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EXHIBIT 13.1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 /FEE REQUIRED/
For the fiscal year ended OCTOBER 2, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 /NO FEE REQUIRED/
For the transition period from _____________ to _____________.
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, MA 02132
- --------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 323-9200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
-------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the registrant's Common Stock, $.01 par
value, held by non-affiliates of the registrant as of November 30, 1994, was
$57,941,388 based on the closing price of $12.875 on that date on the New York
Stock Exchange. As of November 30, 1994, 9,076,603 shares of the registrant's
Common Stock, $.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on February 8, 1995 which will be filed within 120 days
after the end of the registrant's fiscal year, are incorporated by reference in
Part III of this report. Portions of the registrant's Registration Statement
on Form S-1 (Registration No. 33-13100) (the "1987 Registration Statement"),
the registrant's Registration Statement on Form S-1 (Registration No. 33-29252)
(the "1989 Registration Statement"), the registrant's Registration Statement on
Form S-2 (Registration No. 33-38944) (the "1991 Registration Statement"), the
registrant's Annual Report on Form 10-K for the fiscal year ended October 2,
1988, the registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1990, the registrant's Annual Report on Form 10-K for the fiscal
year ended September 29, 1991, the registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended July 1, 1990, the registrant's Annual Report on
Form 10-K for the fiscal year ended September 27, 1992, the registrant's Annual
Report on Form 10-K for the fiscal year ended October 3, 1993, the registrant's
Proxy Statement for the Annual Meeting of Stockholders held on February 7,
1990, and the registrant's Proxy Statement for the Annual Meeting of
Stockholders held on March 2, 1993, are incorporated by reference in Part IV of
this Report.
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PART I
ITEM 1. BUSINESS
GENERAL AND DEVELOPMENTS DURING FISCAL YEAR 1994
Uno Restaurant Corporation is a Delaware corporation organized in August
1986 to become a holding company for the Pizzeria Uno business then operated by
two affiliated corporations. As used in this Report, the term "Company" refers
to Uno Restaurant Corporation and its wholly-owned subsidiaries.
The Company operates and franchises casual dining, full-service
restaurants under the name "Pizzeria Uno... Chicago Bar & Grill." The
restaurants feature gourmet, Chicago-style deep-dish pizzas and a variety of
entrees, including pastas, thin crust pizzas, appetizers, salads, desserts and
beverages. The Company acquired the rights to the name "Pizzeria Uno" from the
late Ike Sewell, who opened the original Pizzeria Uno restaurant in Chicago,
Illinois in 1943 and is considered the originator of Chicago- style deep-dish
pizza. The Company opened its first Pizzeria Uno restaurant in 1979. At the
end of fiscal 1994, it owned and operated 63 full-service Pizzeria Uno
restaurants in New England, New York, Pennsylvania, Baltimore/Washington DC,
St. Louis, Chicago and Orlando, and had 59 franchised restaurants located
throughout the United States, including one each in Puerto Rico and Canada.
From September 1993 to April 1994, the Company invested approximately
$2.5 million to add new kitchen capabilities, including saute stations, grills
and fryers to each of its existing company-owned restaurants. This project was
initiated in order to raise the quality standards of certain non-pizza menu
items to the same high quality level as the Company's Chicago-style deep-dish
pizza. In addition, the expanded kitchen capabilities allow the addition of
new menu items that help to broaden the customer base and increase visit
frequency. As a result, the Company believes it has improved its competitive
position within the casual dining segment of the restaurant industry.
During the fourth quarter of fiscal 1992, the Company decided to close
two poorly-located Company-owned restaurants after the end of the fiscal year.
These restaurants were located in St. Louis, Missouri and Cambridge,
Massachusetts. The Company recognized a pre-tax charge to earnings of $2.5
million for fiscal year 1992 as a result of its decision. The Company closed
the restaurant in Cambridge, MA on October 17, 1992, and closed the restaurant
in St. Louis on October 24, 1993.
During the fiscal year ended October 2, 1994, the Company opened seven
full-service Company-owned restaurants, sold a restaurant to its franchisee in
Lake Buena Vista, FL, acquired three restaurants from its franchisee in
Connecticut and closed a restaurant in St. Louis, MO. Four franchised
restaurants opened during the fiscal year, three were sold to the Company, one
was sold by the Company to a franchisee and one was closed.
