<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 March 31, 1997
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 May 5, 1997 was 504,505.
<PAGE> 2
AMERICAN RESTAURANT GROUP HOLDINGS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
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
</TABLE>
i
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
AMERICAN RESTAURANT GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 30, 1996 AND MARCH 31, 1997
<TABLE>
<CAPTION>
December 30, March 31,
1996 1997
------------ ---------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 7,493,000 $ 3,377,000
Accounts receivable, net of reserve of
$1,041,000 and $1,023,000 at December 30, 1996
and March 31, 1997, respectively 7,465,000 6,906,000
Inventories 6,818,000 6,934,000
Prepaid expenses 4,485,000 3,982,000
------------ -------------
Total current assets 26,261,000 21,199,000
------------ ------------
PROPERTY AND EQUIPMENT:
Land and land improvements 6,158,000 6,158,000
Buildings and leasehold improvements 110,071,000 110,948,000
Fixtures and equipment 84,162,000 85,310,000
Property held under capital leases 12,375,000 12,375,000
Construction in progress 6,487,000 6,408,000
------------ ------------
219,253,000 221,199,000
Less-- Accumulated depreciation 118,084,000 120,589,000
------------ ------------
101,169,000 100,610,000
------------ ------------
OTHER ASSETS-- NET 49,775,000 49,024,000
------------ ------------
Total Assets $177,205,000 $170,833,000
============ ============
</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>
December 30, March 31,
1996 1997
------------ -------------
(unaudited)
<S> <C> <C>
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 33,394,000 $ 33,112,000
Accrued liabilities 14,435,000 10,112,000
Accrued insurance 15,848,000 14,362,000
Accrued interest 921,000 2,154,000
Accrued payroll costs 11,059,000 11,055,000
Current portion of obligations
under capital leases 902,000 917,000
Current portion of long-term debt 41,324,000 41,684,000
-------------- -------------
Total current liabilities 117,883,000 113,396,000
-------------- -------------
LONG-TERM LIABILITIES, net of current portion:
Obligations under capital leases 8,443,000 8,210,000
Long-term debt 207,897,000 211,189,000
-------------- -------------
Total long-term liabilities 216,340,000 219,399,000
-------------- -------------
DEFERRED GAIN 5,806,000 5,622,000
-------------- -------------
COMMITMENTS AND CONTINGENCIES
PREFERRED STOCK, $0.01 par value; 10,000 shares
authorized, no shares issued or
outstanding at December 30, 1996 or
March 31, 1997 -- --
COMMON STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 1,000,000
shares authorized; 504,505 shares issued
and outstanding at December 30, 1996 and
March 31, 1997 2,000 2,000
Treasury stock (50,000) (50,000)
Paid-in capital 17,539,000 17,539,000
Accumulated deficit (180,315,000) (185,075,000)
------------- -------------
Total common stockholders' deficit (162,824,000) (167,584,000)
------------- -------------
Total liabilities and common
stockholders' equity $ 177,205,000 $ 170,833,000
============= =============
</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 MARCH 25, 1996 AND MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
------------------------------------
March 25, March 31,
1996 1997
------------ -------------
<S> <C> <C>
REVENUES $ 114,598,000 $ 114,110,000
RESTAURANT COSTS:
Food and beverage 36,850,000 36,350,000
Payroll 34,365,000 34,694,000
Direct operating 27,451,000 28,306,000
Depreciation and amortization 5,221,000 4,934,000
GENERAL AND ADMINISTRATIVE EXPENSES 6,678,000 6,138,000
------------- -------------
Operating profit 4,033,000 3,688,000
INTEREST EXPENSE, net 9,144,000 8,443,000
------------- -------------
Loss before provision for income taxes (5,111,000) (4,755,000)
PROVISION FOR INCOME TAXES 13,000 5,000
------------- -------------
Net loss $ (5,124,000) $ (4,760,000)
============= =============
</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 THIRTEEN WEEKS ENDED MARCH 25, 1996 AND MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
March 25, March 31,
1996 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 114,431,000 $ 114,669,000
Cash paid to suppliers and employees (110,769,000) (111,720,000)
Interest paid, net (12,095,000) (4,660,000)
Income taxes paid (13,000) (5,000)
------------- -------------
Net cash used in operating activities (8,446,000) (1,716,000)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,078,000) (2,272,000)
Net (increase) decrease in other assets (151,000) 342,000
Proceeds from disposition of assets -- 9,000
Sale/leaseback costs included in deferred gain -- (61,000)
------------- -------------
Net cash used in investing activities (2,229,000) (1,982,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on indebtedness (2,603,000) (97,000)
Borrowings on indebtedness 7,115,000 1,199,000
Net increase in deferred debt costs (61,000) (1,302,000)
