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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee required)
For the fiscal year ended December 28, 1998
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
For the transition period from _____________ to _____________
Commission file number: 33-48183
American Restaurant Group, Inc.
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Exact Name of Registrant as Specified in Its Charter
Delaware 33-0193602
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
450 Newport Center Drive
Newport Beach, California 92660
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(Address of Principal Executive Offices) (Zip Code)
(714) 721-8000
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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None None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by a 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 Indicate by a check mark
if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of the
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part II of this Form 10-K or any amendments to
this Form 10-K. [X]
The number of outstanding shares of the Registrant's Common Stock (one cent par
value) as of March 1, 1999, was 128,081.
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AMERICAN RESTAURANT GROUP, INC.
INDEX
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PAGE
PART I ----
<S> <C> <C>
ITEM 1. BUSINESS................................................................................ 1
ITEM 2. PROPERTIES.............................................................................. 5
ITEM 3. LEGAL PROCEEDINGS....................................................................... 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................... 6
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS..................................................................... 6
ITEM 6. SELECTED FINANCIAL DATA................................................................. 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................................................... 8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................. 12
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE..................................................... 12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................................... 13
ITEM 11. EXECUTIVE COMPENSATION.................................................................. 15
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.......................................................................... 17
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................... 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K................................................................. 20
</TABLE>
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PART I
ITEM 1. BUSINESS
INTRODUCTION
American Restaurant Group, Inc., a Delaware corporation (the "Company"),
through its subsidiaries, competes predominately in the midscale segment of the
United States restaurant industry. The Company was formed on August 13, 1986, by
Anwar S. Soliman, Chairman of the Board and Chief Executive Officer of the
Company, and other members of current senior management, to acquire certain
operations of Saga Corporation, a wholly owned subsidiary of Marriott
Corporation (the "Acquisition"). The Acquisition was completed in February
1987. (Prior to the completion of the Acquisition, the Company had no
significant operations.) The Company is a subsidiary of American Restaurant
Group Holdings, Inc., a Delaware corporation ("Holdings").
As of December 28, 1998, the Company operated 224 restaurants located in 16
states, principally California and Texas. The Company operates five restaurant
divisions: Black Angus (western-style steakhouses specializing in steak and
prime rib), Grandy's (family-oriented, quick-service restaurants specializing
in fried and grilled chicken, country-fried steak and country breakfasts),
Spoons (casual-style restaurants featuring fajitas, salads and hamburgers),
Spectrum (upscale Northern Italian, American and Mexican specialty restaurants)
and National Sports Grill (sports-theme restaurants featuring generous portions
and microbrewery beers). In addition, as of December 28, 1998, Grandy's
franchised 57 restaurants in the southern United States.
DIVISION OVERVIEW
BLACK ANGUS
As of December 28, 1998, Black Angus operated 101 Stuart Anderson's Black Angus
and Stuart Anderson's Cattle Company steakhouses located primarily in
California, the Pacific Northwest and Arizona. The chain was founded in Seattle
in 1964 and is the Company's largest restaurant concept. Black Angus
restaurants are typically located in highly visible and heavily traveled areas
in or near retail and commercial businesses. The restaurants are generally
freestanding and range in size from 6,600 to 12,000 square feet, seating
approximately 220 to 350 customers. Black Angus restaurants are distinctly
Western in their design and feature booth seating for dining. They are
generally open for lunch from 11:30 a.m. to 4:00 p.m. and for dinner from 4:00
p.m. to 10:00 p.m.
As of December 28, 1992, Black Angus operated 66 in-restaurant lounges which
offered disc jockeys, dancing and a focus on the sale of alcoholic beverages
during the after-dinner and late-night time periods. While the late-night
entertainment business in isolation generated favorable profit margins,
management was concerned that this business was negatively affecting the
positive, family image of the restaurants and negatively affecting visits by
its core customer base of middle-income families and that liability and other
expenses associated with the late-night entertainment business were increasing.
Black Angus began limiting its late-night entertainment business in 1992 and
subsequently, between 1994 and 1998, phased out its late-night entertainment
business in 8 to 19 restaurants per year. It currently operates four
restaurants with late-night entertainment and does not intend to discontinue
these operations because management does not believe that the dining operations
at these restaurants have been adversely affected by the late-night
entertainment operations.
The Company intends to expand the Black Angus division through the opening of
new restaurants.
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GRANDY'S
As of December 28, 1998, Grandy's operated 85 family-oriented, quick-service
restaurants located primarily in Texas and Oklahoma and franchised an
additional 57 restaurants primarily in the southern United States. The chain
was founded in Lewisville, Texas in 1973. Grandy's restaurants are generally
freestanding and are located near shopping malls or other highly visible,
heavily traveled areas. The restaurants range in size from 3,800 to 5,200
square feet and have dining areas, which generally seat 130 to 220 customers.
All restaurants offer self-service beverages with free refills, and all but two
restaurants have drive-thru service. Grandy's restaurants are generally open
from 6:00 a.m. to 10:00 p.m. and serve breakfast, lunch and dinner. Grandy's
differentiates itself from its competitors by offering complete home-style
meals with limited service. Approximately 51% of Grandy's 1998 revenues were
for consumption in the dining room as opposed to take- out.
Grandy's franchise agreements generally require initial fees of $15,000 to
$30,000 per restaurant, ongoing royalties of 4% of sales (3% for some older
franchises) and advertising expenditures of approximately 4% of sales. Grandy's
provides certain support functions for franchisees, including initial training
and ongoing monitoring and consultations. The Company does not provide
financing for franchisees.
In July 1998, the Company announced a plan to convert a majority of its
company-owned Grandy's restaurants to franchised restaurants. The Company
intends to sell the property and equipment, including applicable lease rights,
and enter into franchise agreements with the purchasers.
SPOONS
Spoons, founded in 1978, operated 18 casual-style restaurants as of December
28, 1998, all of which are located in California. Spoons restaurants are
generally freestanding, located in heavily traveled areas, ranging in size from
5,500 to 7,800 square feet and seating approximately 200 customers. These
full-service restaurants average a 40-minute table turnover and offer booth and
table seating in a casual, highly energetic atmosphere. In addition, each
restaurant has a lounge area which also serves food. Spoons restaurants are
generally open from 11:00 a.m. to 12:00 a.m. and feature the same menu all
day.
SPECTRUM
Spectrum, founded in 1970, operated 14 unique, upscale, specialty restaurants
as of December 28, 1998, all of which are located in California. All
restaurants focus on "authentic" Northern Italian, contemporary American or
Mexican cuisine. The division includes four Prego restaurants, two Tutto
Mare restaurants, two MacArthur Park restaurants and six other restaurants
which, although operated under different names, generally concentrate on
Northern Italian food. Spectrum restaurants vary in size and physical type but
are primarily located proximite to concentrations of young professionals and
other upper-income customers. The restaurants are generally open from 11:00
a.m. to 12:00 a.m.
NATIONAL SPORTS GRILL
National Sports Grill, founded in 1993, operated six sports-theme restaurants
as of December 28, 1998, all of which are located in California. This concept
offers a menu featuring generous portions and microbrewery beers and provides
multiple video telecasts of national and regional sporting events as well as
interactive video games and other sporting-related games. National Sports Grill
restaurants are freestanding and generally range in size from 10,000 to 17,000
square feet, seating approximately 200 to 300 customers. The restaurants
feature a bar, a dining area, a billiards area and multiple video screens
throughout. National Sports Grill restaurants are typically open from 11:00
a.m. to 2:00 a.m.
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RESTAURANT OPERATIONS
The Company has five distinct divisions. The Black Angus division is generally
managed separately from the other divisions and is organized functionally with
separate operations, marketing, finance, real estate and human resources
departments. Grandy's and the three smaller divisions are each run
independently but share among them certain support functions such as finance,
administration and human resources. In addition, the Company generally provides
purchasing, cash management, insurance and other treasury functions, and
accounting and legal services, on a centralized basis. The Company's corporate
headquarters provides strategic direction and approves major capital
expenditures, annual budgets and all salaries above a specified level.
The Company's cash management system is highly sophisticated with controls down
to the server level. Restaurants are required to make daily deposits of cash
and the Company uses a centralized cash concentration system which sweeps all
of its cash accounts on a daily basis. There is a central accounts payable and
check writing system with roughly 6,900 vendors profiled on the system.
The Company uses a combination of in-house and outside-contracted services for
its management information system needs. In-house systems include a
point-of-sale system for each restaurant and stand-alone computing at the
restaurant, division and corporate levels. The Company contracts for payroll
services and for mainframe-based data processing.
Each restaurant is staffed with a General Manager who is directly responsible
for the operation of the restaurant, including product quality, cleanliness,
service, inventory, cash control and the appearance and conduct of store
employees. Except for Grandy's, most restaurants also have one or two Assistant
Managers and a Chef. Managers and supervisory personnel train other restaurant
employees in accordance with detailed procedures and guidelines prescribed by
each division.
General Managers are supervised by District Managers, each of whom is
responsible for approximately ten restaurants. District Managers, General
Managers, Assistant Managers and Chefs are eligible for bonuses under each
division's extra compensation program, for which goals and objectives are
established based on the profitability, sales and other factors relating to the
restaurants.
PURCHASING AND DISTRIBUTION
To ensure standards of quality and to maximize pricing efficiencies, a central
purchasing department coordinates the supply of almost all restaurant items.
The Company purchases products throughout the United States and abroad through
agreements with various food-service vendors. None of the Company's vendors
supply the Company exclusively and no material agreements exist. The Company
routinely uses public, cold-storage facilities and makes forward commitments in
order to establish the availability and price of key food items such as beef
and seafood. In order to achieve more favorable terms, the Company concentrates
its distribution among certain of its vendors but believes that it could
replace any of these distributors, if necessary, on a timely basis.
COMPETITION AND MARKETS
All aspects of the restaurant business are highly competitive. Price,
restaurant location, food quality, service and attractiveness of facilities are
important aspects of competition. The competitive environment is often affected
by factors beyond a particular restaurant management's control, including
changes in the public's taste and eating habits, population and traffic
patterns and economic conditions. The Company's restaurants compete with a wide
variety of restaurants, ranging from national and regional restaurant chains to
locally owned restaurants. Competition from other restaurant chains typically
represents the more important competitive influence, principally because of
their significant marketing and financial resources. Many of the Company's
competitors have substantially greater financial, marketing, personnel and
other resources than the Company. In addition,
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competition is not limited to a particular segment of the restaurant industry
because fast-food restaurants, steakhouses and casual-dining restaurants are
all competing for the same consumer's dining dollars. The Company believes that
its principal competitive strengths lie in the distinctive atmosphere and food
presentation offered; the value, variety and quality of food products served;
the quality and training of its employees; the experience and ability of its
management; and the economies of scale enjoyed by the Company because of its
size and geographic concentration. The Company continually monitors consumer
tastes and adjusts and updates its menus accordingly.
EMPLOYEES
At December 28, 1998, the Company employed approximately 10,600 persons, of
whom approximately 9,700 were hourly employees in restaurants, approximately
700 were salaried employees in restaurants (Managers and Chefs) and
approximately 200 were hourly and salaried employees in divisional and
corporate management and administration. Approximately 72% of the hourly
restaurant employees work on a part-time basis (25 hours or less per week).
None of the Company's facilities are unionized. The Company believes it
provides competitive compensation and benefits to its employees and that its
employee relations are good.