During the fiscal year ending October 1, 1995, the Company anticipates
opening 18 Company-owned full-service restaurants and six franchised
restaurants. The timing of these planned openings is subject to various
factors, including locating satisfactory sites and negotiating leases and
franchise agreements.
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On September 1, 1994, the Company entered into a definitive agreement
with Bay Street Restaurants, Inc. to purchase the net assets of three
restaurants located in Chicago, Illinois, Woodbridge, New Jersey and
Philadelphia, Pennsylvania. The three full- service, casual dining
restaurants, which specialize in seafood, generated total annual sales of over
$7.3 million for their most recent 12-month period. It is anticipated that the
next several months will be devoted to familiarization with the Bay Street
concept for potential introduction into the New England area and other
Northeast markets. Mr. William Bouffard, President of Bay Street Restaurants,
Inc. and Mr. James Vinz, Vice President of Operations, will be joining the Uno
management team and heading up the Bay Street restaurant group. The
transaction was completed on December 23, 1994.
Pursuant to a Third Amendment to Note Purchase Agreement dated February
15, 1993, the Company amended the terms of its agreement relating to a $10
million private debt placement in June 1990 of senior, unsecured notes with
CIGNA, a major insurance company. The amendments reduced through January 2,
1994 the fixed charge to earnings coverage ratio required to be maintained by
the Company. Compliance with this covenant was waived by CIGNA for the second
fiscal quarter of 1994. Since that time the Company has maintained compliance
with all covenants.
In December 1994, the Company obtained a $50 million unsecured,
revolving credit and term loan facility through Fleet Bank. The new agreement
replaces a $20 million unsecured revolving credit agreement obtained by the
Company on May 31, 1994. The revolving credit facility will convert to a three
year term loan in December 1997, and advances under this agreement will accrue
interest at the bank's prime rate, or alternatively, at 125 basis points above
LIBOR. Company management believes that sufficient cash will be available from
operations and this revolving credit facility to finance development plans for
the foreseeable future and to fund its remaining principal payments under its
senior note agreement of $3.3 million each due in June 1995 and 1996.
The Board of Directors of the Company declared a 25% stock split on
November 15, 1994 payable in the form of a stock dividend on February 28, 1995
to the stockholders of record of the Company on February 8, 1995. The stock
split will result in one additional share of Common Stock being issued for each
four shares of Common Stock issued and outstanding on the record date. The
stock split is subject to the approval by stockholders of an increase in the
number of authorized shares of Common Stock of the Corporation at the Annual
Meeting of Stockholders to be held on February 8, 1995. Cash will be issued in
lieu of fractional shares.
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The table below shows the markets served by Pizzeria Uno as of November
30, 1994:
COMPANY-OWNED RESTAURANTS
-------------------------
CONNECTICUT (4) Cambridge Forest Hills
- --------------- (2 locations) Manhattan
Danbury Danvers (5 locations)
Fairfield Dedham Lynbrook
Milford Framingham Massapequa
West Hartford Hanover Syracuse
Hyannis Vestal
FLORIDA (1) Kingston Yonkers
- ----------- Lynnfield
Orlando Newton NEW JERSEY (1)
Newtonville (a) --------------
ILLINOIS (3) Revere Paramus
- ------------ Springfield
Chicago Waltham (a) OHIO (1)
Pizzeria Uno --------
Pizzeria Due MISSOURI (2) Columbus
Su Casa (b) ------------
St. Louis PENNSYLVANIA (2)
MAINE (1) Chesterfield ----------------
- --------- Fairview Heights Philadelphia
Portland Franklin Mills
Pittsburgh
MARYLAND (5) NEW HAMPSHIRE (3) Monroeville
- ------------ -----------------
Baltimore Concord RHODE ISLAND (1)
Harbor Place Manchester ----------------
Bel Air Nashua Warwick
Bethesda
Towson VIRGINIA (4)
Waldorf NEW YORK (16) ------------
------------- Balston
MASSACHUSETTS (22) Albany Fairfax
- ------------------ Amherst Norfolk
Boston Buffalo Reston
(5 locations) New York City
Braintree Bayside WASHINGTON, DC (2)
Brockton Bay Ridge ------------------
Burlington Cleveland Park
Union Station
__________________________________
(a) Quick-service (take-out only).
