<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------ -------------
American Restaurant Group, Inc.
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(Exact name of registrant as specified in its charter)
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Delaware 33-48183 33-0193602
- ------------------------------- ---------------- -------------------
(State or other jurisdiction of (Commission File (I.R.S. employer
incorporation or organization) Number) identification no.)
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450 Newport Center Drive
Newport Beach, CA 92660
(949) 721-8000
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(Address and telephone number of principal executive offices)
--------------------------------------------------
Former name, former address and former fiscal year
if changed since last report.
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 period 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
--- ---
The number of outstanding shares of the Company's Common Stock (one cent par
value) as of November 2, 1998 was 128,081.
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AMERICAN RESTAURANT GROUP, INC.
INDEX
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PAGE
PART I. FINANCIAL INFORMATION ----
ITEM 1. FINANCIAL STATEMENTS:
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Consolidated Condensed Balance Sheets....................................................... 1
Consolidated Statements of Operations....................................................... 3
Consolidated Statements of Cash Flows....................................................... 4
Notes to Consolidated Condensed Financial Statements........................................ 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................... 6
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................................... 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................................ 10
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 29, 1997 AND SEPTEMBER 28, 1998
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ASSETS December 29, September 28,
1997 1998
------------ ------------
(unaudited)
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CURRENT ASSETS:
Cash $ 5,737,000 $ 2,848,000
Accounts and notes receivable, net of reserve of
$916,000 and $845,000 at December 29, 1997
and September 28, 1998, respectively 6,606,000 5,979,000
Inventories 5,893,000 5,946,000
Prepaid expenses 3,142,000 2,951,000
------------ ------------
Total current assets 21,378,000 17,724,000
------------ ------------
PROPERTY AND EQUIPMENT:
Land and land improvements 5,610,000 5,613,000
Buildings and leasehold improvements 110,800,000 113,210,000
Fixtures and equipment 85,603,000 87,124,000
Property held under capital leases 12,375,000 12,161,000
Construction in progress 1,827,000 4,571,000
------------ ------------
216,215,000 222,679,000
Less-- Accumulated depreciation 123,893,000 129,579,000
------------ ------------
92,322,000 93,100,000
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OTHER ASSETS-- NET 38,311,000 41,747,000
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Total Assets $152,011,000 $152,571,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
statements. (consolidated condensed balance sheets continued
on the following page)
1
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<TABLE>
<CAPTION>
LIABILITIES AND COMMON STOCKHOLDERS' December 29, September 28,
EQUITY 1997 1998
------------ ------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 29,420,000 $ 23,904,000
Accrued liabilities 18,021,000 12,576,000
Accrued insurance 11,251,000 5,093,000
Accrued interest 7,514,000 2,408,000
Accrued payroll costs 10,861,000 9,211,000
Current portion of obligations
under capital leases 926,000 953,000
Current portion of long-term debt 537,000 471,000
------------ ------------
Total current liabilities 78,530,000 54,616,000
------------ ------------
LONG-TERM LIABILITIES, net of current portion:
Obligations under capital leases 7,517,000 6,793,000
Long-term debt 172,419,000 159,572,000
------------ ------------
Total long-term liabilities 179,936,000 166,365,000
------------ ------------
DEFERRED GAIN 5,283,000 4,987,000
------------ ------------
COMMITMENTS AND CONTINGENCIES - -
------------ ------------
CUMULATIVE PREFERRED STOCK,
MANDATORILY REDEEMABLE - 35,562,000
------------ ------------
REDEEMABLE CUMULATIVE PREFERRED STOCK:
Redeemable cumulative senior
preferred stock, $0.01 par value;
1,400,000 shares authorized,
no shares issued or outstanding - -
Redeemable cumulative junior
preferred stock, $0.01 par value;
100,000 shares authorized,
no shares issued or outstanding - -
COMMON STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 1,000,000
shares authorized; 93,150 and 128,081
shares issued and outstanding at
December 29, 1997 and September 28, 1998,
respectively 1,000 1,000
Paid-in capital 63,246,000 59,646,000
Accumulated deficit (174,985,000) (168,606,000)
------------ ------------
Total common stockholders' deficit (111,738,000) (108,959,000)
------------ ------------
Total liabilities and common
stockholders' equity $152,011,000 $152,571,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed statements.
