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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required)
For the fiscal year ended January 3, 1999
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
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 identification no.)
incorporation or organization)
3333 New Hyde Park Road, New Hyde Park, NY 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)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of exchange
Common Stock, $.01 par value New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act:
None
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(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 5, 1999, the aggregate market value of voting stock held by
non-affiliates of the registrant was $103,221,620.
As of March 23, 1999, the registrant had 6,318,275 shares of its common
stock, $.01 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) portions of the registrant's annual report to stockholders for the fiscal
year ended January 3, 1999 (the "Annual Report") are incorporated by
reference into Part II hereof; and
(2) portions of the registrant's definitive proxy statement (to be filed
pursuant to Regulation 14A) for the 1999 Annual Meeting of Stockholders
(the "Proxy Statement") are incorporated by reference into Part III hereof.
PART I
ITEM 1. BUSINESS
GENERAL
Morton's Restaurant Group, Inc. was incorporated as a Delaware corporation
on October 3, 1988. As used in this Report, the terms "MRG" or "Company" refer
to Morton's Restaurant Group, Inc. and its consolidated subsidiaries.
At January 3, 1999, the Company owned and operated 55 restaurants
utilizing two distinct restaurant concepts: Morton's of Chicago ("Morton's")
and Bertolini's Authentic Trattorias ("Bertolini's"). These concepts appeal
to a broad spectrum of consumer tastes and target separate price points and
dining experiences. During the first quarter of fiscal 1999, one new Morton's
restaurant was opened, one Morton's was relocated and two Bertolini's were
closed.
The Company provides strategic support and direction to its subsidiary
companies, and evaluates and analyzes potential locations for new restaurants.
Management consists of Allen J. Bernstein, Chairman of the Board, President and
Chief Executive Officer and vice presidents responsible for site selection and
development, finance, and administration.
The Company plans to expand by adding new Morton's of Chicago steakhouse
restaurants. No Bertolini's are planned for 1999. The Company has no agreements
or letters of intent with respect to any potential acquisition. However, the
Company has investigated, and may possibly continue to investigate, the
acquisition of other restaurant concepts. The Company does not currently intend
to develop a franchise program for any of its restaurant concepts.
There can be no assurance that the Company's expansion plans will be
successfully achieved or that new restaurants will meet with consumer acceptance
or can be operated profitably.
Based on a strategic assessment of recent trends and a downturn in
comparable revenues of Bertolini's Authentic Trattorias, during 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. Two Bertolini's, one in Westbury, NY, and one in Costa Mesa, CA,
were closed during the first quarter of fiscal 1999. See Note 3 to the
Company's consolidated financial statements.
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MORTON'S OF CHICAGO STEAKHOUSE RESTAURANTS
At January 3, 1999, Morton's operated 43 premium quality steakhouses
located in 40 cities. During the first quarter of 1999, a new Morton's
restaurant was opened in Scottsdale, AZ and one Morton's of Chicago restaurant
was relocated within Nashville. Morton's offers its clientele a combination of
excellent service and large quantities of the highest quality menu items.
Morton's has received awards in many locations for the quality of its food and
hospitality. Morton's serves USDA prime aged beef, including, among others, a 24
oz. porterhouse, a 20 oz. NY strip sirloin and a 16 oz. ribeye. Morton's also
offers fresh fish, lobster, veal and chicken. All Morton's have identical dinner
menu items. While the emphasis is on beef, the menu selection is broad enough to
appeal to many taste preferences. The Morton's dinner menu consists of a
tableside presentation by the server of many of the dinner items, including a 48
oz. porterhouse steak and a live Maine lobster, and all Morton's restaurants
feature an open display kitchen where steaks are prepared. Each restaurant has a
fully stocked bar with a complete list of name brands and an extensive premium
wine list that offers approximately 175 selections.
Morton's caters primarily to high-end, business-oriented clientele. During
the year ended January 3, 1999, the average per-person check, including dinner
and lunch, was approximately $65.25. Management believes that, on a nationwide
basis, a vast majority of Morton's weekday sales and a substantial portion of
its weekend sales are derived from business people using expense accounts. Sales
of alcoholic beverages accounted for approximately 32% of Morton's revenues
during fiscal 1998. In the nine Morton's serving both lunch and dinner during
fiscal 1998, dinner service accounted for approximately 86% of revenues and
lunch service accounted for approximately 14%. All Morton's are open seven days
a week. Those 34 Morton's serving only dinner are typically open from 5:30 p.m.
to 11:30 p.m., while those Morton's serving both lunch and dinner are also
typically open from 11:30 a.m. to 2:30 p.m. for the lunch period.
All Morton's are very similar in terms of style, concept and decor and are
located in retail, hotel, commercial and office building complexes in major
metropolitan areas and urban centers. In 1998, 42 Morton's (including all
restaurants opened since the 1989 acquisition) had on-premises private dining
and meeting facilities referred to as "Boardrooms". During fiscal 1998,
Boardroom sales were approximately 18% of sales in those locations offering
Boardrooms. Boardrooms offer a valuable amenity to customers and fully
complement Morton's operations. It is anticipated that all future Morton's will
contain Boardrooms.
