<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 2000
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OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-12692
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MORTON'S RESTAURANT GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3490149
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
3333 New Hyde Park Road, Suite 210, New Hyde Park, New York 11042
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(Address of principal executive offices) (zip code)
516-627-1515
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter 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
--- ---
As of November 8, 2000, the registrant had 4,136,752 Shares of its Common Stock,
$.01 par value, outstanding.
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of October 1, 2000 and January 2, 2000 3-4
Consolidated Statements of Income for the three and nine month periods ended
October 1, 2000 and October 3, 1999 5
Consolidated Statements of Cash Flows for the nine month periods ended October 1, 2000
and October 3, 1999 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-13
Item 3. Quantitative and Qualitative Disclosure about Market Risk 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
<PAGE>
Item 1. Financial Statements
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(amounts in thousands)
<TABLE>
<CAPTION>
October 1, January 2,
2000 2000
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,002 $ 5,806
Accounts receivable 905 1,093
Inventories 6,553 7,134
Landlord construction receivables, prepaid expenses and other
current assets 2,920 2,724
Deferred income taxes 6,297 5,699
-------- --------
Total current assets 18,677 22,456
-------- --------
Property and equipment, at cost:
Furniture, fixtures and equipment 33,232 30,696
Leasehold improvements 46,091 38,002
Land 6,236 6,236
Construction in progress 3,925 2,281
-------- --------
89,484 77,215
Less accumulated depreciation and amortization 15,600 10,500
-------- --------
Net property and equipment 73,884 66,715
-------- --------
Intangible assets, net of accumulated amortization of $4,604 at
October 1, 2000 and $4,286 at January 2, 2000 11,391 11,709
Other assets and deferred expenses, net of accumulated
amortization of $689 at October 1, 2000 and $698 at
January 2, 2000 6,016 5,970
Deferred income taxes 5,138 7,511
-------- --------
$115,106 $114,361
======== ========
</TABLE>
(Continued)
3
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
October 1, January 2,
2000 2000
---- ----
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,884 $ 7,870
Accrued expenses 17,627 22,036
Current portion of obligations to financial institutions
and capital leases 4,615 4,422
Accrued income taxes 275 140
--------- ---------
Total current liabilities 29,401 34,468
Obligations to financial institutions and capital leases,
less current maturities 85,626 60,970
Other liabilities 5,072 6,855
--------- ---------
Total liabilities 120,099 102,293
--------- ---------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.01 par value per share. Authorized 3,000,000
shares, no shares issued or outstanding -- --
Common stock, $.01 par value per share. Authorized
25,000,000 shares, issued and outstanding 6,766,650 shares at
October 1, 2000 and 6,758,200 shares at January 2, 2000 68 68
Nonvoting common stock, $.01 par value per share. Authorized
3,000,000 shares, no shares issued or outstanding -- --
Additional paid-in capital 62,941 62,849
Accumulated other comprehensive income (loss) (87) (79)
Accumulated deficit (21,061) (27,146)
Less treasury stock at cost, 2,631,482 shares at October 1, 2000
and 1,381,190 shares at January 2, 2000 (46,854) (23,624)
--------- ---------
Total stockholders' equity (deficit) (4,993) 12,068
--------- ---------
$ 115,106 $ 114,361
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 1, October 3, October 1, October 3,
2000 1999 2000 1999
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues $ 56,314 $ 45,688 $ 178,510 $ 147,209
Food and beverage costs 19,522 15,538 60,550 50,176
Restaurant operating expenses 25,542 21,246 77,045 65,265
Pre-opening costs, depreciation, amortization and
non-cash charges 2,455 1,750 8,473 4,472
General and administrative expenses 4,435 3,594 14,365 11,703
Marketing and promotional expenses 1,342 1,174 4,887 4,114
Nonrecurring benefit -- (159) -- (159)
Interest expense, net 1,696 1,116 4,497 3,097
--------- --------- --------- ---------
Income before income taxes and cumulative
effect of a change in an accounting principle 1,322 1,429 8,693 8,541
Income tax expense 397 357 2,608 2,135
--------- --------- --------- ---------
