UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 24, 1996
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-66392
HOULIHAN'S RESTAURANT GROUP, INC.
Incorporated pursuant to the Laws of Delaware State
Internal Revenue Service - Employer Identification No. 43-0913506
Two Brush Creek Boulevard, Kansas City, Missouri 64112
(816) 756-2200
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 requirements
for the past 90 days. Yes x No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes x No
Number of shares of common stock outstanding as of August 7, 1996: 9,998,012
<PAGE>
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets............................ 3
Consolidated Statements of Income...................... 4
Consolidated Statements of Cash Flows.................. 5
Notes to Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of Financial Condition 9
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................... 14
Signature............................................................. 15
2
<PAGE>
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
June 24, Dec. 25,
1996 1995
-------- --------
(Unaudited)(Audited)
ASSETS
Current assets:
Cash and cash equivalents ............................. $ 11,600 $ 10,314
Receivables ........................................... 1,320 1,661
Inventories ........................................... 2,327 2,276
Other current assets .................................. 2,194 2,918
Deferred income taxes ................................. 1,271 1,401
-------- --------
Total current assets .............................. 18,712 18,570
Property, equipment and leaseholds, net .................. 105,667 104,521
Reorganization value in excess of amounts allocable to
identifiable assets, net .............................. 60,283 62,108
Deferred debt issuance costs, net ........................ 275 330
Other assets, net ........................................ 5,391 5,487
-------- --------
Total assets ...................................... $190,328 $191,016
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capitalized lease
obligations ....................................... $ 57,216 $ 11,202
Accounts payable ...................................... 6,603 8,811
Accrued interest ...................................... 647 676
Accrued liabilities ................................... 13,552 13,375
-------- --------
Total current liabilities ......................... 78,018 34,064
Long-term debt, including capitalized lease obligations,
less current portion .................................. 26,168 72,779
Other liabilities ........................................ 11,516 10,834
Deferred income taxes .................................... 2,726 3,147
-------- --------
Total liabilities ................................. 118,428 120,824
-------- --------
Stockholders' equity:
Common stock-par value $.01 per share, 20,000,000
shares authorized, 9,998,012 shares issued and
outstanding ....................................... 100 100
Additional paid-in capital ............................ 59,900 59,900
Retained earnings ..................................... 11,900 10,192
-------- --------
Total stockholders' equity ........................ 71,900 70,192
-------- --------
Total liabilities and stockholders' equity ........ $190,328 $191,016
======== ========
See accompanying notes to consolidated financial statements.
3
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HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
Quarter Ended Twenty-Six Weeks Ended
---------------------------- ----------------------------
June 24, June 26, June 24, June 26,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ............................. $ 68,224 $ 67,012 $ 135,198 $ 134,419
Cost of sales:
Food and bar costs ................... 19,867 19,576 39,395 39,011
Labor costs .......................... 21,459 21,805 42,810 43,327
Operating expenses (exclusive of
depreciation and amortization
shown separately) ................... 15,557 14,642 31,386 29,270
------------ ----------- ------------ -----------
Total cost of sales ................ 56,883 56,023 113,591 111,608
------------ ----------- ------------ -----------
Gross profit ....................... 11,341 10,989 21,607 22,811
Depreciation and amortization ......... 3,860 3,678 7,644 7,293
General and administrative expenses ... 4,140 3,587 8,559 8,079
Loss on disposition of properties, net. 65 43 204 389
Other (income), net ................... (1,162) (923) (2,441) (1,828)
Interest expense ...................... 1,670 2,178 3,510 4,439
Merger expenses ....................... 584 -- 584 --
------------ ----------- ------------ -----------
Income before taxes ................ 2,184 2,426 3,547 4,439
Income tax provision .................. 1,148 1,085 1,839 2,023
------------ ----------- ------------ -----------
Net income ......................... $ 1,036 $ 1,341 $ 1,708 $ 2,416
============ =========== ============ ===========
Earnings per common and common
equivalent share ..................... $ 0.10 $ 0.13 $ 0.17 $ 0.24
============ =========== ============ ===========
Weighted average common and common
equivalent shares .................... 10,049,322 9,998,012 10,021,307 9,998,012
============ =========== ============ ===========
See accompanying notes to consolidated financial statements.
