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 DECEMBER 31, 2000
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
UNO RESTAURANT CORPORATION
--------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2953702
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 CHARLES PARK ROAD, WEST ROXBURY, MASSACHUSETTS 02132
--------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(617) 323-9200
--------------------------------------------------------------
(Registrant's telephone number, including area code)
--------------------------------------------------------------
(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 February 2, 2001, 10,991,788 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 --
December 31, 2000 and October 1, 2000...........3
Consolidated Statements of Income --
Thirteen weeks ended December 31, 2000 and
January 2, 2000.................................4
Consolidated Statements of Cash Flows --
Thirteen weeks ended December 31, 2000 and
January 2, 2000.................................5
Notes to Consolidated Financial
Statements......................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.......................8
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)
DECEMBER 31, OCTOBER 1,
2000 2000
----------- ---------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 757 $ 788
Accounts receivable, net 3,735 3,530
Inventory 2,631 2,497
Prepaid expenses and other assets 2,164 1,999
--------- ---------
TOTAL CURRENT ASSETS 9,287 8,814
PROPERTY AND EQUIPMENT
Land 20,126 19,640
Buildings 37,218 35,215
Leasehold improvements 106,980 106,342
Equipment 66,059 64,385
Construction in progress 3,982 3,029
--------- ---------
234,365 228,611
Allowance for depreciation and amortization 90,075 86,619
--------- ---------
144,290 141,992
OTHER ASSETS
Deferred income taxes 14,493 14,132
Liquor licenses and other assets 3,192 3,538
--------- ---------
$171,262 $168,476
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 7,761 $ 9,851
Accrued expenses 9,316 8,459
Accrued compensation and taxes 2,898 2,889
Income taxes payable 1,558 558
Current portion of long-term debt and capital
lease obligations 3,927 3,953
--------- ---------
TOTAL CURRENT LIABILITIES 25,460 25,710
Long-term debt, net of current portion 52,257 50,900
Capital lease obligations, net of current portion 452 453
Other liabilities 9,355 9,699
SHAREHOLDERS' EQUITY
Preferred Stock, $1.00 par value, 1,000 shares
authorized, none issued
Common Stock, $.01 par value, 25,000 shares authorized, 15,774 and 15,744
shares issued and outstanding in fiscal years 2001 and 2000, respectively 158 158
Additional paid-in capital 58,943 58,755
Retained earnings 57,874 56,038
--------- ---------
116,975 114,951
Treasury Stock (4,784 shares in fiscal years
2001 and 2000) at cost (33,237) (33,237)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 83,738 81,714
--------- ---------
$171,262 $168,476
========= =========
3
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share data)
THIRTEEN WEEKS ENDED
--------------------------------
December 31, January 2,
2000 2000
----------- ---------
REVENUES
Restaurant sales $55,459 $49,028
Consumer product sales 3,333 2,811
Franchise income 1,497 1,307
-------- --------
60,289 53,146
COSTS AND EXPENSES
Cost of food and beverages 15,127 13,363
Labor and benefits 19,184 16,203
Occupancy costs 8,348 7,346
Other operating costs 5,199 4,398
General and administrative 4,810 4,203
Depreciation and amortization 3,438 3,224
Pre-opening costs 241 475
-------- --------
56,347 49,212
OPERATING INCOME 3,942 3,934
INTEREST AND OTHER EXPENSE 1,139 640
-------- --------
INCOME BEFORE INCOME TAXES 2,803 3,294
PROVISION FOR INCOME TAXES 967 1,120
-------- --------
NET INCOME $ 1,836 $ 2,174
======== ========
Earnings per Share:
Basic $ .17 $ .19
Diluted $ .16 $ .18
Weighted average shares outstanding:
Basic 10,981 11,303
Diluted 11,198 12,077
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
THIRTEEN WEEKS ENDED
--------------------
December 31, January 2,
2000 2000
----------- --------
OPERATING ACTIVITIES
Net income $ 1,836 $ 2,174
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,466 3,258
Deferred income taxes (361) (520)
Provision for deferred rent 69 73
Gain on disposal of equipment (3) (23)
Contribution to employee benefit program 0 55
Changes in operating assets and liabilities, net
of effects from business acquisitions:
Accounts receivable (205) (955)
Inventory (134) (208)
Prepaid expenses and other assets 171 (658)
Accounts payable and other liabilities (1,637) (175)
Income taxes payable 1,000 (337)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,202 2,684
INVESTMENT ACTIVITIES
Additions to property, equipment and
leasehold improvements (5,754) (6,923)
Proceeds from sale of fixed assets 3 23
-------- --------
NET CASH USED FOR INVESTING ACTIVITIES (5,751) (6,900)
FINANCING ACTIVITIES
Proceeds from revolving credit agreement 14,976 21,647
Principal payments on revolving credit agreement
and capital lease obligations (13,646) (17,404)
Exercise of stock options 188 293
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,518 4,536
-------- --------
INCREASE (DECREASE) IN CASH (31) 320
CASH AT BEGINNING OF PERIOD 788 752
-------- --------
CASH AT END OF PERIOD $ 757 $ 1,072
======== ========
Certain amounts in fiscal 2000 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 1,
2000.