(b) Mexican restaurant.
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FRANCHISED RESTAURANTS
----------------------
ARIZONA (2) KENTUCKY (1) OHIO (4)
- ----------- ----------- --------
Phoenix Lexington Cincinnati
Tempe (2 locations)
MARYLAND (1) Cleveland
CALIFORNIA (9) ------------ (2 locations)
- -------------- Deep Creek
Cupertino OKLAHOMA (1)
Fremont ------------
Los Angeles MASSACHUSETTS (4) Tulsa
San Diego -----------------
(2 locations) Holyoke PENNSYLVANIA (5)
San Francisco Marlborough ----------------
(3 locations) Springfield King of Prussia
Santa Clara (2 locations)(c) Langhorne Media
Philadelphia
CANADA (1) MICHIGAN (2) (2 locations)
- ---------- ------------
Toronto Ann Arbor PUERTO RICO (1)
Bloomfield ---------------
FLORIDA (5) San Juan
- ----------- MINNESOTA (2)
Miami ------------ TEXAS (5)
Orlando Minnetonka ---------
Altamonte Springs Edina Addison
Church Street Sta. Arlington
Lake Buena Vista NEVADA (1) Dallas
Tampa ---------- Ft. Worth
Las Vegas Houston
HAWAII (1)
- ---------- NEW YORK (4) WASHINGTON, DC (1)
Honolulu ------------ ------------------
Kingston Georgetown
ILLINOIS (2) Poughkeepsie
- ------------ Rochester WISCONSIN (3)
Champaign White Plains -------------
Chicago Milwaukee
O'Hare Airport (a) NEW JERSEY (4) Madison
-------------- (2 locations)
INDIANA (2) Cherry hill
- ----------- Secaucus
Indianapolis South Plainfield
Merrillville Wayne
__________________________________
(a) Quick-service (take-out only).
(b) Mexican restaurant.
(c) Including one Quick-service (take-out only)
RESTAURANT CONCEPT
The Company has combined the concept of a full-service restaurant with the
popularity of pizza. In addition to a diverse menu, customers at a Pizzeria
Uno restaurant enjoy an ambience and decor that is more upscale than typical
pizza restaurants. The Company's target markets include middle to upper-middle
income individuals in the 17 to 49 year-old age group and, particularly in
suburban
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locations, middle to upper-middle income families. Management believes that
the Company's concept is best executed by careful site selection, training,
supervision and menu development.
The Company's signature product, its deep-dish pizza, filled with
ingredients such as fresh meats, spices, vegetables and real cheeses, is baked
to order in a deep pan, according to proprietary recipes. Management believes
that the Company's custom formulation of ingredients and proprietary recipes
produce a superior pizza that is difficult to duplicate. In addition to its
deep-dish pizza, other menu items include thin crust pizza, pasta items,
appetizers, salads, sandwiches, and desserts. All of the Company's menu items
are available for carry-out. Carry-out revenues represent approximately 10% of
Company-owned restaurant sales.
Pizzeria Uno restaurants offer a casual, friendly and entertaining
atmosphere, efficient service and high-quality menu items at moderate prices.
Entree selections currently range in price from approximately $4.00 to $9.99.
The average per person revenue per meal, including beverages, is approximately
$9.00. Virtually all full-service restaurants offer a full liquor selection
and have a bar and lounge. Food sales constitute approximately 81% of total
restaurant sales of the Company, and alcoholic beverage sales account for the
remaining 19%.
Pizzeria Uno restaurants are located in both urban areas and suburban
shopping and entertainment areas. The typical new restaurant occupies
approximately 6,300 square feet, with a seating capacity of approximately 200
customers. Each restaurant employs 50 to 70 people, many of whom are part-time
personnel. Most restaurants are open from 11:00 a.m. to midnight, seven days
per week.