2
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AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED SEPTEMBER 29, 1997 AND SEPTEMBER 28, 1998
AND THE THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 1997 AND SEPTEMBER 28, 1998
(UNAUDITED)
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Thirteen Weeks Ended Thirty-nine Weeks Ended
---------------------------------- ----------------------------------
September 29, September 28, September 29, September 28,
1997 1998 1997 1998
------------ ------------ ------------ ------------
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REVENUES $106,253,000 $101,801,000 $333,198,000 $324,795,000
RESTAURANT COSTS:
Food and beverage 33,448,000 32,487,000 105,406,000 103,355,000
Payroll 33,440,000 31,909,000 101,038,000 98,621,000
Direct operating 27,582,000 26,419,000 84,883,000 81,272,000
Depreciation and
amortization 4,982,000 3,582,000 14,839,000 10,848,000
GENERAL AND ADMINISTRATIVE
EXPENSES 5,614,000 5,239,000 22,103,000 15,680,000
------------ ------------ ------------ ------------
Operating profit 1,187,000 2,165,000 4,929,000 15,019,000
INTEREST EXPENSE, net 5,818,000 4,869,000 17,688,000 15,330,000
------------ ------------ ------------ ------------
Loss before provision
for income taxes and
extraordinary gain (4,631,000) (2,704,000) (12,759,000) (311,000)
PROVISION FOR INCOME
TAXES 17,000 52,000 48,000 128,000
------------ ------------ ----------- ------------
Loss before extraordinary
gain (4,648,000) (2,756,000) (12,807,000) (439,000)
EXTRAORDINARY GAIN ON
EXTINGUISHMENT OF DEBT - - - 9,559,000
------------ ------------ ------------ ------------
Net income (loss) $ (4,648,000) $ (2,756,000) (12,807,000) $ 9,120,000
============ ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed statements.
3
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AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 1997 AND SEPTEMBER 28, 1998
(UNAUDITED)
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September 29, September 28,
1997 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $334,295,000 $325,389,000
Cash paid to suppliers and employees (317,343,000) (310,544,000)
Interest paid, net (12,261,000) (20,415,000)
Income taxes paid (48,000) (128,000)
------------ ------------
Net cash provided by (used in) operating activities 4,643,000 (5,698,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,631,000) (8,941,000)
Net (increase) decrease in other assets (959,000) 174,000
Proceeds from disposition of assets 609,000 3,000
------------ ------------
Net cash used in investing activities (3,981,000) (8,764,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on indebtedness (995,000) (161,000,000)
Borrowings on indebtedness 1,199,000 160,215,000
Net increase in deferred debt costs (1,497,000) (10,631,000)
Costs included in extraordinary gain on extinguishment
of debt - (1,686,000)
Issuance of cumulative preferred stock - 35,000,000
Cost related to issuance of cumulative preferred
stock - (2,178,000)
Payments on insurance-related financing - (7,450,000
Payments on capital lease obligations (673,000) (697,000)
------------ ------------
Net cash provided by (used in) financing activities (1,966,000) 11,573,000
------------ ------------
NET DECREASE IN CASH (1,304,000) (2,889,000)
CASH, at beginning of period 7,493,000 5,737,000
------------ ------------
CASH, at end of period $ 6,189,000 $ 2,848,000
============ ============
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
Net income (loss) $(12,807,000) $ 9,120,000
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Extraordinary gain on
extinguishment of debt - (9,559,000)
Depreciation and amortization 14,839,000 10,848,000
Loss on disposition of assets 4,029,000 376,000
Amortization of deferred gain (370,000) (296,000)
Accretion on indebtedness 82,000 21,000
(Increase) decrease in current assets:
Accounts and notes receivable, net 1,097,000 594,000
Inventories 1,186,000 (53,000)
Prepaid expenses (72,000) (82,000)
Increase (decrease) in current liabilities:
Accounts payable (427,000) (5,516,000)
Accrued liabilities (3,231,000) (5,687,000)
Accrued insurance (4,038,000) 1,292,000
Accrued interest 5,345,000 (5,106,000)
Accrued payroll (990,000) (1,650,000)
------------ ------------
Net cash provided by (used in)
operating activities $ 4,643,000 $ (5,698,000)
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed statements.