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
----------------------------
DECEMBER 31, JANUARY 2,
2000 2000
----------- ----------
Numerator for Basic Earnings
per Share:
Weighted average shares
outstanding 10,981,278 11,303,383
Common Stock equivalents:
Stock options 216,464 773,862
----------- -----------
Numerator for Diluted Earnings
per Share:
Weighted average shares
outstanding including common
stock equivalents 11,197,742 12,077,245
=========== ===========
Net income $1,836,000 $2,174,000
=========== ===========
Basic and Diluted Earnings per Share:
Basic $ .17 $ .19
=========== ===========
Diluted $ .16 $ .18
=========== ===========
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.
NOTE D - NEW ACCOUNTING PRONOUNCEMENTS
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
6
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 adopted this new accounting standard during the first
quarter of fiscal 2001. The adoption of SFAS No. 133 did not have a material
impact on the consolidated financial statements.
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. We are required to
adopt SAB 101 in the fourth quarter of fiscal 2001, and we believe that the
adoption of this pronouncement will not have an impact on the consolidated
financial statements.
7
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 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
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 table sets 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 DECEMBER 31, 2000 COMPARED TO THIRTEEN WEEKS ENDED
JANUARY 2, 2000
13 WEEKS ENDED
-------------------------------
12/31/00 1/02/00
-------- -------
REVENUES:
Restaurant sales 92.0% 92.3%
Consumer product sales 5.5 5.3
Franchise income 2.5 2.4
------ ------
Total 100.0% 100.0%
------ ------
COSTS AND EXPENSES:
Cost of food and beverages (1) 25.7% 25.8%
Labor and benefits (1) 32.6 31.3
Occupancy costs (1) 14.2 14.2
Other operating costs (1) 8.8 8.5
General and administrative 8.0 7.9
Depreciation and amortization (1) 5.8 6.2
Pre-opening costs (2) 0.4 1.0
Operating income 6.5 7.4
Interest and other expense 1.9 1.2
------ ------
Income before income taxes 4.6 6.2
Provision for income taxes 1.6 2.1
------ ------
Net income 3.0% 4.1%
====== ======
(1) Percentage of restaurant and consumer product sales
(2) Percentage of restaurant sales
NUMBER OF RESTAURANTS AT END OF QUARTER:
Company-owned Uno's - full service 110 101
Franchised Uno's - full service 67 61
8
TOTAL REVENUES. Total revenues increased 13.4% to $60.3 million from $53.1
million last year.
RESTAURANT SALES. Company-owned restaurant sales rose 13.1% to $55.5 million
during the first three months of fiscal 2001 from $49.0 million last year, due
primarily to the net addition of nine restaurants during the past four quarters.
This new unit growth led to an 11.1% increase in operating weeks for the first
quarter versus the same period last year. Comparable store sales rose 0.3% for
the quarter, also contributing to the sales growth. Average weekly sales, which
includes sales at comparable stores as well as new units, increased 1.9% during
the first quarter, reflecting higher-than-average sales levels for our newest
prototype units. One company-owned restaurant opened and one was closed during
the quarter.
CONSUMER PRODUCT SALES. Consumer product sales increased 18.6% during the first
quarter of fiscal 2001 to $3.3 million from $2.8 million last year. Sales in the
contract food service category grew 34.5% over last year, primarily reflecting
increased shipments to airlines. Sales of fresh product to retail grocers in the
Northeast were down 14.5%, due in part to lower levels of promotional activity
during the first quarter of fiscal 2001.
FRANCHISE INCOME. Franchise income, which includes royalty income and initial
franchise fees, increased to $1.5 million from $1.3 million last year. Royalty
income rose 10.0% to $1.4 million this year compared to $1.2 million last year,
reflecting an 8.9% increase in total operating weeks and a 2.9% gain in average
weekly sales for full-service franchised restaurants. Franchise fees of $145,000
were recorded during the first quarter of fiscal 2001 compared to $78,000 last
year and five full-service franchised restaurants opened during the quarter,
three domestic and two international.
