FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JANUARY 2, 2000
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OR
[ ] 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 1-9573
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UNO RESTAURANT CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 04-2953702
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 CHARLES PARK ROAD, WEST ROXBURY, MASSACHUSETTS 02132
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(Address of principal executive offices) (Zip Code)
(617) 323-9200
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(Registrant's telephone number, including area code)
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(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
--- ---
As of January 26, 2000, 11,403,833 shares of the registrant's Common
Stock, $.01 par value, were outstanding.
UNO RESTAURANT CORPORATION
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS............................3
Consolidated Balance Sheets --
January 2, 2000 and October 3, 1999.............3
Consolidated Statements of Income --
Thirteen weeks ended
January 2, 2000 and December 27, 1998...........4
Consolidated Statements of Cash Flows --
Thirteen weeks ended January 2, 2000 and
December 27, 1998...............................5
Notes to Consolidated Financial
Statements......................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.......................7
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISKS..................11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...............12
2
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except per share data)
January 2, October 3,
2000 1999
----------- ----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 1,072 $ 752
Accounts receivable, net 3,353 2,398
Inventory 2,644 2,436
Prepaid expenses and other assets 2,114 1,757
--------- ---------
TOTAL CURRENT ASSETS 9,183 7,343
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Land 17,978 17,143
Buildings 30,267 28,920
Leasehold improvements 102,995 101,326
Equipment 60,364 58,576
Construction in progress 4,214 2,930
--------- ---------
215,818 208,895
Less allowance for depreciation and amortization 83,376 80,149
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132,442 128,746
OTHER ASSETS
Deferred income taxes 10,540 10,020
Royalty fee 51 72
Liquor licenses and other assets 3,722 3,431
--------- ---------
$155,938 $149,612
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 6,923 $ 7,798
Accrued expenses 9,832 8,668
Accrued compensation and taxes 2,695 3,369
Income taxes payable 2,577 2,914
Current portion of long-term debt and capital
lease obligations 4,061 4,075
--------- ---------
TOTAL CURRENT LIABILITIES 26,088 26,824
Long-term debt, net of current portion 35,903 31,612
Capital lease obligations, net of current portion 455 489
Other liabilities 9,991 9,708
SHAREHOLDERS' EQUITY
Preferred Stock, $1.00 par value, 1,000 shares
authorized, none issued
Common Stock, $.01 par value, 25,000 shares authorized, 15,415 and 15,375
shares issued and outstanding in Fiscal Years 2000 and 1999, respectively 154 154
Additional paid-in caital 55,962 55,648
Retained earnings 54,177 52,003
--------- ---------
110,293 107,805
Treasury Stock (4,095 and 4,100 shares at cost,in
Fiscal Years 2000 and 1999, respectively) (26,792) (26,826)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 83,501 80,979
--------- ---------
$155,938 $149,612
========= =========
3
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share data)
Thirteen Weeks Ended
--------------------------
January 2, December 27,
2000 1998
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REVENUES
Restaurant sales $49,028 $44,933
Consumer product sales 2,811 2,564
Franchise income 1,307 1,250
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53,146 48,747
COSTS AND EXPENSES
Cost of food and beverages 13,363 12,952
Labor and benefits 16,203 14,906
Occupancy costs 7,346 7,094
Other operating costs 4,873 4,245
General and administrative 4,203 3,488
Depreciation and amortization 3,224 3,061
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49,212 45,746
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OPERATING INCOME 3,934 3,001
INTEREST AND OTHER EXPENSE 640 847
-------- --------
Income before income taxes 3,294 2,154
Provision for income taxes 1,120 711
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NET INCOME $ 2,174 $ 1,443
======== ========
Earnings per Share:
Basic $ .19 $ .13
Diluted $ .18 $ .13
-------- --------
Weighted average shares outstanding:
Basic 11,303 11,498
Diluted 12,077 11,534
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Thirteen Weeks Ended
------------------------
January 2, December 27,
2000 1998
---------- ------------
OPERATING ACTIVITIES
Net income $ 2,174 $ 1,443
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,258 3,090
Deferred income taxes (520) (383)
Provision for deferred rent 73 90
Gain on disposal of equipment (23) (1)
Contribution to employee benefit programs 152 96
Changes in operating assets and liabilities, net
of effects from business acquisitions:
Accounts receivables (955) (943)
Inventory (208) (403)
Prepaid expenses and other assets (658) 172
Accounts payable and other liabilities (175) 129
Income taxes payable (337) 792
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,781 4,082
INVESTMENT ACTIVITIES
Additions to property, equipment and
leasehold improvements (6,923) (4,446)
Proceeds from sale of fixed assets 23 1
-------- --------
NET CASH USED FOR INVESTING ACTIVITIES (6,900) (4,445)
FINANCING ACTIVITIES
Proceeds from revolving credit agreement 21,647 17,794
Principal payments on revolving credit agreement
and capital lease obligations (17,404) (16,127)
Purchase of Treasury Stock 0 (2,330)
Exercise of stock options 196 117
-------- -------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 4,439 (546)
-------- ---------
INCREASE (DECREASE) IN CASH 320 (909)
CASH AT BEGINNING OF PERIOD 752 2,030
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CASH AT END OF PERIOD $ 1,072 $ 1,121
======== ========
Certain amounts in fiscal 1999 have been reclassified to permit comparison.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited, consolidated financial statements have been prepared
in accordance with instructions to Form 10-Q and, therefore, do not include all
information and footnotes normally included in financial statements prepared in
conformity with generally accepted accounting principles. They should be read in
conjunction with our financial statements for the fiscal year ended October 3,
1999.