REGULATIONS
Each restaurant is subject to licensing and regulation by state and local
health, sanitation, safety, fire and other departments. In addition, each
restaurant (except for Grandy's) is subject to licensing with respect to the
sale of alcoholic beverages. The loss of licenses or permits by the Company's
restaurants to sell alcohol would interrupt or terminate the Company's ability
to serve alcoholic beverages at those restaurants and, if a significant number
of restaurants were affected, could have a material adverse effect on the
Company. The Company believes it has good relations with the various alcoholic
beverage authorities.
The Company is subject to the Fair Labor Standards Act and various state laws
governing such matters as minimum wages, overtime and other working conditions.
Substantially all of the Company's restaurant employees are paid at rates
related to the federal and state minimum wage, and, accordingly, increases in
the minimum wage increase the Company's labor costs.
SERVICE MARKS
The Company regards its service marks and trademarks as important to the
identification of its restaurants and believes they have significant value in
the conduct of its business. The Company has registered various service marks
and trademarks with the United States Patent and Trademark Office. In addition,
certain marks have been registered in the State of California, in various other
states and in certain foreign countries.
SEASONALITY
The Company's restaurant revenues and profitability are not subject to
significant seasonal fluctuations.
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ITEM 2. PROPERTIES
Of the 224 restaurants operated by the Company on December 28, 1998, the Company
owns the land and building for four, owns the building and leases the land for
76, and leases both land and building for the remaining 144 restaurants. In
addition, the Company currently leases the land for six, and leases both the
land and the building for nine restaurants which are now closed. (Nine of these
closed restaurants are subleased to others.) Most of the Company's restaurants
are freestanding and range from approximately 4,000 square feet for a Grandy's
restaurant to as much as 17,000 square feet for the Company's other restaurants.
Most of the Company's leases provide for the payment of the greater of a set
base rental or a percentage rental of up to 6% of gross revenues, plus real
estate taxes, insurance and other expenses.
In addition, the Company owns the land and building for the Grandy's
headquarters in Lewisville, Texas, and leases office space for its other
divisions and corporate headquarters in Los Altos and Newport Beach,
California.
The following table sets forth, as of December 28, 1998, the number of
Company-operated restaurants by division and state of operation:
<TABLE>
<CAPTION>
DIVISION
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NATIONAL TOTAL
STATE BLACK SPORTS NUMBER OF
ANGUS GRANDY'S SPOONS SPECTRUM GRILL RESTAURANTS
----- -------- ------ -------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
California 56 -- 18 14 6 94
Texas -- 61 -- -- -- 61
Oklahoma -- 15 -- -- -- 15
Washington 10 -- -- -- -- 10
Arizona 9 -- -- -- -- 9
Minnesota 6 -- -- -- -- 6
Colorado 5 -- -- -- -- 5
Kansas -- 5 -- -- -- 5
Oregon 5 -- -- -- -- 5
Indiana 3 -- -- -- -- 3
Florida -- 3 -- -- -- 3
Hawaii 2 -- -- -- -- 2
Nevada 2 -- -- -- -- 2
New Mexico 1 1 -- -- -- 2
Alaska 1 -- -- -- -- 1
Utah 1 -- -- -- -- 1
--- --- --- --- --- ---
Total 101 85 18 14 6 224
=== === === === === ===
</TABLE>
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ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various litigation incidental to its business,
including claims arising out of personal injuries, employment practices,
worker's compensation cases and contract lawsuits, the claims for which
sometimes involve substantial damages. Based on information presently
available, management does not believe that the outcome of such litigation will
have a material adverse effect on the Company's financial position, business or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the stockholders of the Company in the
fourth quarter of 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
COMMON STOCK
As of March 1, 1999, there were six record holders of the outstanding shares of
the Company's common stock. There is currently no market for the Company's
common stock, nor is such anticipated in the near future. The Company has never
paid dividends to its common stockholders and currently has no plans to do so.
CUMULATIVE PREFERRED STOCK, MANDATORILY REDEEMABLE
As of March 1, 1999, there were six record holders of the 37,885 outstanding
shares of the Company's cumulative preferred stock. Dividends accrue at a rate
of 12% per annum, payable semiannually on February 15 and August 15 of each
year. The Company may, at its option, pay dividends in cash or in additional
shares of cumulative preferred stock. Stock dividends of 2,000 and 2,224 shares
were paid on August 15, 1998 and February 15, 1999, respectively. There is
currently no market for the Company's cumulative preferred stock, nor is such
anticipated in the near future.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected historical consolidated financial data for each of the
five periods ended December 28, 1998 has been derived from the consolidated
financial statements of the Company which have been audited by Arthur Andersen
LLP, independent public accountants, and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the consolidated financial statements and notes thereto
included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Year ended (1)
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Dec. 26, Dec. 25, Dec. 30, Dec. 29, Dec. 28,
1994 1995 1996(2) 1997 1998
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(dollars in thousands)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Black Angus .................. $ 253,634 $ 243,624 $ 254,946 $ 264,175 $ 265,536
Grandy's ..................... 109,301 101,839 90,962 78,832 70,799
Other concepts ............... 97,471 100,503 99,516 97,032 90,593
--------- --------- --------- --------- ---------
Total revenues ......... 460,406 445,966 445,424 440,039 426,928
RESTAURANT COSTS:
Food and beverage ............ 142,828 138,270 141,032 140,015 135,873
Payroll ...................... 136,151 134,532 137,104 133,732 130,242
Direct operating ............. 108,382 110,399 114,589 110,502 106,449
Depreciation and
amortization ............... 26,400 22,819 20,386 19,627 14,638
--------- --------- --------- --------- ---------
Total restaurant costs ... 413,761 406,020 413,111 403,876 387,202
General and administrative
expenses ..................... 31,027 31,360 28,086 29,360 22,357
Non-cash charge for impairment
of long-lived assets ......... -- 20,178 13,205 3,047 1,415
Grandy's Franchise Conversion:
Non-cash charge for assets to
be disposed ................ -- -- -- -- 5,034
Operating profit (loss) ........ 15,618 (11,592) (8,978) 3,756 10,920
Interest expense, net .......... 27,691 28,004 27,714 23,985 20,269
Net loss before
extraordinary gain (loss) .... (12,130) (39,662) (36,773) (20,292) (9,416)
Extraordinary gain (loss) on
extinguishment of debt ....... -- -- (1,688) -- 9,559
Net income (loss) .............. $ (12,130) $ (39,662) $ (38,461) $ (20,292) $ 143
BALANCE SHEET DATA:
Plant and equipment, net ....... 181,496 171,030 101,169 92,322 90,565
Total assets ................... 282,438 249,053 172,129 152,011 150,459
Long-term obligations,
including current portion .... 226,394 233,011 182,137 181,399 167,443
Cumulative preferred stock,
manditorily redeemable........ -- -- -- -- 36,801
Redeemable cumulative
preferred stock .............. -- -- -- -- --
Common stockholders'
equity (deficit) ............. (20,437) (60,099) (91,446) (111,738) (119,175)
</TABLE>
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(1) The Company's obligations under its 11.5% senior secured notes due
2003 (the "Notes") are guaranteed by each of its direct subsidiaries
(the "Subsidiary Guarantors"). Separate financial statements of the
Subsidiary Guarantors are not included in this Form 10-K because the
Subsidiary Guarantors are unconditionally jointly and severally liable
for the obligations of the Company under the Notes pursuant to such
guarantees. 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.
(2) The year ended December 30, 1996 included 53 weeks.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Years Ended December 30, 1996, December 29, 1997 and December 28, 1998:
Revenues. Total revenues decreased 1.2% from $445.4 million in 1996 to $440.0
million in 1997 followed by a 3.0% decrease to $426.9 million in 1998. The year
ended December 30, 1996 included a 53rd week which added $6.9 million to total
revenues. Same-store-sales for 1998 decreased 0.6% from 1997. Two new
restaurants opened during 1998 were offset by the closure of nine restaurants.
There were 247, 231 and 224 restaurants operating at the end of 1996, 1997 and
1998, respectively.
Black Angus revenues increased 3.6% from $254.9 million in 1996 to $264.2
million in 1997 and then increased 0.5% to $265.5 million in 1998. The increase
in 1998 was primarily due to a $7.8 million increase in same-store-sales
(excluding late-night entertainment) and a $1.5 million increase resulting from
the addition of four new restaurants in the first quarter of 1997 and the second
quarter of 1998. This increase was partially offset by a $5.1 million decrease
from four restaurants which closed at the end of the leases and a $2.9 million
decrease due to the closure of late-night entertainment at eight restaurants.
Same-store-sales increased 3.3% (increased 2.0% including late-night
entertainment) in 1998.
Grandy's revenues decreased 13.3% from $91.0 million in 1996 to $78.8 million
in 1997 followed by a 10.2% decrease to $70.8 million in 1998. The decrease in
1998 resulted from a $4.9 million, or a 6.7%, decline in same-store-sales from
de-emphasizing discounted sales and a $2.3 million decline due to the closure
of 18 restaurants in the second half of 1997 and in 1998. Franchise income
decreased $0.8 million related to a non-recurring international franchise fee
in 1997. Franchise revenues were $2.0 million, $2.6 million and $1.8 million in
1996, 1997 and 1998, respectively.
Revenues from other concepts (Spoons, Spectrum and National Sports Grill)
decreased 2.5% from $99.5 million in 1996 to $97.0 million in 1997 and then
decreased 6.6% to $90.6 million in 1998. Revenues declined $4.7 million due to
the closure of six restaurants in 1997 and 1998 and a $2.6 million decrease in
same-store-sales. The decrease was partially offset by $0.9 million related to
the opening of one new restaurant in 1998.
Food and Beverage Costs. As a percentage of revenues, food and beverage costs
increased slightly from 31.7% in 1996 to 31.8% in 1997 and remained constant at
31.8% in 1998.
Payroll Costs. As a percentage of revenues, labor costs decreased from 30.8% in
1996 to 30.4% in 1997 and then increased slightly to 30.5% in 1998.
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Direct Operating Costs. Direct operating costs consist of occupancy,
advertising and other expenses incurred by individual restaurants. As a
percentage of revenues, these costs decreased from 25.7% in 1996 to 25.1% in
1997 and then decreased to 24.9% in 1998. The decrease was primarily a result
of lower occupancy costs related to the ending of certain equipment leases and
disposition of closed units as well as lower general liability expenses.
Depreciation and Amortization. Depreciation and amortization consists of
depreciation of fixed assets used by individual restaurants, division and
corporate offices, as well as amortization of intangible assets. As a
percentage of revenues, depreciation and amortization decreased from 4.6% in
1996 to 4.5% in 1997 and then decreased to 3.4% in 1998. The decrease in 1998
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 as a
percentage of revenues were 6.3% in 1996, 6.7% in 1997 and 5.2% in 1998. The
decrease in 1998 was primarily due to a $3.5 million decrease in corporate
overhead resulting from the Company's strategy to reduce corporate salaries and
expenses which was implemented in late 1997 and a $3.4 million decrease in
non-cash charges for costs associated with closed restaurants. In addition,
1997 included a legal settlement of $0.9 million. The decrease was partially
offset by a $0.8 million charge related to international franchise activities.
Non-Cash Charge for Impairment of Long-Lived Assets. In December 1998 certain
assets, including fixed assets and certain related intangible assets, were
valued at less than their historic costs and resulted in a non-cash charge of
$1.4 million. This non-cash charge was 0.3% of revenues. Similar non-cash
charges of $13.2 million and $3.0 million were recorded in 1996 and 1997,
respectively.
Non-Cash Charge for Assets to be Disposed. In conjunction with the plan
announced in July 1998 to convert a majority of company-owned Grandy's
restaurants to franchised restaurants, the Company recognized a $5.0 million
non-cash charge related to fixed assets and certain intangible assets valued at
less than their historical costs.
