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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 July 2, 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 August 8, 2000, the registrant had 4,396,068 Shares of its Common Stock,
$.01 par value, outstanding.
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MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
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<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of July 2, 2000 and January 2, 2000 3-4
Consolidated Statements of Income for the three and six month periods ended
July 2, 2000 and July 4, 1999 5
Consolidated Statements of Cash Flows for the six month periods ended July 2, 2000
and July 4, 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
PART II - OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Stockholders 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
2
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Item 1. Financial Statements
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(amounts in thousands)
<TABLE>
<CAPTION>
JULY 2, JANUARY 2,
2000 2000
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,227 $ 5,806
Accounts receivable 1,151 1,093
Inventories 6,691 7,134
Landlord construction receivables, prepaid expenses and other
current assets 4,244 2,724
Deferred income taxes 6,194 5,699
--------- ---------
Total current assets 20,507 22,456
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Property and equipment, at cost:
Furniture, fixtures and equipment 32,063 30,696
Leasehold improvements 40,707 38,002
Land 6,236 6,236
Construction in progress 4,129 2,281
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83,135 77,215
Less accumulated depreciation and amortization 14,199 10,500
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Net property and equipment 68,936 66,715
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Intangible assets, net of accumulated amortization of $4,498 at July 2, 2000 and
$4,286 at January 2, 2000 11,497 11,709
Other assets and deferred expenses, net of accumulated amortization of $628
at July 2, 2000 and $698 at January 2, 2000 5,982 5,970
Deferred income taxes 5,615 7,511
--------- ---------
$112,537 $114,361
========= =========
</TABLE>
(Continued)
3
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MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
JULY 2, JANUARY 2,
2000 2000
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(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 5,291 $ 7,870
Accrued expenses 19,761 22,036
Current portion of obligations to financial institutions
and capital leases 4,542 4,422
Accrued income taxes 269 140
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Total current liabilities 29,863 34,468
Obligations to financial institutions and capital leases,
less current maturities 75,794 60,970
Other liabilities 5,768 6,855
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Total liabilities 111,425 102,293
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Commitments and contingencies
Stockholders' equity:
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 6,760,825 shares at July 2,
2000 and 6,758,200 shares at January 2, 2000 68 68
Nonvoting common stock, $.01 par value per share. Authorized
3,000,000 shares, no shares issued or outstanding - -
Additional paid-in capital 62,877 62,849
Accumulated other comprehensive income (loss) (93) (79)
Accumulated deficit (21,986) (27,146)
Less Treasury stock at cost, 2,288,143 shares at July 2, 2000 and
1,381,190 shares at January 2, 2000 (39,754) (23,624)
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Total stockholders' equity 1,112 12,068
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$ 112,537 $ 114,361
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 2, JULY 4, JULY 2, JULY 4,
2000 1999 2000 1999
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues $ 58,600 $ 48,775 $ 122,195 $101,522
Food and beverage costs 19,603 16,520 41,025 34,640
Restaurant operating expenses 25,150 21,593 51,503 44,019
Pre-opening costs, depreciation, amortization and
non-cash charges 2,939 1,165 6,019 2,721
General and administrative expenses 4,872 3,880 9,930 8,109
Marketing and promotional expenses 1,669 1,514 3,545 2,941
Interest expense, net 1,354 1,071 2,802 1,981
------- ------- ------- -------
Income before income taxes and cumulative
effect of a change in an accounting principle 3,013 3,032 7,371 7,111
Income tax expense 904 758 2,211 1,778
------- ------- ------- -------
Income before cumulative effect of a change
in an accounting principle 2,109 2,274 5,160 5,333
Cumulative effect of a change in an accounting principle, net of
income tax benefit of $1,357 - - - 2,281
-------- -------- -------- -------
Net income $ 2,109 $ 2,274 $ 5,160 $ 3,052
======== ======== ======== ========
Net income per share - basic:
Before cumulative effect of a change in an accounting principle $ 0.45 $ 0.38 $ 1.05 $ 0.86