</TABLE>
4
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HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Twenty-Six Weeks Ended
----------------------
June 24, June 26,
1996 1995
--------- ---------
Cash flows from operating activities:
Net income .......................................... $ 1,708 $ 2,416
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................... 7,644 7,293
Amortization of deferred debt issuance costs .... 55 55
Loss on disposition of properties, net .......... 204 389
Deferred income tax benefit ..................... (291) (87)
Changes in operating assets and liabilities:
Receivables ................................... 341 313
Inventories ................................... (51) (48)
Other current assets .......................... 724 (424)
Accounts payable .............................. (2,208) (2,591)
Accrued interest .............................. (29) 349
Accrued liabilities ........................... 177 322
Other assets .................................... 253 (20)
Other liabilities ............................... 682 1,225
-------- --------
Net cash provided by operating activities ..... 9,209 9,192
-------- --------
Cash flows from investing activities:
Capital expenditures, excluding capital leases ...... (7,464) (6,625)
Proceeds from disposition of properties ............. 138 824
-------- --------
Net cash used for investing activities ........ (7,326) (5,801)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of long-term debt,
excluding capitalized lease obligations ........... 5,000 7,000
Payments on long-term debt, including capitalized
lease obligations ................................ (5,597) (8,480)
-------- --------
Net cash used for financing activities ........ (597) (1,480)
-------- --------
Net increase in cash and cash equivalents .............. 1,286 1,911
Cash and cash equivalents at beginning of period ....... 10,314 10,310
-------- --------
Cash and cash equivalents at end of period ............. $ 11,600 $ 12,221
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest ............................................ $ 3,484 $ 4,035
======== ========
Income taxes ........................................ $ 1,418 $ 792
======== ========
Disclosure of Accounting Policy:
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
See accompanying notes to consolidated financial statements.
5
<PAGE>
HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended June 24, 1996
(Unaudited)
1. Basis of Presentation
The consolidated financial statements of Houlihan's Restaurant Group, Inc. and
subsidiary (the "Company") included in this Form 10-Q have been prepared without
audit (except that the balance sheet information as of December 25, 1995 has
been derived from consolidated financial statements which were audited) in
accordance with the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes that the disclosures are adequate to make the
information presented not misleading. The accompanying consolidated financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 25, 1995.
Company management believes that the information furnished herein reflects all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of the interim periods presented. The results
of operations for the interim periods presented are not necessarily indicative
of those to be expected for the full year.
The Company owns and operates full service casual dining restaurants under the
names of Houlihan's(R), Darryl's(R), Bristol Bar & Grill(sm), Braxton Seafood
Grill & Chophouse(R), Chequers Bar & Grill(sm), J. Gilbert's(sm), Charley's
Place(sm), Phineas(sm) and The Buena Vista(R).
2. Earnings Per Common and Common Equivalent Share
Earnings per common and common equivalent share are based on the weighted
average number of shares outstanding and the assumed exercise of outstanding
dilutive stock options issued under the Company's stock option plans less the
number of treasury shares assumed to be purchased from the proceeds using the
average market price of the Company's common stock. At June 24, 1996, warrants
to purchase up to 47,740 shares of common stock at a price of $37.92 per share
were outstanding. Additional shares of common stock issuable upon the exercise
of these warrants have not been considered in the calculation as the effect
would be antidilutive.
6
<PAGE>
3. Long-Term Debt
Long-term debt, including capitalized lease obligations, is comprised of the
following (in thousands):
June 24, December 25,
1996 1995
--------------- ---------------
Bank debt:
Term Loan $ 34,612 $ 40,112
Real Estate Loan 40,000 40,000
Revolving Credit Loan 6,000 1,000
Capitalized lease obligations 2,772 2,869
--------------- ---------------
83,384 83,981
Less: Current portion 57,216 11,202
--------------- ---------------
$ 26,168 $ 72,779
=============== ===============
On June 24, 1996, the Company's bank credit agreement was amended to revise
certain covenants of the agreement (the "Third Amendment"). Effective for the
second fiscal quarter of 1996, the minimum interest coverage ratio was reduced
to 3.8 and the minimum fixed charge coverage ratio was reduced to 1.6. The Third
Amendment also reduced the aggregate Revolving Credit Facility commitment to
$12,500,000 from $15,000,000 effective October 1, 1996. As of June 24, 1996, the
Company was in compliance with all covenants of its bank credit agreement as
amended.
The Real Estate Loan and the Revolving Credit Facility are scheduled to mature
on March 31, 1997. The Company expects to refinance its outstanding bank debt
concurrent with the closing of the merger transaction with Zapata Corporation
(see Note 5).