COST OF FOOD AND BEVERAGES. Cost of food and beverages as a percentage of
restaurant and consumer product sales decreased to 25.7% from 25.8% last year,
reflecting the benefit of slightly lower commodity costs.
LABOR AND BENEFITS. Labor costs as a percentage of restaurant and consumer
product sales rose to 32.6% from 31.3%, primarily due to an increase in the
average wage rate, slightly lower direct labor productivity and higher
management staffing levels.
OCCUPANCY COSTS. Occupancy costs at 14.2% as a percentage of restaurant and
consumer product sales were unchanged from last year, as lower repairs &
maintenance and rent expense offset higher utilities and real estate taxes.
OTHER OPERATING COSTS. Other operating costs as a percentage of restaurant and
consumer product sales increased to 8.8% from 8.5% due to higher advertising and
marketing expense.
GENERAL AND ADMINISTRATIVE. General and administrative expense as a percentage
of total revenues increased to 8.0% from 7.9% last year, primarily reflecting
growth in salary and wage costs.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense as a
percentage of restaurant and consumer product sales declined to 5.8% from 6.2%
last year due to sales leverage gains.
PRE-OPENING COSTS. Pre-opening costs as a percentage of restaurant sales
decreased to 0.4% from 1.0% as the number of restaurant openings declined from
three during the first quarter of fiscal 2000 to one in the first quarter of
fiscal 2001.
OPERATING INCOME. Operating income was $3,942,000, which represents an operating
margin of 6.5%. Operating income for last year was $3,934,000, which represents
an operating margin of 7.4%.
INTEREST AND OTHER EXPENSE. Interest and other expense of $1,139,000 is up from
$640,000 last year, primarily reflecting the impact of an $18.7 million increase
in the average bank debt outstanding.
PROVISION FOR INCOME TAXES. The effective tax rate for the quarter was 34.5%
versus an effective tax rate of 34.0% for the same quarter last year.
9
NET INCOME. Net income decreased to $1.8 million from $2.2 million last year
based on the factors noted above.
LIQUIDITY AND SOURCES OF CAPITAL
The following table presents a summary of the Company's cash flows for the
period ended December 31, 2000.
(IN THOUSANDS)
Net cash provided by operating activities $ 4,202
Net cash used in investing activities (5,751)
Net cash provided by financing activities 1,518
--------
Decrease in cash $ (31)
========
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
2001, our investment in property, equipment and leasehold improvements was $5.8
million.
We currently plan to open approximately six to eight restaurants in fiscal 2001,
one of which was 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 $1.7 million.
As of December 31, 2000, we had outstanding indebtedness of $51.9 million under
our $55 million credit facility, $456,000 in capital lease obligations and $4.3
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, at 75-175 basis points above LIBOR. In June 2000, we amended
our $55 million credit facility to increase the revolver component from $26.6
million to $36.6 million, leaving the remaining original principal amounts of
the term loans of the facility unchanged. The maturity of the revolver is now
June 2005. We anticipate using the revolving credit facility in the future for
the development of additional restaurants and for working capital.
We are currently negotiating the potential sale and leaseback of several
restaurant and other properties that are expected to generate cash proceeds of
approximately $35 million. These transactions will require an amendment to our
revolving credit facility.
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 1,392,775 shares, with no share repurchases
occurring during the first quarter of fiscal 2001.
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.
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.
10
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.
11
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 December 31, 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
2001 2002 2003 2004 2005 THEREAFTER 12/31/00
---- ---- ---- ---- ---- ---------- --------
Liabilities:
Fixed Rate $0.18 $0.26 $0.28 $0.31 $ 0.34 $ 2.95 $ 4.32
Average Interest Rate 8.75% 8.75% 8.75% 8.75% 8.75%
Variable rate $2.76 $3.68 $2.42 $2.00 $41.00 -- $51.86
Average Interest Rate 6.78% 6.98% 7.34% 7.54% 7.73%
Interest Rate Swaps:
Receive Variable/
Pay Fixed $10.0 $ 0.01
Weighted Average
Pay Rate 5.80% -- -- -- -- --
Average Receive Rate 5.33% -- -- -- -- --
12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None.
(b) REPORTS ON FORM 8-K
Uno Restaurant Corporation did not file any Reports on Form 8-K
during the quarter ended December 31, 2000.
13
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 9, 2001 By: /S/ CRAIG S. MILLER
----------------- -------------------------------------
Craig S. Miller
Chief Executive Officer
(Principal Executive Officer)
Date: FEBRUARY 9, 2001 By: /S/ ROBERT M. VINCENT
----------------- -------------------------------------
Robert M. Vincent
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
14