Cumulative effect of a change in an accounting principle - - - (0.37)
-------- --------- -------- ---------
Net income $ 0.45 $ 0.38 $ 1.05 $ 0.49
======== ========= ======== =========
Net income per share - diluted:
Before cumulative effect of a change in an accounting principle $ 0.43 $ 0.37 $ 1.02 $ 0.84
Cumulative effect of a change in an accounting principle - - - (0.36)
-------- --------- -------- ---------
Net income $ 0.43 $ 0.37 $ 1.02 $ 0.48
======== ========= ======== =========
Weighted average common and potential common shares outstanding:
Basic 4,698 6,037 4,896 6,195
======== ========= ======== =========
Diluted 4,878 6,163 5,055 6,352
======== ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(amounts in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 2, JULY 4,
2000 1999
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(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,160 $ 3,052
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 4,410 2,093
Deferred income taxes 1,401 1,193
Change in assets and liabilities:
Accounts receivable (62) 127
Inventories 435 258
Prepaid expenses and other assets (1,564) 118
Accounts payable, accrued expenses and other liabilities (5,381) (6,649)
Accrued income taxes 129 (152)
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Net cash provided by operating activities 4,528 2,321
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Cash flows from investing activities:
Purchases of property and equipment (5,248) (2,227)
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Net cash used by investing activities (5,248) (2,227)
-------- --------
Cash flows from financing activities:
Principal reduction on obligations to financial institutions (6,520) (3,987)
Proceeds from obligations to financial institutions 19,777 14,958
Purchases of treasury stock (16,130) (11,060)
Net proceeds from issuance of stock 28 59
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Net cash used by financing activities (2,845) (30)
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Effect of exchange rate changes on cash (14) 44
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Net (decrease) increase in cash and cash equivalents (3,579) 108
Cash and cash equivalents at beginning of period 5,806 2,117
-------- -------
Cash and cash equivalents at end of period $ 2,227 $ 2,225
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
6
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MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
July 2, 2000 and July 4, 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. (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 $2,622,000 and $1,671,000,
and income taxes of approximately $736,000 and $706,000, for the six months
ended July 2, 2000 and July 4, 1999, respectively. During the first six
months of fiscal 2000 and 1999, the Company entered into capital lease
arrangements for approximately $1,715,248 and $2,057,000, respectively, for
restaurant equipment.
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 July 2, 2000 and January 2, 2000, included in "Accrued
expenses" in the accompanying consolidated balance sheets is approximately
$2,402,729 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. (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 six months ended July 2, 2000 and July 4, 1999
are as follows:
JULY 2, 2000 JULY 4, 1999
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(amounts in thousands)
Net income $ 5,160 $ 3,052
Other comprehensive income (loss):
Foreign currency translation (14) (5)
--------- ----------
Total comprehensive income $ 5,146 $ 3,047
========= ==========
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 quarter ended July 2, 2000 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
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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 $9.8 million, or 20.1%, to $58.6 million for the
three month period ended July 2, 2000, from $48.8 million during the
comparable 1999 period. Of the increase in revenues, $7.0 million was
attributable to incremental restaurant revenues from nine new restaurants
opened after January 4, 1999 and $3.7 million, or 8.3%, was attributable to
additional comparable revenues from restaurants open all of both periods.
Revenues for the five closed Bertolini's restaurants (see Note 3) decreased
by $0.9 million compared to the second quarter of fiscal 1999. Average
revenue per restaurant open for a full period increased 9.7% for the quarter
ended July 2, 2000. Higher revenues for the second 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 $20.7 million, or 20.4%, to $122.2 million for
the six month period ended July 2, 2000, from $101.5 million for the
comparable 1999 period. Of the increase in revenues, $13.6 million was
attributable to incremental restaurant revenues from nine new restaurants
opened after January 4, 1999 and $9.0 million, or 9.4%, was attributable to
additional comparable revenues from restaurants open all of both periods.