Operating Profit. As a result of the items discussed above, operating profit
improved from an operating loss of $9.0 million in 1996 to an operating profit
of $3.8 million in 1997 and then improved to an operating profit of $10.9
million in 1998 (an operating profit of $4.2 million, $6.8 million and $17.4
million in 1996, 1997 and 1998, respectively, before the non-cash charge for
impairment of long-lived assets and the non-cash charge for assets to be
disposed). The Company's divisions are not uniform in revenues, size or
profitability. For example, for the fiscal year ended 1998, Black Angus had an
operating profit of $23.6 million, Grandy's had an operating loss of $1.3
million and the Other Concepts had a net operating profit of $2.0 million. These
amounts exclude non-cash charges and certain corporate general and
administrative expenses.
Interest Expense - Net. Interest expense decreased from $27.7 million in 1996 to
$24.0 million in 1997 and then decreased to $20.3 million in 1998. The average
interest rate on Company borrowings was 11.7%, 12.3% and 11.7% for 1996, 1997
and 1998, respectively. Average borrowings (excluding capitalized lease
obligations) decreased from $208.2 million in 1996 to $171.7 million in 1997 and
then decreased to $161.6 million in 1998. Average borrowings declined in 1998
due to the recapitalization plan (the "Recapitalization Plan") described below.
Income Taxes. Income taxes decreased from a provision of $81,000 in 1996 to
$63,000 in 1997 and then increased to $67,000 in 1998. The provisions represent
amounts provided for certain minimum state income taxes.
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Extraordinary Gain/Loss. The Company recognized an extraordinary gain of $9.6
million on the extinguishment of debt in 1998. This gain resulted from the
refinancing of the Company's debt in February 1998. An extraordinary loss of
$1.7 million occurred in 1996 with the extinguishment of a prior term loan.
This extraordinary loss resulted from a non-cash charge to expense for
capitalized debt costs associated with the debt repaid. There were no
extraordinary gains or losses in 1997.
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 December 28, 1998, the Company had cash of
approximately $8.8 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 December 28, 1998, the Company had a
working capital deficit of $39.6 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 $12.0 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 were $13.3 million in 1996, $4.6 million in 1997,
and $12.3 million in 1998. New store capital expenditures included in these
amounts were $4.8 million, $0.4 million and $1.9 million for 1996, 1997 and
1998, respectively. The Company estimates that capital expenditures in 1999
will be approximately $10.0 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 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 manditorily redeemable
cumulative preferred stock and one common stock purchase warrant initially to
purchase 2.66143 shares of the common stock at an initial exercise price of one
cent per share. The value of the Company's common stock warrants is de minimis.
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 Holdings, and (c)
established a $15.0 million revolving credit facility to include letters of
credit. Letters of credit outstanding as of March 1, 1999, were $4.3 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
10
<PAGE> 13
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 Subsidiary Guarantors 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 for the next several years. 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.
As a result of the Recapitalization Plan and the change in ownership, the
Company's net operating loss carryforwards were reduced from $139.8 million to
$125.8 million under the applicable provision of the Internal Revenue Code of
1996, as amended.
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 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 plan 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 adopted SFAS No. 131 as of
December 28, 1998. The Company is reporting three restaurant segments: "Black
Angus", "Grandy's" and "Other Concepts". Other Concepts include the Company's
Spoons, Spectrum, National Sports Grill and former Velvet Turtle divisions.
11
<PAGE> 14
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. Although not material to the Company's
financial position or results of operations, any previously deferred preopening
costs were expensed as of the end of fiscal year 1998. 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.
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.
MARKET RISK EXPOSURE
The Company is generally not exposed to market risks related to fluctuations in
interest rates on its debt because all of the Company's debt is at fixed rates.
Changes in interest rates affect the fair market value of fixed rate debt, but
not the Company's earnings or cash flows. The Company generally cannot prepay
fixed rate debt prior to maturity; therefore, interest rate risk and changes in
fair market value would not have a significant impact on its fixed rate debt
until the Company refinances such debt.
The Company is exposed to market risks related to fluctuations in interest
rates on short-term borrowings on its revolving credit facility. Although the
Company may borrow on its revolver from time to time, no amounts were
outstanding at year end. Even if the entire revolving credit facility were
outstanding for the entire year, a one percentage point increase in interest
rates would only result in an increase in interest expense of approximately
$114,000.
The Company does not utilize interest rate swaps, forward or option contracts
on foreign currencies or commodities, or other types of derivative financial
instruments. For all these reasons, the Company does not believe future market
rate risks will have a material impact on the Company or the results of its
future operations.
IMPACT OF INFLATION
Although inflationary increases in food, labor or operating costs could
adversely affect operations, the Company has generally been able to offset
increases in cost through price increases, labor scheduling and other
management actions.
FORWARD-LOOKING STATEMENTS
Certain statements contained herein are forward-looking regarding cash flow
from operations, restaurant openings, capital requirements and other matters.
These forward-looking statements involve risks and uncertainties and,
consequently, could be affected by general business conditions, the impact of
competition, governmental regulations and inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to Consolidated Financial Statements on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
12
<PAGE> 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information about the Company's current
directors and each of its executive officers and key management personnel:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
<S> <C> <C>
Anwar S. Soliman 61 Chairman, Chief Executive Officer,
Director
Ralph S. Roberts 56 President, Chief Operating Officer,
Director
William J. McCaffrey, Jr. 52 Vice President
Wilfred H. Partridge 69 Vice President - Purchasing
Patrick J. Kelvie, Esq. 47 Vice President, Secretary and General Counsel
Ken A. Di Lillo 44 Vice President - Finance, Treasurer and Assistant
Secretary
Robert D. Beyer 39 Director
George G. Golleher 51 Director
M. Brent Stevens 38 Director
</TABLE>
Officers are elected by the Board of Directors and serve at the discretion of
the Board.
Anwar S. Soliman. Mr. Soliman has served as Chairman, Chief Executive Officer
and a Director of the Company since its organization in 1986. Prior to joining
the Company, Mr. Soliman was Executive Vice President of W. R. Grace & Co.
("Grace") and Group Executive of the Grace Restaurant Group, which he started
in 1977. Mr. Soliman spent 22 years with Grace in various executive positions.
He is also a trustee of the Orange County Museum of Art and a member of the
Board Council of Boys Hope of California. Mr. Soliman received both a B.
Commerce and an M.B.A. from Alexandria University and a Ph.D. from New York
University.
Ralph S. Roberts. Mr. Roberts has served as a Director of the Company since
1991 and has served as the President and Chief Operating Officer of the Company
since 1986. Mr. Roberts has over 30 years of experience in the restaurant
industry and before joining the Company was Deputy Group Executive of
Operations of the Grace Restaurant Group and Vice President of Grace. Prior to
joining Grace in 1980, he was Vice President of the Stouffer Restaurant
Division and President and co-founder of the Rusty Scupper restaurants. Mr.
Roberts received a B.A. from Princeton University.
William J. McCaffrey, Jr. Mr. McCaffrey has served as Vice President since 1986
and as Chief Financial Officer of Black Angus since June 1998. Mr. McCaffrey
served as a Director of the Company from 1991 to 1998 and as the Chief
Financial Officer, Treasurer and Assistant Secretary of the Company from 1986
to 1998. Prior thereto he was Chief Financial Officer of the Grace Restaurant
Group, having spent 12 years with Grace. For eight years, Mr. McCaffrey was
assistant to the Chief Executive Officer of Grace. He received a B.S., M.E.
from the University of Notre Dame and an M.B.A. from Harvard University.
Wilfred H. Partridge. Mr. Partridge served as Vice President responsible for
purchasing and distribution for the Company 1986 through 1998. Mr. Partridge
has extensive experience in the restaurant industry encompassing purchasing,
production and distribution, as well as restaurant operations, and was
President of Grace Restaurant Services before joining the Company. Mr.
Partridge served as Vice President of Purchasing, Production and Distribution
with Marriott Corporation (Bob's Big Boy Division) for 19 years. He served as
Director of Manufacturing and
13
<PAGE> 16
Distribution for Foodmaker Company (Jack-in-the-Box) and also operated his own
restaurants in the San Diego area. He received a B.A. in Commercial Science
from Benjamin Franklin University.
Patrick J. Kelvie. Mr. Kelvie has served as General Counsel of the Company
since 1987 and Secretary of the Company since 1989. Mr. Kelvie was elected as
Vice President of the Company in 1998. From 1987 to 1989, Mr. Kelvie was an
Assistant Secretary of the Company. Between 1978 and 1987, Mr. Kelvie held
various legal counsel positions for Saga Corporation. Mr. Kelvie received a
B.A. from the University of California at Berkeley and a J.D. from Harvard Law
School.
Ken A. Di Lillo. Mr. Di Lillo was elected as the Treasurer and Assistant
Secretary of the Company in 1998. Mr. Di Lillo has served as the Vice President
- - Finance of the Company since June 1998 and as Corporate Controller since
1989. Prior thereto, he was Corporate Manager - Financial Reporting at Nissan
Motor Acceptance Corporation ("NMAC"), having spent six years with NMAC. Mr. Di
Lillo received a B.B.A. from Cleveland State University and is a Certified
Public Accountant registered by the Accountancy Board of Ohio.
Robert D. Beyer. Mr. Beyer was elected as a Director of the Company in 1998.
Mr. Beyer has served as Group Managing Director of Trust Company of the West
("TCW") since 1995. Mr. Beyer was Co-Chief Executive Officer of Cresent Capital
Corporation, a registered investment advisor, from 1991 until its acquisition
by TCW in 1995. From 1986 to 1991, Mr. Beyer was a member of the Investment
Banking Department of Drexel Burnham Lambert, Incorporated. From 1983 to 1986,
Mr. Beyer was a member of the Investment Banking Department of Bear, Stearns &
Co., Inc. Mr. Beyer is also a Director of Fred Meyer, Inc., and a commissioner
of the Los Angeles City Employees Retirement System.
George G. Golleher. Mr. Golleher was elected as a Director of the Company in
1998. Mr. Golleher was Chief Executive Officer of Ralphs Grocery Company
("Ralphs") January 1996 to July 1998 and was Vice Chairman from June 1995 to
January 1996. Mr. Golleher was a Director of F4L Supermarkets since its
inception in 1989 and was the President and Chief Operating Officer of F4L
Supermarkets from January 1990 until its merger with Ralphs. From 1986 through
1989, Mr. Golleher served as Senior Vice President - Finance and Administration
of the Boys Markets, Inc. Mr. Golleher served as a Director of Dominick's Finer
Foods, Inc. from March 1995 until October 1996 and currently serves as a
Director of Fred Meyer, Inc., Koo Koo Roo Enterprises, Inc., and Santee Dairy.
M. Brent Stevens. Mr. Stevens was elected as a Director of the Company in 1999.
Mr. Stevens has served as Managing Director of Jefferies & Company, Inc. since
1997. From 1993 to 1996, Mr. Stevens was Senior Vice President at Jefferies &
Company, Inc.