Morton's operations and cost systems, developed over 20 years, enable
Morton's to maintain tight controls over operating expenses. The cooking staff
is highly trained and experienced. The uniform staffing patterns throughout
Morton's restaurants enhance operating efficiencies. Morton's management
believes that its centralized sourcing from its primary suppliers of its USDA
prime aged beef gives it significant cost and availability advantages over many
independent restaurants. Morton's purchases Midwest-bred, grain-fed, USDA prime
aged beef (approximately the finest two to three percent of a 1,100 pound
steer).
BERTOLINI'S AUTHENTIC TRATTORIA RESTAURANTS
At January 3, 1999, there were twelve Bertolini's, located in ten cities.
Bertolini's is a white tablecloth, authentic Italian trattoria, which provides
table service in a casual dining atmosphere. For the year ended January 3, 1999,
Bertolini's average per-person check, including dinner and lunch, was
approximately $20.00. Bertolini's restaurants are open seven days a week, for
lunch and dinner, with typical hours of 11:00 a.m. to 12:00 midnight. During
fiscal 1998, dinner service accounted for approximately 67% of
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revenues and lunch service accounted for approximately 33%. Sales of alcoholic
beverages accounted for approximately 20% of Bertolini's revenues during fiscal
1998.
During fiscal 1998, the Company identified several under performing
Bertolini's restaurants and authorized a plan for the closure or abandonment of
specified restaurants. See Note 3 to the Company's consolidated financial
statements.
SITE DEVELOPMENT AND EXPANSION
GENERAL. To date, the Company has attempted to maximize its capital resources by
receiving substantial development or rent allowances from its landlords. The
Company's leases typically provide for substantial landlord development or rent
allowances and an annual percentage rent based on gross sales, subject to
market-based minimum annual rents. This leasing strategy enables the Company to
reduce its net investments in newly developed restaurants.
The costs of opening a Morton's or Bertolini's vary by restaurant depending
upon, among other things, the location of the site and the extent of any
renovation required. The Company generally leases its restaurant sites and
operates both free-standing and in-line restaurants. In recent years, the
Company has received substantial landlord development and or rent allowances for
leasehold improvements, furniture, fixtures and equipment. The Company currently
targets its average cash investment, net of such landlord allowances in new
restaurants, in leased premises, to be less than $2.0 million per restaurant,
although the Company may expend greater amounts for particular restaurants.
During 1998, the Company executed contracts to purchase five parcels of
land to develop four Morton's and one Bertolini's. As of March 1999, three
restaurants (two Morton's and one Bertolini's) were built and opened and the
remaining two properties are for Morton's and are under development.
The Company believes that the locations of its restaurants are critical to
its long-term success, and management devotes significant time and resources to
analyzing each prospective site. As it has expanded, the Company has developed
specific criteria by which each prospective site is evaluated. Potential sites
are generally sought in major metropolitan areas. In addition to carefully
analyzing demographic information, such as average household size and income,
for each prospective site, management considers factors such as traffic
patterns, proximity of shopping areas and office buildings, area restaurant
competition, accessibility and visibility. The Company's ability to open new
restaurants depends upon locating satisfactory sites, negotiating favorable
lease terms, securing appropriate government permits and approvals, obtaining
liquor licenses and recruiting or transferring additional qualified management
personnel. For these and other reasons, there can be no assurance that the
Company's expansion plans will be successfully achieved or that new restaurants
will meet with consumer acceptance or can be operated profitably.
The standard decor and interior design of each of the Company's restaurant
concepts can be readily adapted to accommodate different types of locations.
MORTON'S. The first Morton's was opened in 1978 in downtown Chicago, where
Morton's headquarters are still located. From 1978 to 1989, Morton's expanded to
a group of nine restaurants in nine cities. Under the Company, Morton's has
grown from nine to 44 restaurants through March 1999. During 1998, new Morton's
opened in North Miami Beach, FL, Portland, OR, Stamford, CT, Singapore and
Toronto.
4
During the first quarter of 1999 a new Morton's opened in Scottsdale, AZ and one
Morton's was relocated within Nashville, TN.
Morton's are located in retail, hotel, commercial and office building
complexes in major metropolitan areas and urban centers. Management believes
that fixed investment costs and occupancy costs have been relatively low, as
appropriate space for new Morton's restaurants has been readily available.
The approximate gross costs to the Company for the five Morton's opened or
relocated, in leased premises, between January 1, 1998 and March 1999, ranged
from $2.1 million to $2.7 million, including the costs of leasehold
improvements, furniture, fixtures, equipment, and pre-opening expenses. These
aggregate per-restaurant costs were substantially offset by landlord
development and, or rent allowances ranging from $0.9 million to $1.2 million
and equipment lease financings ranging from $0.3 million to $0.5 million. The
Company's average net cash investment for the four restaurants opened between
December 29, 1997 and March 1999, in leased premises, was approximately $1.4
million, in each case, net of landlord development and or rent allowances and
restaurant equipment lease financings. The approximate gross costs for the
two restaurants built, on properties owned by the Company, including land
purchases, and the costs for improvements, furniture, fixtures, equipment and
pre-opening expenses was $5.0 million. Such amounts were substantially
reduced by proceeds from mortgage and restaurant equipment lease financings.
The Company plans to continue the development of Morton's and has selected
several possible domestic and international sites for expansion.
BERTOLINI'S AUTHENTIC TRATTORIA RESTAURANTS. The first Bertolini's opened in Las
Vegas in May 1992 (located in the Forum Shops Mall, adjacent to Caesar's Palace
Casino). During 1998, new Bertolini's opened in West Las Vegas, NV and Primm,
NV. No Bertolini's are planned for fiscal 1999.