4
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AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. MANAGEMENT OPINION
The Consolidated Condensed Financial Statements included were prepared
by the Company, without audit, in accordance with Securities and
Exchange Commission Regulation S-X. In the opinion of management of
the Company, these Consolidated Condensed Financial Statements contain
all adjustments (all of which are of a normal recurring nature)
necessary to present fairly the Company's financial position as of
December 29, 1997 and September 28, 1998, and the results of its
operations and its cash flows for the thirty-nine weeks ended
September 29, 1997 and September 28, 1998. The Company's results for
an interim period are not necessarily indicative of the results that
may be expected for the year.
Although the Company believes that all adjustments necessary for a
fair presentation of the interim periods presented are included and
that the disclosures are adequate to make the information presented
not misleading, it is suggested that these Consolidated Condensed
Financial Statements be read in conjunction with the Consolidated
Financial Statements and related notes included in the Company's
annual report on Form 10-K, File No. 33-48183, for the year ended
December 29, 1997 and the Company's current report on Form 8-K, File
No. 33-48183, dated March 3, 1998.
2. INCOME TAXES
The tax provision against the Company's pre-tax loss in 1998 was
minimal and related to certain state income taxes and a provision for
Federal Alternative Minimum Tax ("AMT") as appropriate.
3. COMPREHENSIVE INCOME
Effective December 30, 1997, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130 Reporting
Comprehensive Income. There were no differences between the Company's
net income (loss), as reported, and comprehensive income.
4. SUBSIDIARY GUARANTORS
Separate financial statements of the Company's subsidiaries are not
included in this report on Form 10-Q because the subsidiaries are
fully, unconditionally jointly and severally liable for the
obligations of the Company under the Company's 11.5% Senior Secured
Notes, due 2003, and the aggregate net assets, earnings and equity of
such subsidiary guarantors are substantially equivalent to the net
assets, earnings and equity of the Company on a consolidated basis.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of American Restaurant Group, Inc.'s
financial condition and results of operations should be read in conjunction with
the historical financial information included in the Consolidated Condensed
Financial Statements.
RESULTS OF OPERATIONS
Thirteen weeks ended September 29, 1997 and September 28, 1998:
Revenues. Total revenues decreased to $101.8 million in the third quarter of
1998 from $106.3 million in the third quarter of 1997. Same-store-sales
decreased 1.2%. During the thirteen weeks ended September 28, 1998, the Company
closed four restaurants and opened one new restaurant. There were 232
restaurants operating as of September 29, 1997 and 226 operating as of September
28, 1998.
Black Angus revenues remained constant at $62.0 million in the third quarter of
1998 as compared to the same period in 1997. An increase of $1.7 million in
same-store-sales (excluding late-night entertainment and discontinued lunch) was
offset by a $1.2 million decrease from four restaurants which closed at the end
of the leases and a $0.7 million decrease due to discontinued late-night
entertainment at 13 restaurants. Same-store-sales increased 3.0% in 1998. During
the third quarter of 1998, the Company opened one new restaurant in Utah.
Grandy's revenues decreased 12.4% to $17.2 million in the third quarter of 1998
as compared to the same period in 1997. The decrease resulted from a $1.6
million, or an 8.8%, decline in same-store-sales and a $0.7 million decline in
franchise revenues related primarily to a non-recurring international franchise
fee recognized in the third quarter of 1997. The Company closed three poorly
performing restaurants in Texas at the end of the third quarter of 1998.
Revenues from other concepts (Spoons, Spectrum and National Sports Grill)
decreased 8.1% to $22.6 million in the third quarter of 1998 compared to the
same quarter in 1997. The decrease resulted from a $1.3 million, or 5.6%,
decline in same-store-sales and a 1.0 million decline due to the closure of
three restaurants during 1997 and one restaurant during the second quarter of
1998. This decline was offset in part by sales of $0.2 million from the opening
of one new restaurant in 1998.
Food and Beverage Costs. As a percentage of revenues, food and beverage costs
increased to 31.9% in the third quarter of 1998 from 31.5% in the third quarter
of 1997. The increase is primarily related to higher beef pricing at Black Angus
offset in part by lower seafood costs.
Payroll Costs. As a percentage of revenues, labor costs decreased to 31.3% in
the third quarter of 1998 from 31.5% in the third quarter of 1997.
Direct Operating Costs. Direct operating costs consist of occupancy, advertising
and other expenses incurred by individual restaurants. As a percentage of
revenues, these costs remained constant at 26.0%.