14
<PAGE> 17
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation for services rendered in
all capacities which the Company paid to or accrued for the Chief Executive
Officer and each of the other four most highly compensated executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
- ------------------------------------------------------------------------ --------------------- -------
OTHER NUMBER ALL
ANNUAL RESTRICTED OF OTHER
NAME AND COMPEN- STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS SATION(a) AWARD(s) SARS PAYOUTS SATION(b)
- ------------------------------------------------------------------------- --------------------------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANWAR S. SOLIMAN 1998 $ 740,188 0 $105,626 -- -- -- $ 37,907
(CHAIRMAN AND CEO) 1997 945,793 0 99,975 -- -- -- 24,300
1996 1,233,640 0 96,125 -- -- -- 24,303
RALPH S. ROBERTS 1998 422,961 0 53,073 -- -- -- 13,050
(PRESIDENT AND COO) 1997 558,181 0 50,360 -- -- -- 13,050
1996 704,935 0 48,295 -- -- -- 8,351
WILLIAM J. MCCAFFREY, JR. 1998 195,000 0 3,850 -- -- -- 16,931
(VICE PRESIDENT) 1997 252,500 0 3,850 -- -- -- 17,525
1996 325,000 0 5,680 -- -- -- 14,846
WILFRED H. PARTRIDGE 1998 174,000 50,000 5,900 -- -- -- 6,289
(VICE PRESIDENT- 1997 225,308 0 5,900 -- -- -- 7,038
PURCHASING) 1996 290,000 0 7,610 -- -- -- 5,754
PATRICK J. KELVIE 1998 195,000 0 0 -- -- -- 1,575
(VICE PRESIDENT, 1997 188,070 30,000 0 -- -- -- 1,512
SECRETARY AND 1996 175,000 0 0 -- -- -- 1,312
GENERAL COUNSEL)
</TABLE>
- -----------------------
(a) Amounts shown are for reimbursement during the fiscal year for the
payment of premiums and income taxes thereon relating to executive
life and disability plans. In addition, Holdings and the Company
maintain key man life insurance policies for the benefit of Holdings
and the Company on Messrs. Soliman and Roberts.
(b) Amounts shown in this column for the last fiscal year include the
following: group term life insurance premiums of $37,907, $13,050,
$15,552 and $5,040 for Messrs. Soliman, Roberts, McCaffrey and
Partridge, respectively; and Company matching contributions to a
401(k) plan of $1,379, $1,249 and $1,575 for Messrs. McCaffrey,
Partridge and Kelvie, respectively.
15
<PAGE> 18
EMPLOYMENT AGREEMENTS
The following table sets forth, with respect to each executive officer who has
entered into an employment agreement with the Company, the base salary for such
officer provided for therein together with the termination date of such
agreement:
<TABLE>
<CAPTION>
BASE TERMINATION
NAME OF INDIVIDUAL CAPACITY IN WHICH SERVED SALARY DATE
- ------------------ ------------------------ ------ ----
<S> <C> <C> <C>
Anwar S. Soliman Chairman and Chief Executive Officer $ 740,184 12/31/99
Ralph S. Roberts President and Chief Operating Officer 422,961 12/31/99
</TABLE>
Each of the agreements provides, among other things, for adjustments to the
base salaries and automatic extensions of the termination date. The agreements
also provide for certain other benefits, including, in the case of Mr. Soliman,
one year's severance pay equal to his then salary in the event of disability or
death; in the case of Mr. Roberts, one year's severance pay in the event of
death and salary for the remainder of the calendar year in the event of
disability. The employment agreements of Mr. Soliman and Mr. Roberts each
provide six months' severance pay if either executive terminates his employment
for cause. None of the Company's employment agreements provides for any salary
obligations in the event of termination by the Company for cause.
SAVINGS PLAN
The Company currently has the American Restaurant Group Savings and Investment
Plan (the "Savings Plan"), which is a 401(k) plan established for the benefit
of employees who have satisfied certain requirements. These requirements
include completion of one year of service with a minimum of 1,000 hours worked.
Subject to applicable limits imposed on tax-qualified plans, eligible employees
may elect pre-tax contributions up to 18.5% of a participant's total earnings
for a calendar year (but not in excess of $9,500 for 1998). The Company makes
matching contributions to the Savings Plan equal to 25% of the participant's
contributions up to 6% of the participant's earnings. A participant is entitled
to a distribution from the Savings Plan upon termination of employment and any
such distribution will be in a lump sum form. Distributable benefits are based
on the value of the participant's individual account balance which is invested
at the direction of the participant in one or a combination of six investment
funds, none of which include investments in the Company. Under certain
circumstances, a participant may borrow amounts held in his account under the
Savings Plan. Based upon the Savings Plan vesting schedule, as of 1998, 100% of
the Company matching contributions were vested for Messrs.
McCaffrey, Partridge and Kelvie.
16
<PAGE> 19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock (as if the Warrants and any other
outstanding warrants were exercised), as of March 1, 1999, by (i) each of the
Company's directors, (ii) the Chief Executive Officer and certain other highly
compensated executive officers of the Company, (iii) all executive officers and
directors as a group and (iv) each person believed by the Company to own
beneficially more than 5% of the Company's outstanding common stock. Pursuant
to the Voting Trust Agreement, Anwar S. Soliman controls Holdings and,
accordingly, together with his direct ownership of common stock and the New
Voting Trust Agreement (as described below), effectively controls the voting of
all (without giving effect to the exercise of Warrants and any other
outstanding warrants) the outstanding common stock, subject to the terms of the
Securityholders Agreement as described below.
<TABLE>
<CAPTION>
Amount and Nature of Percent of Percent of
Name and Address Beneficial Ownership Outstanding Class Diluted Class (1)
- ---------------- -------------------- ----------------- -----------------
<S> <C> <C> <C>
Anwar S. Soliman 19,990(2) 15.6% 8.6%
Roberts Family Limited
Partnership 9,702 7.6 4.2
William J. McCaffrey, Jr. 2,426 1.9 1.0
Wilfred H. Partridge 2,426 1.9 1.0
Patrick J. Kelvie 387 0.3 0.2
Ken A. Di Lillo -- -- --
Robert D. Beyer(3) -- -- --
George G. Golleher(4) -- -- --
M. Brent Stevens(5) -- -- --
American Restaurant Group
Holdings, Inc.(6) 93,150 72.7 40.0
All directors and officers
of the company
as a group(8 persons) 34,931 27.3 15.0
TCW Investors(7) 55,558 (8) - 23.9
</TABLE>
(1) Gives effect to the exercise of all outstanding warrants.
(2) Does not include 14,941 shares of the common stock which Mr. Soliman
is deemed to be the owner of pursuant to the New Voting Trust
Agreement.
(3) Does not include shares deemed to be beneficially owned by the TCW
Investors (as defined herein). Robert D. Beyer is a Group Managing
Director of TCW, of which TCW Group (see footnote 7) and the TCW
Investors are affiliates. Mr. Beyer shares investment power for the
following TCW Investors: TCW Shared Opportunity Fund II L.P., TCW
Leveraged Income Trust, L.P. and TCW Shared Opportunity Fund IIB, LLC.
See footnote 6.
(4) George G. Golleher was elected Director of the Company, as nominee of
the TCW Investors.
(5) Does not include shares deemed to be beneficially owned by Jefferies &
Company, Inc.
(6) Anwar S. Soliman owns 228,577 shares of Holdings common stock,
representing 46.4% of the outstanding common stock of Holdings. In
addition, Mr. Soliman is deemed to be the owner, pursuant to the
Voting Trust Agreement, of an additional 175,963 shares of Holdings
common stock.
(7) TCW Shared Opportunity Fund II., L.P., TCW Leveraged Income Trust,
L.P., Brown University and TCW Shared Opportunity Fund IIB , LLC.
17
<PAGE> 20
(8) Represents warrants which are immediately exercisable at a nominal
price per share. Includes warrants beneficially owned by the TCW
Investors and of which TCW Asset Management Company and certain
affiliates which control voting and investment power in their capacity
as general partner, investment manager or manager of the TCW Investors
(the "TCW Group"), disclaims beneficial ownership.
All of the Company's Management Stockholders have entered into a voting trust
agreement (the "New Voting Trust Agreement") dated February 25, 1998 in
accordance with which Anwar S. Soliman, Chairman and Chief Executive Officer of
the Company, exercises, as voting trustee, all voting and substantially all
other rights to which such shareholders would otherwise be entitled until the
earlier of August 15, 2005 or the earlier termination of the New Voting Trust
Agreement. As a result, Mr. Soliman is considered the beneficial owner of
approximately 86.9% of the outstanding shares of Company's common stock
(approximately 47.8% on a diluted basis). In addition, the Management
Stockholders have entered into other agreements pursuant to which such holders
were granted registration rights substantially identical to the rights granted
to the holders of the Warrants pursuant to the Securityholders' Agreement. Each
of the Management Stockholders is also party to a subscription agreement with
Holdings which provides such stockholder certain rights with respect to shares
of Holdings common stock held by such stockholder.
As of March 1, 1999, holders of the Company's preferred stock held warrants for
41% of the common stock on a diluted basis.
STOCK OPTION PLANS
The Company is in the process of adopting a stock option plan for the grant of
options to the management of the Company and select employees of the Company
and its subsidiaries. The Company expects the plan will provide for options for
up to 15% of the fully diluted number of shares of common stock of the Company.
SECURITYHOLDERS AGREEMENT
In connection with the Recapitalization Plan, each of Holdings, the Management
Stockholders, Jefferies & Company, Inc. (the "Initial Purchaser" of the Notes),
and TCW Shared Opportunity Fund II, L.P., TCW Leveraged Income Trust, L.P.,
Brown University and TCW Shared Opportunity Fund IIB, LLC (collectively, the
"TCW Investors") and TCW Asset Management Company entered into a
securityholders agreement concerning the Company (the "Securityholders
Agreement"). The Securityholders Agreement provides that the parties will agree
to vote all of their shares of the Company's equity securities so that the
composition of the Company's Board of Directors consists of five members, two
of whom will be management nominees, two of whom will be nominees of the TCW
Investors and one of whom, the Remaining Director, will be an independent
director designated by the Initial Purchaser; provided that after the date that
is 45 days after the date upon which underwritten primary public offerings of
common stock of the Company pursuant to effective registration statements under
the Securities Act have resulted in 35% of the Company's common stock (measured
on a fully diluted basis after giving effect to such offerings) being sold to
the public and in the Company's common stock being listed for trading on any of
the New York Stock Exchange, the NASDAQ National Market or the American Stock
Exchange (the "Public Company Date") the TCW Investors and management will
mutually choose the Remaining Director and the Initial Purchaser will no longer
have any right to designate a director. The Securityholders Agreement does not
limit the rights of the holders of the preferred stock under the Certificate of
Designation to elect additional directors to serve on the Company's Board of
Directors in certain circumstances.
The Securityholders Agreement also provides that (i) in the event that Holdings
sells or transfers any of its shares of Company equity securities, directly or
indirectly, TCW Investors will have the option to include its Company equity
securities in such sale or transfer on the same terms as Holdings' sale or
transfer, (ii) TCW investors will have a right of first refusal with respect to
any sale of equity securities by the Company or a party to the Securityholders
Agreement (other than Management Stockholders) to purchase the equity
securities being sold; and (iii) TCW Investors have the nontransferable right
to approve certain major corporate transactions concerning the Company,
including mergers and consolidations, sales of any capital stock of the
Company's Subsidiaries, a sale of a material amount of the assets and
properties of the Company, transactions with affiliates and
18
<PAGE> 21
amendments to the Company's Certificate of Incorporation and Bylaws. In
addition, the Securityholders Agreement provides that certain of the TCW
Investors' purchasers will receive payments from the Company with respect to
withholding obligations as a result of their ownership of the preferred stock,
which amount shall not exceed $125,000 per year. None of the rights under the
Securityholders Agreement are transferable by TCW Investors.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
19
<PAGE> 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES,
AND REPORTS ON FORM 8-K
(a) Consolidated Financial Statements. See the Index to Consolidated
Financial Statements on page F-1.
