<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 24, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
American Restaurant Group Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware 33-74012 33-0592148
(State or other jurisdiction of (Commission File (I.R.S. employer
incorporation or organization) Number) identification no.)
450 Newport Center Drive
Newport Beach, CA 92660
(714) 721-8000
(Address and telephone number of principal executive offices)
Former name, former address and former fiscal year
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes / X / No / /
The number of outstanding shares of the Company's Common Stock (one cent par
value) as of July 29, 1996 was 504,505.
<PAGE> 2
AMERICAN RESTAURANT GROUP HOLDINGS, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Condensed Balance Sheets................... 1
Consolidated Statements of Income....................... 3
Consolidated Statements of Cash Flows................... 4
Notes to Consolidated Condensed Financial Statements.... 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........... 6
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................ 9
i
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
AMERICAN RESTAURANT GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 25, 1995 AND JUNE 24, 1996
<TABLE>
<CAPTION>
ASSETS December 25, June 24,
1995 1996
------------ ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 10,385,000 $ 4,406,000
Accounts receivable, net of reserve of
$777,000 and $831,000 at December 25, 1995
and June 24, 1996, respectively 7,734,000 7,533,000
Inventories 6,597,000 6,612,000
Prepaid expenses 4,607,000 2,672,000
------------ ------------
Total current assets 29,323,000 21,223,000
------------ ------------
PROPERTY AND EQUIPMENT:
Land and land improvements 52,991,000 53,007,000
Buildings and leasehold improvements 141,382,000 142,079,000
Fixtures and equipment 90,520,000 91,931,000
Property held under capital leases 13,067,000 13,067,000
Construction in progress 3,749,000 5,447,000
------------ ------------
301,709,000 305,531,000
Less-- Accumulated depreciation 130,679,000 137,231,000
------------ ------------
171,030,000 168,300,000
------------ ------------
OTHER ASSETS-- NET 54,138,000 51,996,000
------------ ------------
Total Assets $254,491,000 $241,519,000
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed statements.
(consolidated condensed balance sheets continued on the following page)
1
<PAGE> 4
<TABLE>
<CAPTION>
LIABILITIES AND COMMON STOCKHOLDERS' December 25, June 24,
EQUITY 1995 1996
------------- -------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 29,239,000 $ 25,108,000
Accrued liabilities 14,226,000 7,347,000
Accrued insurance 16,694,000 17,837,000
Accrued interest 5,855,000 5,848,000
Accrued payroll costs 10,171,000 9,524,000
Current portion of obligations
under capital leases 858,000 882,000
Current portion of long-term debt 7,850,000 5,150,000
------------- -------------
Total current liabilities 84,893,000 71,696,000
------------- -------------
LONG-TERM LIABILITIES, net of current portion:
Obligations under capital leases 9,344,000 8,903,000
Long-term debt 273,935,000 285,698,000
------------- -------------
Total long-term liabilities 283,279,000 294,601,000
------------- -------------
COMMITMENTS AND CONTINGENCIES
PREFERRED STOCK, $0.01 par value; 10,000 shares authorized, no shares issued or
outstanding at December 25, 1995 or
June 24, 1996 -- --
COMMON STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 1,000,000
shares authorized; 504,505 shares issued
and outstanding at December 25, 1995 and
June 24, 1996 2,000 2,000
Treasury stock (50,000) (50,000)
Paid-in capital 17,539,000 17,539,000
Accumulated deficit (131,172,000) (142,269,000)
------------- -------------
Total common stockholders' deficit (113,681,000) (124,778,000)
------------- -------------
Total liabilities and common
stockholders' equity $ 254,491,000 $ 241,519,000
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed statements.