Income before cumulative effect of a change
in an accounting principle 925 1,072 6,085 6,406
Cumulative effect of a change in an accounting principle, net of
income tax benefit of $1,357 -- -- -- 2,281
--------- --------- --------- ---------
Net income $ 925 $ 1,072 $ 6,085 $ 4,125
========= ========= ========= =========
Net income per share - basic:
Before cumulative effect of a change in an accounting principle $ 0.21 $ 0.19 $ 1.29 $ 1.06
Cumulative effect of a change in an accounting principle -- -- -- (0.38)
--------- --------- --------- ---------
Net income $ 0.21 $ 0.19 $ 1.29 $ 0.68
========= ========= ========= =========
Net income per share - diluted:
Before cumulative effect of a change in an accounting principle $ 0.20 $ 0.18 $ 1.25 $ 1.03
Cumulative effect of a change in an accounting principle -- -- -- (0.37)
--------- --------- --------- ---------
Net income $ 0.20 $ 0.18 $ 1.25 $ 0.66
========= ========= ========= =========
Weighted average common and potential common shares
outstanding:
Basic 4,322 5,777 4,704 6,056
========= ========= ========= =========
Diluted 4,548 5,920 4,886 6,208
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
October 1, October 3,
2000 1999
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,085 $ 4,125
Adjustments to reconcile net income to net cash provided
by operating activities:
Cumulative effect of a change in an accounting principle -- 2,281
Depreciation, amortization and other non-cash charges 5,629 3,191
Deferred income taxes 1,775 1,306
Change in assets and liabilities:
Accounts receivable 183 (79)
Inventories 570 787
Prepaid expenses and other assets (298) (50)
Accounts payable, accrued expenses and other liabilities (6,006) (3,817)
Accrued income taxes 135 (220)
-------- --------
Net cash provided by operating activities 8,073 7,524
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (10,879) (5,726)
-------- --------
Net cash used by investing activities (10,879) (5,726)
-------- --------
Cash flows from financing activities:
Principal reduction on obligations to financial institutions and
capital leases (7,723) (11,376)
Proceeds from obligations to financial institutions 29,877 23,058
Purchases of treasury stock (23,230) (13,026)
Net proceeds from issuance of stock 92 111
-------- --------
Net cash used by financing activities (984) (1,233)
-------- --------
Effect of exchange rate changes on cash (14) (57)
-------- --------
Net (decrease) increase in cash and cash equivalents (3,804) 508
Cash and cash equivalents at beginning of period 5,806 2,117
-------- --------
Cash and cash equivalents at end of period $ 2,002 $ 2,625
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 1, 2000 and October 3, 1999
1) The accompanying unaudited, consolidated financial statements have been
prepared in accordance with instructions to Form 10-Q and, therefore, do not
include all information and footnotes normally included in financial statements
prepared in conformity with generally accepted accounting principles. They
should be read in conjunction with the consolidated financial statements of
Morton's Restaurant Group, Inc. and subsidiaries (the "Company") for the fiscal
year ended January 2, 2000 filed by the Company on Form 10-K with the Securities
and Exchange Commission on March 31, 2000.
The accompanying financial statements are unaudited and include all
adjustments (consisting of normal recurring adjustments and accruals) that
management considers necessary for a fair presentation of its financial position
and results of operations for the interim periods presented. The results of
operations for the interim periods are not necessarily indicative of the results
that may be expected for the entire year.
The Company uses a fiscal year which consists of 52 weeks. Approximately
every six or seven years, a 53rd week will be added.
2) For the purposes of the consolidated statements of cash flows, the Company
considers all highly liquid instruments purchased with a maturity of three
months or less to be cash equivalents. The Company paid cash interest and fees,
net of amounts capitalized, of approximately $4,090,000 and $2,736,000, and
income taxes, net of refunds, of approximately $810,000 and $929,000, for the
nine months ended October 1, 2000 and October 3, 1999, respectively. During the
first nine months of fiscal 2000 and 1999, the Company entered into capital
lease arrangements for approximately $2,730,000 and $2,057,000, respectively,
for restaurant equipment. In addition, during the third quarter of fiscal 1999
the Company entered into sale-leaseback transactions for existing restaurant
equipment aggregating $6,000,000.