The approximate gross costs to the Company for the restaurant opened in a
leased premise during 1998, was $3.3 million, including the costs of leasehold
improvements, furniture, fixtures, equipment and pre-opening expenses. This
aggregate cost was partially offset by a landlord development allowance of $0.8
million. The approximate gross cost for the restaurant built on property owned
by the Company, including the land purchase, and the costs for improvements,
furniture, fixtures, equipment and pre-opening expenses was $4.6 million.
During fiscal 1998, the Company identified several under performing
Bertolini's restaurants and authorized a plan for the closure or abandonment of
specified restaurants. See Note 3 to the Company's consolidated financial
statements.
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RESTAURANT LOCATIONS
The Company operated 54 restaurants as of March 1999. The following table
provides information with respect to those restaurants which are open:
MORTON'S OF CHICAGO STEAKHOUSE RESTAURANTS DATE OPENED
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Chicago, IL (1) December 1978
Washington (Georgetown), DC November 1982
Philadelphia, PA May 1985
Westchester/Oakbrook, IL June 1986
Dallas, TX May 1987
Boston, MA December 1987
O'Hare (Rosemont), IL June 1989
Cleveland, OH September 1990
Tysons Corner, VA November 1990
Columbus, OH April 1991
Cincinnati, OH August 1991
San Antonio, TX September 1991
Palm Beach, FL November 1991
Minneapolis, MN December 1991
Beverly Hills, CA (2) October 1992
Detroit (Southfield), MI November 1992
Las Vegas, NV January 1993
Sacramento, CA May 1993
Pittsburgh, PA August 1993
New York (Midtown Manhattan), NY October 1993
St. Louis (Clayton), MO December 1993
Palm Desert, CA January 1994
Atlanta (Buckhead), GA March 1994
Charlotte, NC July 1994
San Francisco, CA November 1994
Dallas (Addison), TX November 1994
Costa Mesa (Orange), CA March 1995
Denver, CO March 1995
Atlanta/Downtown, GA November 1995
Houston, TX January 1996
Phoenix, AZ March 1996
Orlando, FL March 1996
New York (Downtown Manhattan), NY June 1996
Washington (Connecticut Ave.), DC January 1997
San Diego, CA April 1997
Baltimore, MD August 1997
Miami, FL December 1997
Stamford, CT February 1998
Singapore May 1998
North Miami Beach, FL July 1998
Toronto, Canada September 1998
Portland, OR December 1998
Nashville, TN (3) January 1999
Scottsdale, AZ January 1999
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BERTOLINI'S AUTHENTIC TRATTORIAS DATE OPENED
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Las Vegas, NV May 1992
Atlanta, GA September 1993
Washington, DC September 1995
Rockville, MD October 1995
King of Prussia, PA November 1995
Irvine, CA November 1995
Indianapolis, IN October 1996
Charlotte, NC July 1997
West Las Vegas, NV December 1998
Primm, NV December 1998
Additional sites are under active review for potential leases representing
new Morton's restaurants to open. Including the restaurant that opened during
the first quarter of 1999, the Company currently intends to open approximately
seven to eight new Morton's restaurants during 1999. There can be no assurance,
however, that the Company's expansion plans will be successfully achieved or
that new restaurants will meet with consumer acceptance or can be operated
profitably.
(1) Excludes Morton's Boardroom Banquet facilities.
(2) Operates under the name "Arnie Morton's of Chicago."
(3) The Morton's Nashville, TN location was relocated in January 1999 to a new
site. The original location had been opened since September, 1992.
RESTAURANT OPERATIONS AND MANAGEMENT
Morton's and Bertolini's restaurants have a well developed management
infrastructure and are set up as distinct operations within the Company. Each
group has a senior officer responsible for overall restaurant operations.
Operations for the Company's restaurants are supervised by area and regional
directors, each of whom is responsible for the operations of several restaurants
and reports to the appropriate division senior officer. Area directors meet
frequently with senior management to review operations and to resolve any
issues. Working in concert with area and regional directors and restaurant
general managers, senior management defines operations and performance
objectives for each restaurant. An incentive plan has been established in which
area directors and certain restaurant managers participate. Awards under
incentive plans are tied to achievement of specified revenue, profitability and
operating targets and related quality objectives.
The Company strives to maintain quality and consistency in its restaurants
through the careful training and supervision of personnel and the establishment
of standards relating to food and beverage preparation, maintenance of
facilities and conduct of personnel. Restaurant managers, many of whom are
developed from the Company's restaurant personnel, must complete a training
program of typically eight to twelve weeks during which they are instructed in
areas of restaurant management, including food quality and preparation, customer
service, alcoholic beverage service, liquor liability avoidance and employee
relations. Restaurant managers are also provided with operations manuals
relating to food and beverage preparation and operation of restaurants. These
manuals are designed to ensure uniform operations, consistently high quality
products and service and proper accounting for restaurant operations. The
Company holds regular meetings of its restaurant general managers to discuss
menu items, continuing training and other aspects of business management.
7
The staff for a typical Morton's consists of one general manager, up to
four assistant managers and approximately 40 to 60 hourly employees. The staff
for a typical Bertolini's consists of one general manager and up to six other
managers, and approximately 100 hourly employees. Each new restaurant employee
of the Company participates in a training program during which the employee
works under the close supervision of restaurant managers. Management strives to
instill enthusiasm and dedication in its employees. Restaurant management
regularly solicits employee suggestions concerning restaurant operations,
strives to be responsive to the employees' concerns and meets regularly with
employees at each of the restaurants.