(c) List of Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>>
2.1 Purchase Agreement dated as of September 11, 1996 by and
between ARG Property Management Corporation and ARG
Enterprises, Inc. and ARG Properties I, LLC.***
2.2 Master lease dated September 11, 1996 between ARG
Properties I, LLC, as Landlord and ARG Enterprises, Inc.
as Tenant.***
2.3 Lease #06152 dated September 11, 1996 between Captec Net
Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for
Bloomington, Minnesota.***
2.4 Lease #06153 dated September 11, 1996 between Captec Net
Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for
Fridley, Minnesota.***
2.5 Lease #06154 dated September 11, 1996 between Captec Net
Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for
Minnetonka, Minnesota.***
2.6 Lease #06155 dated September 11, 1996 between Captec Net
Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for
Roseville, Minnesota.***
2.7 Lease dated September 11, 1996 between Safeway Inc. as
Landlord and ARG Enterprises, Inc. as Tenant.***
2.8 Guaranty of Lease dated September 11, 1996 by ARG
Enterprises, Inc. as Tenant to ARG Properties I, LLC as
Landlord.***
2.9 A Guaranty of Lease dated September 11, 1996 by ARG
Enterprises, Inc. as Tenant to Captec Net Lease Realty,
Inc. as Landlord for each of four Minnesota
restaurants.***
2.10 Guaranty of Lease dated September 11, 1996 by ARG
Enterprises, Inc. as Tenant and Safeway Inc. as
Landlord.***
3.1 Amended and Restated Certificate of Incorporation of the
Company filed with the Secretary of State of Delaware on
July 23, 1991.*
</TABLE>
20
<PAGE> 23
<TABLE>
<S> <C>
3.2 Certificate of Amendment to Amended and Restated
Certificate of Incorporation of the Company filed with the
Secretary of State of Delaware on March 21, 1992. *
3.3 Amended and Restated Certificate of Incorporation of the
Company filed with the Secretary of State of Delaware on
February 23, 1998. ****
3.4 By-Laws of the Company. *
4.1 Indenture dated as of February 25, 1998 between the
Company and U.S. Trust Company of California, N.A., as
Trustee (including specimen certificate of 11.5% Senior
Secured Note due 2003). ****
4.2 Warrant Agreement dated as of February 25, 1998 between
the Company and U.S. Trust Company of California, N.A., as
warrant agent (including specimen certificate of Warrant).
****
4.3 Registration Rights Agreement dated as of February 25,
1998 between the Company and Jefferies & Company, Inc.
****
4.4 Securityholders' and Registration Right Agreement dated as
of February 25, 1998 between the Company and Jefferies &
Company, Inc., as purchaser. ****
4.5 Management Registration Right Agreement dated as of
February 28, 1998 between the Company and the Management
Stockholders. ****
4.6 Certificate of Designation filed with the Secretary of
State of Delaware on February 24, 1998. ****
4.7 Certificate of Correction to the Certificate of
Designation filed with the Secretary of State of Delaware
on February 25, 1998. ****
4.8 Form of Indenture relating to the 12% Senior Subordinated
Debentures to be entered into between the Company and a
trustee (including specimen certificate of 12% Senior
Subordinated Debenture due 2003). *****
9.1 Common Stock Voting Trust and Transfer Agreement dated as
of February 24, 1998 among the Company and the
stockholders parties thereto and Anwar S. Soliman, as
voting trustee. ****
9.2 Securityholders Agreement dated as of February 25, 1998
among the Company, American Restaurant Group Holdings,
Inc., Jefferies & Company, Inc., TCW Asset Management
Company and the Management Stockholders. ****
10.1 Amended and Restated Employment Agreement dated as of
December 14, 1993 between the Company and Anwar S.
Soliman. **
10.2 Amended and Restated Employment Agreement dated as of
December 14, 1993 between the Company and Ralph S.
Roberts. **
</TABLE>
21
<PAGE> 24
<TABLE>
<S> <C>
21.1 Subsidiaries of the Company. **
27.1 Financial Data Schedule
- -------------------
* Incorporated by reference to the Registrant's Registration
Statement No. 33-48183 on Form S-4 filed with the
Securities and Exchange Commission on May 28, 1992 as
amended with Amendment No. 1 filed on September 11, 1992.
** Incorporated by reference to the Registrant's Registration
Statement No. 33-74010 on Form S-4 filed with the
Securities and Exchange Commission on January 12, 1994.
*** Incorporated by reference to the Registrant's Current
Report on Form 8-K dated September 13, 1996 filed with the
Securities and Exchange Commission on September 30, 1996.
**** Incorporated by reference to the Registrant's Annual
Report on Form 10-K dated December 29, 1997 filed with the
Securities and Exchange Commission on March 30, 1998.
***** Incorporated by reference to the Registrant's Registration
Statement No. 333-55861 on Amendment No. 1 to Form S-4
filed with the Securities and Exchange Commission on July
29, 1998.
</TABLE>
22
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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.
By: /s/ ANWAR S. SOLIMAN
---------------------------------
Anwar S. Soliman
Chairman, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/S/ ANWAR S. SOLIMAN Chairman, Chief Executive March 29, 1999
- -------------------------------- Officer and Director
Anwar S. Soliman (Principal Executive Officer)
/s/ KEN A. DI LILLO Treasurer and March 29, 1999
- -------------------------------- Assistant Secretary
Ken A. Di Lillo (Principal Financial
and Accounting Officer)
/s/ RALPH S. ROBERTS President, Chief Operating March 29, 1999
- -------------------------------- Officer and Director
Ralph S. Roberts
/s/ ROBERT D. BEYER Director March 29, 1999
- --------------------------------
Robert D. Beyer
/s/ GEORGE G. GOLLEHER Director March 29, 1999
- --------------------------------
George G. Golleher
/s/ M. BRENT STEVENS Director March 29, 1999
- --------------------------------
M. Brent Stevens
</TABLE>
23
<PAGE> 26
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants.................................................................. F-2
Consolidated Balance Sheets as of December 29, 1997
and December 28, 1998............................................................................ F-3
Consolidated Statements of Operations for the Years Ended
December 30, 1996, December 29, 1997
and December 28, 1998............................................................................ F-5
Consolidated Statements of Common Stockholder's
Equity for Years Ended December 30, 1996,
December 29, 1997 and December 28, 1998.......................................................... F-6
Consolidated Statements of Cash Flows for Years
Ended December 30, 1996, December 29, 1997
and December 28, 1998............................................................................ F-7
Notes to Consolidated Financial Statements................................................................ F-8
</TABLE>
F-1
<PAGE> 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
American Restaurant Group, Inc.:
We have audited the accompanying consolidated balance sheets of AMERICAN
RESTAURANT GROUP, INC. (a Delaware corporation) AND SUBSIDIARIES as of December
29, 1997 and December 28, 1998, and the related consolidated statements of
operations, common stockholder's equity (deficit) and cash flows for the years
ended December 30, 1996, December 29, 1997 and December 28, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Restaurant Group,
Inc. and subsidiaries as of December 29, 1997 and December 28, 1998, and the
results of their operations and their cash flows for the years ended December
30, 1996, December 29, 1997 and December 28, 1998, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
March 19, 1999
F-2
<PAGE> 28
AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 29, 1997 AND DECEMBER 28, 1998
<TABLE>
<CAPTION>
ASSETS
December 29, December 28,
1997 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 5,737,000 $ 8,832,000
Accounts receivable, net of
reserve of $916,000 and
$602,000 at December 29, 1997
and December 28, 1998,
respectively 5,606,000 4,504,000
Notes receivable 1,000,000 300,000
Inventories 5,893,000 5,716,000
Prepaid expenses 3,142,000 3,108,000
------------ ------------
Total current assets 21,378,000 22,460,000
------------ ------------
PROPERTY AND EQUIPMENT:
Land and land improvements 5,610,000 5,485,000
Buildings and leasehold
improvements 110,800,000 112,280,000
Fixtures and equipment 85,603,000 84,774,000
Property held under capital
leases 12,375,000 11,634,000
Construction in progress 1,827,000 2,250,000
------------ ------------
216,215,000 216,423,000
Less-- Accumulated depreciation 123,893,000 125,858,000
------------ ------------
92,322,000 90,565,000
------------ ------------
OTHER ASSETS:
Intangible assets 12,375,000 11,334,000
Deferred debt costs 21,692,000 10,818,000
Leasehold interests 9,666,000 9,518,000
Franchise rights 6,024,000 3,945,000
Liquor licenses and other 6,857,000 6,447,000
Cost in excess of net assets
acquired 12,332,000 11,219,000
------------ ------------
68,946,000 53,281,000
Less-- Accumulated amortization 30,635,000 15,847,000
------------ ------------
38,311,000 37,434,000
------------ ------------
Total assets $152,011,000 $150,459,000
============ ============
</TABLE>
(consolidated balance sheets continued on following page)
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE> 29
<TABLE>
<CAPTION>
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
December 29, December 28,
1997 1998
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 29,420,000 $ 22,937,000
Accrued liabilities 18,021,000 18,299,000
Accrued insurance 11,251,000 4,243,000
Accrued interest 7,514,000 7,033,000
Accrued payroll costs 10,861,000 8,194,000
Current portion of obligations
under capital leases 926,000 950,000
Current portion of long-term debt 537,000 421,000
------------- -------------
Total current liabilities 78,530,000 62,077,000
------------- -------------
LONG-TERM LIABILITIES, net of current portion:
Obligations under capital leases 7,517,000 6,566,000
Long-term debt 172,419,000 159,506,000
------------- -------------
Total long-term
liabilities 179,936,000 166,072,000
------------- -------------
DEFERRED GAIN 5,283,000 4,684,000
------------- -------------
COMMITMENTS AND CONTINGENCIES
CUMULATIVE PREFERRED STOCK,
MANDATORILY REDEEMABLE -- 36,801,000
------------- -------------
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
December 28, 1998, respectively 1,000 1,000
Paid-in capital 63,246,000 55,666,000
Accumulated deficit (174,985,000) (174,842,000)
Total common stockholders'
deficit (111,738,000) (119,175,000)
------------- -------------
Total liabilities and
common stockholders'
equity $ 152,011,000 $ 150,459,000
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 30
AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 30, 1996, DECEMBER 29, 1997
AND DECEMBER 28, 1998
<TABLE>
<CAPTION>
Year ended
-----------------------------------------------------------
December 30, December 29, December 28,
1996 1997 1998
------------ ------------ -------------
<S> <C> <C> <C>
REVENUES $445,424,000 $440,039,000 $426,928,000
------------ ------------ -------------
RESTAURANT COSTS:
Food and beverage 141,032,000 140,015,000 135,873,000
Payroll 137,104,000 133,732,000 130,242,000
Direct operating 114,589,000 110,502,000 106,449,000
Depreciation and amortization 20,386,000 19,627,000 14,638,000
GENERAL AND ADMINISTRATIVE EXPENSES 28,086,000 29,360,000 22,357,000
NON-CASH CHARGE FOR IMPAIRMENT
OF LONG-LIVED ASSETS 13,205,000 3,047,000 1,415,000
GRANDY'S FRANCHISE CONVERSION
PROGRAM:
Non-cash charge for assets to
be disposed -- -- 5,034,000
------------- ------------- -------------
Operating profit (loss) (8,978,000) 3,756,000 10,920,000
INTEREST EXPENSE, net 27,714,000 23,985,000 20,269,000
------------- ------------- -------------
Loss before provision
for income taxes and
extraordinary gain (loss) (36,692,000) (20,229,000) (9,349,000)
PROVISION FOR INCOME TAXES 81,000 63,000 67,000
------------- ------------- -------------
Loss before extraordinary item (36,773,000) (20,292,000) (9,416,000)
EXTRAORDINARY GAIN (LOSS) ON
EXTINGUISHMENT OF DEBT (1,688,000) -- 9,559,000
------------- ------------- -------------
Net income (loss) $ (38,461,000) $ (20,292,000) $ 143,000
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 31
AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 30, 1996, DECEMBER 29, 1997
AND DECEMBER 28, 1998
<TABLE>
<CAPTION>
Common Paid-in Accumulated
Stock Capital Deficit Total