The accompanying financial statements include all adjustments (consisting only
of normal recurring accruals) that management considers necessary for a fair
presentation of its financial position and results of operations for the interim
periods presented.
NOTE B - EARNINGS PER SHARE
Basic earnings per share represents net income divided by the weighted average
shares of common stock outstanding during the period. Weighted average shares
used in diluted earnings per share include common stock equivalents arising from
stock options using the treasury stock method.
The following table sets forth the computation of basic and diluted earnings per
share.
Thirteen Weeks Ended
January 2, December 27,
2000 1998
---------- ------------
Numerator for Basic Earnings
per Share:
Weighted average shares
outstanding 11,303,383 11,498,031
Common Stock equivalents:
Stock options 773,862 35,545
------------ -----------
Numerator for Diluted Earnings
per Share:
Weighted average shares
outstanding including common
stock equivalents 12,077,245 11,533,576
============ ===========
Net Income $2,174,000 $1,443,000
=========== ============
Basic and Diluted Earnings per Share:
Basic $ .19 $ .13
=========== ===========
Diluted $ .18 $ .13
=========== ===========
NOTE C - 10% COMMON STOCK DIVIDEND
On November 30, 1999, the Company declared a 10% Common Stock dividend payable
on December 23, 1999 to stockholders of record as of December 13, 1999. All
share and per share data in the accompanying financial statements have been
retroactively adjusted to reflect the stock dividend.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SAFE HARBOR CAUTIONARY STATEMENT
From time to time, information and statements provided by our filings with the
Securities and Exchange Commission, shareholder reports, press releases and oral
statements may include forward-looking statements which reflect the our current
view with respect to future events and financial performance. Forward-looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that all
forward-looking statements involve risks and uncertainties, which could cause
actual results to differ materially from historical results or those
anticipated. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. Risks and uncertainties include, without limitation, the
our ability to open new restaurants and operate new and existing restaurants
profitably, changes in local, regional and national economic conditions,
especially economic conditions in the areas in which our restaurants are
concentrated, increasingly intense competition in the restaurant industry,
increases in food, labor, employee benefits and similar costs, and other risks
detailed from time to time in our news releases, reports to shareholders and
periodic reports filed with the Securities and Exchange Commission.
The following tables set forth the percentage relationship to total revenues,
unless otherwise indicated, of certain items included in our income statements
and operating data for the periods indicated:
THIRTEEN WEEKS ENDED JANUARY 2, 2000 COMPARED TO THIRTEEN WEEKS ENDED
DECEMBER 27, 1998
13 Weeks Ended
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1/2/2000 12/27/98
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REVENUES:
Restaurant sales 92.3% 92.2%
Consumer product sales 5.3 5.3
Franchise income 2.4 2.5
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Total 100.0% 100.0%
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COSTS AND EXPENSES:
Cost of food and beverages (1) 25.8% 27.3%
Labor and benefits (1) 31.3 31.4
Occupancy costs (1) 14.2 14.9
Other operating costs (1) 9.4 8.9
General and administrative 7.9 7.2
Depreciation and amortization (1) 6.2 6.4
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Operating income 7.4 6.2
Interest and Other expense 1.2 1.7
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Income before taxes 6.2 4.5
Provision for income taxes 2.1 1.5
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Net income 4.1% 3.0%
====== ======
(1) Percentage of restaurant and consumer product sales
NUMBER OF RESTAURANTS AT END OF QUARTER:
Company-owned Uno's - full service 101 97
Franchised Uno's - full service 61 65
7
TOTAL REVENUES. Total revenue increased 9.0% to $53.1 million from $48.7 million
last year.