3) Based on a strategic assessment of trends and a downturn in comparable
revenues of Bertolini's Authentic Trattorias, during the fourth quarter of
fiscal 1998, pursuant to the approval of the Board of Directors, the Company
recorded a nonrecurring, pre-tax charge of $19,925,000 representing the
write-down of impaired Bertolini's restaurant assets, the write-down and accrual
of lease exit costs associated with the closure of specified Bertolini's
restaurants as well as the write-off of the residual interests in Mick's and
Peasant restaurants. The Company performed an in-depth analysis of historical
and projected operating results and, as a result of significant operating
losses, identified several nonperforming restaurants which have all been closed.
At October 1, 2000 and January 2, 2000, included in "Accrued expenses" in the
accompanying consolidated balance sheets is approximately $2,295,000 and
$2,582,000 representing the lease disposition liabilities related to the closing
of these nonperforming restaurants. Additionally, the analysis identified
several underperforming restaurants, which reflected a pattern of historical
operating losses and negative cash flow, as well as continued projected negative
cash flow and operating results for 1999 and 2000. Accordingly, the Company
recorded an impairment charge in the fourth quarter of fiscal 1998 to write-down
these impaired assets and will contemplate their potential closure based upon
future operating results. One such underperforming restaurant was closed in
September 1999 and one in September 2000. (See "Part II - Other Information,
Item 1. Legal Proceedings".)
7
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4) Beginning in fiscal 1999, in accordance with its adoption of Statement of
Position 98-5 ("SOP 98-5"), "Reporting on the Costs of Start-up Activities", the
Company expenses all costs incurred during start-up activities, including
pre-opening costs, as incurred. In connection with the adoption, the Company
recorded a charge for the cumulative effect of an accounting change of
approximately $2,281,000, net of income tax benefits of approximately $1,357,000
in the first quarter of fiscal 1999.
5) During fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". The components of
comprehensive income for the nine months ended October 1, 2000 and October 3,
1999 are as follows:
<TABLE>
<CAPTION>
October 1, 2000 October 3, 1999
--------------- ---------------
(amounts in thousands)
<S> <C> <C>
Net income $ 6,085 $ 4,125
Other comprehensive income (loss):
Foreign currency translation (8) (83)
------- -------
Total comprehensive income $ 6,077 $ 4,042
======= =======
</TABLE>
6) Effective April 3, 2000, the Company changed the estimated useful lives
for depreciation of computer equipment and software, from periods ranging from
three to ten years to periods ranging from three to five years, so as to more
accurately reflect the relative replacement periods. As a result of such change,
the quarters ended July 2, 2000 and October 1, 2000 each included approximately
$48,000 of additional depreciation expense.
7) The Company is involved in various legal actions. See "Part II - Other
Information, Item 1. Legal Proceedings" on page 14 of this Form 10-Q for a
discussion of these legal actions.
8
<PAGE>
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Revenues increased $10.6 million, or 23.3%, to $56.3 million for the three
month period ended October 1, 2000, from $45.7 million during the comparable
1999 period. Of the increase in revenues, $6.9 million was attributable to
incremental restaurant revenues from ten new restaurants opened after January 4,
1999 and $4.5 million, or 10.7%, was attributable to additional comparable
revenues from restaurants open all of both periods. Revenues for the six closed
Bertolini's restaurants (see Note 3) decreased by $0.8 million compared to the
third quarter of fiscal 1999. Average revenue per restaurant open for a full
period increased 11.9% for the quarter ended October 1, 2000. Higher revenues
for the third quarter of fiscal 2000 reflect the impact of price increases of
approximately 1% in each of September 1999, February 2000, and May 2000.
Revenues increased $31.3 million, or 21.3%, to $178.5 million for the nine
month period ended October 1, 2000, from $147.2 million for the comparable 1999
period. Of the increase in revenues, $20.6 million was attributable to
incremental restaurant revenues from ten new restaurants opened after January 4,
1999 and $13.4 million, or 9.8%, was attributable to additional comparable
revenues from restaurants open all of both periods. Revenues for the six closed
Bertolini's restaurants (see Note 3) decreased by $2.7 million compared to the
first nine months of fiscal 1999. Average revenue per restaurant open for a full
period increased 11.0% for the nine months ended October 1, 2000. Higher
revenues for the first nine months of fiscal 2000 reflect the impact of price
increases of approximately 1% in each of September 1999, February 2000, and in
May 2000.