4. Merger Expenses
Merger expenses as of June 24, 1996 consisted primarily of professional fees
related to the merger of the Company with Zapata Corporation (see Note 5).
5. Contingencies and Commitments
Merger Agreement
On June 4, 1996, the Company entered into a definitive merger agreement with
Zapata Corporation "Zapata", providing for Zapata's acquisition of the Company
for a combination of cash and stock valued at $8.00 per share. Approximately 35%
of Zapata's outstanding shares of common stock are owned by the Glazer Group,
which owns approximately 73% of the Company's outstanding stock. The merger
agreement was approved by special committees of the directors of both the
Company and Zapata who are not members of the Glazer family and was also
approved by the Company's Board of Directors.
7
<PAGE>
The merger agreement provides that the Company will be merged into a newly
organized subsidiary of Zapata. Holders of the Company's common stock may elect
to receive for their shares (i) $8.00 in cash, without interest, (ii) $8.00 in
market value of Zapata common stock, (iii) $4.00 in cash, without interest, and
$4.00 in market value of Zapata common stock, or (iv) a residual combination of
cash and Zapata common stock (aggregating $8.00 in value) determined so that the
aggregate merger consideration to all holders of the Company's common stock is
equally divided between cash and Zapata common stock.
The merger is subject, among other things, to approval by the stockholders of
the Company and Zapata, registration of the Zapata shares issuable in the merger
under the Securities Act of 1933 and receipt of consent from the Company's
lending bank or the refinancing of the Company's outstanding bank debt. Subject
to the satisfaction of these conditions, it is expected that the transaction
will close in September 1996.
Severance Agreements
In prior years, the Company entered into agreements with certain officers which
provide for severance payments in the event the employment of such officers is
terminated upon a change of control of the Company, as defined in the
agreements. As of June 24, 1996, the contingent liability under the agreements
for all participants was approximately $2,300,000.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" presented in the Company's Annual Report on Form 10-K for the fiscal
year ended December 25, 1995.
General
The Company operates full service casual dining restaurants in 23 states. At
June 24, 1996, it operated 99 restaurants, including 61 Houlihan's, 28 Darryl's,
four upscale Seafood Grills and six Specialty Restaurants comprised of four
dinnerhouses, one upscale steakhouse and the Buena Vista Cafe. At that date, the
Company also franchised 25 Houlihan's restaurants in ten states and the
Commonwealth of Puerto Rico.
Results of Operations
The following table sets forth information derived from the Company's
Consolidated Statements of Income expressed as a percentage of net sales.
<TABLE>
Quarter Ended Twenty-Six Weeks Ended
--------------------------- ---------------------------
June 24, June 26, June 24, June 26,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales:
Food and bar costs 29.1 29.2 29.1 29.0
Labor costs 31.5 32.5 31.7 32.2
Operating expenses 22.8 21.9 23.2 21.8
------------ ------------ ------------ ------------
Total cost of sales 83.4 83.6 84.0 83.0
------------ ------------ ------------ ------------
Gross profit 16.6 16.4 16.0 17.0
Depreciation and amortization 5.7 5.5 5.7 5.4
General and administrative expense 6.1 5.4 6.3 6.0
Loss on disposition of properties, net 0.1 0.1 0.2 0.3
Other (income), net (1.8) (1.4) (1.9) (1.3)
Interest expense 2.4 3.2 2.6 3.3
Merger expenses 0.9 - 0.4 -
------------ ------------ ------------ ------------
Income before income taxes 3.2 3.6 2.7 3.3
Income tax provision 1.7 1.6 1.4 1.5
------------ ------------ ------------ ------------
Net income 1.5 % 2.0 % 1.3 % 1.8 %
============ ============ ============ ============
</TABLE>
Net Sales. Net sales for the second quarter increased 1.8% from the same quarter
of 1995 and increased 0.6% for the twenty-six week period over the same period
of 1995. The increase was primarily due to sales generated by nine new
restaurants that were opened during 1995 and 1996. The new restaurants included
seven Houlihan's, one Seafood Grill and one Specialty Restaurant.
9
<PAGE>
The increase in second quarter sales was also attributable to an increase in
comparable sales of 1.1% and 1.0% in the Darryl's concept and the Seafood Grills
concept, respectively. The increase in sales for the year-to-date period was
offset by poor sales during January and February due to inclement weather which
caused 43 of the Company's restaurants to close for an average of 1.7 days.