RESTAURANT SALES. Company-owned restaurant sales rose 9.1% to $49.0 million from
$44.9 million last year due primarily to a 5.9% increase in comparable store
sales for the first quarter versus the same period last year. Average weekly
sales, which includes sales at comparable stores as well as new units, increased
5.6% during the first quarter. Store operating weeks of full-service Pizzeria
Uno...Chicago Bar & Grill units grew 3.8% as five restaurants were added during
the past four quarters, three of them in the first quarter of fiscal 2000.
CONSUMER PRODUCT SALES. Consumer product sales increased 9.6% for the first
quarter this year to $2.8 million from $2.6 million last year. Sales in the
contract food service category grew 20.5% over last year. The growth was led by
increased shipments to airlines, hotels, cinemas and convenience store business.
Sales of fresh product to retail grocers in the New England region increased
3.3% over the same period last year while the category as a whole declined 4.3%
due to the loss of a major club store sales account.
FRANCHISE INCOME. Franchise income, which includes royalty income and initial
franchise fees, increased to $1.31 million versus $1.25 last year. Royalty
income increased 5.1% to $1.23 million this year compared to $1.17 million last
year. The increase in royalty income was primarily due to a 8.2% increase in
average weekly sales for full-service franchised restaurants. Franchise fees of
$78,000 were recorded this year compared to $80,000 last year. Three
full-service franchise restaurants opened and two full-service franchise
restaurants closed during the first quarter of fiscal 2000.
COST OF FOOD AND BEVERAGES. Cost of food and beverage as a percentage of
restaurant and consumer product sales decreased to 25.8% compared to 27.3% last
year. This decrease was primarily due to lower cheese costs, which were down
approximately 21% over last years levels. In December, 1999 we signed an
agreement with our cheese supplier to fix the cost of mozzarella cheese for
calendar year 2000 at approximately 4% below 1999 levels.
LABOR AND BENEFITS. Labor costs were down slightly 31.3% from 31.4% last year as
a percentage of restaurant and consumer product sales as an increase in the
average wage rate was absorbed by lower employee benefit expense.
OCCUPANCY COSTS. Occupancy costs declined as a percentage of restaurant and
consumer product sales to 14.2% from 14.9% due to sales leverage gains.
OTHER OPERATING COSTS. Other operating costs were up to 9.4% as a percentage of
restaurant and consumer product sales from 8.9% last year on higher pre-opening
expense.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenditures as
a percentage of total revenues increased to 7.9% from 7.2% last year on higher
salary and wage expense associated with infrastructure spending to support our
accelerated growth objectives, and increased trainee labor expense.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense as
a percentage of restaurant and consumer product sales was down to 6.2% versus
6.4% last year due to increased sales leverage.
OPERATING INCOME. Operating income was $3.9 million, which represents an
operating margin of 7.4%. Operating income for last year was $3.0 million, which
represents an operating margin of 6.2%.
INTEREST AND OTHER EXPENSE. Interest and other expense of $640,000 decreased
from $847,000 last year due primarily to reduced interest expense as a slightly
higher borrowing rate was offset by a reduced level of debt.
PROVISION FOR INCOME TAXES. The effective tax rate of 34.0% for the quarter was
higher than the 33.0% effective tax rate for the same quarter last year, but
consistent with the full year tax rate of 34.0%.
NET INCOME. Net income increased to $2.2 million from $1.4 million last year
based on the factors noted above.
8
LIQUIDITY AND SOURCES OF CAPITAL
The following table presents a summary of our cash flows for the period ended
January 2, 2000.
(In Thousands)
--------------
Net cash provided by operating activities $ 2,781
Net cash used in investing activities (6,900)
Net cash used in financing activities 4,439
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Increase in cash $ 320
=======
Historically, we have leased most of our restaurant locations and pursued a
strategy of controlled growth, financing our expansion principally from
operating cash flow, public equity offerings, the sale of senior, unsecured
notes, and revolving lines of credit. During the first three months of fiscal
2000, our investment in property, equipment and leasehold improvements was $6.9
million.
We currently plan to open approximately 12 to 13 restaurants in fiscal 2000,
three of which were opened in the first quarter. The average cash investment
required to open a full service Pizzeria Uno restaurant, excluding land and
pre-opening costs, is approximately $1.6 million.
As of January 2, 2000, we had outstanding indebtedness of $35.3 million under
our $55 million credit facility, $613,000 in capital lease obligations and $4.5
million under our mortgage financing. Advances under the revolving credit
facility will accrue interest at the lender's prime rate plus 0-50 basis points,
or alternatively, 100-175 basis points above LIBOR. We anticipate using the
revolving credit facility in the future for the development of additional
restaurants, and for working capital.
On November 30, 1999 our board of directors declared a 10% stock dividend on the
outstanding shares of our common stock. The stock dividend was payable on
December 23, 1999 to shareholders of record as of December 13, 1999.
We believe that existing cash balances, cash generated from operations and
borrowing under our revolving line of credit will be sufficient to fund our
capital requirements for the foreseeable future.