Revenues for the five closed Bertolini's restaurants (see Note 3) decreased
by $1.9 million compared to the first six months of fiscal 1999. Average
revenue per restaurant open for a full period increased 10.9% for the six
months ended July 2, 2000. Higher revenues for the first six 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 six month periods ended July 2, 2000 versus July 4, 1999 for restaurants
open all of both periods are as follows:
THREE MONTHS SIX MONTHS
ENDED JULY 2, 2000 ENDED JULY 2, 2000
PERCENTAGE CHANGE PERCENTAGE CHANGE
------------------ -------------------
Morton's 9.9% 11.2%
Bertolini's -1.9% -2.1%
Total 8.3% 9.4%
Food and beverage costs increased from $16.5 million for the three
month period ended July 4, 1999 to $19.6 million for the three month period
ended July 2, 2000 and increased from $34.6 million for the six month period
ended July 4, 1999 to $41.0 million for the six month period ended July 2,
2000. These costs as a percentage of revenues decreased from 33.9% for the
three month period ended July 4, 1999 to 33.5% for the comparable 2000 period
and decreased from 34.1% for the six month period ended July 2, 2000 to 33.6%
for the comparable 2000 period.
Restaurant operating expenses, which include labor, occupancy and
other operating expenses, increased from $21.6 million for the three month
period ended July 4, 1999 to $25.2 million for the three month period ended
July 2, 2000, an increase of $3.6 million. For the six months ended July 2,
2000, these costs increased from $44.0 million during the 1999 period, to
$51.5 million for the comparable 2000 period. Those costs as a percentage of
revenues decreased 1.4% from 44.3% for the three month period ended July 4,
1999 to 42.9% for the three month period ended July 2, 2000 and decreased
1.3% from 43.4% for the six
9
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month period ended July 4, 1999 to 42.1% 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 $1.2 million for the three month period ended July 4, 1999 to
$2.9 million for the three month period ended July 2, 2000 and increased as a
percentage of revenues by 2.6%. For the six months ended July 2, 2000, such
costs were $6.0 million versus $2.7 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 July 2, 2000 and July
4, 1999 were $0.8 million and $0.2 million, respectively, and for the six
month period ended July 2, 2000 and July 4, 1999 were $1.6 million and $0.6
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 quarter of 2000 included approximately
$48,000 of additional depreciation expense.
General and administrative expenses for the three month period ended
July 2, 2000 were $4.9 million, which increased from $3.9 million for the
three month period ended July 4, 1999. For the six months ended July 2, 2000,
such costs were $9.9 million versus $8.1 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 8.3% for the three month period ended July
2, 2000, an increase of 0.3% from the three month period ended July 4, 1999
and 8.1% for the six months ended July 2, 2000, an increase of 0.1% from the
six month period ended July 4, 1999.
Marketing and promotional expenses were $1.7 million, an increase of
$0.2 million, for the three month period ended July 2, 2000 and $3.5 million,
an increase of $0.6 million, for the six month period ended July 2, 2000.
Such costs as a percentage of revenues were 2.8% for the three month period
ended July 2, 2000, a decrease of 0.3% from the comparable 1999 period and
2.9% for the six month period ended July 2, 2000, which was consistent with
the comparable 1999 period.
Interest expense, net of interest income, increased to $1.4 million
for the three month period ended July 2, 2000 from $1.1 million for the three
month period ended July 4, 1999. For the six month periods ended July 2, 2000
and July 4, 1999, interest expense was $2.8 million and $2.0 million,
respectively. The increase in interest expense was due to increased
borrowings and higher interest rates.
Income tax expense of $2.2 million for the six month period ended
July 2, 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.
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
10
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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 $74,500,000, consisting of a $24,500,000 term loan (the
"Term Loan") and a $50,000,000 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 July 2, 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 Corporation, Imperial Bank and
Chase Manhattan Bank.
As of July 2, 2000 and January 2, 2000, the Company had outstanding
borrowings of $55,475,000 and $41,625,000, respectively, under the Credit
Facility. At July 2, 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 $18,733,000 and the
weighted average interest rate on all borrowings under the Credit Facility
was 8.7%.