"Comparable restaurants" are restaurants open throughout fiscal years 1995 and
1996. The increases (decreases) in comparable restaurant sales, by concept, for
the second quarter and twenty-six week period of 1996 versus 1995 were as
follows:
<TABLE>
Second Quarter Twenty-Six Week Period
-------------------------------------- --------------------------------------
Food Bar Total Food Bar Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Houlihan's (2.0) % (3.6) % (2.4) % (2.1) % (4.5) % (2.7) %
Darryl's 1.5 (1.1) 1.1 (0.6) (1.2) (0.7)
Seafood Grills 0.7 2.5 1.0 0.9 3.0 1.3
Specialty (2.6) (3.9) (3.0) (5.2) (4.6) (5.0)
Total Company (1.0) % (3.0) % (1.4) % (1.7) % (3.7) % (2.1) %
</TABLE>
Cost of Sales. Cost of sales as a percentage of net sales decreased during the
second quarter of 1996 from the same period of 1995 and increased during the
1996 year-to-date period from the same period of 1995. Cost of sales are
composed of three major items: food and bar costs, labor costs and operating
expenses.
Combined food and bar costs decreased to 29.1% in the second quarter of 1996
from 29.2% for the same period in 1995 primarily due to operational improvements
and efficiencies, as well as stable commodity prices during the quarter.
Year-to-date food and bar costs increased to 29.1% in 1996 from 29.0% in 1995
due in part to cost increases and inefficiencies caused by the implementation of
a new menu in the Darryl's concept during the first quarter. The new menu, which
emphasizes quality wood-fired steaks, was implemented in all Darryl's
restaurants by April 1996.
Labor costs decreased in both the 1996 quarter and year-to-date period compared
to the 1995 quarter and year-to-date period due primarily to cost savings
realized from new labor scheduling systems that were implemented in a majority
of the Company's restaurants. The new systems are currently in place in all
Houlihan's restaurants and are scheduled to be rolled-out to the remainder of
the Company's restaurants by August 1996.
Operating expenses increased to 22.8% from 21.9% during the second quarter and
increased to 23.2% from 21.8% during the year-to-date period due primarily to
increases in promotional expenses. During 1996, the Company tested various
advertising promotions in selected markets using radio, print, billboard and
television. Additionally, promotional expenses increased due to the amortization
of costs associated with the agreement for the right to name the Tampa Bay
Buccaneer Football Stadium "Houlihan's Stadium".
10
<PAGE>
Depreciation and Amortization Expense. Depreciation and amortization expense as
a percentage of net sales increased during the second quarter and year-to-date
period due to increased capital expenditures from new unit construction and
ongoing restaurant renovation and replacements.
General and Administrative Expenses. General and administrative expenses
increased to 6.1% from 5.4% during the second quarter and increased to 6.3% from
6.0% during the year-to-date period. The increase was primarily caused by
increasing costs associated with the continuing rapid growth of the Company's
franchise program. The most significant expense related to the training teams
associated with franchise restaurant openings. During the 1996 year-to-date
period, seven franchise Houlihan's were opened as compared to the same period in
1995, in which two franchise Houlihan's were opened.
Other Income. Other income increased during the 1996 quarter and year-to-date
period primarily as a result of an increase in franchise revenues over the prior
periods. As of June 24, 1996, the Company franchised 25 restaurants and had
signed agreements with 15 franchise development groups providing for the
development of an aggregate of 53 additional Houlihan's over a five to six year
period.
Interest Expense. Interest expense decreased in the 1996 second quarter and
year-to-date period compared to same periods in 1995 due to lower interest rates
during the period, as well as a lower outstanding debt balance. The average
interest rate on the Company's outstanding bank debt for the 1996 year-to-date
period was 7.5% as compared to 9.1% for the same period in 1995.
Merger Expenses. Merger expenses as of June 24, 1996 consisted primarily of
professional fees related to the merger of the Company with Zapata Corporation
(see Liquidity and Capital Resources).
Income Taxes. The effective income tax rate, as a percentage of earnings before
income taxes, was 41.5% for the second quarter of 1996, compared to 44.7% for
the same period of 1995. The year-to-date effective rate was 44.5% in 1996 and
45.6% in 1995. The lower effective rate for the second quarter was a result of
the increase in pretax income for the period in relation to the fixed
amortization of the reorganization value in excess of amounts allocable to
identifiable assets.