The Company considers the specific location of a restaurant to be critical
to its long-term success and devotes significant effort to the investigation
and evaluation of potential sites. The Company's executives inspect and
approve the site for each Company-owned and franchised restaurant.
The Company has developed a restaurant design that is consistent with its
theme as "Pizzeria Uno...Chicago Bar & Grill". To ensure compliance with
Company standards, preliminary design and complete kitchen design for both
Company-owned and franchised restaurants are prepared by the Company.
Company-owned and franchised restaurants can be situated as free-standing
units, or in strip centers or malls, can either be owned or leased, and are
generally situated in prime retail-oriented locations. See "ITEM 2.
PROPERTIES." Management estimates the current cost of opening a full-service
restaurant, excluding land, but including building, improvements, furniture,
fixtures and equipment and pre-opening expenses, ranges between $1.0 and $1.4
million.
CONSUMER PRODUCT BUSINESS AND NON-TRADITIONAL DISTRIBUTION CHANNELS
The Company has been expanding its consumer product business in recent
years principally through distribution of its deep-dish pizza in the fresh deli
counters of approximately 600 supermarkets in New England, New York, New
Jersey, Pennsylvania and Ohio. Currently, Pizzeria Uno deep-dish pizza is the
dominant brand of fresh, refrigerated pizza sold in New England supermarkets.
The Company has also developed a line of private-label thin-crust pizza for
selected New England supermarket chains.
In addition, in January 1993, the Company began supplying frozen pizzas to
American Airlines for service on its flights. Approximately 1.5 million pizzas
were served aboard American Airlines flights during the fiscal year ended
October 2, 1994.
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To support the growth of the Company's consumer product business, a
production facility in Brockton, Massachusetts began operation in January 1993.
This facility provides sufficient capacity to at least double the level of
sales achieved in fiscal 1994. See "ITEM 2. Properties."
The Company is continuing to test other traditional and non-traditional
distribution channels for its signature, deep-dish pizza product where there is
heavy consumer traffic. The Company is testing a food-court Pizzeria Uno at
the International Terminal at Chicago's O'Hare Airport. Two prototype
neighborhood take-out units, "Uno...Pizza Takery", are also being tested, which
the Company believes may offer the potential to tap the quick-service market
segment that it currently serves on only a limited basis. In addition, the
Company currently has 20 similar franchised Take-Out Units operating within
supermarkets in New England.
BUSINESS EXPANSION
The Company intends to continue to add Company-owned restaurants in two of
its primary Northeast metropolitan markets, i.e., New York and
Baltimore/Washington, DC. Due to its current greater concentration of units in
New England, further expansion in this market will be very selective. The
Company's acquisition of the original restaurants in Chicago during fiscal 1992
and the right to further develop restaurants in Illinois should lead to
expansion opportunities in this market during fiscal 1995. The Company is also
engaged in site development efforts in central Florida and Denver, Colorado.
Franchisees will continue to be granted the right to expand the Pizzeria Uno
restaurant business in selected metropolitan areas throughout the United States
and, as opportunities arise, outside the United States. See "Franchise
Program." The specific rate at which the Company is able to open new
restaurants will be determined by its success in locating satisfactory sites
and attracting qualified franchisees.
FRANCHISE PROGRAM
As of October 2, 1994, the Company had 59 franchised Pizzeria Uno
restaurants operated by 34 franchisees located in 19 states, the District of
Columbia, Puerto Rico, and Canada. Franchises are generally granted on a
unit-by-unit basis, rather than by territory. The Company is in continual
discussions with existing and prospective franchisees and expects to grant
additional franchises to qualified applicants with restaurant-related operating
experience and requisite financial resources.
New domestic franchisees are required to pay an initial franchise fee of
$52,500 per unit and a continuing monthly royalty of 5% of restaurant sales.
Royalties and franchise fees for international franchises are negotiated on an
individual basis. At the beginning of fiscal 1992, the Company implemented a
variable royalty plan for its franchisees that allows royalty rate reductions
from contractual rates for those franchised restaurants meeting certain
qualifications. The reduced royalty rate is available only to those franchised
restaurants that do not achieve minimum sales levels during their first five
years of operation in relation to their overall capital investment, including
capitalized lease obligations. The minimum royalty rate under the variable
royalty plan is 3% and ranges up to the 5% standard franchise royalty rate.