Percentage changes in comparable restaurant revenues for the three and
nine month periods ended October 1, 2000 versus October 3, 1999 for restaurants
open all of both periods are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended October 1, 2000 Ended October 1, 2000
Percentage Change Percentage Change
----------------- -----------------
<S> <C> <C>
Morton's 12.3% 11.5%
Bertolini's 0.5% -1.2%
Total 10.7% 9.8%
</TABLE>
Food and beverage costs increased from $15.5 million for the three month
period ended October 3, 1999 to $19.5 million for the three month period ended
October 1, 2000 and increased from $50.2 million for the nine month period ended
October 3, 1999 to $60.5 million for the nine month period ended October 1,
2000. These costs as a percentage of revenues increased from 34.0% for the three
month period ended October 3, 1999 to 34.7% for the comparable 2000 period and
decreased from 34.1% for the nine month period ended October 3, 1999 to 33.9%
for the comparable 2000 period.
Restaurant operating expenses, which include labor, occupancy and other
operating expenses, increased from $21.2 million for the three month period
ended October 3, 1999 to $25.5 million for the three month period ended October
1, 2000, an increase of $4.3 million. For the nine months ended October 1, 2000,
these costs increased from $65.3 million during the 1999 period, to $77.0
million for the comparable 2000 period. Those costs as a percentage of revenues
decreased 1.1% from 46.5% for the three month period ended October 3, 1999 to
45.4% for the three month period ended October 1, 2000 and
9
<PAGE>
decreased 1.1% from 44.3% for the nine month period ended October 3, 1999 to
43.2% for the comparable 2000 period. Included in the second quarter of fiscal
2000 is a gain of approximately $1.1 million resulting from the disposition of
certain restaurant assets.
Pre-opening costs, depreciation, amortization and non-cash charges
increased from $1.8 million for the three month period ended October 3, 1999 to
$2.5 million for the three month period ended October 1, 2000 and increased as a
percentage of revenues by 0.5%. For the nine months ended October 1, 2000, such
costs were $8.5 million versus $4.5 million for the comparable 1999 period.
Beginning in fiscal 1999, in accordance with the adoption of SOP 98-5 (see Note
4), the Company expenses all costs incurred during start-up activities,
including pre-opening costs, as incurred. Pre-opening costs incurred and
recorded as expense for the three month periods ended October 1, 2000 and
October 3, 1999 were $1.2 million and $0.7 million, respectively, and for the
nine month period ended October 1, 2000 and October 3, 1999 were $2.8 million
and $1.3 million, respectively. The timing of restaurant openings, as well as
costs per restaurant, affected the amount of such costs. Included in the first
quarter of fiscal 2000 are charges of approximately $0.5 million related to the
March 2000 disposition of one Bertolini's restaurant and included in the second
quarter of fiscal 2000 are charges of approximately $0.6 million related to the
write-down, to net realizable values, of another Bertolini's restaurant. Such
charges were not previously provided for in the fiscal 1998 charge. (See Note
3.) Effective April 3, 2000, the Company changed the estimated useful lives for
computer equipment and software. (See Note 6). As a result of such change, the
second and third quarters of 2000 each included approximately $48,000 of
additional depreciation expense.
General and administrative expenses for the three month period ended
October 1, 2000 were $4.4 million, which increased from $3.6 million for the
three month period ended October 3, 1999. For the nine months ended October 1,
2000, such costs were $14.4 million versus $11.7 million for the comparable 1999
period. Increases in such costs are driven by incremental costs associated with
increased restaurant development, training and salary costs. Such costs as a
percentage of revenues were 7.9% for the three month period ended October 1,
2000, which is consistent with the three month period ended October 3, 1999 and
8.0% for the nine months ended October 1, 2000, an increase of 0.1% from the
nine month period ended October 3, 1999.
Marketing and promotional expenses were $1.3 million for the three month
period ended October 1, 2000, an increase of $0.2 million from the comparable
1999 period, and $4.9 million for the nine month period ended October 1, 2000,
an increase of $0.8 million from the comparable 1999 period. Such costs as a
percentage of revenues were 2.4% for the three month period ended October 1,
2000, a decrease of 0.2% from the comparable 1999 period and 2.7% for the nine
month period ended October 1, 2000, a decrease of 0.1% from the comparable 1999
period.
