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 APRIL 2, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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 May 1, 2000, 11,086,385 shares of the registrant's Common Stock,
$.01 par value, were outstanding.
UNO RESTAURANT CORPORATION
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS............................3
Consolidated Balance Sheets --
April 2, 2000 and October 3, 1999...............3
Consolidated Statements of Income --
Thirteen and twenty-six weeks ended
April 2, 2000 and March 28, 1999................4
Consolidated Statements of Cash Flows --
Twenty-six weeks ended April 2, 2000 and
March 28, 1999..................................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...................12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................13
2
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
APRIL 2, OCTOBER 3,
2000 1999
-------- ----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 836 $ 752
Accounts receivable, net 2,523 2,398
Inventory 2,646 2,436
Prepaid expenses and other assets 2,134 1,757
-------- ---------
TOTAL CURRENT ASSETS 8,139 7,343
PROPERTY AND EQUIPMENT
Land 17,978 17,143
Buildings 31,647 28,920
Leasehold improvements 106,507 101,326
Equipment 62,835 58,576
Construction in progress 4,551 2,930
-------- ---------
223,518 208,895
Allowance for depreciation and amortization 86,651 80,149
-------- ---------
136,867 128,746
OTHER ASSETS
Deferred income taxes 10,958 10,020
Liquor licenses and other assets 3,765 3,503
--------- ---------
$159,729 $149,612
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 7,498 $ 7,798
Accrued expenses 9,056 8,668
Accrued compensation and taxes 2,935 3,369
Income taxes payable 997 2,914
Current portion of long-term debt and capital
lease obligations 4,014 4,075
-------- ---------
TOTAL CURRENT LIABILITIES 24,500 26,824
Long-term debt, net of current portion 41,774 31,612
Capital lease obligations, net of current portion 454 489
Other liabilities 10,215 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,
15,631 and 15,375 shares issued and outstanding in fiscal
years 2000 and 1999, respectively 156 154
Additional paid-in capital 57,408 55,648
Retained earnings 56,224 52,003
-------- --------
113,788 107,805
Treasury Stock (4,559 and 4,100 shares at cost,in
fiscal years 2000 and 1999, respectively) (31,002) (26,826)
-------- ---------
TOTAL SHAREHOLDERS' EQUITY 82,786 80,979
-------- ---------
$159,729 $149,612
======== =========
3
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
---------------------- ----------------------
APRIL 2, MARCH 28, APRIL 2, MARCH 28,
2000 1999 2000 1999
-------- -------- -------- --------
REVENUES
Restaurant sales $50,501 $46,718 $99,529 $91,651
Consumer product sales 2,819 2,303 5,630 4,867
Franchise income 1,341 1,230 2,648 2,480
-------- -------- -------- ---------
54,661 50,251 107,807 98,998
COSTS AND EXPENSES
Cost of food and beverages 13,608 13,153 26,971 26,105
Labor and benefits 17,093 15,514 33,296 30,420
Occupancy costs 7,616 7,237 14,962 14,331
Other operating costs 4,923 4,443 9,796 8,688
General and administrative 4,307 3,717 8,510 7,205
Depreciation and amortization 3,270 3,105 6,494 6,166
-------- -------- -------- --------
50,817 47,169 100,029 92,915
-------- -------- -------- --------
OPERATING INCOME 3,844 3,082 7,778 6,083
INTEREST AND OTHER EXPENSE 742 853 1,382 1,700
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 3,102 2,229 6,396 4,383
PROVISION FOR INCOME TAXES 1,055 735 2,175 1,446
-------- -------- -------- --------
NET INCOME $ 2,047 $ 1,494 $ 4,221 $ 2,937
======== ========= ======== ========
Earnings per Share:
Basic $ .18 $ .13 $ .37 $ .26
Diluted $ .17 $ .13 $ .35 $ .25
Weighted average shares outstanding:
Basic 11,302 11,373 11,303 11,435
Diluted 12,077 11,533 12,077 11,533
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
TWENTY-SIX WEEKS ENDED
----------------------
APRIL 2, MARCH 28,
2000 1999
-------- ---------
OPERATING ACTIVITIES
Net income $4,221 $2,937
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,566 6,223
Deferred income taxes (938) (766)
Provision for deferred rent 151 175
Gain on disposal of equipment (38) (2)
Contribution to employee benefit program 152 150
Changes in operating assets and liabilities, net of effects from