Liquidity and Capital Resources
The Company relies principally upon internally generated funds to finance its
restaurant operations and to fund working capital expenditures. Historically,
the Company has operated with working capital deficiencies. The Company's
ability to operate with such deficiencies is due to the nature of the restaurant
business, which does not require significant investments in accounts receivable
or inventories and which generally allows the procurement of food and supplies
on trade credit. At June 24, 1996, the Company had cash and cash equivalents of
11
<PAGE>
$11,600,000 and a working capital deficiency of $59,306,000. The deficiency is
the result of an increase in the Company's current portion of long-term debt.
Current maturities include the $40,000,000 Real Estate Loan and the $6,000,000
Revolving Credit Loan which are scheduled to mature on March 31, 1997.
Additionally, the Company is required to make a $5,500,000 principal payment on
September 30, 1996 and March 31, 1997 on its outstanding Term Loan. The Company
expects to refinance all of its outstanding bank debt concurrent with the
closing of the merger transaction with Zapata Corporation (see below).
On June 4, 1996, the Company entered into a definitive merger agreement with
Zapata Corporation, providing for Zapata's acquisition of the Company for a
combination of cash and stock valued at $8.00 per share. Approximately 35% of
Zapata's outstanding shares of common stock are owned by the Glazer Group, which
owns approximately 73% of the Company's outstanding stock. The merger agreement
was approved by special committees of the directors of both the Company and
Zapata who are not members of the Glazer family and was also approved by the
Company's Board of Directors. The merger agreement provides that the Company
will be merged into a newly organized subsidiary of Zapata. The merger is
subject, among other things, to approval by the stockholders of both the Company
and Zapata, registration of the Zapata shares issuable in the merger under the
Securities Act of 1933 and receipt of consent from the Company's lending bank or
the refinancing of the Company's outstanding bank debt. Subject to the
satisfaction of these conditions, it is expected that the transaction will close
in September 1996.
The Company's bank credit agreement contains various covenants and restrictions
which, among other things, require the maintenance of minimum fixed charge
coverage ratios and interest coverage ratios. The Company did not maintain the
required ratios for the second quarter of 1996 and as a result, on June 24,
1996, the bank credit agreement was amended to revise certain covenants of the
agreement (the "Third Amendment"). Effective for the second fiscal quarter of
1996, the minimum interest coverage ratio was reduced to 3.8 and the minimum
fixed charge coverage ratio was reduced to 1.6. The Third Amendment also reduced
the aggregate Revolving Credit Facility commitment to $12,500,000 effective
October 1, 1996. At June 24, 1996, the Company had $4,477,000 available to it
under the $15,000,000 Revolving Credit Facility, reduced by $4,523,000 of
outstanding standby letters of credit and a $6,000,000 outstanding loan. The
Company is currently in compliance with all covenants of its bank credit
agreement as amended. While the Company intends to refinance its bank debt in
conjunction with the merger, there are no assurances the merger will be
consummated and the Company will continue to remain in compliance with all
covenants of its bank credit agreement.
Capital expenditures for the 1996 year-to-date period totalled $7,464,000. The
expenditures were incurred for two new Houlihan's and one new Seafood Grill that
were opened during the period, as well as ongoing remodeling projects, normal
restaurant renovations and replacements and the installation of new management
information systems in the Company's restaurants which was completed in the
second quarter. The Company expects to incur capital expenditures of
approximately $7,000,000 for the remainder of 1996, a majority of which will be
used in connection with opening one Houlihan's and one Specialty Restaurant.
Management believes that
12
<PAGE>
cash on hand, funds to be generated internally from operations and the use of
working capital changes will be adequate to meet the Company's capital
expenditure requirements for the foreseeable future.
Impact of Inflation
Inflationary increases in costs, namely food, labor and operating expenses,
could have a significant impact on the Company's operations. In the past, the
Company has been able to recover inflationary cost increases through increased
food and beverage menu prices. There have been, and there may be in the future,
delays in implementing such menu price increases, and competitive pressures may
limit the Company's ability to recover such cost increases in their entirety.
Historically, the effects of inflation have not had a significant impact on the
Company's net income.
A significant number of the Company's employees are paid hourly rates tied to
federal and state minimum wage and tip credit laws. An increase in the minimum
wage was recently passed by Congress and is currently proposed by various state
governments. Although the Company has and will continue to attempt to pass along
any increased labor costs through food and beverage price increases, there can
be no assurance that all such increased labor costs can be reflected in its
prices or that increased prices will be absorbed by consumers without
diminishing to some degree consumer spending at the restaurants. However, the
Company has not experienced to date a significant reduction in gross profit
margins as a result of changes in such laws, and management does not anticipate
any related future significant reductions in gross profit margins.