During the third quarter of fiscal 1999, the Company settled all claims
relating to a lawsuit. The amount of the final settlement, including all related
legal and other costs, resulted in the Company recording a nonrecurring benefit
of approximately $159,000.
Interest expense, net of interest income, increased to $1.7 million for
the three month period ended October 1, 2000 from $1.1 million for the three
month period ended October 3, 1999. For the nine month periods ended October 1,
2000 and October 3, 1999, interest expense was $4.5 million and $3.1 million,
respectively. The increase in interest expense was due to increased borrowings
and higher interest rates.
Income tax expense of $2.6 million for the nine month period ended October
1, 2000 represents Federal income taxes, which were partially offset by the
establishment of additional deferred tax assets relating to FICA and other tax
credits that were generated during fiscal 2000, as well as state income taxes.
The Company's effective tax rate increased in part due to higher state income
taxes.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At present and in the past, the Company has had, and may have in the
future, negative working capital balances. The working capital deficit is
produced principally as a result of the Company's investment in long-term
restaurant operating assets and real estate. The Company does not have
significant receivables or inventories and receives trade credit based upon
negotiated terms in purchasing food and supplies. Funds available from cash
sales not needed immediately to pay for food and supplies or to finance
receivables or inventories are used for noncurrent capital expenditures and or
payments of long-term debt balances under revolving credit agreements.
The Company and Fleet National Bank ("Fleet") (formally BankBoston, N.A.)
entered into the Second Amended and Restated Revolving Credit and Term Loan
Agreement dated as of June 19, 1995, as amended from time to time (the "Credit
Agreement"), pursuant to which the Company's credit facility (the "Credit
Facility") is $77,500,000, consisting of a $24,500,000 term loan (the "Term
Loan") and a $53,000,000 revolving credit facility (the "Revolving Credit").
Loans made pursuant to the Credit Agreement bear interest at a rate equal to the
lender's base rate (plus applicable margin) or, at the Company's option, the
Eurodollar Rate (plus applicable margin). At October 1, 2000, calculated
pursuant to the Credit Agreement, the Company's applicable margin, on the
Revolving Credit was 0.00% on base rate loans and 2.00% on Eurodollar Rate loans
and the Company's applicable margin on the Term Loan was 0.25% on base rate
loans and 2.25% on Eurodollar Rate loans. In addition, the Company is obligated
to pay fees of 0.25% on unused loan commitments less than $10,000,000, 0.375% on
unused loan commitments greater than $10,000,000 and a per annum letter of
credit fee (based on the face amount thereof) equal to the applicable margin on
the Eurodollar Rate loans. Fleet has syndicated portions of the Credit Facility
to First Union National Bank, Imperial Bank and Chase Manhattan Bank.
As of October 1, 2000 and January 2, 2000, the Company had outstanding
borrowings of $65,575,000 and $41,625,000, respectively, under the Credit
Facility. At October 1, 2000, $292,000 was restricted for letters of credit
issued by the lender on behalf of the Company. Unrestricted and undrawn funds
available to the Company under the Credit Agreement were $11,633,000 and the
weighted average interest rate on all borrowings under the Credit Facility was
8.6%.
Quarterly principal installments on the Term Loan of $250,000 will be due
at the end of each calendar quarter from September 30, 2001 through December 31,
2003. Quarterly principal installments of $2,500,000 will be due from March 31,
2004 through December 31, 2004 and $3,000,000 from March 31, 2005 through
December 31, 2005. The Revolving Credit will be payable in full on December 31,
2005. Total amounts of principal payable by the Company under the Credit
Agreement during the five years subsequent to October 1, 2000 amount to $0 in
2000, $500,000 in 2001, $1,000,000 in 2002, $1,000,000 in 2003 and $10,000,000
in 2004. The borrowings under the Credit Agreement have been classified as
non-current on the Company's consolidated balance sheet since the Company may
borrow amounts due under the Term Loan from the Revolving Credit, including the
Term Loan principal payments commencing in September 2001.