business acquisitions:
Accounts receivable (510) 29
Inventory (210) 8
Prepaid expenses and other assets (703) 246
Accounts payable and other liabilities 10 215
Income taxes payable (1,917) (288)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,784 8,927
INVESTMENT ACTIVITIES
Additions to property, equipment and
leasehold improvements (14,623) (8,951)
Proceeds from sale of fixed assets 38 2
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (14,585) (8,949)
FINANCING ACTIVITIES
Proceeds from revolving credit agreement 44,561 39,933
Principal payments on revolving credit agreement
and capital lease obligations (34,495) (37,738)
Purchase of Treasury Stock (3,825) (2,365)
Exercise of stock options 1,644 139
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 7,885 (31)
-------- ---------
INCREASE (DECREASE) IN CASH 84 (53)
CASH AT BEGINNING OF YEAR 752 2,030
-------- --------
CASH AT END OF PERIOD $ 836 $1,977
======== ========
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 TWENTY-SIX WEEKS ENDED
APRIL 2, MARCH 28, APRIL 2, MARCH 28,
2000 1999 2000 1999
----------- ---------- --------- --------
Numerator for Basic Earnings
per share:
Weighted average shares
outstanding 11,302,038 11,372,534 11,302,728 11,435,282
Common Stock equivalents:
Stock options 774,800 160,622 774,331 98,084
----------- ---------- ----------- -----------
Numerator for Diluted Earnings
per share:
Weighted average shares
outstanding including common
stock equivalents 12,076,838 11,533,156 12,077,059 11,533,366
========== ========== ========== ===========
Net Income $2,047,000 $ 1,494,000 $4,221,000 $2,937,000
========== ============ ========== ==========
Basic and Diluted Earnings per share:
Basic $ .18 $ .13 $ .37 $ .26
========== ========== ========== ==========
Diluted $ .17 $ .13 $ .35 $ .25
========== ========== ========== ==========
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 APRIL 2, 2000 COMPARED TO THIRTEEN WEEKS ENDED
MARCH 28, 1999
13 WEEKS ENDED
-------------------------
4/2/00 3/28/99
------ -------
REVENUES:
Restaurant sales 92.4% 93.0%
Consumer product sales 5.2 4.6
Franchise income 2.4 2.4
------ ------
Total 100.0% 100.0%
------ ------
COSTS AND EXPENSES:
Cost of food and beverages (1) 25.5% 26.8%
Labor and benefits (1) 32.1 31.6
Occupancy costs (1) 14.3 14.8
Other operating costs (1) 9.2 9.1
General and administrative 7.9 7.4
Depreciation and amortization (1) 6.1 6.3
------ ------
Operating income 7.0 6.1
Interest and Other expense 1.3 1.7
------ ------
Income before taxes 5.7 4.4
Provision for income taxes 1.9 1.4
------ ------
Net income 3.8% 3.0%
====== ======
(1) Percentage of restaurant and consumer product sales
NUMBER OF RESTAURANTS AT END OF QUARTER:
Company-owned Uno's - full service 103 98
Franchised Uno's - full service 62 66
7
TOTAL REVENUES. Total revenue increased 8.8% to $54.7 million from $50.3
million last year.
RESTAURANT SALES. Company-owned restaurant sales rose 8.1% to $50.5 million from
$46.7 million last year due primarily to a 3.5% increase in comparable store
sales for the second quarter versus the same period last year. Average weekly
sales, which includes sales at comparable stores as well as new units, increased
3.9% during the second quarter. Store operating weeks of full-service Pizzeria
Uno...Chicago Bar & Grill units grew 4.2% as six restaurants were added during
the past four quarters, two of them in the second quarter of fiscal 2000.
CONSUMER PRODUCT SALES. Consumer product sales increased 22.4% for the second
quarter this year to $2.8 million from $2.3 million last year. Sales in the
contract food service category grew 37.1% over last year. The growth was led by
increased shipments to airlines, hotels, and convenience store business. Sales
of fresh product to retail grocers in the New England region increased 3.7% over
the same period last year.
FRANCHISE INCOME. Franchise income, which includes royalty income and initial
franchise fees, increased to $1.34 million versus $1.23 million last year.
Royalty income increased 5.0% to $1.27 million this year compared to $1.21
million last year. The increase in royalty income was primarily due to a 9.2%
increase in average weekly sales for full-service franchised restaurants.
Franchise fees of $75,000 were recorded this year compared to $25,000 last year.