2
<PAGE> 5
AMERICAN RESTAURANT GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS ENDED JUNE 26, 1995 AND JUNE 24, 1996
AND THE TWENTY-SIX WEEKS ENDED JUNE 26, 1995 AND JUNE 24, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
---------------------------------- ----------------------------------
June 26, June 24, June 26, June 24,
1995 1996 1995 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES $ 115,675,000 $ 111,071,000 $ 230,390,000 $ 225,669,000
RESTAURANT COSTS:
Food and beverage 35,572,000 34,821,000 71,214,000 71,671,000
Payroll 33,904,000 33,143,000 68,506,000 67,508,000
Direct operating 27,349,000 27,715,000 54,133,000 55,166,000
Depreciation and
amortization 5,738,000 5,086,000 11,885,000 10,307,000
GENERAL AND ADMINISTRATIVE
EXPENSES 8,392,000 6,588,000 16,138,000 13,266,000
------------- ------------- ------------- -------------
Operating profit 4,720,000 3,718,000 8,514,000 7,751,000
INTEREST EXPENSE, net 8,849,000 9,644,000 17,527,000 18,788,000
------------- ------------- ------------- -------------
Loss before provision
for income taxes (4,129,000) (5,926,000) (9,013,000) (11,037,000)
PROVISION FOR INCOME
TAXES 30,000 47,000 39,000 60,000
------------- ------------- ------------- -------------
Net loss $ (4,159,000) $ (5,973,000) $ (9,052,000) $ (11,097,000)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed statements.
3
<PAGE> 6
AMERICAN RESTAURANT GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED JUNE 26, 1995 AND JUNE 24, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
June 26, June 24,
1995 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 229,997,000 $ 225,865,000
Cash paid to suppliers and employees (217,419,000) (216,488,000)
Interest paid, net (13,857,000) (14,140,000)
Income taxes paid (51,000) (60,000)
------------- -------------
Net cash used in operating activities (1,330,000) (4,823,000)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (10,353,000) (4,484,000)
Net (increase) decrease in other assets 527,000 (609,000)
Proceeds from disposition of assets 26,000 10,000
------------- -------------
Net cash used in investing activities (9,800,000) (5,083,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on indebtedness (180,000) (2,705,000)
Borrowings on indebtedness -- 7,115,000
Net increase in deferred debt costs (5,000) (66,000)
Payments on capital lease obligations (383,000) (417,000)
Purchase of treasury stock (50,000) --
------------- -------------
Net cash provided by (used in)
financing activities (618,000) 3,927,000
------------- -------------
NET DECREASE IN CASH (11,748,000) (5,979,000)
CASH, at beginning of period 15,032,000 10,385,000
------------- -------------
CASH, at end of period $ 3,284,000 $ 4,406,000
============= =============
RECONCILIATION OF NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
Net loss $ (9,052,000) $ (11,097,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 11,885,000 10,307,000
Loss on disposition of assets 262,000 105,000
Accretion on indebtedness 3,665,000 4,655,000
Loss on value of interest rate swap 89,000 --
(Increase) decrease in current assets:
Accounts receivable, net (393,000) 196,000
Inventories 670,000 (15,000)
Prepaid expenses 368,000 1,579,000
Increase (decrease) in current liabilities:
Accounts payable (3,443,000) (4,131,000)
Accrued liabilities (4,830,000) (6,911,000)
Accrued insurance 1,930,000 1,143,000
Accrued interest (84,000) 7,000
Accrued payroll (2,397,000) (647,000)
------------- -------------
Net cash used in operating activities $ (1,330,000) $ (4,823,000)
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed statements.
4
<PAGE> 7
AMERICAN RESTAURANT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. MANAGEMENT OPINION
The Consolidated Condensed Financial Statements included herein have
been prepared by the Company, without audit, in accordance with
Securities and Exchange Commission Regulation S-X. In the opinion of
management of the Company, these Consolidated Condensed Financial
Statements contain all adjustments (all of which are of a normal
recurring nature) necessary to present fairly the Company's financial
position as of December 25, 1995 and June 24, 1996, and the results of
its operations and its cash flows for the twenty-six weeks ended June
26, 1995 and June 24, 1996. The Company's results for an interim period
are not necessarily indicative of the results that may be expected for
the year.