----- ------- ------- -----
<S> <C> <C> <C> <C>
BALANCE, December 25, 1995 $ 1,000 $ 56,132,000 $(116,232,000) $ (60,099,000)
Net loss -- -- (38,461,000) (38,461,000)
Cash contribution
from parent -- 7,114,000 -- 7,114,000
------------- ------------- ------------- -------------
BALANCE, December 30, 1996 1,000 63,246,000 (154,693,000) (91,446,000)
Net loss -- -- (20,292,000) (20,292,000)
------------- ------------- ------------- -------------
BALANCE, December 29, 1997 1,000 63,246,000 (174,985,000) (111,738,000)
Net income -- -- 143,000 143,000
Amortization of cost
related to the issuance
of preferred stock -- (332,000) -- (332,000)
Dividends payable,
preferred stock -- (3,648,000) -- (3,648,000)
Non-cash distribution to
parent -- (3,600,000) -- (3,600,000)
------------- ------------- ------------- -------------
BALANCE, December 28, 1998 $ 1,000 $ 55,666,000 $(174,842,000) $(119,175,000)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 32
AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 30, 1996, DECEMBER 29, 1997
AND DECEMBER 28, 1998
<TABLE>
<CAPTION>
Year ended
---------------------------------------------------------
December 30, December 29, December 28,
1996 1997 1998
------------ ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 445,678,000 $ 440,695,000 $ 428,403,000
Cash paid to suppliers and
employees (415,662,000) (417,714,000) (403,321,000)
Interest paid, net (32,524,000) (17,358,000) (20,729,000)
Income taxes paid (74,000) (30,000) (144,000)
------------- ------------- -------------
Net cash provided by (used in)
operating activities (2,582,000) 5,593,000 4,209,000
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (13,279,000) (4,650,000) (12,316,000)
Net (increase) decrease in other
assets (2,455,000) (945,000) 155,000
Proceeds from disposition of assets 64,560,000 620,000 9,000
Sale/leaseback costs included
in deferred gain (1,112,000) -- --
------------- ------------- -------------
Net cash provided by (used in)
investing activities 47,714,000 (4,975,000) (12,152,000)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on indebtedness (51,907,000) (1,334,000) (163,117,000)
Borrowings on indebtedness 1,791,000 186,000 162,215,000
Net increase in deferred debt costs (4,165,000) (324,000) (10,818,000)
Cost 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 -- -- (2,179,000)
Payment on insurance related
financing -- -- (7,450,000)
Payments on capital lease
obligations (857,000) (902,000) (927,000)
Contribution from parent 7,114,000 -- --
------------- ------------- -------------
Net cash provided by (used in)
financing activities (48,024,000) (2,374,000) 11,038,000
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH (2,892,000) (1,756,000) 3,095,000
CASH, at beginning of period 10,385,000 7,493,000 5,737,000
------------- ------------- -------------
CASH, at end of period $ 7,493,000 $ 5,737,000 $ 8,832,000
============= ============= =============
RECONCILIATION OF NET LOSS TO NET
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Net income (loss) $ (38,461,000) $ (20,292,000) $ 143,000
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Extraordinary (gain) loss on
extinguishment of debt 1,688,000 -- (9,559,000)
Loss on impairment of long-lived
assets 13,205,000 3,047,000 1,415,000
Non-cash charge for Grandy's assets to
be disposed -- -- 5,034,000
Depreciation and amortization 20,386,000 19,627,000 14,638,000
Loss on disposition of assets 1,610,000 4,806,000 1,529,000
Amortization of deferred gain (123,000) (523,000) (599,000)
Accretion on indebtedness 99,000 110,000 21,000
(Increase) decrease in current assets:
Accounts receivable, net 254,000 1,656,000 775,000
Notes receivable -- (1,000,000) 700,000
Inventories (221,000) 925,000 177,000
Prepaid expenses (467,000) (766,000) (8,000)
Increase (decrease) in current liabilities:
Accounts payable 4,155,000 (3,974,000) (6,483,000)
Accrued liabilities 160,000 255,000 (868,000)
Accrued insurance (846,000) (4,597,000) 442,000
Accrued interest (4,909,000) 6,517,000 (481,000)
Accrued payroll costs 888,000 (198,000) (2,667,000)
------------- ------------- -------------
Net cash provided by
(used in) operating
activities $ (2,582,000) $ 5,593,000 $ 4,209,000
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE> 33
AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1996, DECEMBER 29, 1997 AND DECEMBER 28, 1998
1. Background and Summary of Significant Accounting Policies
a. Company
American Restaurant Group, Inc., (the "Company") a Delaware
corporation, through its subsidiaries, operates middle and upper price
full-service restaurants, casual-style restaurants and quick-service
restaurants primarily in California and Texas. The Company is a
subsidiary of American Restaurant Group Holdings, Inc. ("Holdings"),
also a Delaware corporation. At year end 1996, 1997 and 1998, the
Company and its subsidiaries, collectively referred to herein as the
Company, operated 247, 231 and 224 restaurants, respectively.
b. Operations
The Company's operations are affected by local and regional economic
conditions, including competition in the restaurant industry. The
Company has had recurring operating losses in recent years and was
unable to meet a required debt principal payment during 1997. A
recapitalization plan was consummated during 1998. This plan
substantially eliminated debt principal payments until the year 2003.
Management believes the recapitalization will also allow it to effect
changes in its operations and has already implemented measures to
reduce overhead costs. However, the Company does not expect to
generate sufficient cash flow from operations in the future to make
principal payments on long-term debt upon maturity in the year 2003
and, accordingly, it expects to refinance all or a portion of such
debt, obtain new financing or possibly sell assets.
c. Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
d. Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions which affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities and
the reported amounts of revenues and expenses. Actual results could
differ from those estimates.
e. Inventories and Prepaid Expenses
Inventories consist of food, beverages and supplies and are valued at
the lower of cost (first-in, first-out method) or market value. When a
restaurant is opened, the initial purchase of expendable equipment,
such
F-8
<PAGE> 34
as china, glassware and silverware, is recorded as prepaid supplies
and is not depreciated; however, all replacements are expensed.
f. Advertising Costs
Advertising costs are accrued as a percentage of sales and expensed
during the year. Production costs are allocated to the related
advertisements. At year end, production costs for advertisements which
have not been aired are included in prepaid expenses. Prepaid
advertising costs of $912,000 and $1,199,000 were included in prepaid
expenses at December 29, 1997 and December 28, 1998, respectively.
Advertising expenses included in net income (loss) were $20,870,000,
$16,995,000 and $17,254,000 in fiscal years 1996, 1997 and 1998,
respectively.
g. Preopening Costs
Effective December 28, 1998, the Company adopted Statement of Position
Number 98-5, Reporting on the Costs of Start-up Activities (SOP 98-5)
which was issued in April 1998. SOP 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. Although not material to the Company's financial
position or results of operations, any previously deferred preopening
costs were expensed as of the end of fiscal year 1998. Preopening
expense was $588,000, $2,077,000 and $582,000 in 1996, 1997 and 1998,
respectively. Fiscal 1998 includes $248,000 of previously deferred
preopening costs expensed at year-end.
h. Property and Equipment
Property and equipment is carried at the lower of cost or, if
impaired, at the estimated fair value of the asset (see Note 2,
"Impairment of Long-Lived Assets"). The Company provides for
depreciation and amortization based upon the estimated useful lives of
depreciable assets using the straight-line method. Estimated useful
lives are as follows:
Land improvements 20 years
Buildings 30 to 35 years
Leasehold improvements Life of lease
Fixtures and equipment 3 to 10 years
Property held under capital leases Life of lease
Substantially all of the Company's assets, including property and
equipment, are pledged as collateral on the senior debt of the
Company.
i. Interest Costs
Interest costs incurred during the construction period of restaurants
are capitalized. The Company capitalized approximately $168,000,
$90,000 and $68,000 for the years ended 1996, 1997 and 1998,
respectively.
j. Other Assets
Other assets include intangible assets, leasehold interests, franchise
rights, liquor licenses and cost in excess of net assets acquired.
These costs are amortized using the straight-line method over the
periods estimated to be benefited, not greater than 40 years.
F-9
<PAGE> 35
Deferred debt costs are amortized using the effective interest method over the
related debt term.
Estimated useful lives are as follows:
Intangible assets 3 to 40 years
Deferred debt costs Term of debt
Leasehold interests Life of lease
Franchise rights 35 years
Liquor licenses 40 years
Cost in excess of net assets acquired 40 years
The following table details the components of intangible assets
included in the accompanying consolidated balance sheets (in
thousands):
<TABLE>
<CAPTION>
December 29, December 28,
1997 1998
------------ ------------
<S> <C> <C>
Assembled workforce $ 4,862 $ 4,513
Goodwill 3,295 2,944
Trademark/service marks 2,632 2,390
Acquisition costs 1,143 1,048
Other 443 439
-------- ---------
Total $ 12,375 $ 11,334
======== =========
</TABLE>
k. Insurance
The Company self-insures the first $100,000 of its annual medical and
dental benefits per family. The Company also self-insures up to the
first $350,000 per incident for property and casualty risks inherent
in its operations. Reserves for losses are established currently based
upon estimated obligations.
l. Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash,
accounts receivable and payable and debt instruments. The carrying
values of all financial instruments, other than debt instruments, are
representative of their fair value due to their short-term maturity.
The fair value of the Company's long-term debt instruments is
estimated based on the current rates offered to the Company.
m. Franchise Income
The Company franchises Grandy's quick-service restaurants. Franchise
fees are recognized as income as services are rendered in accordance
with Financial Accounting Standards Number 45, Accounting for Franchise
Fee Revenue (SFAS 45). Franchise royalties based upon a percentage of
the franchisees' gross sales are accrued currently. Revenues include
franchise royalties and franchise fees of $1,995,000, $2,586,000, and
$1,800,000, respectively, for the years ended 1996, 1997 and 1998.
There were 56, 61 and 57 franchised restaurants at year end 1996, 1997
and 1998, respectively.
n. Accounting Period
The Company's fiscal year ends on the last Monday in December. The
years ended 1996 included 53 weeks while 1997 and 1998 included 52
weeks.
F-10
<PAGE> 36
o. Reclassifications
Certain prior year accounts have been reclassified to conform with the
current year presentation.
2. Impairment of Long-Lived Assets
Effective December 25, 1995, the Company adopted the provisions of
Financial Accounting Standards Number 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of (SFAS
121). This statement changed the method of evaluating the impairment of
the Company's long-lived assets, including intangible assets. Various
assumptions and estimates are used to determine fair value. The
calculation of the impairment loss is based on estimated future cash
flows. The estimates used to determine the impairment adjustment can
change in the near term as the economy and operations of specific
restaurants change. The adoption of SFAS 121, together with the effects of
continuing adverse operations of certain restaurants, resulted in pre-tax
non-cash charges, excluding non-cash charges related to the Grandy's
franchise conversion program, of $13,205,000, $3,047,000 and $1,415,000
for the years ended 1996, 1997 and 1998, respectively.
3. Grandy's Franchise Conversion Program
In 1998, the Company announced a plan to convert a majority of its
company-owned Grandy's restaurants to franchised restaurants. The Company
intends to sell the property and equipment, including applicable lease
rights, and enter into franchise agreements with the purchasers.