13
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The Exhibits listed on the accompanying Exhibit Index are filed as part of
this report.
(b) Reports on Form 8-K:
Current Report on Form 8-K dated May 9, 1996 - This Form 8-K
contained the text of the Letter of Intent between Houlihan's
Restaurant Group, Inc. and Zapata Corporation relating to the
proposed acquisition of the Company by Zapata Corporation.
Current Report on Form 8-K dated June 18, 1996 - This Form 8-K
contained the text of the Agreement and Plan of Merger by and
among Zapata Corporation and Houlihan's Restaurant Group, Inc.
In addition, the Form 8-K included the text of a press release
issued by the Company on June 5, 1996. The press release
announced that the Company and Zapata Corporation had entered
into a definitive merger agreement.
14
<PAGE>
SIGNATURE
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.
HOULIHAN'S RESTAURANT GROUP, INC.
(Registrant)
Date: August 7, 1996 By: /s/ William W. Moreton
------------------------------ ------------------------------
William W. Moreton
Executive Vice President/Chief
Financial Officer (Principal
Financial and Accounting Officer)
15
<PAGE>
HOULIHAN'S RESTAURANT GROUP, INC.
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
- --------- ----------------------------------------------------------------------
10.1 Third Amendment and Consent to Credit Agreement among Houlihan's
Restaurants, Inc. and Caisse Nationale De Credit Agricole, New York
Branch, as agent, dated June 24, 1996.
10.2 Agreement and Plan of Merger dated June 4, 1996, by and among Zapata
Corporation, Zapata Acquisition Corp., a wholly owned subsidiary of
Zapata Corporation, and Houlihan's Restaurant Group, Inc. (1)
27 Financial Data Schedule (filed with EDGAR version).
(1) Filed as an exhibit to the Current Report on Form 8-K dated June 18,
1996 and incorporated herein by reference.
16
<PAGE>
THIRD AMENDMENT
THIRD AMENDMENT dated as of June 24, 1996 (this "Amendment"), with
respect to the Credit Agreement dated as of December 28, 1992 (the "Loan
Agreement"), among HOULIHAN'S RESTAURANTS, INC., a Delaware corporation (the
"Borrower"), the financial institutions listed on Schedule A to the Loan
Agreement, which on the date of this Agreement consist solely of Caisse
Nationale de Credit Agricole (the "Banks"), and CAISSE NATIONALE DE CREDIT
AGRICOLE, NEW YORK BRANCH, as Agent, (the "Agent"), as such Loan Agreement has
been amended by that certain First Amendment and Consent dated as of December
14, 1993 and that certain Second Amendment and Consent dated as of March 25,
1996 by and among the Borrower, the Banks and the Agent.
The Borrower has requested that the Banks and the Agent amend certain
covenants of the Loan Agreement, and the Banks and the Agent have agreed to
amend the Loan Agreement, all upon the terms and conditions set forth in this
Amendment.
It is therefore agreed, effective as of the Effective Date (as
hereinafter defined), as follows:
1. Capitalized terms used herein without definition have the meanings
specified in the Loan Agreement.
2. The Loan Agreement is hereby amended as follows:
(a) Section 7.12 of the Loan Agreement is hereby amended by adding the
following sentence to the end of such Section:
"Notwithstanding the terms of this Section 7.12, the
minimum Fixed Charge Coverage Ratio specified for the second
fiscal quarter of fiscal year 1996 shall not be less than
1.6:1".
(b) The last sentence of Section 7.13 of the Loan Agreement is hereby
amended and restated as follows:
"Notwithstanding the terms of this Section 7.13, the
minimum Interest Coverage Ratio specified for the first fiscal
quarter of the fiscal year 1996 shall not be less than 3.6:1
and for the second fiscal quarter of fiscal year 1996 shall
not be less than 3.8:1".
(c) As a material inducement for the Banks and the Agent to enter into
this Amendment, the Borrower hereby permanently reduces the aggregate
Revolving Credit Commitments by Two Million Five Hundred Thousand and
No/100 Dollars ($2,500,000.00) pursuant to Section 2.9(f) of the Loan
Agreement, which reduction will take effect on October 1, 1996.