Depreciation and Amortization. Depreciation and amortization consists of
depreciation of fixed assets used by individual restaurants, divisions and
corporate offices, as well as amortization of intangible assets. As a percentage
of revenues, depreciation and amortization decreased to 3.5% in the third
quarter of 1998 from 4.7% in the third quarter of 1997. The decrease was
primarily due to the reduction in amortization of deferred debt costs related to
the refinancing of the Company's debt in the first quarter of 1998.
6
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General and Administrative Expenses. General and administrative expenses
decreased to $5.2 million in the third quarter of 1998 from $5.6 million in the
third quarter of 1997. The decrease was due to a reduction in corporate overhead
expenses partially offset by a $0.3 million non-cash charge for costs associated
with closed restaurants. General and administrative expenses as a percentage of
revenues decreased to 5.1% in 1998 from 5.3% in 1997.
Operating Profit. Due to the above items, operating profit increased to $2.2
million in the third quarter of 1998 from $1.2 million in the third quarter of
1997. As a percentage of revenues, operating profit increased to 2.1% from 1.1%.
Interest Expense - Net. Interest expense decreased to $4.9 million in the third
quarter of 1998 from $5.8 million in the third quarter of 1997. The decrease was
primarily due to the refinancing of the Company's debt in February, 1998. The
Company's average stated interest rate decreased to 11.5% in the third quarter
of 1998 from 12.1% in the third quarter of 1997. The weighted-average debt
balance (excluding capitalized lease obligations) decreased to $161.1 million in
the third quarter of 1998 from $171.8 million in the third quarter of 1997.
Thirty-nine weeks ended September 29, 1997 and September 28, 1998:
Revenues. Total revenues decreased to $324.8 million in 1998 from $333.2 million
in 1997. Same-store-sales increased 0.9%. During the thirty-nine weeks ended
September 28, 1998, the Company closed seven restaurants and opened two new
restaurants. There were 232 restaurants operating as of September 29, 1997 and
226 operating as of September 28, 1998.
Black Angus revenues increased 1.0% to $201.8 million in 1998 as compared to the
same period in 1997. The increase was due to a $7.5 million increase in
same-store-sales (excluding late-night entertainment and discontinued lunch) and
a $1.0 million increase related to three new stores opened in the first quarter
of 1997 and one opened in the third quarter of 1998. This increase was partially
offset by a $4.3 million decrease from four closed restaurants and a $2.2
million decrease due to discontinued late-night entertainment at 13 restaurants.
Same-store-sales increased 4.2% in 1998.
Grandy's revenues decreased 9.5% to $54.3 million in 1998 as compared to the
same period in 1997. The decrease resulted from a $3.0 million, or a 5.4%,
decline in same-store-sales and a $2.0 million decline due to the closure of 14
poorly performing restaurants during 1997. Franchise revenues declined $0.7
million related primarily to a non-recurring international franchise fee in
1997.
Revenues from other concepts (Spoons, Spectrum and National Sports Grill)
decreased 6.5% to $68.7 million in 1998 compared to the same period in 1997. The
decrease resulted from a $3.4 million decline due to the closure of four
restaurants and a $1.9 million, or 2.8%, decline in same-store-sales, partially
offset by sales of $0.6 million from one new restaurant opened in 1998.
Food and Beverage Costs. As a percentage of revenues, food and beverage costs
increased slightly to 31.8% in 1998 from 31.6% in 1997.
Payroll Costs. As a percentage of revenues, labor costs increased slightly to
30.4% in 1998 from 30.3% in 1997.
Direct Operating Costs. As a percentage of revenues, these costs decreased to
25.0% in 1998 from 25.5% in 1997. The decrease was primarily due to lower
general liability expenses and occupancy costs.
7
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Depreciation and Amortization. As a percentage of revenues, depreciation and
amortization decreased to 3.3% in 1998 from 4.5% in 1997. The decrease was
primarily due to the reduction in amortization of deferred debt costs related to
the refinancing of the Company's debt in the first quarter of 1998.
General and Administrative Expenses. General and administrative expenses
decreased to $15.7 million in 1998 from $22.1 million in 1997. The decrease was
primarily due to a non-cash charge of $4.1 million for costs associated with
closed restaurants recorded in 1997 and a reduction in corporate overhead
expenses. General and administrative expenses as a percentage of revenues
decreased to 4.8% from 6.6% (5.4% before the non-cash charge).
Operating Profit. Due to the above items, operating profit increased to $15.0
million in 1998 from $4.9 million in 1997. As a percentage of revenues,
operating profit increased to 4.6% from 1.5%.
