161 53,854
Construction in Progress 4,074 3,380
-------- --------
99,175 109,637
Less: Accumulated Depreciation and Amortization 38,880 42,621
-------- --------
Net Property & Equipment 60,295 67,016
Leased Property under Capital Leases, Less Accumulated
Amortization of $2,416 in 2000 and $2,329 in 1999 2,427 2,514
Non-current Portion of Deferred Tax Asset 5,092 5,092
Other Assets and Goodwill, Less Accumulated Amortization
of $3,711 in 2000 and $3,897 in 2000 16,657 18,374
-------- --------
$ 90,564 $ 99,489
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
-1-
<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
June 26, December 27,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Current Portion of Long-Term Obligations $ 3,216 $ 2,435
Accounts Payable 2,593 4,577
Accrued Liabilities 13,570 13,775
-------- --------
Total Current Liabilities 19,379 20,787
Deferred Payments on Acquisition 626 1,000
Long-Term Debt 12,000 17,700
Long-Term Obligations under Capital Leases 3,583 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; 11,787,720 and 11,762,561 shares outstanding in
2000 and 1999, respectively 118 118
Additional Paid-In Capital 61,178 61,178
Accumulated Deficit (6,320) (5,007)
-------- --------
Total Stockholders' Equity 54,976 56,289
-------- --------
$ 90,564 $ 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 Twenty-Six Weeks Twenty-Six Weeks
Ended June 26, Ended June 28, Ended June 26, Ended June 28,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 35,792 $ 37,329 $ 68,672 $ 71,960
-------- -------- -------- --------
Costs and Expenses:
Cost of Sales 12,034 11,810 22,774 22,909
Restaurant Labor 9,712 11,056 19,222 21,462
Other Operating Costs 8,004 8,155 15,179 16,059
Preopening Costs 1,593 - 1,829 -
Selling, General and Administrative
Expenses 2,929 3,142 6,168 6,128
Depreciation and Amortization 1,612 2,034 3,282 3,871
Write Down of Assets and
Restructuring and Unusual Charges 460 - 460 -
Gain on Sales of Assets (141) (742) (141) (742)
Interest Expense 667 328 1,212 603
-------- -------- -------- --------
Total Costs and Expenses 36,870 35,783 69,985 70,290
-------- -------- -------- --------
(Loss) Income Before Income Taxes (1,078) 1,546 (1,313) 1,670
Provision for Income Taxes - - - -
-------- -------- -------- --------
Net (Loss) Income $ (1,078) $ 1,546 $ (1,313) $ 1,670
======== ======== ======== ========
Net (Loss) Income Per Common Share $ (.09) $ .13 $ (.11) $ .14
======== ======== ======== ========
- Basic and Diluted
Weighted Average Shares Outstanding 11,786 11,763 11,781 11,763
======== ======== ======== ========
</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>
Twenty-Six Weeks Twenty-Six Weeks
Ended June 26, Ended June 28,
2000 1999
---------------- ---------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net (Loss) Income $ (1,313) $ 1,670
Adjustments to Reconcile Net (Loss) Income to
Cash Flows from Operating Activities:
Depreciation and Amortization 3,282 3,871
Amortization of Debt Issuance Costs 66 -
Gain on Retirement and Disposition of Assets (141) (742)
Change in Net Current Liabilities (Excluding Net
Current Liabilities Acquired) (2,976) (2,461)
-------- --------
Cash (Used in) Provided by Operating Activities (1,082) 2,338
Cash Flows from Investing Activities:
Expenditures for Property and Equipment (10,729) (8,325)
Expenditures for Acquisitions (Net of Cash Acquired) - (10,383)
Additions of Other Assets (169) (740)
Proceeds from Disposition of Assets 17,381 3,688
-------- --------
Cash Provided by (Used in) Investing Activities 6,483 (15,760)
Cash Flows from Financing Activities:
Principal Payments on Obligations under
Capital Leases (100) (416)
Debt Issuance Costs (25) (475)
Payments under Deferred Acquisition Agreement (374) -
Net Payments under Revolving Credit Agreement (4,950) (581)
Proceeds from Issuance of Long-Term Debt - 15,000
-------- --------
Cash (Used in) Provided by Financing Activities (5,449) 13,528
-------- --------
(Decrease) Increase in Cash (48) 106
Cash, Beginning of Period 424 266
-------- --------
Cash, End of Period $ 376 $ 372
======== ========
</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 - CONTINUED
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-Six Weeks Twenty-Six Weeks
Ended June 26, Ended June 28,
2000 1999
--------------- ---------------
<S> <C> <C>
The Change in Net Current Liabilities (Excluding Net
Current Liabilities Acquired) is Comprised of
the Following:
Decrease (Increase) in Accounts Receivable $ 237 $ (313)
Decrease in Inventories 325 407
(Increase) Decrease in Prepaid Expenses and
Other Current Assets (210) 85
Decrease in Accounts Payable (1,984) (1,143)
Decrease in Accrued Liabilities (1,344) (1,497)
------- -------
Change in Net Current Liabilities (Excluding
Net Current Liabilities Acquired) $(2,976) $(2,461)
======= =======
Supplemental Cash Flow Disclosures:
Cash Paid During the Period for:
Interest (Net of Amount Capitalized) $ 412 $ 335
Income Taxes (Net of Refunds) $ 7 $ (142)
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
-5-
<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 26, 2000
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements of Chart House
Enterprises, Inc. and subsidiaries (the "Company") for the quarterly and six
month periods ended June 26, 2000 and June 28, 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 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 27, 1999.
Certain items previously reported in specific financial statement captions
have been reclassified to conform to the 2000 presentation.
(2) INCOME TAXES
No provision for income taxes has been recorded as of June 26, 2000 as the
Company expects to offset any 2000 income tax expense with income tax benefits
associated with net operating losses and tax credits.
-6-
<PAGE>
(3) 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:
Write-down of assets to be disposed $ 4,286,000
Severance and other exit costs $ 604,000
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, five restaurant
properties have been sold. The other five 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>
Q2 2000 Year to Date 2000 Q2 1999 Year to Date 1999
in thousands in thousands
------------- ------------
<S> <C> <C> <C> <C>
Revenue: $ 1,690 $ 4,629 $ 5,174 $ 10,172
Net Income: ($ 101) $ 161 $ 156 $ 248
</TABLE>
Negotiations for sales of the remaining six 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 June 26, 2000 was approximately $1,346,000, which reflects a write
up in net book value of these fixed assets of $282,000. This write up results
from a revision in estimate of fair value, less costs to sell, from the original
estimate made during the decision to dispose of the assets. The write up of
$282,000 was recorded in the Write Down of Assets and Restructuring and Unusual
Charges on the accompanying Consolidated Statement of Operations.
-7-
<PAGE>
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>
<CAPTION>
<S> <C>
Liability as of December 27, 1999 $ 604,000
Payments made for severance and other exit costs ($ 1,238,000)
Additional Restructuring charge $ 742,000
------------
Liability as of June 26, 2000 $ 108,000
</TABLE>
The write up of $282,000 and the additional restructuring charge of
$742,000 results in a net impact of $460,000 on the Consolidated Statement of
Operations.
The number of employees terminated through second quarter 2000 as a result
of the restaurant closures was 232. The liability remaining at June 26, 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 second 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 June 26, 2000 reflects management's best
estimate of future expenses and losses on the restaurant closings and disposals.
(4) 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 $1,593,000 and $1,829,000 for the second
quarter and twenty-six weeks ended June 26, 2000 primarily represent salary-
related expenses and training costs for new employees. The Company has opened
two of eight restaurants scheduled to open in 2000.
(5) DEBT COMPLIANCE
The Company is in compliance with all debt covenants as of June 26, 2000.
(6) 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.
(7) 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.
-8-
<PAGE>
(8) FIXED ASSET DISPOSALS
During the second quarter 2000, the Company executed a sale-leaseback
agreement for the land and buildings of five restaurant properties. The cash
proceeds for the transaction was $15 million. The net book value of the
property sold was $12.6 million. The Company wrote off the related goodwill of
$1.3 million for these restaurant properties. In accordance with Statement of
Financial Accounting Standards No. 28, "Accounting for Sales with Leasebacks,"
the profit of approximately $1.1 million, less expenses related to the sale of
approximately $631,000, resulting in a gain of $469,000, was deferred and is
being amortized over the life of the new Master Lease.