The Company devotes considerable attention to controlling food costs. The
Company makes extensive use of computers providing management with pertinent
information on daily sales and inventory requirements, thus minimizing the need
to carry excessive quantities of food inventories. This cost management system
is complemented by the Company's ability to obtain volume-based discounts. In
addition, each restaurant, within the Company's divisions, has similar menu
items and common operating methods, allowing for more simplified management
operating controls.
The Company maintains financial and accounting controls for each of its
restaurants through the use of centralized accounting and management information
systems and reporting requirements. Revenue, cost and related information is
collected daily from each restaurant. Restaurant managers are provided with
operating statements for their respective locations. Cash and credit card
receipts are controlled through daily deposits to local operating accounts, the
balances of which are wire transferred or deposited to cash concentration
accounts.
PURCHASING
The Company's ability to maintain consistent quality throughout its
restaurants depends in part upon the ability to acquire food products and
related items from reliable sources in accordance with Company specifications.
The Company has no long-term contracts for any food items used in its
restaurants. The Company currently does not engage in any futures contracts and
all purchases are made at prevailing market prices. While management believes
adequate alternative sources of supply are readily available, these alternative
sources might not provide as favorable terms to the Company as its current
suppliers when viewed on a long-term basis. All of Morton's USDA prime aged beef
is shipped to Morton's restaurants by refrigerated common carrier from its
primary Chicago-based suppliers. All other products used by Morton's are
procured locally based on strict group-wide specifications. Bertolini's
restaurants also adhere to strict product specifications and use both national
and regional suppliers. Food and supplies are shipped directly to the
restaurants and invoices for purchases are sent by vendors to the headquarters
office.
MARKETING
Management believes that the Company's commitment to quality food,
hospitality and value/price is the most effective approach to attracting guests.
Accordingly, the Company has historically focused its resources on providing its
customers with superior service and value, and has relied primarily on word of
mouth to attract new customers. The Company employs public relations consultants
and limited print, billboard and direct mail advertising, and typically conducts
some local restaurant promotions. The Company's expenditure for advertising,
marketing and promotional expenses as a percentage of its revenues was 2.7%
during fiscal 1998.
8
COMPETITION
The restaurant business is highly competitive and fragmented, and the
number, size and strength of competitors varies widely by region. The Company
believes that restaurant competition is based on, among other things, quality of
food products, customer service, reputation, restaurant location, name
recognition and price points. The Company's restaurants compete with a number of
restaurants within their markets, both locally owned restaurants and other
restaurants which are members of regional or national chains. Some of the
Company's competitors are significantly larger and have greater financial and
other resources and greater name recognition than the Company and its
restaurants. Many of such competitors have been in existence longer than the
Company and are better established in areas where the Company's restaurants are,
or are planned to be, located. The restaurant business is often affected by
changes in consumer taste and spending habits, national, regional or local
economic conditions, population and traffic patterns and bad weather. In
addition, factors such as inflation, increased costs, food, labor and benefits
and the lack of experienced management and hourly staff employees may adversely
affect the restaurant industry in general and, in particular, the Company's
restaurants.
SERVICE MARKS AND TRADEMARKS
The Company has registered the names Morton's, Morton's of Chicago,
Bertolini's and certain other names used by its restaurants as trademarks or
service marks with the United States Patent and Trademark Office. The Company is
aware of names similar to that of the Company's restaurants used by third
parties in certain limited geographical areas, although the Company does not
anticipate that such use will prevent the Company from using its marks in such
areas. The Company is not aware of any infringing uses that could materially
affect its business. The Company believes that its trademarks and service marks
are valuable to the operation of its restaurants and are important to its
marketing strategy.
GOVERNMENT REGULATION
The Company's business is subject to extensive Federal, state and local
government regulation, including regulations relating to alcoholic beverage
control, public health and safety, zoning and fire codes. The failure to obtain
or retain food, liquor or other licenses would adversely affect the operations
of the Company's restaurants. While the Company has not experienced and does not
anticipate any problems in obtaining required licenses, permits or approvals,
any difficulties, delays or failures in obtaining such licenses, permits or
approvals could delay or prevent the opening of a restaurant in a particular
area. Approximately 32% and 20% of the revenues of Morton's and Bertolini's,
respectively, for fiscal 1998 were attributable to the sale of alcoholic
beverages. Each restaurant has appropriate licenses from regulatory authorities
allowing it to sell liquor and or beer and wine, and each restaurant has food
service licenses from local health authorities. The Company's licenses to sell
alcoholic beverages must be renewed annually and may be suspended or revoked at
any time for cause, including violation by the Company or its employees of any
law or regulation pertaining to alcoholic beverage control, such as those
regulating the minimum age of patrons or employees, advertising, wholesale
purchasing, and inventory control, handling and storage. However, each
restaurant is operated in accordance with standardized procedures designed to
assure compliance with all applicable codes and regulations.
The Company is subject in certain states to "dram-shop" statutes, which
generally provide a person injured by an intoxicated person the right to recover
damages from an establishment which wrongfully served alcoholic beverages to
such person. While the Company carries liquor liability coverage as part of its
existing comprehensive general liability insurance, a judgment against the
Company under a dram-shop statute in excess of the Company's liability coverage,
or inability to continue to obtain such insurance coverage at reasonable costs,
could have a material adverse effect on the Company.