Interest Expense - Net. Interest expense decreased to $15.3 million in 1998 from
$17.7 million in 1997. The decrease was primarily due to the refinancing of the
Company's debt in February 1998. The Company's average stated interest rate
decreased slightly to 11.8% in the first three quarters of 1998 from 12.2% in
the first three quarters of 1997. The weighted-average debt balance (excluding
capitalized lease obligations) decreased to $162.1 million in 1998 from $171.8
million in 1997.
Extraordinary Gain. The company recognized an extraordinary gain of $9.6 million
on the extinquishment of debt in 1998. This gain resulted from the refinancing
of the Company's debt in February 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flow from operations and
borrowings under its credit facilities. The Company requires capital principally
for the acquisition and construction of new restaurants, the remodeling of
existing restaurants and the purchase of new equipment and leasehold
improvements. As of September 28, 1998, the Company had cash of $2.8 million.
In general, restaurant businesses do not have significant accounts receivable
because sales are made for cash or by credit card vouchers which are ordinarily
paid within three to five days, and do not maintain substantial inventory as a
result of the relatively brief shelf life and frequent turnover of food
products. Additionally, restaurants generally are able to obtain trade credit in
purchasing food and restaurant supplies. As a result, restaurants are frequently
able to operate with working capital deficits, i.e., current liabilities exceed
current assets. At September 28, 1998, the Company had a working capital deficit
of $36.9 million.
The Company estimates that capital expenditures of $6.0 million to $10.0 million
are required annually to maintain and refurbish its existing restaurants. In
addition, the Company spends approximately $10.0 million to $13.0 million
annually for repairs and maintenance which are expensed as incurred. Other
capital expenditures, which are generally discretionary, are primarily for the
construction of new restaurants and for expanding, reformatting and extending
the capabilities of existing restaurants and for general corporate purposes.
Total capital expenditures in the first three quarters of 1998 were $8.9 million
compared with $3.6 million in the same period in 1997. Capital expenditures for
1998 include $5.4 million related to the construction of the new restaurant,
remodels and other capital expenditures at Black Angus. The Company estimates
that capital expenditures in 1998 will be approximately $12.0 million. The
Company intends to open new restaurants with small capital outlays and to
finance most of the expenditures through operating leases.
On February 25, 1998 the Company completed a recapitalization plan (the
"Recapitalization Plan") which included, among other things, the issuance by the
Company of (a) $155.0 million of the 11.5% senior secured notes due 2003 (the
"Notes") and (b) 35,000 preferred stock units of the Company, each unit
consisting of $1,000 initial liquidation preference of 12% senior pay-in-kind
mandatorily
8
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redeemable cumulative preferred stock and one common stock purchase warrant
initially to purchase 2.66143 shares of common stock at an initial exercise
price of one cent per share.
Also as part of the Recapitalization Plan, the Company concurrently (a) redeemed
at par senior secured notes of $126.4 million together with accrued and penalty
interest and repaid certain other interest-bearing short-term liabilities, (b)
repurchased its existing 10.25% subordinated notes at 65% of the aggregate
principal amount of $45.0 million together with accrued and penalty interest,
and canceled the related warrants to purchase common stock of the Company's
parent, American Restaurant Group Holdings, Inc. ("Holdings") and (c)
established a $15.0 million revolving credit facility to include letters of
credit. Letters of credit outstanding as of November 2, 1998 were $5.1 million.
A quarterly fee of 0.5% per annum is payable on the unused portion of the
revolving credit facility and a fee of 2.5% per annum is payable on outstanding
letters of credit.
As an additional component of the Recapitalization Plan, Holdings extended the
accretion period on its senior discount debentures due 2005 (the "Holdings
Debentures"), from June 15, 1999 to maturity on December 15, 2005, and amended
certain provisions of the Holdings Debentures. The Holdings Debentures will
accrete at a rate of 14.25%, compounded semi-annually. Certain holders of the
Holdings Debentures with an accreted value of approximately $10.8 million
surrendered such debentures for cancellation and received $3.6 million principal
amount of the Notes, which was in addition to the $155.0 million of the Notes
sold as mentioned above. The Notes issued in lieu of Holdings Debentures were
recorded as a non-cash distribution to Holdings by the Company.
Substantially all assets of the Company are pledged to its senior lenders. In
addition, the subsidiaries have guaranteed the indebtedness owed by the Company
and such guarantee is secured by substantially all of the assets of the
subsidiaries. In connection with such indebtedness, contingent and mandatory
prepayments may be required under certain specified conditions and events. There
are no compensating balance requirements.