Seven franchised restaurants currently qualify for some degree of royalty rate
reduction under the variable royalty plan. Royalties currently being received
by the Company average approximately 4.2% of franchised restaurant sales.
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The franchise agreements generally prohibit the Company from granting
competing franchises or opening competing restaurants within three miles of a
franchised restaurant. The franchise agreements have an initial term of 20
years with three successive ten- year renewal periods at the option of the
franchisee, provided that the agreement has not previously been terminated by
either party. Upon each renewal, the Company may require a franchisee to sign
a revised franchise agreement and to make capital expenditures to renovate the
restaurant, but may not increase the continuing monthly royalty or charge a
renewal fee. The Company retains the right to terminate a franchise agreement
for a variety of reasons, including significant and willful understatement of
gross receipts, failure to pay fees, material misrepresentation on an
application for a franchise, or material breach or default under the franchise
agreement, including failure to maintain Company operating standards. Many
state franchise laws further limit the ability of a franchisor to terminate or
refuse to renew a franchise. The Company has the right to audit and receive
certain monthly and annual financial and other information from franchisees.
In order to ensure uniform quality standards, the Company requires
franchisees to comply with Company specifications as to space, design and
decor, menu items, principal food ingredients and day-to-day operations, as set
forth in the Company's operations manual. The Company's executives or
field-service personnel generally visit each franchise location four times per
year. The Company conducts sales audits of all franchisees on an annual
basis.
The Company guarantees certain limited equipment and leasehold improvement
financing to qualified franchisees through an agreement with an unaffiliated
finance company. Under this agreement, the Company guarantees financing
provided by the finance company to qualified franchisees in the maximum
aggregate amount of $2.1 million for all such franchisees combined. The
Company has also guaranteed up to a maximum of $447,000 of future lease
payments in the event of default by specific franchisees.
RESTAURANT MANAGEMENT
The staff for a typical Pizzeria Uno restaurant consists of one general
manager, two assistant managers and approximately 50 to 70 hourly employees,
many of whom are part-time personnel. Managers of Company-owned restaurants
are compensated with a salary plus a performance bonus based on restaurant
sales and profits. The Company conducts initial and ongoing training for all
managers and franchisees.
The Company employs ten regional operations directors. The Company also
currently employs five field-service supervisors to monitor all franchised
restaurants. Their duties include quarterly visits and detailed, annual
inspections of quality, service and sanitation. As additional restaurants are
opened, the Company intends to add qualified supervisors in order to maintain
quality control.
PURCHASING
The Company negotiates directly with suppliers for all primary food
ingredients and beverage products to ensure adequate supplies and to obtain
competitive prices. The Company seeks competitive bids from suppliers on many
of its primary food ingredients on an annual basis. The Company approves
suppliers of these ingredients and products and requires them to adhere to
product specifications established by the Company. Several key ingredients are
proprietary. They are manufactured for the Company under private label and
sold to authorized distributors for resale to Company-owned restaurants and
franchisees. The Company and its franchisees purchase
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substantially all food and beverage products from authorized local or national
distributors. In most cases, franchisees find it more economical to purchase
most of these products from the same distributors servicing the Company-owned
restaurants in order to take advantage of volume discounts. The Company does
not derive any income from suppliers or distributors on sales to franchisees.
All essential food and beverage products are available, or upon short notice
can be made available, from alternative qualified suppliers.
ADVERTISING AND MARKETING
To attract its target market, the Company relies primarily on television,
radio and direct mail advertising. Through an advertising cooperative fund,
the Company produces regional and local advertising materials and also produces
menus and promotional programs for both franchised and Company-owned
restaurants.
Franchisees are required to contribute a fee of .75% of franchised
restaurant sales to the advertising cooperative fund, and the Company
contributes an equal percentage of Company-owned restaurant sales. Except for
the materials prepared and distributed by the Company through the advertising
cooperative fund, franchisees are responsible for the implementation of
advertising and marketing for their respective restaurants, subject to
adherence to Company-established guidelines. In addition, the Company's
franchise agreement requires franchisees to spend at least 2% of franchised
restaurant sales each year on local advertising and public relations.