<PAGE>
3. The Borrower hereby represents and warrants to the Banks and the Agent
that:
(a) it has full corporate power and authority to execute, deliver and
perform this Amendment;
(b) the execution, delivery and performance by the Borrower of this
Amendment have been duly authorized by the Borrower by all requisite
corporate action and will not (i) violate any provision of law, any
order, rule or regulation of any court or other governmental agency,
authority or regulatory body or other person, or The Certificate of
Incorporation or Bylaws of the Borrower, (ii) violate any provision of
any material indenture, agreement, mortgage, contract or other
instrument to which the Borrower is a party or by which any of its
property, assets or revenues are bound, or be in conflict with, result
in a breach of or constitute (with or without notice of lapse of time
or both) a default under, any such material indenture, agreement,
mortgage, contract or other instrument, or (iii) result in the
creation or imposition of any Lien of any nature whatsoever upon any
of the property, assets or revenues of the Borrower;
(c) this amendment constitutes the legal, valid and binding obligation of
the Borrower, enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
moratorium or other similar laws affecting creditor's rights generally
and that enforceability may be subject to general principles of
equity;
(d) no registration with or consent or approval of, or other action by
stockholders or any Federal, state or other governmental agency,
authority or regulatory body or other person is required in connection
with the execution, delivery and performance of this Amendment;
(e) each Credit Party is now in compliance with all the terms, provisions
and covenants set forth in each of the Loan Documents on its part to
be observed or performed;
(f) no Default or Event of Default has occurred and is continuing;
(g) upon the effectiveness of the amendments contained in this Amendment,
(i) each Credit Party will be in compliance with all the terms,
provisions and covenants set forth in each of the Loan Documents on
its part to be observed or performed and (ii) no Default or Event of
Default will have occurred and be continuing;
(h) all of the representations and warranties contained in the Loan
Agreement are true and correct in all material respects as of the date
hereof as if made on and as of the date hereof; and
(i) the parties to the consent attached hereto as Exhibit A include all
the Borrower's existing Subsidiaries.
<PAGE>
4. This Amendment shall become effective on the date (the "Effective
Date") of the receipt by the Agent of the following documents, in each
case in form and substance satisfactory to the Agent and its legal
counsel:
(a) counterparts of this Amendment, duly executed by each of the Borrower
and the Required Banks; and
(b) certified copies of resolutions of the Board of Directors of the
Borrower approving the execution, delivery and performance of this
Amendment and the documents contemplated hereby; and
(c) a consent in the form of Exhibit A hereto shall have been executed and
delivered by each other Credit Party.
5. The Borrower agrees to pay all reasonable out-of-pockets costs and
expenses incurred by the Agent in connection with the preparation of
this Amendment including, without limitation, the reasonable fees and
disbursements of legal counsel for the Agent.
6. This Amendment shall be construed in accordance with and shall be
governed by the laws of the State of New York applicable to agreements
made and to be performed in New York and shall be construed without
regard to any presumption or any other rule requiring construction
against the party causing the agreement to be drafted.
7. If any provision of this Amendment is invalid or unenforceable, the
balance of this Amendment shall remain in effect.
8. This Amendment may be executed in two or more counterparts, each of
which shall constitute an original, but all of which, when taken
together, shall constitute but one instrument, and shall become
effective as of the Effective Date when copies hereof, when taken
together, bear the signature of each of the parties hereto.
9. Except as amended hereby, the Loan Agreement and each of the other
Loan Documents shall continue in full force and effect on the date of
execution and delivery of this Amendment. As used in the Loan
Agreement, all references to the terms "Loan Agreement" "this
Agreement," "hereof," "hereby," or the like shall mean the Loan
Agreement, as amended by this Amendment, unless the context otherwise
specifically requires.
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Banks and the Agent have caused
this Amendment to be duly executed, all as of the day and year first above
written.
HOULIHAN'S RESTAURANTS, INC.