Payments on capital lease obligations (205,000) (218,000)
------------- -------------
Net cash provided by (used in)
financing activities 4,246,000 (418,000)
------------- -------------
NET DECREASE IN CASH (6,429,000) (4,116,000)
CASH, at beginning of period 10,385,000 7,493,000
------------- -------------
CASH, at end of period $ 3,956,000 $ 3,377,000
============= =============
RECONCILIATION OF NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
Net loss $ (5,124,000) $ (4,760,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 5,221,000 4,934,000
Loss on disposition of assets 33,000 13,000
Amortization of deferred gain -- (123,000)
Accretion on indebtedness 2,079,000 2,550,000
(Increase) decrease in current assets:
Accounts receivable, net (167,000) 559,000
Inventories 178,000 (116,000)
Prepaid expenses 1,523,000 90,000
Increase (decrease) in current liabilities:
Accounts payable (6,057,000) (282,000)
Accrued liabilities (3,224,000) (4,324,000)
Accrued insurance 1,612,000 (1,486,000)
Accrued interest (5,030,000) 1,233,000
Accrued payroll 510,000 (4,000)
------------- -------------
Net cash used in operating activities $ (8,446,000) $ (1,716,000)
============= =============
</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 30, 1996 and March 31, 1997, and the results of
its operations and its cash flows for the thirteen weeks ended March
25, 1996 and March 31, 1997. 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 30, 1996.
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 March 25, 1996 and March 31, 1997:
Revenues. Total revenues decreased from $114.6 million in the first quarter of
1996 to $114.1 million in the first quarter of 1997 reflecting a decrease in
comparable restaurant revenues of 4.8%. During the twelve months ended March 31,
1997, the Company opened nine new restaurants and closed thirteen poor
performing restaurants. There were 248 restaurants operating as of March 25,
1996 and 244 operating as of March 31, 1997.
Black Angus revenues increased 2.8% to $69.7 million in the first quarter of
1997 as compared to the same period in 1996. The increase was due to the
addition of nine new restaurants, which included expansion into two new markets,
Las Vegas, Nevada (two new restaurants) and Salt Lake City, Utah (one new
restaurant). Comparable restaurant revenues decreased 6.1% as compared to the
prior year.
Grandy's revenues decreased 10.2% to $20.4 million in the first quarter of 1997
as compared to the same period in 1996. The decrease was partially due to the
closure of twelve poor performing restaurants. Comparable restaurant revenues in
the first quarter of 1997 were 6.2% lower than the same period in 1996, in part
due to less use of discounting to stimulate sales and less effective advertising
and promotion. Franchise revenues were $0.5 million in the first quarter of 1996
and $0.4 million in the first quarter of 1997.
Other revenues remained approximately the same at $24.1 million in the first
quarter of 1996 and $24.0 million in the same period of 1997. The Company closed
one poor performing restaurant during the twelve months ended March 31, 1997.
Comparable restaurant revenues were approximately equal in the first quarter of
1996 and 1997.
Food and Beverage Costs. As a percentage of revenues, food and beverage costs
decreased from 32.2% in the first quarter of 1996 to 31.9% in the first quarter
of 1997. The decrease was primarily due to lower seafood costs at Black Angus.
Payroll Costs. As a percentage of revenues, labor costs increased from 30.0% in
the first quarter of 1996 to 30.4% in the first quarter of 1997. The increase
was partially due to higher food labor and restaurant management 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 first quarter from 24.0% in 1996 to 24.8%
in 1997. The increase was due primarily to higher occupancy 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 4.5% in the first
quarter of 1996 to 4.3% in the same period
6
<PAGE> 9
of 1997. The decrease was due primarily to the non-cash reduction of the
historical cost of certain long-lived assets in December 1996.
General and Administrative Expenses. General and administrative expenses
decreased 8.1% from $6.7 million in the first quarter of 1996 to $6.1 million in
the first quarter of 1997. The decrease was due primarily to decreased division
overhead payroll expenses. General and administrative expenses as a percentage
of revenues decreased from 5.8% to 5.4%.
Operating Profit. Due to the above items, operating profit decreased from $4.0
million in the first quarter of 1996 to $3.7 million in the first quarter of
1997. As a percentage of revenues, operating profit decreased from 3.5% to 3.2%.
Interest Expense - Net. Interest expense decreased from $9.1 million in the
first quarter of 1996 to $8.4 million in the first quarter of 1997. The decrease
was primarily due to a lower average debt balance in the first quarter of 1997.