COMPETITION
The restaurant business is highly competitive with respect to price,
service, restaurant location and food quality and is often affected by changes
in consumer tastes, economic conditions and population and traffic patterns.
The Company competes within each market with locally-owned restaurants as well
as with national and regional restaurant chains, some of which operate more
restaurants and have greater financial resources and longer operating histories
than the Company.
Management believes that among the Company's competitive strengths are its
custom formulation of ingredients and proprietary recipes which, when prepared
according to the Company's precise cooking techniques, produce a superior
deep-dish pizza that is difficult to duplicate. Management also believes that
the Company's $2.5 million kitchen upgrade program (see "ITEM 1. BUSINESS,
General and Developments During Fiscal Year 1994), as well as the Company's
emphasis on a distinctive restaurant design, friendly and entertaining
atmosphere, diverse menu, efficient service and moderate prices enables
Pizzeria Uno restaurants to compete effectively with other casual-theme,
full-service restaurants.
TRADEMARKS
The original "Pizzeria Uno" restaurant was founded in 1943 by the late Ike
Sewell in Chicago, Illinois. In 1979, the Company acquired from Mr. Sewell the
worldwide rights to certain names, including "Uno," "Pizzeria Uno" and
"Pizzeria Due" (with the exception of the right to use the names in Illinois),
for the purpose of developing and expanding the concept. In the fourth quarter
of fiscal 1992, pursuant to the Company's right of first refusal, the Company
purchased the original Chicago restaurants and the right to develop additional
restaurants in Illinois from Mr. Sewell's estate.
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The Company regards its many trademarks and service marks as having
significant value and as being an important factor in the marketing of its
products. Its most significant marks include "Uno," "Pizzeria Uno" and
"Pizzeria Due." The Company's registrations of its significant marks expire at
various times from 1998 to 2005. However, the Company intends to renew its
registration of its marks prior to expiration. The Company's policy is to
pursue registration of its marks whenever possible and to oppose vigorously any
infringement of its marks.
GOVERNMENTAL REGULATION
The Company is subject to various federal, state and local laws affecting
its business. Each of the Company's restaurants is subject to licensing and
regulation by a number of governmental authorities, which may include alcoholic
beverage control, health and safety and fire agencies in the state or
municipality in which the restaurant is located. Difficulties or failures in
obtaining the required licenses or approvals could delay or prevent the
development of a new restaurant in a particular area.
Alcoholic beverage control regulations require each of the Company's
restaurants to apply to a state authority and, in certain locations, county and
municipal authorities for a license or permit to sell alcoholic beverages on
the premises. Typically, licenses must be renewed annually and may be revoked
or suspended for cause at any time. Alcoholic beverage control regulations
relate to numerous aspects of the daily operations of the Company's
restaurants, including minimum age of patrons and employees, hours of
operation, advertising, wholesale purchasing, inventory control, and handling,
storage and dispensing of alcoholic beverages.
The Company may be subject in certain states to "dram-shop" statutes, which
generally provide a person injured by an intoxicated person the right to
recover damages from an establishment which wrongfully served alcoholic
beverages to such person. The Company carries liquor liability coverage as
part of its existing comprehensive general liability insurance and has never
been named as a defendant in a lawsuit involving "dram-shop" statutes.
The Company is also subject to federal and a substantial number of state
laws regulating the offer and sale of franchises. Such laws impose
registration and disclosure requirements on franchisors in the offer and sale
of franchises. These laws often also apply substantive standards to the
relationship between franchisor and franchisee and limit the ability of a
franchisor to terminate or refuse to renew a franchise.
EMPLOYEES
As of October 2, 1994, the Company employed approximately 4,559 persons, 98
of whom were corporate personnel and 274 of whom were field service or
restaurant managers or trainees. The remaining employees were restaurant
personnel, many of whom were part-time. Of the 98 corporate employees, 51
were in management positions and 47 were general office employees.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their ages are as follows:
DIRECTOR
NAME AGE TITLE SINCE
---- --- ----- -----
Aaron D. Spencer .........63 Chairman, Chief Executive 1979
Officer and Director
Craig S. Miller ..........45 President, Chief Operating 1985
Officer and Director
Robert M. Brown ..........47 Senior Vice President- 1987
Finance, Chief Financial
Officer, Treasurer and Director
Alan M. Fox ..............47 Senior Vice President- --
Purchasing, President-Uno
Foods Inc.