Although the Company believes that all adjustments necessary for a fair
presentation of the interim periods presented are included and that the
disclosures are adequate to make the information presented not
misleading, it is suggested that these Consolidated Condensed Financial
Statements be read in conjunction with the Consolidated Financial
Statements and notes thereto included in the Company's annual report on
Form 10-K, File No. 33-74012, for the year ended December 25, 1995.
5
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of American Restaurant Group Holdings,
Inc.'s financial condition and results of operations should be read in
conjunction with the historical financial information included in the
Consolidated Condensed Financial Statements.
RESULTS OF OPERATIONS
Thirteen weeks ended June 26, 1995 and June 24, 1996:
Revenues. Total revenues decreased from $115.7 million in the second quarter of
1995 to $111.1 million in the second quarter of 1996 reflecting a decrease in
comparable restaurant revenues of 3.8%. During the twelve months ended June 24,
1996, the Company opened one new restaurant and closed one poor performing
restaurant. There were 247 restaurants operating as of June 26, 1995 and June
24, 1996.
Black Angus revenues increased 1.9% to $63.5 million in the second quarter of
1996 as compared to the same period in 1995. The increase was due to the
addition of one new restaurant in California and increased television
advertising. Comparable restaurant revenues increased 0.5% as compared to the
prior year.
Grandy's revenues decreased 15.7% to $22.8 million in the second quarter of 1996
as compared to the same period in 1995. Comparable restaurant revenues in the
second quarter of 1996 were 14.4% lower than the same period in 1995, in part
due to less use of discounting to stimulate sales and less effective advertising
and promotion. The Company closed one poor performing restaurant during the
twelve months ended June 24, 1996. Franchise revenues in the second quarter
decreased due to international franchise fees.
Other revenues decreased from $26.3 million in the second quarter of 1995 to
$24.7 million in the same period of 1996. Comparable restaurant revenues
decreased 3.9%.
Food and Beverage Costs. As a percentage of revenues, food and beverage costs
increased from 30.8% in the second quarter of 1995 to 31.4% in the second
quarter of 1996. The increase was primarily due to higher meat costs.
Payroll Costs. As a percentage of revenues, labor costs increased from 29.3% in
the second quarter of 1995 to 29.8% in the second quarter of 1996. A decrease in
worker's compensation expense was offset by an increase in restaurant management
medical benefit costs.
Direct Operating Costs. Direct operating costs consist of occupancy, advertising
and other expenses incurred by individual restaurants. As a percentage of
revenues, these costs increased in the second quarter from 23.6% in 1995 to
25.0% in 1996. The increase was due primarily to higher advertising expenses.
Depreciation and Amortization. Depreciation and amortization consists of
depreciation of fixed assets used by individual restaurants, divisions and
corporate offices, as well as amortization of intangible assets. As a percentage
of revenues, depreciation and amortization decreased from 5.0% in the second
quarter of 1995 to 4.6% in the same period of 1996. The decrease was due
primarily to the non-cash reduction of the historical cost of certain long-lived
assets in December 1995.
6
<PAGE> 9
General and Administrative Expenses. General and administrative expenses
decreased 21.5% from $8.4 million in the second quarter of 1995 to $6.6 million
in the second quarter of 1996. The decrease was due primarily to the December
1995 restructuring of administrative personnel which resulted in a reduction of
payroll costs. General and administrative expenses as a percentage of revenues
decreased from 7.2% to 5.9%.
Operating Profit. Due to the above items, operating profit decreased from $4.7
million in the second quarter of 1995 to $3.7 million in the second quarter of
1996. As a percentage of revenues, operating profit decreased 0.8% from 4.1% to
3.3%.
Interest Expense - Net. Interest expense increased from $8.8 million in the
second quarter of 1995 to $9.6 million in the second quarter of 1996. The
increase was primarily due to a higher average debt balance in the second
quarter of 1996. The Company's average stated interest rate increased from 11.8%
in the second quarter of 1995 to 12.0% in the second quarter of 1996. The
weighted average debt balance (excluding capitalized lease obligations)
increased from $269.8 million in the second quarter of 1995 to $294.7 million in
the second quarter of 1996.