Quarterly principal installments on the Term Loan of $250,000, which
began March 31, 2000, are due at the end of each calendar quarter from
thereafter through December 31, 2002. Quarterly principal installments of
$2,500,000 are due from March 31, 2003 through December 31, 2003 and
$3,000,000 from March 31, 2004 through December 31, 2004. The Revolving
Credit will be payable in full on December 31, 2004. Borrowings under the
Credit Agreement are secured by all tangible and intangible assets of the
Company. Total amounts of principal payable by the Company under the Credit
Agreement during the five years subsequent to July 2, 2000 amount to $500,000
in 2000, $1,000,000 in 2001, $1,000,000 in 2002, $10,000,000 in 2003 and
$42,975,000 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 March 2000.
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 July 2, 2000, the Company believes it was in compliance with such
covenants.
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.
11
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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 July 2, 2000
and January 2, 2000 the outstanding principal balance of the CNL Loan was
approximately $1,940,000 and $2,039,000, respectively, of which approximately
$212,000 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 July 2, 2000 and January 2, 2000 the aggregate
outstanding principal balance due to FFCA was approximately $11,706,000 and
$9,943,000, respectively, of which approximately $270,000 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 six months of fiscal 1999, the Company's net
investment in fixed assets and related investment costs, including
pre-opening costs, net of capitalized leases approximated $6.9 million. The
Company estimates that it will expend up to an aggregate of $12.0 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. The Company has
entered into various equipment lease, sale-leaseback and mortgage financing
agreements with several financial institutions of which approximately $18.4
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 July 2, 2000, the Company had repurchased 2,290,690
shares at an average stock price of $17.37.
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
Statement 138 "Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment of FASB Statement No. 133", is effective for
fiscal quarters 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 has not determined the
impact that Statement 133 will have on its consolidated financial statements
and believes that such determination will not be meaningful until closer to
the date of initial adoption on January 1, 2001.
12
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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 July 2, 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 July 2,
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 our long-term debt resulting from a hypothetical 10%
fluctuation in interest rates as of July 2, 2000 is not considered material.
13
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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, equity, results of operations,
liquidity and capital resources.
Item 4. Submission of Matters to a Vote of Stockholders
The Company's 2000 Annual Meeting of Stockholders was held on May 9,
2000, for the following purposes: (i) to elect two directors to Class 2 of
the Board of Directors to serve three-year terms and until their successors
are duly elected and qualified, (ii) to ratify the re-appointment of KPMG LLP
as the independent auditors of the Company for the fiscal year ending
December 31, 2000, and (iii) to consider and act upon a proposal to adopt the
2000 Stock Option Plan. Shares were voted on each such matter as follows:
Election of Directors
John J. Connolly For: 4,452,343
Withheld: 186,580
David B. Pittaway For: 4,452,643
Withheld: 186,280
Ratification and Approval of KPMG LLP
For: 4,511,448
Against: 3,410
Abstain: 124,065
Approval of the 2000 Stock Option Plan
For: 2,860,900
Against: 1,073,366
Abstain: 5,054
Broker No Vote: 699,603
In addition, Lee M. Cohn, Dianne H. Russell and Alan A. Teran will
continue to serve as Class 1 directors until the election and qualification
of their successors at the 2002 Annual Meeting of Stockholders. Allen J.
Bernstein, Thomas J. Baldwin and John K. Castle will continue to serve as
Class 3 directors until the election and qualification of their successors at
the 2001 Annual Meeting of Stockholders.
14
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.04(p) Twelfth Amendment to the Second Amended and
Restated Revolving Credit and Term Loan Agreement,
dated July 21, 2000 among the Registrant, Peasant
Holding Corp., Morton's of Chicago, Inc. and
BankBoston, N.A., 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.
15
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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 AUGUST 14, 2000
---------------------------
By: /s/ ALLEN J. BERNSTEIN
--------------------------------------
Allen J. Bernstein
Chairman of the Board, President
and Chief Executive Officer
Date AUGUST 14, 2000 By: /s/ THOMAS J. BALDWIN
--------------------------- --------------------------------------
Thomas J. Baldwin
Executive Vice President,
Chief Financial Officer and Director
16
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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 (p) Twelfth Amendment to the Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated June
21, 2000 among the Registrant, Peasant Holding Corp.,
Morton's of Chicago, Inc. and BankBoston, N.A.,
individually and as agent.
27.0 Financial Data Schedule
17