William A. Gallucci ......63 Senior Vice President- --
Franchising
Thomas W. Gathers ........38 Senior Vice President- --
Human Resources and Training
Eugene I. Lee ............33 Senior Vice President- --
Operations
Damon M. Liever ..........40 Senior Vice President- --
Marketing
The following is certain additional information concerning each executive
officer of the Company. When used below, unless otherwise noted, positions
held with the Company include positions held with the Company's predecessors.
Mr. Spencer, the founder and Chief Executive Officer of the Company, has
been Chairman since 1986 and previously served as the Company's President until
1986. Mr. Spencer has 29 years of experience in the restaurant industry and
was the founder and owner of the predecessor of the Company which operated a
chain of 24 Kentucky Fried Chicken franchised restaurants at the time the
restaurants were sold.
Mr. Miller has been President and Chief Operating Officer since 1986. From
1984 to 1986, he served as a Vice President and then Executive Vice President
of the Company. Prior to joining the Company, Mr. Miller spent 11 years with
the General Mills Inc. restaurant subsidiary, including four years in various
executive capacities with Casa Gallardo Mexican restaurants and six years with
the Red Lobster restaurant chain. Mr. Miller has a total of 27 years of
experience in the restaurant industry.
Mr. Brown has been Senior Vice President-Finance since 1988 and has served
as Chief Financial Officer and Treasurer since 1987. From 1987 to 1988, he
served as Vice President-Finance of the Company. From 1984 to 1987, Mr. Brown
served as vice
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president, treasurer and chief financial officer of the waste management
subsidiary of Genstar Corporation, and was employed by SCA Services, Inc. from
1980 to 1984, most recently as assistant controller. Mr. Brown is a certified
public accountant and has worked in accounting and finance since 1969.
Mr. Fox has been Senior Vice President-Purchasing since October 1990.
Also, since 1990, Mr. Fox has been President of Uno Foods Inc., the Company's
subsidiary responsible for retail pizza distribution. Mr. Fox served as Senior
Vice President-Purchasing and Development from 1989 to 1990, and served as Vice
President of Purchasing from 1988 to 1989. Prior to joining the Company, from
1971 to 1988, Mr. Fox served as vice president-purchasing at Worcester Quality
Foods, Inc. a wholesale food service distributor. Mr. Fox has a total of 23
years of experience in the restaurant and food service industries.
Mr. Gallucci has been Senior Vice President-Franchising since October 1994.
From 1988 to 1994, he served as Senior Vice President-Operations, and from 1985
to 1988, he served as Vice President-Operations of the Company. Prior to
joining the Company, Mr. Gallucci served for 12 years with Magic Pan
International, Inc. as a division operations vice president, and prior to that
he was employed by Stouffer Corporation for 16 years. Mr. Gallucci has a total
of 37 years of experience in the restaurant industry.
Mr. Gathers has been Senior Vice President-Human Resources and Training
since November 1992. Mr. Gathers served as Vice President-Human Resources and
Training since August 1990. Prior to joining the Company, Mr. Gathers served
in several senior training and development functions with the General Mills
Inc. restaurant subsidiary from 1981 to 1990. Mr. Gathers has a total of 18
years of experience in the restaurant industry.
Mr. Lee has been Senior Vice President-Operations since October 1994. From
1992 to 1994, he served as Vice President-Operations of the Company. From
1988, when he joined the Company, to 1992, Mr. Lee held several operations
management positions. Prior to joining the Company, Mr. Lee served for 10
years with the York Steak House division of General Mills, Inc. as an area
supervisor. Mr. Lee has a total of 16 years of experience in the restaurant
industry.
Mr. Liever has been Senior Vice President-Marketing since January 1994.
From 1993 to 1994, he served as Vice President- Marketing of the Company.
