FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarterly period ended July 3, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the transition period from ___ to ___
Commission File Number: 1-6192
GROUND ROUND RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
New York 13-5637682
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
35 Braintree Hill Office Park, Braintree, Massachusetts 02184
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (617) 380-3100
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 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 [ ]
Number of shares of Common Stock, $ .1667 par value outstanding as of
August 9, 1994: 11,113,269
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
As of July 3, 1994 and October 3, 1993
(Dollars in thousands, except per share amounts)
1994 1993
(Unaudited) (Note)
ASSETS:
Current assets:
Cash and cash equivalents $ 2,174 $ 1,262
Receivables, net of allowances for
uncollectible accounts of $285 and $95
in 1994 and 1993, respectively 1,606 1,359
Inventories 2,671 2,511
Prepaid expenses and other current assets 2,917 6,413
Total current assets 9,368 11,545
Property and equipment:
Land 11,203 11,434
Buildings and leasehold improvements 114,310 106,869
Machinery and equipment 38,116 35,439
163,629 153,742
Accumulated depreciation and amortization 41,042 33,211
Property and equipment, net 122,587 120,531
Other assets 20,282 19,737
$ 152,237 $ 151,813
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 6,237 $ 7,871
Accrued expenses 15,335 15,105
Income taxes 100 69
Current portion of long-term debt and
capital lease obligations 956 1,055
Total current liabilities 22,628 24,100
Long-term debt and capital lease obligations 56,131 59,250
Deferred income taxes 3,303 2,744
Other long-term liabilities 6,732 7,082
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
As of July 3, 1994 and October 3, 1993
(Dollars in thousands, except per share amounts)
1994 1993
(Unaudited)
Stockholders' equity:
Preferred Stock, undesignated, par
value $100 per share; authorized
30,000 shares; none issued
Common Stock, par value $.1667 per share:
authorized 35,000,000 shares in 1994
and 15,000,000 shares in 1993; issued
11,113,000 in 1994 and 11,099,000
shares in 1993 1,852 1,850
Additional paid-in capital 57,629 57,572
Retained earnings (accumulated deficit) 4,082 (597)
63,563 58,825
Deferred Officer Compensation (120) (188)
Total stockholders' equity 63,443 58,637
$ 152,237 $ 151,813
<FN>
Note: The balance sheet at October 1993 has been derived from the audited
financial statements at that date but does not include all the
information and footnotes required by Generally Accepted Accounting
Principles for complete financial statements.
See notes to consolidated financial statements.
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
July 3, July 4, July 3, July 4,
1994 1993 1994 1993
Revenue $ 60,670 $ 55,760 $ 182,754 $ 174,380
Costs and expenses:
Cost of products sold 50,407 46,492 152,360 144,960
Selling, general and
administrative 3,634 3,676 11,435 12,212
Depreciation and amortization 3,402 2,738 10,038 8,234
Interest expense 958 849 3,013 3,023
Other (income) expense (77) 4 (978) 47
58,324 53,759 175,868 168,476
Income before taxes 2,346 2,001 6,886 5,904
Income taxes 751 640 2,203 1,889
Net income $ 1,595 $ 1,361 $ 4,683 $ 4,015
Weighted average common
shares outstanding 11,113 11,095 11,107 11,081
Net income per common
share $ .14 $ .12 $ .42 $ .36
<FN>
See notes to consolidated financial statements.
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended July 3, 1994 and July 4, 1993
(Dollars in thousands)
(Unaudited)
1994 1993
Cash flows from operating activities:
Net income $ 4,683 $ 4,015
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 10,288 8,519
Deferred taxes 559 433
(Gain) Loss on disposition of assets (2,061) 62
Other 68
Change in operating assets and
liabilities:
Accounts receivable (148) (221)
Inventories and prepaid expenses 3,336 (1,585)
Accounts payable and other
liabilities (1,458) (668)
Net cash provided by
operating activities 15,267 10,555
Cash flows from investing activities:
Purchase of property and equipment (13,371) (11,396)
Proceeds on sale of property & equipment 3,811
Purchase of liquor license (547) (175)
Deposits received (paid) (111) 20
Pre-opening costs (616) (141)
Notes receivable and working capital
loan collections (111)
Net cash used in investing activities (10,834) (11,803)
Cash flows from financing activities:
Proceeds from long-term borrowings 700 6,100
Payments of long-term borrowings (3,575) (4,003)
Payments of deferred debt costs (705) (61)
Proceeds from issuance of common stock 59
Net cash (used in) provided by
financing activities (3,521) 2,036
Net increase in cash 912 788
Cash and cash equivalents at
beginning of period 1,262 2,220
Cash and cash equivalents at
end of period $ 2,174 $ 3,008
<FN>
See notes to consolidated financial statements
GROUND ROUND RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the periods ended July 3, 1994 and July 4, 1993
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of Management, the accompanying unaudited Consolidated
Financial Statements contain all adjustments, which are of a normal
recurring nature, necessary to present fairly the Company's financial
position as of July 3, 1994 and the results of operations for the 13-week and
39-week periods ended July 3, 1994 and the 13-week and 40-week periods ended
July 4, 1993. These financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
regulations, although the Company believes the disclosures provided are
adequate to prevent the information presented from being misleading. It
is suggested that these financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's annual
report on Form 10-K for the year ended October 3, 1993.