The Company's average stated interest rate increased from 11.9% in the first
quarter of 1996 to 12.9% in the first quarter of 1997. The weighted average debt
balance (excluding capitalized lease obligations) decreased from $280.7 million
in the first quarter of 1996 to $249.5 million in the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flow from operations and
borrowings under its credit facilities. The Company requires capital principally
for the acquisition and construction of new restaurants, the remodeling of
existing restaurants and the purchase of new equipment and leasehold
improvements.
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 March 31, 1997, the Company had a working capital deficit of
$92.4 million which included $41.5 million in current portion of long-term debt.
The Company estimates that capital expenditures of $6.0 million to $10.0 million
are required annually to maintain and refurbish its existing restaurants. In
addition, the Company spends approximately $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 $5.0 million for new restaurants in 1997.
Total capital expenditures year to date were $2.1 million in 1996 and $2.3
million in 1997. The Company's credit agreement contains limitations on the
amount of capital expenditures that the Company may incur.
In 1997, American Restaurant Group, Inc. ("ARG"), a wholly owned subsidiary of
the Company, was in default under a covenant that required certain sales or
sale/leaseback transactions by December 31, 1996. On March 13,1997, ARG's Senior
Secured Note holders consented to an amendment which replaced the EBITDA
covenants for the year ended December 30, 1996 and for the four quarters ended
March 31, 1997 with an EBITDA covenant for the twelve months ended May 31, 1997
(tested at the same level as would have been required for the four quarters
ended March 31, 1997), reduced the amount of net cash proceeds from
7
<PAGE> 10
asset sales or sale/leaseback transactions required by December 31, 1996 to
$15.0 million (which was accomplished) and waived any related existing defaults
or events of default. The amendment provided for an increase of $10 in the
stated principal amount for each $1,000 in stated principal amount of consenting
noteholders. This resulted in an increase of approximately $1.6 million in the
stated principal amount of the Senior Secured Notes and $1.2 million in the
actual outstanding principal amount of the Senior Secured Notes.
ARG was four weeks late in paying the quarterly interest of $1.2 million on its
Subordinated Debt which was due March 15, 1997. The Subordinated Debt provides
for a 30-day grace period for interest payments.
Substantially all assets of ARG are pledged to its senior lenders. In addition,
the subsidiaries have guaranteed the indebtedness owed by ARG and such guarantee
is secured by substantially all of the assets of the subsidiaries. In connection
with such indebtedness, contingent and mandatory prepayments may be required
under certain specified conditions and events.
ARG's senior credit facilities provide for a letter of credit facility of $11.0
million until July 31, 1997. This letter of credit facility was fully utilized
as of May 5, 1997. A quarterly commitment fee of 0.5% per annum is payable on
the letter of credit facility and a quarterly fee of 3.75% per annum is payable
on outstanding letters of credit. Having repaid the outstanding bank loan in
September 1996, ARG does not have a working capital facility.
The Company is highly leveraged and is pursuing additional asset sales which
must be consummated in order to enable ARG to repay the required sinking fund
payment of $41.5 million due September 15, 1997 on the Senior Secured Notes. Any
additional asset sale proceeds in excess of the amount required to repay the
Senior Secured Notes in full, together with any proceeds from additional
refinancing, will be used to repay the Subordinated Debt. In the absense of such
a sale, the Company believes it could otherwise restructure its debt. In
addition, the Company expects to obtain a replacement letter of credit facility.
However, there can be no assurance that any such asset sales or refinancing will
be completed on acceptable terms.
8
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule, which is submitted
electronically 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: May 15, 1997 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 MARCH 31, 1997 AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS ON FORM 10-Q
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1997
<PERIOD-START> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 3,377,000
<SECURITIES> 0
<RECEIVABLES> 7,929,000
<ALLOWANCES> 1,023,000
<INVENTORY> 6,934,000
<CURRENT-ASSETS> 21,199,000
<PP&E> 221,199,000
<DEPRECIATION> 120,589,000
<TOTAL-ASSETS> 170,833,000
<CURRENT-LIABILITIES> 113,396,000
<BONDS> 0
0
0
<COMMON> 2,000
<OTHER-SE> (167,586,000)
<TOTAL-LIABILITY-AND-EQUITY> 170,833,000
<SALES> 114,110,000
<TOTAL-REVENUES> 114,000,000
<CGS> 36,350,000
<TOTAL-COSTS> 104,284,000
<OTHER-EXPENSES> 6,138,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,443,000
<INCOME-PRETAX> (4,755,000)
<INCOME-TAX> 5,000
<INCOME-CONTINUING> (4,760,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,760,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