Borrowings under the Credit Agreement are secured by all tangible and
intangible assets of the Company. The Credit Agreement, among other things,
contains certain restrictive covenants with respect to the Company that create
limitations (subject to certain exceptions) on: (i) the incurrence or existence
of additional indebtedness or the granting of liens on assets or contingent
obligations; (ii) the making of certain investments; (iii) mergers, dispositions
of assets or consolidations; (iv) prepayment of certain other indebtedness; (v)
making capital expenditures above specified amounts; (vi) the repurchase of the
Company's outstanding common stock; and (vii) the ability to make certain
fundamental changes or to change materially the present method of conducting the
Company's business. The Credit Agreement also requires the Company to satisfy
certain financial ratios and tests. As of October 1, 2000, the Company believes
it was in compliance with such covenants.
11
<PAGE>
On April 7, 1998 and May 29, 1998, the Company entered into interest rate
swap agreements with Fleet on notional amounts of $10,000,000 each. Interest
rate swap agreements are used to reduce the potential impact of interest rate
fluctuations relating to $20,000,000 of variable rate debt. The term of the
agreements are for three years and may be extended for an additional two years
at the option of Fleet.
In March 1997, a subsidiary of the Company and CNL Financial I, Inc.
("CNL") entered into a $2,500,000 loan agreement (the "CNL Loan") which matures
on April 1, 2007 and has a 10.002% per annum interest rate. Principal and
interest payments will be made over the term of the loan. At October 1, 2000 and
January 2, 2000 the outstanding principal balance of the CNL Loan was
approximately $1,889,000 and $2,039,000, respectively, of which approximately
$217,000 and $202,000, respectively, has been included in "Current portion of
obligations to financial institutions and capital leases" in the accompanying
consolidated balance sheets.
During 1999 and 1998, various subsidiaries of the Company and FFCA
Acquisition Corporation ("FFCA") entered into loan commitments, aggregating
$27,000,000, to fund the purchases of land and construction of restaurants.
During 2000, 1999 and 1998, $1,927,000, $4,757,000 and $5,315,000, respectively,
was funded, with the interest rates ranging from 7.68% to 9.26% per annum.
Monthly principal and interest payments have been scheduled over twenty-year
periods. At October 1, 2000 and January 2, 2000 the aggregate outstanding
principal balance due to FFCA was approximately $11,641,000 and $9,943,000,
respectively, of which approximately $276,000 and $206,000, respectively, of
principal is included in "Current portion of obligations to financial
institutions and capital leases" in the accompanying consolidated balance
sheets.
During the first nine months of fiscal 2000, the Company's net investment
in fixed assets and related investment costs, including pre-opening costs, net
of capitalized leases approximated $13.7 million. The Company estimates that it
will expend up to an aggregate of $15.0 million in 2000 to finance ordinary
refurbishment of existing restaurants and capital expenditures, net of landlord
development and rent allowances and net of equipment lease and mortgage
financing, for new restaurants. During the first nine months of fiscal 2000, the
Company opened Morton's of Chicago steakhouses in Denver, CO; the second in that
metropolitan area, Hartford, CT and in Jacksonville, FL and relocated the
Morton's in Las Vegas, NV. During October 2000, the Company opened Morton's of
Chicago steakhouses in Great Neck (Long Island), NY; San Juan, PR and Vancouver,
Canada. The Company has also executed agreements to open Morton's in Honolulu,
HI; La Jolla, CA; Louisville, KY; New Orleans, LA; Reston, VA; Salt Lake City,
UT; and our second in Hong Kong. The Company has entered into various equipment
lease, sale-leaseback and mortgage financing agreements with several financial
institutions of which approximately $19.9 million in the aggregate is available
for future fundings. The Company anticipates that funds generated through
operations and funds available through equipment lease and mortgage financing
commitments as well as funds available under the Credit Agreement will be
sufficient to fund planned expansion.
In fiscal 1999 and 1998, the Company's board of directors authorized
repurchases of the Company's outstanding common stock of up to approximately
1,930,600 shares. In March 2000, the board of directors increased the Company's
authorization by an additional 500,000 shares. In July 2000, the board of
directors increased the Company's authorization by an additional 500,000 shares.
As of October 1, 2000, the Company had repurchased 2,635,090 shares at an
average stock price of $17.80.
NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting
for Derivative Instruments and Hedging Activities" ("Statement 133"), as amended
by Statement 137 "Accounting for Derivative Instruments and Hedging Activities
Deferral of the Effective Date of SFAS No. 133" and
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Statement 138 "Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment of FASB Statement No. 133", is effective for fiscal
quarters of fiscal years beginning after June 15, 2000. Statement 133
standardizes the accounting for derivative instruments and requires that all
derivative instruments be carried at fair value. The Company believes the impact
that Statement 133 will have on its consolidated financial statements will not
be material at the date of initial adoption on January 1, 2001.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains various "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements, written, oral or otherwise made, represent the Company's expectation
or belief concerning future events. Without limiting the foregoing, the words
"believes," "thinks," "anticipates," "plans," "expects," and similar expressions
are intended to identify forward-looking statements. The Company cautions that
these statements are further qualified by important economic and competitive
factors that could cause actual results to differ materially, or otherwise, from
those in the forward-looking statements, including, without limitation, risks of
the restaurant industry, including a highly competitive environment and industry
with many well-established competitors with greater financial and other
resources than the Company, and the impact of changes in consumer tastes, local,
regional and national economic and market conditions, restaurant profitability
levels, expansion plans, demographic trends, traffic patterns, employee
availability and benefits, cost increases, and other risks detailed from time to
time in the Company's periodic earnings releases and reports filed with the
Securities and Exchange Commission. In addition, the Company's ability to expand
is dependent upon various factors, such as the availability of attractive sites
for new restaurants, the ability to negotiate suitable lease terms, the ability
to generate or borrow funds to develop new restaurants and obtain various
government permits and licenses and the recruitment and training of skilled
management and restaurant employees. Accordingly, such forward-looking
statements do not purport to be predictions of future events or circumstances
and therefore there can be no assurance that any forward-looking statement
contained herein will prove to be accurate.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
The inherent risk in market risk sensitive instruments and positions
primarily relates to potential losses arising from adverse changes in foreign
currency exchange rates and interest rates.
As of October 1, 2000, the Company operated three international locations,
one in Singapore (opened May 1998), one in Toronto (opened September 1998), and
one in Hong Kong (opened December 1999). As a result, the Company is subject to
risk from changes in foreign exchange rates. These changes result in cumulative
translation adjustments which are included in other comprehensive income. The
potential loss resulting from a hypothetical 10% adverse change in quoted
foreign currency exchange rates, as of October 1, 2000, is not considered
material.
The Company is subject to market risk from exposure to changes in interest
rates based on its financing activities. This exposure relates to borrowings
under the Company's Credit Facility which are payable at floating rates of
interest. The Company has entered into interest rate swap agreements to manage
some of its exposure to interest rate fluctuations. The change in fair value of
long-term debt resulting from a hypothetical 10% fluctuation in interest rates
as of October 1, 2000 is not considered material.
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MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
During fiscal 1998, the Company identified several under performing
Bertolini's restaurants and authorized a plan for the closure or abandonment of
specified restaurants which have all been closed. The Company is involved in
various legal actions relating to such closures, however, the Company does not
believe that the ultimate resolution of these actions will have a material
effect beyond that recorded during fiscal 1998.
The Company is involved in other various legal actions incidental to the
normal conduct of its business. Management does not believe that the ultimate
resolution of these actions will have a material adverse effect on the Company's
consolidated financial position, results of operations, liquidity or capital
resources.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.04 (q) Thirteenth Amendment to the Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated September 29,
2000 among the Registrant, Peasant Holding Corp., Morton's of
Chicago, Inc. and Fleet National Bank, individually and as
agent.
27.0 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this
report was filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MORTON'S RESTAURANT GROUP, INC.
------------------------------------------
(Registrant)
Date November 14, 2000 By: /s/ ALLEN J. BERNSTEIN
------------------ ------------------------------------
Allen J. Bernstein
Chairman of the Board, President
and Chief Executive Officer
Date November 14, 2000 By: /s/ THOMAS J. BALDWIN
------------------ ------------------------------------
Thomas J. Baldwin
Executive Vice President,
Chief Financial Officer and Director
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INDEX TO EXHIBITS
The following is a list of all exhibits filed as part of this report.
Exhibit
Number Page Document
------ ---- --------
4.04(q) Thirteenth Amendment to the Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated September
29, 2000 among the Registrant, Peasant Holding Corp.,
Morton's of Chicago, Inc. and Fleet National Bank,
individually and as agent.
27.0 Financial Data Schedule
16