Certain items in specific captions in the accompanying Consolidated
Financial Statements have been reclassified for comparative purposes.
2. DEFERRED PRE-OPENING COSTS
Pre-opening costs consist of incremental amounts directly associated with
opening a new restaurant. These costs, which principally include initial
purchases of expendables and expenses of the restaurant staff hired to
operate the restaurant upon opening, for the training period before the
restaurant opens, are capitalized and amortized for all restaurants opened
in fiscal 1994 over the twelve-month period following the restaurant
opening. For all restaurants opened prior to fiscal 1994, these costs are
amortized over a 24-month period. The impact of the amortization period
was not material on the financial statements for the quarter and nine months
ended July 3, 1994.
3. COST OF PRODUCTS SOLD
Cost of products sold comprises the following:
Three Months Ended Nine Months Ended
July 3, July 4, July 3, July 4,
1994 1993 1994 1993
Food and beverage costs $ 19,105 $ 17,713 $ 57,934 $ 54,728
Labor Costs 19,158 17,655 57,734 55,223
Other Costs 12,144 11,124 36,692 35,009
$ 50,407 $ 46,492 $152,360 $144,960
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Ground Round Restaurants, Inc. (the "Company") operated 162 and franchised
44 family-oriented, full service casual dining restaurants at July 3, 1994.
Fiscal year 1994 will have 52 weeks as compared with 53 weeks in 1993.
The nine months ended July 3, 1994 is comprised of 39 weeks while the nine
months ended July 4, 1993 is comprised of 40 weeks. The three month periods
ended July 3, 1994 and July 4, 1993 are each comprised of 13 weeks.
COMPARATIVE RESULTS OF OPERATIONS FOR THE THREE AND NINE
MONTHS ENDED JULY 3, 1994 AND JULY 4, 1993
The following table sets forth the percentages which the items in the Company's
Consolidated Statements of Operations bear to total revenue or Company-operated
restaurant revenue, as indicated:
Quarter Ended Nine Months Ended
July 3, July 4, July 3, July 4,
1994 1993 1994 1993
Restaurant revenue 99.1% 98.7% 99.1% 98.9%
Franchise revenue .9 1.3 .9 1.1
Total Revenue 100.0 100.0 100.0 100.0
Cost of products sold (1) 83.8 84.5 84.1 84.1
Selling, general & administrative 6.0 6.6 6.3 7.0
Depreciation and amortization 5.6 4.9 5.5 4.7
Interest expense, net 1.6 1.5 1.6 1.7
Other (income) expense (.1) 0 (.5) 0
Income from continuing operations
before tax 3.9 3.5 3.8 3.4
Income taxes 1.3 1.1 1.2 1.1
Income from continuing operations 2.6% 2.4% 2.6% 2.3%
(1) As a percentage of Company-operated restaurant revenue.
Restaurant Revenue: Restaurant revenue totalled $60.1 million and $181.2
million for the quarter and nine months ended July 3, 1994, respectively,
versus $55.0 million and $172.5 million for the quarter and nine months ended
July 4, 1993. Restaurant revenue is comprised of comparable restaurant
revenue (revenue from restaurants open during all of the most recently
completed fiscal year) and non-comparable restaurant revenue.
Comparable restaurant revenue increased 2.3% and .5% for the quarter and nine
months, respectively, versus the same periods in the prior year. Management
believes the increase in the quarter and nine months is principally attributable
to image and product-based advertising in the first and third quarters, offset
by record snowfalls and cold temperatures in January, which caused the Company
to suffer a 7.8% decrease in comparable restaurant sales that month.
Non-comparable restaurant revenue increased by $3.9 million and $11.7 million,
respectively, in the quarter and nine months ended July 3, 1994 over the same
periods ended July 4, 1993. This increase is due to eight (8) new
restaurants built in late 1993 and four (4) new restaurants opened to date in
fiscal 1994.
Average guest check has held at relatively constant levels, and was $8.27 in
June and $8.30 for the nine months ended July 4, 1994.
Franchise Revenue. Net revenue from franchise restaurants (consisting of
royalties and franchise fees) were approximately $528,000 and $1.6 million,
respectively, for the quarter and nine months ended July 3, 1994 versus
approximately $718,000 and $1.9 million for the quarter and nine months ended
July 3, 1994. The third quarter of 1993 included the collection of
previously reserved royalties of $179,000.
Cost of Products Sold. Cost of products sold consists of food and beverage
costs and restaurant operating expenses. Food and beverage costs totalled 31.8%
and 32.0% of Company-operated restaurant revenue in the quarter and nine months
ended July 3, 1994, respectively, versus 32.2% and 31.7% for the quarter and
nine months ended July 4, 1993. Restaurant operating expenses were 52.0% and
52.1% of Company-operated restaurant revenue in the quarter and nine months
ended July 3, 1994, respectively, as compared with 52.3% and 52.4% for the
quarter and nine months ended July 4, 1993.