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The development and construction of additional restaurants will be subject
to compliance with applicable zoning, land use and environmental regulations.
Management believes that Federal and state environmental regulations have not
had a material effect on the Company's operations, but more stringent and varied
requirements of local government bodies with respect to zoning, land use and
environmental factors could delay construction of new restaurants and add to
their cost.
The Company is also subject to the Fair Labor Standards Act, the
Immigration Reform and Control Act of 1986 and various federal and state laws
governing such matters as minimum wages, overtime, tips, tip credits and other
working conditions. A significant number of the Company's hourly staff are paid
at rates related to the Federal minimum wage and, accordingly, increases in the
minimum wage or decreases in allowable tip credits will increase the Company's
labor cost.
EMPLOYEES
As of January 3, 1999, the Company had approximately 3,612 employees, of
whom 3,063 were hourly restaurant employees, 450 were salaried restaurant
employees engaged in administrative and supervisory capacities and 99 were
corporate and office personnel. Many of the hourly employees are employed on a
part-time basis to provide services necessary during peak periods of restaurant
operations. None of the Company's employees are covered by a collective
bargaining agreement. The Company believes that its relations with its employees
are good.
FORWARD-LOOKING STATEMENTS
This Form 10K 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 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 and 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.
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ITEM 2. PROPERTIES
The Company's restaurants are generally located in space leased by
subsidiaries of the Company. Restaurant lease expirations, including renewal
options, range from 1 to 28 years. The majority of the Company's leases provide
for an option to renew for terms ranging from five years to ten years.
Restaurant leases provide for a specified annual rent, and most leases call for
additional or contingent rent based on sales volumes over specified levels.
Generally, leases are "net leases" which require the Company's subsidiary to pay
its pro rata share of taxes, insurance and maintenance costs. In some cases, the
Company or another subsidiary guarantees the performance of new leases of the
tenant subsidiary for a portion of the lease term, typically not exceeding the
first five years.
The Company maintains its executive offices of approximately 9,800 square
feet in New Hyde Park, New York. The executive offices for Morton's and
Bertolini's consist of approximately 15,100 square feet in Chicago. All such
executive offices are leased.
The Company believes its current office and operating space is suitable and
adequate for intended purposes.
ITEM 3. LEGAL PROCEEDINGS
An employee (Plaintiff) of a subsidiary of the Company, initiated legal
action against Morton's of Chicago, Quantum Corporation and unnamed "Doe"
defendants on February 8, 1996 in California Superior Court in San Francisco.
Plaintiff's, Ms. Wendy Kirkland, complaint alleged under California law, among
other things, wrongful constructive termination, sex discrimination and sexual
harassment. Plaintiff sought general, special, and punitive damages in
unspecified amounts, as well as attorney's fees and costs. The case was
subsequently removed to the US District Court for the Northern District of
California. By order dated October 14, 1997, the Court granted Plaintiff's
motion for partial summary judgment, finding that an employer is strictly liable
under California law for the sexually harassing conduct of the employer's
supervisory employees. On November 25, 1997, a jury in the US District Court for
the Northern District of California awarded a judgment to the Plaintiff. In
conjunction with the judgment, the Company recorded a 1997 fourth quarter
nonrecurring, pre-tax charge of $2,300,000, representing compensatory damages of
$250,000, (reduced by the Court to $150,000 in fiscal 1998), punitive damages of
$850,000, and an estimate of the Plaintiff's and the Company's legal fees and
expenses. On July 29, 1998, the Court entered judgment in accordance with the
jury's verdict. The Company has filed an appeal and intends to vigorously
contest the judgment.
During fiscal 1998, the Company identified several under performing
Bertolini's restaurants and authorized a plan for the closure or abandonment of
specified restaurants. The Company does not believe that the ultimate resolution
of these actions will have a material effect beyond that recorded during fiscal
1998. See Note 3 to the Company's consolidated financial statements.
The Company is also 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 SECURITY HOLDERS
None.
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the Company's executive
officers:
NAME AGE POSITION
---- --- --------
Allen J. Bernstein (1) 53 Chairman of the Board, President and Chief Executive Officer
Thomas J. Baldwin 43 Executive Vice President, Chief Financial Officer,
Assistant Secretary, Treasurer and Director
Agnes Longarzo 60 Vice President-Administration and Secretary
Allan C. Schreiber 58 Senior Vice President-Development
Klaus W. Fritsch 55 Vice Chairman and Co-Founder-Morton's of Chicago
John T. Bettin 43 President-Morton's of Chicago
(1) Member of Executive Committee of the Board of Directors.
Allen J. Bernstein has been Chairman of the Board of the Company since
October 1994 and Chief Executive Officer and a Director of the Company since
December 1988. He has been President of the Company since September 1997 and was
previously President of the Company from December 1988 through October 1994. Mr.
Bernstein has worked in many various aspects of the restaurant industry since
1970. Mr. Bernstein is also a director of Dave and Busters, Inc., Charlie Browns
Acquisition Corp., and Luther's Acquisition Corp.