The Company sold one restaurant property during the quarter that was not a
part of the 1999 restructuring plan. The Company received proceeds of $325,000
and realized a gain of $141,000 on the sale.
(9) 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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
The following is a comparative discussion of the results of operations for
the quarterly and six-month periods ended June 26, 2000 and June 28, 1999. The
results of operations for the first six 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 Weeks Thirteen Weeks Twenty-Six Weeks Twenty- Six Weeks
Ended June 26, Ended June 28, Ended June 26, Ended June 28,
2000 1999 2000 1999
--------------------- --------------------- --------------------- ---------------------
Dollars Percent Dollars Percent Dollars Percent Dollars Percent
--------- --------- --------- --------- --------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues 35,792 100.0 37,329 100.0 68,672 100.0 71,960 100.0
Costs and Expenses:
Cost of Sales 12,034 33.6 11,810 31.6 22,774 33.1 22,909 31.8
Restaurant Labor 9,712 27.1 11,056 29.6 19,222 28.0 21,462 29.8
Other Operating Costs 8,004 22.4 8,155 21.9 15,179 22.1 16,059 22.3
Pre-opening Costs 1,593 4.5 - - 1,829 2.6 - -
Selling, General and
Administrative Expenses 2,929 8.2 3,142 8.4 6,168 9.0 6,128 8.5
Depreciation and Amortization 1,612 4.5 2,034 5.4 3,282 4.8 3,871 5.4
Write Down of Assets and
Restructuring and Unusal Charges 460 1.3 - - 460 0.7 - -
Gain on Sales of Assets (141) (0.4) (742) (2.0) (141) (0.2) (742) (1.0)
Interest Expense 667 1.8 328 0.9 1,212 1.8 603 0.9
------- ----- ------- ----- ------- ----- ------- -----
Total Costs and Expenses 36,870 103.0 35,783 95.8 69,985 101.9 70,290 97.7
------- ----- ------- ----- ------- ----- ------- -----
(Loss) Income Before Income Taxes
(1,078) (3.0) 1,546 4.2 (1,313) (1.9) 1,670 2.3
Provision for Income Taxes - - - - - - - -
------- ----- ------- ----- ------- ----- ------- -----
Net (Loss) Income (1,078) (3.0) 1,546 4.2 (1,313) (1.9) 1,670 2.3
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
-9-
<PAGE>
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 on total revenues resulting from
strategic decisions implemented over the past two years (in thousands):
-10-
<PAGE>
<TABLE>
<CAPTION>
Q2 YTD
--------- --------
<S> <C> <C>
Continuing Restaurants $ 2,192 $ 3,918
New Restaurant Openings 908 793
Angelo and Maxie's (acquired in Q2 1999) 844 3,403
Restaurant Held for Disposal (107) (146)
Permanent Closure of Restaurants (5,374) (11,256)
-------- --------
Total $ (1,537) $ (3,288)
</TABLE>
At June 26, 2000, the Company operated 41 Chart House restaurants
(including the Peohe's restaurant) and one Angelo and Maxie's Steakhouse
("Angelo and Maxie's"), which was acquired in the second quarter 1999. Of these
restaurants, one 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 for the continuing 38 Chart House
restaurants was 8.0% and 3.8% for the second quarter 2000 and second quarter
1999, respectively, and 7.4% and 2.3% for the first half of 2000 and 1999,
respectively.
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.
Chart House restaurants sell larger volumes of seafood, which generally result
in a lower cost of sales percentage. Restaurant labor expense as a percentage of
sales has decreased between the 2000 and 1999 periods, both in hourly wages and
in manager compensation, due to the sales leverage on the fixed portion of
compensation. The decision made in 1999 to dispose of eleven Chart House
restaurants during 2000 was based, in part, on the deterioration of operating
margins. The second quarter 2000 and year to date 2000 results reflect the
elimination of higher costs from closed restaurants. 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.
The Company has incurred approximately $1,593,000 and $1,829,000 in
expenditures during the second quarter and twenty-six weeks ended June 26, 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 Chart House restaurants in the second quarter, one Angelo and
Maxie's to date in the third quarter and plans to open five additional Angelo
and Maxie's before the end of 2000.