Two full-service franchise restaurants opened and one full-service franchise
restaurant closed during the second 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 25.5% compared to 26.8% last
year. This decrease was primarily due to lower cheese costs, which were down
approximately 14% over last year's levels. We also had lower costs for chicken,
beef and flour and as a result of several calendar year contracts, we expect
nine out of our top ten food cost items to be favorable in fiscal 2000 versus
fiscal 1999.
LABOR AND BENEFITS. Labor costs increased to 32.1% from 31.6% last year as a
percentage of restaurant and consumer product sales primarily due to increases
in the average wage rate.
OCCUPANCY COSTS. Occupancy costs declined as a percentage of restaurant and
consumer product sales to 14.3% from 14.8% due to sales leverage gains.
OTHER OPERATING COSTS. Other operating costs increased slightly to 9.2% as a
percentage of restaurant and consumer product sales from 9.1% last year on
higher pre-opening expense.
GENERAL AND ADMINISTRATIVE. General and administrative expenditures as a
percentage of total revenues increased to 7.9% from 7.4% 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. Depreciation and amortization expense as a
percentage of restaurant and consumer product sales was down to 6.1% versus 6.3%
last year due to increased sales leverage.
OPERATING INCOME. Operating income was $3.8 million, which represents an
operating margin of 7.0%. Operating income for last year was $3.1 million, which
represents an operating margin of 6.1%.
INTEREST AND OTHER EXPENSE. Interest and other expense of $742,000 decreased
from $853,000 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%.
8
NET INCOME. Net income increased to $2.0 million from $1.5 million last year
based on the factors noted above.
TWENTY-SIX WEEKS ENDED APRIL 2, 2000 COMPARED TO TWENTY-SIX WEEKS ENDED
MARCH 28, 1999
26 WEEKS ENDED
--------------
4/2/00 3/28/99
------ -------
REVENUES:
Restaurant sales 92.3% 92.6%
Consumer product sales 5.2 4.9
Franchise income 2.5 2.5
------ ------
Total 100.0% 100.0%
------ ------
COSTS AND EXPENSES:
Cost of food & beverages (1) 25.6% 27.0%
Labor and benefits (1) 31.7 31.5
Occupancy costs (1) 14.2 14.8
Other operating costs (1) 9.3 9.0
General and administrative 7.9 7.3
Depreciation and amortization (1) 6.2 6.4
------ ------
Operating income 7.2 6.1
Other expense 1.3 1.7
------ ------
Income before taxes 5.9 4.4
Provision for income taxes 2.0 1.4
------ ------
Net income 3.9% 3.0%
====== ======
(1) Percentage of restaurant and consumer product sales
TOTAL REVENUES. Total revenue increased 8.9% to $107.8 million from $99.0
million last year.
RESTAURANT SALES. Company-owned restaurant sales rose 8.6% to $99.5 million from
$91.7 million last year due primarily to a 4.7% increase in comparable store
sales for the twenty-six weeks versus the same period last year. Average weekly
sales, which includes sales at comparable stores as well as new units, also
increased 4.7% during the twenty-six week period. Store operating weeks of
full-service Pizzeria Uno...Chicago Bar & Grill units grew 4.0%.
CONSUMER PRODUCT SALES. Consumer product sales increased 15.7% for the first six
months this year to $5.6 million from 4.9 million last year. Sales in the
contract food service category grew 28.1% over last year. The growth was led by
increased shipments to airlines, hotels, and convenience store business. Sales
of fresh product to retail grocers in the New England region were flat versus
the same period last year.
FRANCHISE INCOME. Franchise income, which includes royalty income and initial
franchise fees, increased to $2.65 million versus $2.48 last year. Royalty
income increased 5.0% to $2.49 million this year compared to $2.38 million last
year. The increase in royalty income was primarily due to a 8.7% increase in
average weekly sales for full-service franchised restaurants. Franchise fees of
$153,000 were recorded this year compared to $105,000 last year. Five
full-service franchise restaurants opened and three full-service franchise
restaurants closed during the first six months of fiscal 2000.
COST OF FOOD AND BEVERAGES. Cost of food and beverage as a percentage of
restaurant and consumer product sales decreased to 25.6% compared to 27.0% last
year. This decrease was primarily due to lower cheese costs, which were down
approximately 18% over last year's levels. We have entered into several
contracts for key food items, including one with our cheese supplier to fix the
cost of mozzarella cheese for calendar year 2000 at favorable pricing versus
fiscal 1999 pricing.
9
LABOR AND BENEFITS. Labor costs increased slightly to 31.7% from 31.5% last year
as a percentage of restaurant and consumer product sales primarily due to
increases in the average wage rate.