Thomas J. Baldwin was elected a Director of the Company in October 1998 and
Executive Vice President in January 1997. He previously served as Senior Vice
President, Finance of the Company since June 1992, and Vice President, Finance
since December 1988. In addition, Mr. Baldwin has been Chief Financial Officer,
Assistant Secretary and Treasurer of the Company since December 1988. His
previous experience includes seven years at General Foods Corp., now a
subsidiary of Philip Morris Companies, Inc., where he worked in various
financial management and accounting positions and nearly two years at Citicorp
where he served as Vice President responsible for strategic planning and
financial analysis at a major corporate banking division.
Mr. Baldwin is a licensed certified public accountant in the State of New York.
Agnes Longarzo has been Vice President of Administration and Secretary of
the Company since December 1988. Ms. Longarzo had been Vice President of
Administration and Corporate Secretary for Le Peep Restaurants, Inc. from March
1983 to December 1988. Prior to joining Le Peep Restaurants, Inc., Ms. Longarzo
served as the Director of Administration of Wenco Food Systems, Inc.
Allan C. Schreiber has been Senior Vice President, Development since
January 1, 1999, Vice President of Real Estate since January 1996 and Director
of Real Estate since November 1995. Mr. Schreiber had been a Senior Managing
Director at The Galbreath Company since 1991. Prior to joining Galbreath, he
served as an Executive Vice President of National Westminster Bank USA from 1982
to
12
1991. Previously, Mr. Schreiber had been a Vice President and Division Executive
of the Chase Manhattan Bank.
Klaus W. Fritsch has been the Vice Chairman of Morton's of Chicago, Inc.
since May 1992. Mr. Fritsch has been with Morton's of Chicago, Inc. since its
inception in 1978, when he co-founded Morton's. After Mr. Arnold Morton ceased
active involvement in 1987, Mr. Fritsch assumed all operating responsibilities
as President in which capacity he served until May 1992.
John T. Bettin has been President of Morton's of Chicago since July 1998.
Prior to joining the Company, Mr. Bettin had been Executive Vice President of
Capital Restaurant Concepts, Ltd. since April 1994. Previously, Mr. Bettin
worked for Gilbert Robinson, Inc. where he served in various positions including
Corporate Executive Chef, Vice President Operations and Senior Vice President
Concept Development since 1975.
Officers are elected by and serve at the discretion of the Board of
Directors.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
"Price Range of Common Stock and Related Matters" contained on page 35 of
the Company's Annual Report is hereby incorporated by reference.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
"Selected Financial Information" contained on page two of the Company's
Annual Report is hereby incorporated by reference.
The graphs labeled "Morton's and Bertolini's Revenues", "Morton's and
Bertolini's Restaurants at Year End", "Consolidated EBITDA" and "Morton's and
Bertolini's % Change in Comparable Revenues" on page three of the Company's
Annual Report shall not be deemed incorporated by reference into this Annual
Report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained on pages 14 to 20 of the Company's Annual Report is hereby
incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following items are hereby incorporated by reference to the Company's
Annual Report on the pages indicated:
PAGE
----
(i) Independent Auditors' Report 20
(ii) Consolidated Balance Sheets as of January 3, 1999 and December 28, 1997 21
(iii) Consolidated Statements of Operations For the years ended January 3, 1999,
December 28, 1997 and December 29, 1996 22
(iv) Consolidated Statements of Stockholders' Equity For the years ended January
3, 1999, December 28, 1997 and December 29, 1996 22
(v) Consolidated Statements of Cash Flows For the years ended January 3, 1999,
December 28, 1997 and December 29, 1996 23
(vi) Notes to Consolidated Financial Statements 24 - 34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
"Election of Directors" and "Reporting under 16(A) of the Securities
Exchange Act of 1934" contained in the Proxy Statement is hereby incorporated by
reference. See also Item 4A, "Executive Officers of the Registrant" in Part I of
this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
"Executive Compensation" contained in the Proxy Statement is hereby
incorporated by reference. The matters labeled "Compensation Committee Report"
and "Performance Graph" contained in the Proxy Statement shall not be deemed
incorporated by reference into this Annual Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"Security Ownership of Certain Beneficial Owners and Management" contained
in the Proxy Statement is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on Form
10-K:
(1) The response to this portion of Item 14 is set forth in Item 8 of Part
II hereof.
(2) FINANCIAL STATEMENT SCHEDULES
Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have
been omitted.
(3) EXHIBITS
See accompanying Index to Exhibits. The Company will furnish to any
stockholder, upon written request, any exhibit listed in the
accompanying Index to Exhibits upon payment by such stockholder of the
Company's reasonable expenses in furnishing any such exhibit.
(b) Reports on Form 8-K:
None.
(c) Reference is made to Item 14(a)(3) above.