Food and beverage costs as a percentage of Company-operated restaurant revenue
decreased by .4% for the third quarter but increased .3% in the nine months
ended July 3, 1994 over the prior year. This decrease in the quarter is due
largely to lower beef, steak, and produce costs as well as management's
increased efforts to control food costs and reduce waste. Beef, steak and
produce costs were higher during the first half of 1994 versus 1993, resulting
in increased food and beverage costs for the nine months ended July 3, 1994.
Restaurant operating expenses decreased .3% in the third quarter and .2% for
the nine months ended July 4, 1994. Labor costs have decreased .2% for the
quarter and .1% for the nine month period ended July 3, 1994. This decrease,
which results from a change in the Company's policy on paying accrued
vacation to employees upon termination of employment,is offset by an
approximate $300,000 increase in bonuses earned by restaurant management
based on increased profits. Other costs have remained at relatively
constant levels as compared with the prior year.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were 6.0% and 6.3%, respectively, of total revenue for
the quarter and nine months ended July 3, 1994 as compared with 6.6% and 7.0%
for the same periods in 1993. Selling expenses, comprised of media advertising
and point of purchase materials, development and production costs, were .7% and
.6% of revenue in the quarter and nine months ended July 3, 1994, versus .8% for
both the quarter and nine months ended July 4,1993. While media expenditures
have been increased during fiscal 1994, they have been offset by decreased
point of purchase campaigns and revenue increases causing a decrease in
percentage of sales. The third quarter of 1994 included image oriented and
product based media campaigns in selected markets in addition to the continued
point of purchase promotions.
General and administrative costs, comprised of restaurant manager training,
regional overhead, and corporate administrative costs, were 5.3% and 5.7% in
the quarter and nine months ended July 3, 1994, respectively, versus 5.8% and
6.2% for the same periods in 1993. For the quarter and nine months, the Company
has experienced lower corporate payroll than the comparable periods in 1993.
These reductions have been partially offset by increased training and
recruitment costs associated largely with hiring of new restaurant
management, as well as the increased expenditures to support new restaurant
development programs.
Depreciation and Amortization. Depreciation and amortization increased to 5.6%
and 5.5% of total revenue for the quarter and nine months ended July 3, 1994,
from 4.9% and 4.7% for the quarter and nine months ended July 4, 1993. This
increase is the result of eight (8) new restaurants opened in 1993, four (4) new
restaurants opened in 1994 and sixty (60) restaurants remodeled since 1992.
Interest Expense. Interest expense increased .1% in the third quarter of 1994
versus 1993 but is down .1% of revenue for the nine months ended July 3, 1994
over 1993. Increase for the quarter is the result of higher interest rates and
increased borrowings of approximately $3.0 million as compared with prior year
levels.
Other Income and Expense. During the third quarter of 1994, the Company
completed a sale of four locations for net proceeds totaling $1.8 million. The
related gain was largely offset by a loss accrual for other potential
location closings. During the second quarter of 1994, the Company completed
a sale of one location for approximately $2.0 million and realized a pretax
gain of approximately $1.4 million. This gain was partially offset by the
write-off of $.6 million in expenses associated with a proposed public
offering of convertible subordinated debentures which the Company withdrew
due to market conditions.
Income Taxes. The Company's effective income tax rate was 32% in the third
quarter and first nine months of 1994 and 1993.
LIQUIDITY AND CAPITAL RESOURCES
A significant amount of the Company's restaurant sales are for cash, with the
remainder made with credit cards that are generally realized in cash within a
few days. Because the Company does not have significant accounts receivable or
inventories and pays its expenses within normal terms, the Company operates with
working capital deficits as is typical in the restaurant industry. The Company
had working capital deficits of $13.3 million and $12.6 million as of July 3,
1994 and October 3, 1993, respectively.
Net cash provided by operating activities totalled $15.3 million in the first
nine months of 1994 as compared with $10.6 million in the first nine months of
1993. This increase is primarily the result of an irrevocable letter of credit
exchanged for cash insurance reserves related to the Company's casualty
insurance program. The Company had capital expenditures totalling $14.5
million and $11.7 million for the nine months ended July 3, 1994 and July 4,
1993, respectively, primarily for new restaurant construction, restaurant
remodeling and capital maintenance.
The Company has a $70 million credit facility, with availability of $67.7
million after prepayments made during the second and third quarters of 1994,
comprising $51.4 million in term debt and $16.3 million as a revolving facility
to fund operations and new store development. This revolving facility converts
to term debt on October 8, 1995. Principal payments under these facilities
begin in October 1995 and are scheduled through July 2000. The credit facilities
contain certain restrictions on the conduct of the Company's business.
II. OTHER INFORMATION
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) No reports of Form 8-K were filed during the third quarter, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GROUND ROUND RESTAURANTS, INC.
Date: August 11, 1994 By: /s/ Michael R. Jorgensen
Senior Vice President, Chief Financial
Officer and Treasurer
duly authorized