Twenty-six weeks ended June 26, 1995 and June 24, 1996:
Revenues. Total revenues decreased 2.0% from $230.4 million in the twenty-six
weeks ended June 26, 1995 to $225.7 million in the twenty-six weeks ended June
24, 1996. Comparable restaurant revenues decreased 2.9%. There were 247
restaurants operating as of June 26, 1995 and June 24, 1996.
Black Angus revenues increased 3.1% to $131.3 million in 1996 as compared to the
same period in 1995, reflecting an increase in comparable restaurant revenues of
1.1%. Comparable restaurant food sales increased 2.7% over the prior year while
beverage sales decreased 3.5% partially as a result of deemphasizing the
late-night lounge business and converting areas for late night dancing into
additional dining room seating. There was one new California restaurant
operating in 1996.
Grandy's revenues decreased 13.6% from $52.7 million in 1995 to $45.5 million in
1996. Comparable restaurant revenues were 13.0% lower than the prior year.
Franchise revenues were $1.4 million and $1.0 million in 1995 and 1996,
respectively.
Other revenues decreased 3.1% from $50.4 million in 1995 to $48.9 million in
1996. Comparable restaurant revenues decreased 2.6%.
Food and Beverage Costs. Food and beverage costs as a percentage of revenues
increased from 30.9% in 1995 to 31.8% in 1996, due primarily to higher meat and
seafood costs.
Payroll Costs. As a percentage of revenues, labor costs increased 0.3% from
29.7% in 1995 to 30.0% in 1996. The increase was due primarily to higher
restaurant management medical benefit costs.
Direct Operating Costs. As a percentage of revenues, total direct operating
costs increased 0.9% from 23.5% in 1995 to 24.4% in 1996. The increase was due
primarily to higher advertising expenses.
Depreciation and Amortization. As a percentage of revenues, depreciation and
amortization decreased from 5.2% in 1995 to 4.6% in 1996. As stated above, the
decrease was due primarily to the non-cash reduction of the historical cost of
certain long-lived assets in December 1995.
General and Administrative Expenses. General and administrative expenses
decreased 17.8%
7
<PAGE> 10
from $16.1 million in 1995 to $13.3 million in 1996. The decrease was due
primarily to the reduction of administrative payroll costs mentioned above.
General and administrative expenses as a percentage of revenues were 7.0% and
5.9% for 1995 and 1996, respectively.
Operating Profit. Due to the items mentioned above, operating profit decreased
from $8.5 million in 1995 to $7.8 million in 1996. As a percentage of revenues,
operating profit decreased from 3.7% to 3.4%.
Interest Expense. Interest expense increased from $17.5 million in 1995 to $18.8
million in 1996. The Company's average stated interest rate increased from 11.9%
in 1995 to 12.0% in 1996. Average borrowings (excluding capitalized lease
obligations) increased from $268.9 million in 1995 to $287.7 million in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flow from operations and
borrowings under its credit facilities. The Company requires capital principally
for the acquisition and construction of new restaurants, the remodeling of
existing restaurants and the purchase of new equipment and leasehold
improvements.
In general, restaurant businesses do not have significant accounts receivable
because sales are made for cash or by credit card vouchers which are ordinarily
paid within a few days, and do not maintain substantial inventory as a result of
the relatively brief shelf life and frequent turnover of food products.
Additionally, restaurants generally are able to obtain trade credit in
purchasing food and restaurant supplies. As a result, restaurants are frequently
able to operate with working capital deficits, i.e., current liabilities exceed
current assets. At June 24, 1996, the Company had a working capital deficit of
$50.5 million.