By: /s/ William W. Moreton
----------------------------
Name: William W. Moreton
Title: Executive Vice President
CAISSE NATIONALE DE CREDIT AGRICOLE
By: /s/ Richard Manix
----------------------------
Name: Richard Manix
Title: First Vice President
CAISSE NATIONALE DE CREDIT
AGRICOLE, NEW YORK BRANCH, as Agent
By: /s/ Richard Manix
----------------------------
Name: Richard Manix
Title: First Vice President
<PAGE>
CONSENT
Reference is made to that Credit Agreement dated as of December 28,
1992 (the "Loan Agreement") among Gilbert/Robinson, Inc., now known as
Houlihan's Restaurants, Inc. (the "Borrower"), the Banks referred to therein
(the "Banks") and Caisse Nationale de Credit Agricole, New York Branch, as agent
(the "Agent"), as such Loan Agreement has been amended by that certain First
Amendment and Consent dated as of December 14, 1993 and that certain Second
Amendment and Consent dated as of March 25, 1996 by and among the Borrower, the
Banks and the Agent. Each of the undersigned, collectively with the Borrower
constituting all of the Credit Parties, hereby (a) acknowledges receipt of and
consents to the execution, delivery and performance of the Third Amendment dated
as of June 24, 1996 (the "Third Amendment") among the Borrower, the Banks and
the Agent, (b) ratifies and affirms each of the Loan Documents and (c)
acknowledges and agrees that each of the Loan Documents remains in full force
and effect and constitutes its valid and binding obligation, which obligation
shall not be impaired or affected in any way by the execution, delivery or
performance of the Third Amendment, except to incorporate modifications effected
by the Third Amendment. Capitalized terms used herein will have the meanings
specified in the Loan Agreement.
IN WITNESS WHEREOF, the undersigned have caused this Consent to be duly
executed this June 24, 1996.
HOULIHAN'S RESTAURANTS, INC.
By: /s/ William W. Moreton
----------------------------
Name: William W. Moreton
Title: Executive Vice President
DARRYL'S OF KISSIMMEE, INC.
By: /s/ William W. Moreton
----------------------------
Name: William W. Moreton
Title: Vice President
DARRYL'S OF OVERLAND PARK, INC.
By: /s/ William W. Moreton
----------------------------
Name: William W. Moreton
Title: Vice President
<PAGE>
DARRYL'S OF ST. LOUIS COUNTY, INC.
By: /s/ William W. Moreton
---------------------------
Name: William W. Moreton
Title: Vice President
G/R TEXAS ENTERPRISES, INC.
By: /s/ William W. Moreton
---------------------------
Name: William W. Moreton
Title: Vice President
S&H BEVERAGE CO., INC.
By: /s/ William W. Moreton
---------------------------
Name: William W. Moreton
Title: Vice President
HOULIHAN'S/BERGEN COUNTY, INC.
By: /s/ William W. Moreton
---------------------------
Name: William W. Moreton
Title: Vice President
HOULIHAN'S OF CALIFORNIA, INC.
By: /s/ William W. Moreton
---------------------------
Name: William W. Moreton
Title: Vice President
HOULIHAN'S OF FARMINGDALE, INC.
By: /s/ William W. Moreton
---------------------------
Name: William W. Moreton
Title: Vice President
<PAGE>
HOULIHAN'S OF INDIANAPOLIS, INC.
By: /s/ William W. Moreton
---------------------------
Name: William W. Moreton
Title: Vice President
HOULIHAN'S/MARYLAND, INC.
By: /s/ William W. Moreton
---------------------------
Name: William W. Moreton
Title: Vice President
HOULIHAN'S/MILWAUKEE, INC.
By: /s/ William W. Moreton
---------------------------
Name: William W. Moreton
Title: Vice President
HOULIHAN'S/SAN FRANCISCO, INC.
By: /s/ William W. Moreton
---------------------------
Name: William W. Moreton
Title: Vice President
RED STEER, INC.
By: /s/ William W. Moreton
---------------------------
Name: William W. Moreton
Title: Vice President
RESTAURANT SUPPLY, INC.
By: /s/ William W. Moreton
---------------------------
Name: William W. Moreton
Title: Vice President
<PAGE>
SAM WILSON'S/KANSAS, INC.
By: /s/ William W. Moreton
---------------------------
Name: William W. Moreton
Title: Vice President
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's second quarter Form 10-Q and is qualified in its entirety by
reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-30-1996
<PERIOD-END> JUN-24-1996
<CASH> 11,600
<SECURITIES> 0
<RECEIVABLES> 1,320
<ALLOWANCES> 0
<INVENTORY> 2,327
<CURRENT-ASSETS> 18,712
<PP&E> 146,859
<DEPRECIATION> 41,192
<TOTAL-ASSETS> 190,328
<CURRENT-LIABILITIES> 78,018
<BONDS> 26,168
0
0
<COMMON> 100
<OTHER-SE> 71,800
<TOTAL-LIABILITY-AND-EQUITY> 190,328
<SALES> 135,198
<TOTAL-REVENUES> 135,198
<CGS> 113,591
<TOTAL-COSTS> 129,794
<OTHER-EXPENSES> 788
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,510
<INCOME-PRETAX> 3,547
<INCOME-TAX> 1,839
<INCOME-CONTINUING> 1,708
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,708
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