Although the Company is highly leveraged, based upon current levels of
operations and anticipated growth, the Company expects that cash flows generated
from operations together with its other available sources of liquidity will be
adequate to make required payments of principal and interest on its
indebtedness, to make anticipated capital expenditures and to finance working
capital requirements. However, the Company does not expect to generate
sufficient cash flow from operations in the future to pay the Notes upon
maturity and, accordingly, it expects to refinance all or a portion of such
debt, obtain new financing or possibly sell assets.
YEAR 2000 COMPLIANCE
Since 1997, the Company has been assessing the Year 2000 issues that may affect
it. The Company believes the Year 2000 issues it must address include ensuring
(i) its information technology systems (hardware and software) enable it to
manage and operate its business and (ii) its non-information technology systems
(including heating, air conditioning and security systems) will continue to
operate. The Company is currently on schedule for Year 2000 compliance and does
not believe it has material potential liability to third parties if its systems
are not Year 2000 compliant.
The Company has received written responses from third parties with which it has
material relationships. All of the responses received to date indicate the
suppliers have or will timely resolve their Year 2000 issues.
The Company's costs of compliance with the Year 2000 requirements are immaterial
because it was in the process of upgrading or establishing systems in the normal
course of business.
The Company believes it and its material suppliers will resolve their Year 2000
issues in a timely fashion. However, if the Company or its material suppliers do
not become Year 2000 compliant, the Company could suffer a material adverse
effect on its
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business, results of operations and financial condition. The Company believes it
is unlikely any of these events will result, but there can be no such assurance.
The Company currently has no contingency plans to handle the occurrence of these
events and does not currently intend to create one.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 131 Disclosures about Segments of an Enterprise and Related Information
was issued in June 1997. The Company anticipates reporting three restaurant
segments: "Black Angus", "Grandy's" and "Other Concepts". Other Concepts will
include the Company's Spoons, Spectrum and National Sports Grill divisions. The
Company adopted SFAS No. 131 in 1998 and anticipates providing segment
disclosures as of December 28, 1998.
Statement of Position ("SOP") No. 98-5 Reporting on the Costs of Start-up
Activities was issued in April 1998. SOP NO. 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. The Company has
historically accumulated costs incurred in connection with opening a new
restaurant and amortized these costs over the initial year of operations. Any
previously deferred preopening costs as of the beginning of fiscal year 1999
will be recognized as the cumulative effect of an accounting method change. New
restaurant openings are typically staggered throughout the year and, therefore,
the Company does not anticipate the adoption of SOP No. 98-5 will materially
affect the Company's financial statements. Pre-opening costs were immaterial as
of September 28, 1998.
EITF No. 98-9 Accounting for Contingent Rents in Interim Financial Periods was
issued in May 1998. The Company has adopted EITF No. 98-9 and such adoption has
not materially affected the Company's financial statements.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
Exhibit No. Description
27.1 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only.
10
<PAGE> 13
SIGNATURE
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.
AMERICAN RESTAURANT GROUP, INC.
(Registrant)
Date: November 6, 1998 By: /s/KEN DI LILLO
---------------- ---------------------------------
Ken Di Lillo
Treasurer and Assistant Secretary
11
<PAGE> 14
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBITS
- ------- --------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 28, 1998 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 28, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS
ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1998
<PERIOD-START> JUN-30-1998
<PERIOD-END> SEP-28-1998
<CASH> 2,848,000
<SECURITIES> 0
<RECEIVABLES> 6,824,000
<ALLOWANCES> 845,000
<INVENTORY> 5,946,000
<CURRENT-ASSETS> 17,724,000
<PP&E> 222,679,000
<DEPRECIATION> 129,579,000
<TOTAL-ASSETS> 152,571,000
<CURRENT-LIABILITIES> 54,616,000
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> (108,960,000)
<TOTAL-LIABILITY-AND-EQUITY> 152,571,000
<SALES> 101,801,000
<TOTAL-REVENUES> 101,801,000
<CGS> 32,487,000
<TOTAL-COSTS> 58,328,000
<OTHER-EXPENSES> 3,582,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,869,000
<INCOME-PRETAX> (2,704,000)
<INCOME-TAX> 52,000
<INCOME-CONTINUING> (2,756,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,756,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