The Company estimates that capital expenditures of $10.0 million to $13.0
million are required annually to maintain and refurbish its existing
restaurants. In addition, the Company spends approximately $10.0 million to
$13.0 million annually for repairs and maintenance which are expensed as
incurred. Other capital expenditures, which are generally discretionary, are
primarily for the construction of new restaurants and for expanding,
reformatting and extending the capabilities of existing restaurants and for
general corporate purposes. The Company expects to spend approximately $3.0
million to $6.0 million on new restaurants in 1996, primarily during the second
half of 1996, and depending on market conditions, to increase its capital
expenditures for new restaurants thereafter. Total capital expenditures year to
date were $10.4 million in 1995 and $4.5 million in 1996. The Company's credit
agreement contains limitations on the amount of capital expenditures that the
Company may incur.
The senior credit facilities of American Restaurant Group, Inc. ("ARG"), a
wholly owned subsidiary of the Company, provide for a working capital facility
of $5.0 million until June 30, 1996 and a letter of credit facility of $13.5
million until September 30, 1996, subject to the extensions referred to below.
Each of these facilities was fully utilized as of June 24, 1996.
Although the Company is highly leveraged, based upon current and projected
levels of operations and anticipated growth, the Company expects that cash flow
generated from operations together with its other available sources of
liquidity, including expected asset sales or sale/leaseback transactions, will
be adequate to make required payments of principal and interest on its
indebtedness, to make anticipated capital expenditures and to finance working
capital requirements.
ARG recently distributed a consent solicitation to its senior secured note
holders which,
8
<PAGE> 11
as of August 12, 1996, had been agreed to by the requisite majority of note
holders (subject to acceptance by ARG). Among other things, the consent replaces
a net worth covenant with an EBITDA covenant and waives a default by ARG under
the prior net worth covenant. In addition, the consent requires the Company to
consummate asset sales or sale/leaseback transactions within specified time
periods.
ARG has also concluded negotiations for an extension of the maturities of the
working capital and letter of credit facilities under its senior credit
agreement and for changes to its subordinated debt which replace a net worth
covenant with an EBITDA covenant.
Finally, the Company is in the process of negotiating for a sale/leaseback of 24
Black Angus restaurants. If this transaction is consummated, the net proceeds
will be used primarily to repay senior debt and, to a lesser extent, for
reinvestment in the Company. The Company expects to pursue additional
sale/leaseback transactions in the immediate future.
Each of the above agreements and transactions is subject to completion on terms
acceptable to the Company. Thus, although the Company expects all of such
agreements and transactions to be completed, there can be no assurance of such
completion on acceptable terms.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
Sequentially
Numbered
Exhibit No. Description Page
27.1 Financial Data Schedule, which is submitted
electonically to the Securities and Exchange
Commission for information only and not filed.
9
<PAGE> 12
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN RESTAURANT GROUP HOLDINGS, INC.
(Registrant)
Date: August 12, 1996 By: /s/WILLIAM J. MCCAFFREY, JR.
---------------------- ----------------------------
William J. McCaffrey, Jr.
Vice President, Chief
Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 24, 1996 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE TWENTY-SIX WEEKS ENDED JUNE 24, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-30-1996
<PERIOD-START> DEC-26-1995
<PERIOD-END> JUN-24-1996
<CASH> 4,406,000
<SECURITIES> 0
<RECEIVABLES> 8,364,000
<ALLOWANCES> 831,000
<INVENTORY> 6,612,000
<CURRENT-ASSETS> 21,223,000
<PP&E> 305,531,000
<DEPRECIATION> 137,231,000
<TOTAL-ASSETS> 241,519,000
<CURRENT-LIABILITIES> 71,696,000
<BONDS> 0
0
0
<COMMON> 2,000
<OTHER-SE> (124,780,000)
<TOTAL-LIABILITY-AND-EQUITY> (124,778,000)
<SALES> 225,669,000
<TOTAL-REVENUES> 225,669,000
<CGS> 71,671,000
<TOTAL-COSTS> 204,652,000
<OTHER-EXPENSES> 13,266,000
<LOSS-PROVISION> 62,000
<INTEREST-EXPENSE> 18,788,000
<INCOME-PRETAX> (11,037,000)
<INCOME-TAX> 60,000
<INCOME-CONTINUING> (11,097,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,097,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