(d) Reference is made to Item 14 (a)(2) above.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 MARCH 31, 1999 By: /S/ ALLEN J. BERNSTEIN
--------------------- -------------------------------------------
Allen J. Bernstein
Chairman of the Board of Directors,
President, and Chief Executive Officer
(Principal Executive Officer)
Date MARCH 31, 1999 By: /S/ THOMAS J. BALDWIN
--------------------- -------------------------------------------
Thomas J. Baldwin
Executive Vice President, Chief Financial
Officer, Assistant Secretary, Treasurer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date MARCH 31, 1999 By: /S/ ALLEN J. BERNSTEIN
--------------------- --------------------------------------------
Allen J. Bernstein
Chairman of the Board of Directors,
President, and Chief Executive Officer
(Principal Executive Officer)
Date MARCH 31, 1999 By: /S/ THOMAS J. BALDWIN
--------------------- --------------------------------------------
Thomas J. Baldwin
Executive Vice President, Chief Financial
Officer, Assistant Secretary, Treasurer and
Director (Principal Financial and
Accounting Officer)
17
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
(CONTINUED)
Date MARCH 31, 1999 By: /S/ LEE M. COHN
-------------------- -------------------------------------------
Lee M. Cohn
Director
Date MARCH 31, 1999 By: /S/ DIANNE H. RUSSELL
-------------------- -------------------------------------------
Dianne H. Russell
Director
Date MARCH 31, 1999 By: /S/ ALAN A. TERAN
-------------------- -------------------------------------------
Alan A. Teran
Director
18
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
(CONTINUED)
Date MARCH 31, 1999 By: /S/ JOHN K. CASTLE
------------------- -------------------------------------------
John K. Castle
Director
Date: MARCH 31, 1999 By: /S/ DR. JOHN J. CONNOLLY
------------------- -------------------------------------------
Dr. John J. Connolly
Director
Date MARCH 31, 1999 By: /S/ DAVID B. PITTAWAY
------------------- -------------------------------------------
David B. Pittaway
Director
19
INDEX TO EXHIBITS
The following is a list of all exhibits filed as part of this report:
Exhibit
Number Documents
- ------ ---------
3.01 (a) Amended and Restated Certificate of Incorporation of the
Registrant. (6)
(b) Certificate of Designation for the Preferred Stock issuable pursuant
to the Rights Plan. (4)
(c) Amendment to the Amended and Restated Certificate of Incorporation of
the Registrant. (6)
(d) Second Amendment to the Amended and Restated Certificate of
Incorporation of the Registrant. (9)
3.02 Amended and Restated By-Laws of the Registrant, dated January 17,
1995. (4)
4.01 (a) Specimen Certificate representing the Common Stock, par value $.01 per
share including Rights Legend and name change to Morton's Restaurant
Group, Inc. (9)
4.02 (a) Registration Rights Agreement for Common Stock, dated as of July 27,
1989, among the Registrant, BancBoston Capital Inc., Legend Capital
Group, L.P., Legend Capital International, Ltd. and Allen J.
Bernstein. (1)
(b) Amendment to Registration Rights Agreement for Common Stock, dated as
of April 1, 1992, among the Registrant, BancBoston Capital Inc.,
Legend Capital Group, L.P., Legend Capital International, Ltd., Allen
J. Bernstein, Castle Harlan, Inc. and certain executive officers of
the Registrant. (2)
4.03 (a)+ Stock Option Agreement, dated as of March 30, 1992, between Agnes
Longarzo and the Registrant. (2)
(b)+ Stock Option Agreement, dated as of March 30, 1992, between Allen
J. Bernstein and the Registrant. (1)
4.04 (a) Second Amended and Restated Revolving Credit and Term Loan Agreement,
dated June 19, 1995 among the Registrant, The Peasant Restaurants,
Inc., Morton's of Chicago, Inc. and The First National Bank of Boston,
individually and as agent. (6)
(b) First Amendment to the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated February 14, 1996 among the Registrant,
The Peasant Restaurants, Inc., Morton's of Chicago, Inc. and The First
National Bank of Boston, individually and as agent. (7)
(c) Second Amendment to the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated March 5, 1996 among the Registrant, The
Peasant Restaurants, Inc., Morton's of Chicago, Inc. and The First
National Bank of Boston, individually and as agent. (7)
20
(d) Letter Agreement, dated May 2, 1996, among the Registrant, The Peasant
Restaurants, Inc., Morton's of Chicago, Inc. and The First National
Bank of Boston, individually and as agent. (8)
(e) Third Amendment to the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated June 28, 1996 among the Registrant, The
Peasant Restaurants, Inc., Morton's of Chicago, Inc. and The First
National Bank of Boston, individually and as agent. (9)
(f) Fourth Amendment to the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated December 26, 1996 among the Registrant,
The Peasant Restaurants, Inc., Morton's of Chicago, Inc. and The First
National Bank of Boston, individually and as agent. (11)
(g) Fifth Amendment to the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated December 31, 1996 among the Registrant,
The Peasant Restaurants, Inc., Morton's of Chicago, Inc. and The First
National Bank of Boston, individually and as agent. (11)
(h) Sixth Amendment to the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated February 6, 1997 among the Registrant,
The Peasant Restaurants, Inc., Morton's of Chicago, Inc. and The First
National Bank of Boston, individually and as agent. (11)
(i) Seventh Amendment to the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated June 27, 1997 among the Registrant,
Peasant Holding Corp., Morton's of Chicago, Inc. and BankBoston, N.A.,
individually and as agent. (12)
(j) Eighth Amendment to the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated February 12, 1998 among the Registrant,
Peasant Holding Corp., Morton's of Chicago, Inc. and BankBoston, N.A.,
individually and as agent. (13)
(k) Letter Agreement, dated April 6, 1998, among BankBoston, N.A. and the
Registrant regarding an Extendible Swap Transaction. (14)
(l) Letter Agreement, dated May 29, 1998, among BankBoston, N.A. and the
Registrant regarding an Extendible Swap Transaction. (15)
(m) Ninth Amendment to the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated September 25, 1998 among the
Registrant, Peasant Holding Corp., Morton's of Chicago, Inc. and
BankBoston, N.A., individually and as agent. (16)
(n) Tenth Amendment to the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated November 18, 1998 among the Registrant,
Peasant Holding Corp., Morton's of Chicago, Inc. and BankBoston, N.A.,
individually and as agent.