Selling, general and administrative expenses have remained consistent year
to date 2000 with year to date 1999. The decrease in selling, general and
administrative expenses from second quarter 1999 reflects Company initiatives in
2000 to expand its restaurant base. Significant administrative costs,
-11-
<PAGE>
primarily legal fees relating to the execution of new restaurant openings, are
reflected in pre-opening costs in the accompanying financial statements, whereas
these regular administrative costs were reflected in selling, general and
administrative expense in 1999.
Depreciation and amortization has decreased from 1999 due to the fewer
number of restaurants currently under operation.
The Company incurred a net $460,000 restructuring charge in the second
quarter 2000 reflecting exit costs incurred and expected to be incurred for
eleven restaurants identified for disposal. The net restructuring charge
includes a write up of assets of $282,000 and an additional restrucuturing
charge of $742,000. See below for further details.
The Company recognized a gain of $141,000 on the sale of restaurant assets
at one location versus 1999 which included gains on sales of restaurant assets
at two locations.
Interest expense has risen in both the second quarter and the twenty-six
weeks ended June 26, 2000 versus 1999. The increase primarily reflects debt
service on a $15 million term loan received in April 1999.
No provision for income taxes has been recorded as of June 26, 2000, as the
Company expects to offset any 2000 income tax expense with income tax benefits
associated with net operating losses and tax credits reflected in deferred tax
assets.
As a result of the foregoing, net income decreased by $2,624,000 from
$1,546,000 for the second quarter of 1999 to a loss of ($1,078,000) for the
second quarter of 2000. Net income for the first half of 2000 decreased by
$2,983,000 from $1,670,000 in 1999 to a loss of ($1,313,000) in 2000.
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:
Write-down of assets to be disposed $ 4,286,000
Severance and other exit costs $ 604,000
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, five restaurant
properties have been sold. The other five 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>
Q2 2000 Year to Date 2000 Q2 1999 Year to Date 1999
in thousands in thousands
------------- ------------
<S> <C> <C> <C> <C>
Revenue: $1,690 $4,629 $5,174 $10,172
Net Income: ($101) $ 161 $ 156 $ 248
</TABLE>
-12-
<PAGE>
Negotiations for sales of the remaining six 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 June 26, 2000 was approximately $1,346,000, which reflects a write
up in net book value of these fixed assets of $282,000. This write up results
from a revision in estimate of fair value, less costs to sell, from the original
estimate made during the decision to dispose of the assets. The write up of
$282,000 was recorded in the Write Down of Assets and Restructuring and Unusual
Charges on the accompanying Consolidated Statement of Operations.
-13-
<PAGE>
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>
<CAPTION>
<S> <C>
Liability as of December 27, 1999 $ 604,000
Payments made for severance and other exit costs ($1,238,000)
Additional restructuring charge $ 742,000
----------
Liability as of June 26, 2000 $ 108,000
</TABLE>
The write up of $282,000 and the additional restructuring charge of
$742,000 results in a net impact of $460,000 on the Consolidated Statement of
Operations.
The number of employees terminated through second quarter 2000 as a result
of the restaurant closures was 232. The liability remaining at June 26, 2000
will absorb the exit costs and severance payments due 16 restaurant employees
working in the restaurant held for disposal.
The restructuring charge taken in the second quarter 2000 reflects exit
costs incurred or expected to be incurred for the remaining properties to be
disposed. Exit costs primarily include rent payments and disposal of perishable
inventory items. The liability as of June 26, 2000 reflects management's best
estimate of future expenses and losses on the restaurant closings and disposals.
-14-
<PAGE>
Liquidity and Capital Resources
<TABLE>
<CAPTION>
Second Quarter Second Quarter
2000 1999
(in `000s) (in `000s)
<S> <C> <C>
Cash (used in) provided by Operating Activities ($ 1,082) $ 2,338
Expenditures for Property and Equipment (10,729) (8,325)
Expenditures for Acquisitions (Net of Cash Acquired) - (10,383)
Proceeds from Disposition of Assets 17,381 3,688
Cash used in other Investing Activities (169) (740)
Cash (used in) provided by Financing Activities (5,449) 13,528
-------- --------
Change in cash ($ 48) $ 106
======== ========
</TABLE>
The working capital deficit increased by approximately $1.8 million from
$11.5 million in the second quarter of 1999 to $13.3 million in the second
quarter of 2000. The majority of this increase is represented by the principal
payments of long-term debt becoming current, offset by a decrease in the amount
of accounts payable in 2000.