The Company has reviewed the value of the recorded assets, including an
allocation of intangible assets, for each restaurant to be converted. A
write-down has been recorded for each restaurant where the carrying
amount of the tangible and intangible assets exceeds the anticipated
net proceeds. A total write-down of $4,789,000 was recorded in 1998 as
well as a provision of $245,000 for other costs, including severence,
associated with the conversion program. The restaurants will remain in
operation pending their conversion to franchised restaurants;
therefore, the Company will continue to depreciate the remaining
assets.
4. Lease Obligations
The Company leases certain of its operating facilities under terms ranging
up to 40 years. These leases are classified as both operating and capital
leases. Certain of the leases contain provisions calling for additional
rentals based on sales or other provisions obligating the Company to pay
related property taxes and certain other expenses.
F-11
<PAGE> 37
The following is a summary of property held under leases that have been
capitalized and included in the accompanying consolidated balance sheets
(in thousands):
<TABLE>
<CAPTION>
December 29, December 28,
1997 1998
------------ ------------
<S> <C> <C>
Property $12,375 $11,634
Less-- Accumulated depreciation 7,687 7,580
------- -------
$ 4,688 $ 4,054
======= =======
</TABLE>
The following represents the minimum lease payments remaining under
noncancelable operating leases and capitalized leases as of December 28,
1998 (in thousands):
<TABLE>
<CAPTION>
Operating Capitalized
Fiscal years ending Leases Leases
<S> <C> <C>
1999 $ 25,645 $ 1,791
2000 24,567 1,694
2001 23,153 1,694
2002 21,478 1,612
2003 20,176 1,178
Thereafter 222,745 3,848
-------- --------
Total minimum lease payments $337,764 11,817
======== ========
Less -- Imputed interest
(8.75% to 15.5%) 4,301
--------
Present value of minimum lease payments 7,516
Less -- Current portion 950
Long-term portion $ 6,566
========
</TABLE>
Rental expense (including $895,000, $802,000 and $733,000, respectively,
for contingent rents under operating leases) was $24,814,000, $30,676,000
and $28,656,000 during 1996, 1997 and 1998, respectively.
F-12
<PAGE> 38
5. Long-Term Debt
Long-term debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 29, December 28,
1997 1998
------------ ------------
<S> <C> <C>
Senior secured notes, interest
only due semi-annually beginning
August 15, 1998 at 11.5%, principal
due February 15, 2003 -- $158,600
Senior secured notes, interest
only due semi-annually beginning
September 15, 1992 at 12%, amended to
13% beginning August 28, 1996 due
quarterly, principal due September 15,
1998, paid February 25, 1998 84,356 --
Senior secured notes, interest
only due semi-annually beginning
March 15, 1994 at 12%, amended to
13% beginning August 28, 1996 due
quarterly, principal due September 15,
1998, paid February 25, 1998 41,906 --
Subordinated notes payable, quarterly
principal payments of $5,625,000
due beginning December 31, 1998,
interest only due quarterly at 10.25%,
redeemed February 25, 1998 45,000 --
Other 1,694 1,327
-------- --------
172,956 159,927
Less-- Current portion 537 421
-------- --------
Long-term portion $172,419 $159,506
======== ========
</TABLE>
Maturities of the remaining long-term debt during each of the five fiscal
years subsequent to year end 1998 are $421,000, $281,000, $315,000,
$310,000 and $158,600,000.
In March 1997, the Company's senior secured noteholders consented to an
amendment which provided for an increase of $10 in the stated principal
amount for each $1,000 in stated principal amount of consenting
noteholders. This resulted in an increase of approximately $1,617,000 in
the stated principal amount of the senior secured notes and $1,200,000 in
the actual outstanding principal amount of the senior secured notes.
In September 1997, the Company failed to make the $40,531,000 payment that
was due under the sinking fund provisions of its senior secured notes. The
Company was late, but within the grace period, in paying the quarterly
interest of $4,124,000 on its senior secured notes which was due September
15, 1997. The Company was restricted from paying the quarterly interest of
$1,153,000 on its subordinated debt which was due September 15, 1997
F-13
<PAGE> 39
and December 15, 1997. In December 1997, the Company was late, but within
the grace period, in paying the quarterly interest of $4,107,000 on its
senior secured notes which was due December 15, 1997.
In February, 1998, the Company completed a recapitalization plan (the
"Recapitalization Plan") which included, among other things, the issuance
by the Company of $155,000,000 of $11.5% senior secured notes due 2003
(the "Notes").
Also as part of the Recapitalization Plan, the Company concurrently(a)
redeemed at par senior secured notes of $126,381,000 together with
interest thereon and repaid certain other interest-bearing short-term
liabilities, (b) repurchased its existing 10.25% subordinated notes at 65%
of the par amount of $45,000,000 together with interest thereon, and
canceled the related warrants to purchase common stock of Holdings, and
(c) established a $15,000,000 revolving credit facility to include letters
of credit. A quarterly fee of 0.5% per annum is payable on the unused
portion of the letter of credit facility and a quarterly fee of 2.5% per
annum is payable on outstanding letters of credit. At year end 1997 and
1998, the Company had outstanding letters of credit primarily related to
its self-insurance programs of approximately $11,005,000 and $4,316,000,
respectively.
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. In addition, holders of the Holdings Debentures with an
accreted value of approximately $10,757,000 surrendered such debentures
for cancellation and received $3,600,000 principal amount of the Notes
which was in addition to the $155,000,000 of 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 direct 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.
6. Income Taxes
The Company's state income tax provision, all of which was current, was
$81,000, $63,000 and $67,000 in 1996, 1997 and 1998, respectively. No
provision for Federal income taxes was required in any year.
F-14
<PAGE> 40
The income tax effects of temporary differences that give rise to significant
portions of the Company's deferred income tax assets and liabilities are as
follows (in thousands):
<TABLE>
<CAPTION>
Year ended
-----------------------------
December 29, December 28,
1997 1998
------------ -------------
<S> <C> <C>
Deferred income tax asset:
Reserves and other accrued
expenses not currently deductible
for tax purposes $ 2,833 $ 2,147
Long-lived asset impairment not
recognized on tax return 6,675 9,219
Tax gain on sale/leaseback
transactions, net 3,545 3,342
Net operating loss carryforward 45,899 42,743
-------- --------
Deferred income tax asset 58,952 57,451
-------- --------
Deferred income tax liability:
Tax depreciation greater than
depreciation for financial
reporting purposes (8,034) (7,879)
Costs capitalized for financial
reporting purposes and
expensed on tax return (4,338) (4,150)
Other, net (1,906) (1,789)
-------- --------
Deferred income tax liability (14,278) (13,818)
-------- --------
Deferred asset, net of deferred
liability 44,674 43,633
Valuation allowance (44,674) (43,633)
-------- --------
Net deferred income tax asset $ -- $ --
======== ========
</TABLE>
The effective tax rate differs from the Federal statutory rate of 34
percent as a result of the following items (in thousands):
<TABLE>
<CAPTION>
Year ended
----------------------------------------------
December 30, December 29, December 28,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Federal income tax benefit
at statutory rates $(13,049) $ (6,878) 49
$ 49
State income tax provision
for which no federal
benefit was recorded 53 42 44
Losses for which no federal
benefit was recorded 12,834 6,125 3,792
Nondeductible items, principally
intangible amortization 243 774 964
Cancellation of debt income -- -- (4,782)
-------- -------- --------
Provision for income taxes $ 81 $ 63 $ 67
======== ======== ========
</TABLE>
F-15
<PAGE> 41
As a result of the Recapitalization Plan (see Note 4), the Company no
longer files consolidated income tax returns with Holdings.
The Company recorded cancellation of indebtedness income in the amount of
$14,000,000. Under certain circumstances, cancellation of indebtedness
income is not taxable for federal income tax purposes. However, U.S.
income tax law requires that net operating losses and other "tax
attributes" be reduced as follows:
Net operating loss carryforward $139,800,000
Reduction (14,000,000)
------------
Adjusted net operating loss carryforward $125,800,000
============
The Company's federal net operating loss carryforwards expire in 2004 to
2013. At December 28, 1998, the Company had available federal general
business credit carryforwards of $11,989,000, expiring in 2004 to 2013.
7. Commitments and Contingencies
The Company is obligated under employment agreements with certain officers
and employees. Obligations under the agreements are $1,163,000, provide
for periodic increases and expire in 1999 unless extended.
The Company has been named as defendant in various lawsuits. It is the
opinion of management that the outcome of such litigation will not
materially affect the Company's financial position or results of
operations.
8. Cumulative Preferred Stock, Manditorily Redeemable
As part of the Recapitalization Plan in February, 1998, the Company issued
35,000 preferred stock units of the Company (the "Units"). Each Unit
consists of $1,000 initial liquidation preference of 12% senior pay-in-kind
exchangeable preferred stock and one common stock purchase warrant
initially to purchase 2.66143 shares of the common stock at an initial
exercise price of one cent per share. The Company's cumulative preferred
stock is monitorilty redeemable on August 15, 2003, for cash at a price per
share equal to 110% of the then applicable liquidation preference.
9. Redeemable Cumulative Senior and Junior Preferred Stock
At year end 1997 and 1998, there were 1,400,000 authorized shares of
senior preferred stock (one cent par value). There were no issued or
outstanding shares.
At year end 1997 and 1998, there were 100,000 authorized shares of junior
preferred stock (one cent par value). There were no issued or outstanding
shares.
10. Common Stock
Common stock (one cent par value) authorized, issued and outstanding is as
follows:
<TABLE>
<CAPTION>
December 29, December 28,
1997 1998
------------ ------------
<S> <C> <C>
Shares authorized 1,000,000 1,000,000
Shares issued 93,150 128,081
Shares outstanding 93,150 128,081
</TABLE>
F-16
<PAGE> 42
As of December 29, 1997, all of the Company's common stock was owned by
American Restaurant Group Holdings, Inc. The Chairman and certain other
members of the Company's management owned all outstanding shares of
Holdings common stock other than shares of Holdings common stock issued to
holders of the debenture units and rights to acquire shares of Holdings
common stock issuable upon exercise of options and warrants.
In conjunction with the Recapitalization Plan, the Company issued shares
of common stock to certain members of the Company's management (the
"Management Stockholders") in an aggregate amount equal to 15% of the
common stock on a fully diluted basis. Such Management Stockholders have
entered into a voting trust agreement in accordance with which the
Chairman and Chief Executive Officer of the Company will exercise all
voting and substantially all other rights to which such Management
Stockholders would otherwise be entitled until August 15, 2005, or the
earlier termination of the agreement. The Management Stockholders also
entered into a stockholders agreement with the remaining Company
stockholders, which provides that the parties will agree to vote all of
their shares of the Company's equity securities so that the Board of
Directors of the Company consists of five directors, with two directors
designated by TCW Asset Management Company, two by the Management
Stockholders, with the remaining director being an independent director
initially designated by the initial purchaser of the Notes.
11. Savings Plan
The American Restaurant Group Savings and Investment Plan (The "Savings
Plan") is a 401(k) plan established for the benefit of employees who have
satisfied certain requirements. These requirements include completion of
one year of service with a minimum of 1,000 hours worked. Subject to
applicable limits imposed on tax qualified plans, eligible employees may
elect pre-tax contributions up to 18.5% of a participant's total earnings
for a calendar year (but not in excess of $9,500 for 1998). The Company
makes matching contributions to the Savings Plan equal to 25% of the
participant's contributions up to 6% of the participant's earnings. During
fiscal 1996, 1997 and 1998, the Company contributed approximately
$161,000, $200,000 and $174,000 to the Savings Plan, respectively. At
December 1998 there were approximately 900 participants in the plan.