We are currently obligated under 103 leases, including 99 leases for
Company-owned restaurants, two leases for our executive offices, one lease
for an office building containing one of our restaurants and one lease for a
mill shop.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal year 2001. This statement requires all derivatives to be
carried on the balance sheet as assets or liabilities at fair value. The
accounting for changes in the fair value of the derivatives would depend on
the hedging relationship and would be reported in the income statement, or as
a component of comprehensive income. We believe that the adoption of this new
accounting standard will not have a material impact on our consolidated
financial statements.
YEAR 2000 COMPLIANCE
The Year 2000 problem is a result of computer programs being written
using two digits rather than four to define the applicable year. Any of our
programs that have time sensitive software may recognize the date using "00"
as the year 1900 rather than the year 2000, which could result in system
failures or miscalculations using existing software. We did not experience
any significant disruptions of business as a result of the year 2000 problem.
Business affairs with our major vendors and food distributors, our credit
card processor and our franchisees continued without any critical
interruptions. However, if unanticipated problems arise from systems or
equipment in the future, there could be material adverse effects on our
consolidated financial position, results of operations and cash flows.
9
We expensed all maintenance and modification costs as we incurred them. We
capitalized and depreciated the cost of new software, if material, over its
expected useful life. We incurred costs of approximately $150,000 in testing and
remediation of all our systems and applications. Approximately $60,000 of the
total cost of testing and remediation related to repair issues and the remainder
to replacement of equipment. All costs were budgeted and funded by cash flows
from operations. No information technology projects were deferred due to Year
2000 compliance efforts. We did not purse independent verification of our
systems because we believe that any effort would be as costly as the remediation
effort and was not warranted. The costs related to the Year 2000 compliance
project was not material to our financial position or results of operations.
IMPACT OF INFLATION
Inflation has not been a major factor in our business for the last several
years. We believe we have historically been able to pass on increased costs
through menu price increases, but there can be no assurance that we will be able
to do so in the future. Future increases in local area construction costs could
adversely affect our ability to expand.
SEASONALITY
Our business is seasonal in nature, with revenues and, to a greater degree,
operating income being lower in the first and second fiscal quarters than in
other quarters. Our seasonal business pattern is due to our concentration of
units in the Northeast, and the resulting lower winter volumes.
10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
We have market risk exposure to interest rates on our fixed and
variable rate debt obligations and we manage this exposure through the use of
interest rate swaps. We do not enter into contracts for trading purposes. The
information below summarizes the our market risk associated with debt
obligations and derivative financial instruments as of January 2, 2000. For debt
obligations, the table presents principal cash flows and related average
interest rates by expected fiscal year of maturity. For variable rate debt
obligations, the average variable rates are based on implied forward rates as
derived from appropriate quarterly spot rate observations as of the fiscal
quarter end. For interest rate swaps, the table presents the notional amounts
and related weighted average interest rates by fiscal year of maturity. The
average variable rates are the implied forward rates as derived from appropriate
quarterly spot rate observations as of the fiscal quarter end.
Expected Fiscal Year of Maturity
(US$ in millions)
Fair
Value
2000 2001 2002 2003 2004 Thereafter 1/2/2000
---- ---- ---- ---- ---- ---------- --------
Liabilities:
Fixed Rate $0.17 $0.24 $0.26 $0.28 $0.31 $3.29 $4.54
Average Interest Rate 8.75% 8.75% 8.75% 8.75% 8.75%
Variable rate $2.76 $3.68 $3.68 $3.68 $18.64 $4.50 $35.26
Average Interest Rate 7.74% 8.28% 8.43% 8.50% 8.64%
Interest Rate Swaps:
Receive Variable/
Pay Fixed $30.00 $30.00 $0.15
Weighted Average
Pay Rate 5.96% 5.84% -- -- -- --
Average Receive Rate 6.49% 6.99% -- -- -- --
11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Amendment to lease between Uno Restaurants, Inc.
and Aaron D. Spencer dated January 24, 2000.
10.33 Contract with Beatrice Cheese, Inc. dated December 27,
1999.
(b) REPORTS ON FORM 8-K
Uno Restaurant Corporation did not file any Reports
on Form 8-K during the quarter ended January 2, 2000.
12
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.
UNO RESTAURANT CORPORATION
(Registrant)
Date: February 11, 2000 By: /s/ Craig S. Miller
--------------------- --------------------------------
Craig S. Miller
Chief Executive Officer
(Principal Executive Officer)
Date: February 11, 2000 By: /s/ Robert M. Vincent
--------------------- ----------------------------------
Robert M. Vincent
Senior Vice President-Finance,
and Chief Financial Officer
(Principal Financial Officer)
13