OCCUPANCY COSTS. Occupancy costs declined as a percentage of restaurant and
consumer product sales to 14.2% from 14.8% due to sales leverage gains.
OTHER OPERATING COSTS. Other operating costs increased to 9.3% as a percentage
of restaurant and consumer product sales from 9.0% last year on higher
pre-opening expense due to the company's accelerated growth.
GENERAL AND ADMINISTRATIVE. General and administrative expenditures as a
percentage of total revenues increased to 7.9% from 7.3% 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. 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 $7.8 million, which represents an
operating margin of 7.2%. Operating income for last year was $6.1 million, which
represents an operating margin of 6.1%.
INTEREST AND OTHER EXPENSE. Interest and other expense of $1,382,000 decreased
from $1,700,000 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 first six
months of fiscal 2000 was higher than the 33.0% effective tax rate for the same
period last year, but consistent with the full year tax rate of 34.0%.
NET INCOME. Net income increased to $4.2 million from $2.9 million last year
based on the factors noted above.
LIQUIDITY AND SOURCES OF CAPITAL
The following table presents a summary of our cash flows for the twenty-six
weeks ended April 2, 2000.
(IN THOUSANDS)
--------------
Net cash provided by operating activities $ 6,784
Net cash used in investing activities (14,585)
Net cash used in financing activities 7,885
-------
Increase in cash $ 84
=======
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 six months of fiscal
2000, our investment in property, equipment and leasehold improvements was $14.6
million.
We currently plan to open approximately 12 to 13 restaurants in fiscal 2000,
five of which were opened in the first six months of fiscal 2000. 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 April 2, 2000, we had outstanding indebtedness of $41.2 million under our
$55 million credit facility, $560,000 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.
10
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.
On February 25, 2000, the board of directors amended its authorization regarding
the repurchase of the company's common stock. Under this amendment, the company
has approval to repurchase up to 1,500,000 shares of its common stock at such
time and at such prices as the company deems appropriate. To date under this
authorization, we have repurchased 1,167,775 shares, of which 463,505 shares
have been purchased during fiscal 2000.
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 105 leases, including 101 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 the our consolidated
financial statements.
In March 2000, the FASB issued Interpretation No.44, Accounting for Certain
Transactions Involving Stock Compensation (the Interpretation). This
interpretation clarifies how companies should apply the Accounting Principles
Board's Opinion No.25, Accounting for Stock Issued to Employees. The
Interpretation will be applied prospectively to new awards, modifications to
outstanding awards, and changes in employee status on or after July 1, 2000,
except as follows: the definition of an employee applies to awards granted after
December 15, 1998; the Interpretation applies to modifications that reduce the
exercise price of an award after December 15, 1998; and the Interpretation
applies to modifications that add a reload feature to an award made after
January 12, 2000. At the present time, there are no awards granted by the
Company which would result in an adjustment at July 1, 2000 as a result of this
Interpretation.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements. SAB
101 clarifies the SEC staff's views on applying generally accepted accounting
principles to revenue recognition in financial statements. In March 2000, the
SEC issued an amendment, SAB 101A, which deferred the effective date of SAB 101.
The Company will adopt SAB 101 in the second quarter of 2000 in accordance with
the amendment. The adoption of this SAB is not expected to have a significant
impact on the Company's 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.
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.
11
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.
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 our market risk associated with debt obligations and derivative
financial instruments as of April 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 4/2000
---- ---- ---- ---- ---- ---------- ------
Liabilities:
Fixed Rate $0.11 $0.24 $0.26 $0.28 $0.31 $3.29 $4.49
Average Interest Rate 8.75% 8.75% 8.75% 8.75% 8.75%
Variable rate $1.84 $3.68 $3.68 $23.49 $2.00 $6.50 $41.19
Average Interest Rate 7.96% 8.31% 8.34% 8.31% 8.36%
Interest Rate Swaps:
Receive Variable/
Pay Fixed $30.00 $30.00 $0.18
Weighted Average
Pay Rate 5.96% 5.84% -- -- -- --
Average Receive Rate 6.71% 7.03% -- -- -- --
12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)REPORTS ON FORM 8-K
Uno Restaurant Corporation did not file any Reports on
Form 8-K during the quarter ended April 2, 2000
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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: May 12, 2000 By: /s/ Craig S. Miller
---------------- ----------------------------------
Craig S. Miller
Chief Executive Officer
(Principal Executive Officer)
Date: May 12, 2000 By: /s/ Robert M. Vincent
---------------- ----------------------------------
Robert M. Vincent
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
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