12. Segment Reporting
The Company adopted Financial Accounting Standards Number 131 Disclosures
about Segments of an Enterprise and Related Information (SFAS 131), as of
December 28, 1998. SFAS 131 established standards for reporting
information about operating segments in annual financial statements and
requires selected information about operating segments in interim
financial reports issued to stockholders. It also established standards
for related disclosures about products and services, and geographic areas.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by
the chief operating decision maker, or decision making group, in deciding
how to allocate resources and in assessing performance.
The Company's reportable operating segments include Black Angus, Grandy's,
and the Other Concepts (Spoons, Spectrum, National Sports Grill, and the
former Velvet Turtle, none of which individually meet the separate
disclosure requirements of SFAS 131).
F-17
<PAGE> 43
The applicable line items for the Company's reportable segments reconciled
to the consolidated financial statements for the years 1996, 1997 and 1998
are as follows (in thousands except for number of restaurants):
<TABLE>
<CAPTION>
December 30, December 29, December 28,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Number of restaurants
Black Angus 101 102 101
Grandy's 103 89 85
Other Concepts 43 40 38
--------- --------- ---------
Total Consolidated 247 231 224
========= ========= =========
Revenues (a)
Black Angus $ 254,946 $ 264,175 $ 265,536
Grandy's 90,962 78,832 70,799
Other Concepts 99,516 97,032 90,593
--------- --------- ---------
Total Consolidated $ 445,424 $ 440,039 $ 426,928
========= ========= =========
Gross profit (b)
Black Angus $ 33,361 $ 36,237 $ 37,832
Grandy's 10,596 10,086 8,322
Other Concepts 8,742 9,467 8,210
--------- --------- ---------
Total Consolidated $ 52,699 $ 55,790 $ 54,364
========= ========= =========
Depreciation and amortization
Black Angus $ 9,259 $ 9,143 $ 6,967
Grandy's 4,455 3,085 2,954
Other Concepts 2,856 2,005 2,141
Corporate 3,816 5,394 2,576
--------- --------- ---------
Total Consolidated $ 20,386 $ 19,627 $ 14,638
========= ========= =========
Non-cash charge for impairment
of long-lived assets
Black Angus $ 13 $ 964 $ 149
Grandy's 9,012 1,468 2
Other Concepts 4,182 615 1,264
Corporate (2) -- --
--------- --------- ---------
Total Consolidated $ 13,205 $ 3,047 $ 1,415
========= ========= =========
Grandy's conversion plan:
Non-cash charge for assets
to be disposed
Black Angus $ -- $ -- $ --
Grandy's -- -- 5,034
Other Concepts -- -- --
--------- --------- ---------
Total Consolidated $ -- $ -- $ 5,034
========= ========= =========
</TABLE>
F-18
<PAGE> 44
<TABLE>
<CAPTION>
December 30, December 29, December 28,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Interest expense, net
Black Angus $ 14,562 $ 12,254 $ 10,992
Grandy's 3,186 1,249 796
Other Concepts 4,505 3,867 4,109
Corporate 5,461 6,615 4,372
-------- -------- --------
Total Consolidated $ 27,714 $ 23,985 $ 20,269
======== ======== ========
Provision for income taxes
Black Angus $ 1,057 $ 2,928 $ 4,976
Grandy's 32 19 15
Other Concepts 381 465 3
Corporate 81 63 67
Eliminations (1,470) (3,412) (4,994)
-------- -------- --------
Total Consolidated $ 81 $ 63 $ 67
======== ======== ========
Extraordinary gain (loss) on
extinquishment of debt
Black Angus $ -- $ -- $ --
Grandy's -- -- --
Other Concepts -- -- --
Corporate (1,688) -- 9,559
-------- -------- --------
Total Consolidated $ (1,688) $ -- $ 9,559
======== ======== ========
Net income (loss) without
corporate overhead charges
to segments (c)
Black Angus $ 1,579 $ 4,373 $ 8,123
Grandy's (14,901) (5,473) (6,887)
Other Concepts (5,792) (153) (2,008)
Corporate (20,817) (22,451) (4,079)
Eliminations 1,470 3,412 4,994
-------- -------- --------
Total Consolidated $(38,461) $(20,292) $ 143
======== ======== ========
Net income (loss) with
corporate overhead
charges to segments (c)
Black Angus $ 7,434
Grandy's (7,166)
Other Concepts (3,373)
Corporate (1,746)
Eliminations 4,994
--------
Total Consolidated $ 143
========
</TABLE>
F-19
<PAGE> 45
<TABLE>
<CAPTION>
December 30, December 29, December 28,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Total assets
Black Angus $ 96,731 $ 93,094 $ 83,443
Grandy's 43,966 38,446 31,741
Other Concepts 29,645 28,593 27,542
Corporate 19,433 12,937 18,505
Eliminations (17,646) (21,059) (10,772)
--------- --------- ---------
Total Consolidated $ 172,129 $ 152,011 $ 150,459
========= ========= =========
Capital Expenditures
Black Angus $ 10,022 $ 2,480 $ 7,876
Grandy's 1,485 995 1,413
Other Concepts 1,731 1,138 3,007
Corporate 41 37 20
--------- --------- ---------
Total Consolidated $ 13,279 $ 4,650 $ 12,316
========= ========= =========
</TABLE>
(a) Reflects sales and revenues from external customers. Intersegment sales
and revenues are not applicable.
(b) Gross profit is defined as revenues less food and beverage, payroll
and direct operating costs.
(c) In 1998, the Company began charging certain corporate overhead
general and administrative expenses to the divisions. Because it is not
practicable to restate prior years, the Company has presented 1998 net
income (loss) without the corporate charges for comparison to prior years.
Net income (loss) in 1998 with the inclusion of corporate overhead
expenses is not comparable to prior years.
F-20
<PAGE> 46
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 Purchase Agreement dated as of September 11, 1996 by and
between ARG Property Management Corporation and ARG
Enterprises, Inc. and ARG Properties I, LLC.***
2.2 Master lease dated September 11, 1996 between ARG
Properties I, LLC, as Landlord and ARG Enterprises, Inc.
as Tenant.***
2.3 Lease #06152 dated September 11, 1996 between Captec Net
Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for
Bloomington, Minnesota.***
2.4 Lease #06153 dated September 11, 1996 between Captec Net
Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for
Fridley, Minnesota.***
2.5 Lease #06154 dated September 11, 1996 between Captec Net
Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for
Minnetonka, Minnesota.***
2.6 Lease #06155 dated September 11, 1996 between Captec Net
Lease Realty, Inc. and ARG Enterprises, Inc. as Tenant for
Roseville, Minnesota.***
2.7 Lease dated September 11, 1996 between Safeway Inc. as
Landlord and ARG Enterprises, Inc. as Tenant.***
2.8 Guaranty of Lease dated September 11, 1996 by ARG
Enterprises, Inc. as Tenant to ARG Properties I, LLC as
Landlord.***
2.9 A Guaranty of Lease dated September 11, 1996 by ARG
Enterprises, Inc. as Tenant to Captec Net Lease Realty,
Inc. as Landlord for each of four Minnesota
restaurants.***
2.10 Guaranty of Lease dated September 11, 1996 by ARG
Enterprises, Inc. as Tenant and Safeway Inc. as
Landlord.***
3.1 Amended and Restated Certificate of Incorporation of the
Company filed with the Secretary of State of Delaware on
July 23, 1991.*
</TABLE>
<PAGE> 47
<TABLE>
<S> <C>
3.2 Certificate of Amendment to Amended and Restated
Certificate of Incorporation of the Company filed with the
Secretary of State of Delaware on March 21, 1992. *
3.3 Amended and Restated Certificate of Incorporation of the
Company filed with the Secretary of State of Delaware on
February 23, 1998. ****
3.4 By-Laws of the Company. *
4.1 Indenture dated as of February 25, 1998 between the
Company and U.S. Trust Company of California, N.A., as
Trustee (including specimen certificate of 11.5% Senior
Secured Note due 2003). ****
4.2 Warrant Agreement dated as of February 25, 1998 between
the Company and U.S. Trust Company of California, N.A., as
warrant agent (including specimen certificate of Warrant).
****
4.3 Registration Rights Agreement dated as of February 25,
1998 between the Company and Jefferies & Company, Inc.
****
4.4 Securityholders' and Registration Right Agreement dated as
of February 25, 1998 between the Company and Jefferies &
Company, Inc., as purchaser. ****
4.5 Management Registration Right Agreement dated as of
February 28, 1998 between the Company and the Management
Stockholders. ****
4.6 Certificate of Designation filed with the Secretary of
State of Delaware on February 24, 1998. ****
4.7 Certificate of Correction to the Certificate of
Designation filed with the Secretary of State of Delaware
on February 25, 1998. ****
4.8 Form of Indenture relating to the 12% Senior Subordinated
Debentures to be entered into between the Company and a
trustee (including specimen certificate of 12% Senior
Subordinated Debenture due 2003). *****
9.1 Common Stock Voting Trust and Transfer Agreement dated as
of February 24, 1998 among the Company and the
stockholders parties thereto and Anwar S. Soliman, as
voting trustee. ****
9.2 Securityholders Agreement dated as of February 25, 1998
among the Company, American Restaurant Group Holdings,
Inc., Jefferies & Company, Inc., TCW Asset Management
Company and the Management Stockholders. ****
10.1 Amended and Restated Employment Agreement dated as of
December 14, 1993 between the Company and Anwar S.
Soliman. **
10.2 Amended and Restated Employment Agreement dated as of
December 14, 1993 between the Company and Ralph S.
Roberts. **
</TABLE>
<PAGE> 48
<TABLE>
<S> <C>
21.1 Subsidiaries of the Company. **
27.1 Financial Data Schedule
- -------------------
* Incorporated by reference to the Registrant's Registration
Statement No. 33-48183 on Form S-4 filed with the
Securities and Exchange Commission on May 28, 1992 as
amended with Amendment No. 1 filed on September 11, 1992.
** Incorporated by reference to the Registrant's Registration
Statement No. 33-74010 on Form S-4 filed with the
Securities and Exchange Commission on January 12, 1994.
*** Incorporated by reference to the Registrant's Current
Report on Form 8-K dated September 13, 1996 filed with the
Securities and Exchange Commission on September 30, 1996.
**** Incorporated by reference to the Registrant's Annual
Report on Form 10-K dated December 29, 1997 filed with the
Securities and Exchange Commission on March 30, 1998.
***** Incorporated by reference to the Registrant's Registration
Statement No. 333-55861 on Amendment No. 1 to Form S-4
filed with the Securities and Exchange Commission on July
29, 1998.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 28, 1998 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 28, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS ON FORM 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1998
<PERIOD-START> DEC-30-1997
<PERIOD-END> DEC-28-1998
<CASH> 8,832,000
<SECURITIES> 0
<RECEIVABLES> 5,406,000
<ALLOWANCES> 602,000
<INVENTORY> 5,716,000
<CURRENT-ASSETS> 22,460,000
<PP&E> 216,423,000
<DEPRECIATION> 125,858,000
<TOTAL-ASSETS> 150,459,000
<CURRENT-LIABILITIES> 62,077,000
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> (119,176,000)
<TOTAL-LIABILITY-AND-EQUITY> 150,459,000
<SALES> 426,928,000
<TOTAL-REVENUES> 426,928,000
<CGS> 135,873,000
<TOTAL-COSTS> 236,691,000
<OTHER-EXPENSES> 14,638,000
<LOSS-PROVISION> (45,000)
<INTEREST-EXPENSE> 20,269,000
<INCOME-PRETAX> (9,349,000)
<INCOME-TAX> 67,000
<INCOME-CONTINUING> (9,416,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 9,559,000
<CHANGES> 0
<NET-INCOME> 143,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