4.05 Rights Agreement, dated as of December 15, 1994, between the
Registrant and The First National Bank of Boston as Rights Agent,
which includes as Exhibit A thereto the form of Certificate of
Designation of Series A Junior Participating Preferred Stock of the
Registrant, as Exhibit B thereto the form of Rights Certificate and as
Exhibit C thereto the Summary of Rights to Purchase Preferred Stock.
(5)
21
10.01 + Morton's of Chicago, Inc. Profit Sharing and Cash Accumulation Plan as
Amended Effective January 1, 1989. (4)
10.02 Commercial Lease, between American National Investor Services, Inc.
and Morton's of Chicago, Inc., dated October 15, 1992, relating to the
executive offices of Morton's located at 350 West Hubbard Street,
Chicago, Illinois. (2)
10.03 Commercial Lease, between X-Cell Realty Associates and the Registrant,
dated January 18, 1994 relating to the executive offices of the
Registrant located at 3333 New Hyde Park Road, Suite 210, New Hyde
Park, New York 11042. (3)
10.04(a)+ Change of Control Agreement, dated December 15, 1994, between the
Registrant and Allen J. Bernstein. (4)
(b)+ Change of Control Agreement, dated December 15, 1994, between the
Registrant and Thomas J. Baldwin. (4)
10.05 + Second Amended and Restated Employment Agreement, dated as of February
28, 1995, between the Registrant and Allen J. Bernstein. (4)
10.06 + Quantum Restaurant Group, Inc. Stock Option Plan. (7)
10.07 Stock Purchase Agreement, dated as of December 31, 1996, by and among
Peasant Holding Corp., Morton's Restaurant Group, Inc., and MRI
Acquisition Corporation. (10)
10.08 Stock Purchase Agreement, dated as of December 31, 1996, by and among
Peasant Holding Corp., Morton's Restaurant Group, Inc., and PRI
Acquisition Corporation. (10)
10.09 Promissory Note, dated March 4, 1997, between CNL Financial I, Inc.,
as Lender, and Morton's of Chicago, Inc. (11)
10.10 Commercial Mortgage Commitment, dated August 4, 1997, between
Franchise Finance Corporation of America and the Registrant relating
to mortgage financing. (13)
10.11 Amended and Restated Promissory Note, dated September 18, 1998, among
FFCA Acquisition Corporation and Morton's of Chicago/North Miami
Beach, Inc., a subsidiary of the Registrant. (16)
10.12 First Amendment to the Second Amended and Restated Employment
Agreement, dated October 1, 1998, between the Registrant and Allen J.
Bernstein. (16)
10.13 Promissory Note, dated December 15, 1998, among FFCA Acquisition
Corporation and Morton's of Chicago/Scottsdale, Inc., a subsidiary of
the Registrant.
10.14 Promissory Note, dated December 30, 1998, among FFCA Acquisition
Corporation and Bertolini's at Village Square, Inc., a subsidiary of
the Registrant.
13.01 Registrant's Annual Report to Stockholders for the year ended January
3, 1999. Except for the portions thereof which are expressly
incorporated by reference into this report, such
22
Annual Report is furnished solely for the information of the
Commission and is not to be deemed "filed" as part of this report.
21.01 Subsidiaries of the Registrant.
23.01 Independent Auditors' consent to the incorporation by reference in the
Company's Registration Statement on Form S-8 of the independent
auditors' report included in the Company's Annual Report to
Stockholders.
27.00 Financial Data Schedule
(1) Included as an exhibit to the Registrant's Registration Statement
on Form S-1 (No. 33-45738) and incorporated by reference.
(2) Included as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1992 and incorporated by
reference.
(3) Included as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993 and incorporated by
reference.
(4) Included as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 1, 1995 and incorporated by
reference.
(5) Included as an exhibit to the Registrant's Form 8-K dated on
December 15, 1994 and incorporated by reference.
(6) Included as an exhibit to the Registrant's Quarterly Report on
Form 10-Q, dated July 2, 1995.
(7) Included as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995 and incorporated by
reference.
(8) Included as an exhibit to the Registrant's Quarterly Report on
Form 10-Q, dated March 31, 1996.
(9) Included as an exhibit to the Registrant's Quarterly Report on
Form 10-Q, dated June 30, 1996.
(10) Included as an exhibit to the Registrant's Form 8-K, dated
January 6, 1996.
(11) Included as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended December 29, 1996 and incorporated by
reference.
(12) Included as an exhibit to the Registrant's Quarterly Report on
Form 10-Q, dated June 29, 1997.
(13) Included as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended December 28, 1997 and incorporated by
reference.
23
(14) Included as an exhibit to the Registrant's Quarterly Report on
Form 10-Q, dated March 29, 1998.
(15) Included as an exhibit to the Registrant's Quarterly Report on
Form 10-Q, dated June 28, 1998.
(16) Included as an exhibit to the Registrant's Quarterly Report on
Form 10-Q, dated September 27, 1998.
+ Management contracts or compensatory plans or arrangements
required to be filed as an exhibit to the Registrant's Annual
Report on Form 10-K pursuant to Item 14 (a)(3) of this Form 10-K.
24