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 will commence with the first payment due
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.
During the second quarter of 2000, the Company decreased its borrowings
under the revolving credit portion of the Agreement by $7,900,000. At June 26,
2000, the Company had outstanding borrowings of $15,000,000 under the Agreement
and approximately $25,000,000 in available credit. The reduction of the
revolving credit balance was funded primarily by the proceeds from the sale-
leaseback transaction completed in the second quarter. The Company was in
compliance with all covenants of the agreement through June 26, 2000.
Capital expenditures for the second 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. Capital expenditures for each
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<PAGE>
of the remaining two quarters of 2000 are expected to increase with expansion of
the Angelo and Maxie's concept.
In conjunction with the 1999 restructuring, the Company intends to dispose of
the six remaining restaurant properties during fiscal year 2000. Cash proceeds
upon the sale of all properties are estimated at $1.3 million. 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.
In the opinion of management, cash flows from operations, availability under
the Agreement, and proceeds from the sale of certain assets will be sufficient
to fund working capital and regular capital expenditure commitments for the next
twelve months. The Company currently projects total 2000 capital expenditures to
be approximately $15 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 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders of Chart House Enterprises, Inc. was
held on May 15, 2000. Proxies for the meeting were solicited pursuant to Section
14(a) of the Securities Exchange Act of 1934 and Regulation 14A thereunder for
purposes of:
(i) electing directors;
(ii) approving an amendment to the option to purchase 100,000 shares
previously granted to F. Philip Handy;
(iii) approving the 2000 Nonemployee Director Equity Compensation Plan; and
(iv) transacting such other business as may properly come before the meeting.
There was no solicitation in opposition to management's nominees for directors.
At the meeting, seven directors were elected.
The tables below summarize the results of the stockholder vote:
<TABLE>
<CAPTION>
Number Percentage
---------- -----------
<S> <C> <C>
Shares Outstanding and Entitled to Vote 11,787,720 100.0%
Shares Represented in Person or by Proxy at Meeting 11,325,553 96.1%
Shares Not Voted at Meeting 462,167 3.9%
</TABLE>
<TABLE>
<CAPTION>
Votes Votes
For Against
---------- ----------
<S> <C> <C>
Proposal I (Election of Directors):
Breakdown of votes cast for each nominee:
Barbara R. Allen 11,312,748 12,805
Linda Walker Bynoe 11,311,298 14,255
William M. Diefenderfer III 11,281,068 44,485
Robert A. McCormack 11,313,598 11,955
Stephen Ottmann 11,313,448 12,105
Thomas J. Walters 11,313,148 12,405
Samuel Zell 11,294,283 31,270
</TABLE>
Proposal II (Approval of an amendment to the option to purchase 100,000 shares
of common stock previously granted F. Philip Handy):
Votes For Votes Against Votes Abstained
--------- ------------- ---------------
10,465,260 752,198 108,095
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<PAGE>
Proposal III (Approval of the 2000 Nonemployee Director Equity Compensation
Plan):
Votes For Votes Against Votes Abstained
--------- ------------- ---------------
11,083,821 106,421 81,311
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. 27 Financial Data Schedule (required for electronic
filing only).
Exhibit No. 10.9.1 2000 Nonemployee Director Equity Compensation
Plan (1)
Exhibit No. 10-18 Sale-Leaseback Agreement dated June 23, 2000
between CH Restaurant Property, LLC, and Chart
House, Inc.
Exhibit No. 10-19 Master Lease Agreement dated June 23, 2000 between
CH Restaurant Property, LLC, and Chart House, Inc.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter of which this
report is filed.
----------------------------------------------------------------------
(1) Filed as Exhibit A in the Notice of Annual Meeting of Stockholders
to be held May 15, 2000.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHART HOUSE ENTERPRISES, INC. (Registrant)
Date: August 10, 2000 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
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