Prior to joining the Company, Mr. Liever served as Vice President-Marketing for
the Black-Eyed Pea restaurant division of Unigate PLC from 1991 to 1993. From
1981 to 1991 Mr. Liever held several senior marketing positions with Pepsico
subsidiaries, including Frito-Lay and Taco Bell.
Officers are elected by, and serve at the pleasure of, the Board of
Directors.
See also "ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT,"
"ITEM 11. EXECUTIVE COMPENSATION," "ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT," and "ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
ITEM 2. PROPERTIES
During January 1993, the Company began operation of a 30,000 square foot
production plant that was purchased in Brockton, Massachusetts. The production
plant
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produces frozen product for service aboard American Airlines flights, as well
as fresh, refrigerated pizzas that are sold at deli counters in approximately
600 supermarkets in New England, New York, New Jersey, Pennsylvania and Ohio.
This facility provides sufficient capacity to support double the level of sales
achieved in fiscal 1994. See "ITEM 1. Consumer Product Business and Non-
traditional Distribution Channels."
Prior to fiscal 1992, all Company-owned restaurants were located in leased
space. However, during fiscal 1992, the Company purchased real estate to
develop new restaurants in Portland, Maine, Lynnfield, Massachusetts and
Hyannis, Massachusetts; during fiscal 1993, in Orlando, Florida; during fiscal
1994 in Amherst, New York, and Paoli, Pennsylvania; and subsequent to the end
of fiscal 1994, in Potomac, Virginia, and Schaumburg, Illinois. The Company
also purchased during fiscal 1992 the real estate related to its three Chicago
restaurants.
The leases for Company-owned restaurants typically have initial terms of 15
years with certain renewal options and provide for a base rent plus real estate
taxes, insurance and other expenses, plus additional percentage rents based on
revenues of the restaurant. All of the Company's franchised restaurants are in
space leased from parties unaffiliated with the Company, with the exception of
one franchised restaurant which is subleased from the Company. Franchised
restaurant leases typically have lease terms through the initial term of the
franchise agreements.
One of the Company-owned restaurants in Boston, Massachusetts is located on
the first floor of a six-story office building owned by Aaron D. Spencer,
Chairman and Chief Executive Officer of the Company. Mr. Spencer has leased
the entire building to the Company pursuant to a five-year lease, ending on
March 29, 1997, at a rent of $162,000 per year. The rent will be increased by
12% of the cost of any improvements to the building made by Mr. Spencer. The
Company is responsible for all taxes, utilities, insurance, maintenance and
repairs. The lease may be terminated by either the Company or Mr. Spencer upon
six months prior notice. If Mr. Spencer or the Company terminates the lease,
a new lease between the Company and Mr. Spencer relating only to the restaurant
space of the building will become effective immediately. The new lease will
have a five-year term with two five-year renewal options. Rent under the new
lease will be 6.5% of total restaurant revenues but with a minimum rent,
determined by independent appraisal, equal to the fair market rent at the time
the new lease becomes effective. The Company currently sublets all but the
restaurant space at rents which approximate the $162,000 annual rent that it is
obligated to pay Mr. Spencer. Management believes that the terms of both the
existing lease and the new lease which will become effective upon termination
of the existing lease are comparable to those otherwise available in the real
estate market.
The Company's executive offices are located in two adjacent buildings in
West Roxbury, Massachusetts. The first, a three-story building owned by Mr.
Spencer, is leased to the Company pursuant to a five-year lease, commencing on
March 30, 1987, with options to renew for two additional five-year periods.
Rent during the initial term of the lease was $30,000 per year. Currently,
the first of the two five-year options has been exercised at a rate of $36,000
per year. During the final option period, rent will be equal to fair market
rent, but may not be less than the rent under the lease during the immediately
preceding term. The value of any leasehold improvements made by the Company
will not be considered in determining fair market value rent. The Company
added the third floor to the building. The Company is responsible for all
taxes, utilities, insurance, maintenance and repairs. The second, a two-story
building owned by Mr. Spencer's children, is also leased to the
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Company pursuant to a 15 year lease commencing on February 1, 1990, with
options to renew for three additional five-year periods. Rent during the first
five years of the initial term of the lease is $106,800 per year, increasing to
$128,160 per year for the next five years, and to $153,792 for the final five
years of the initial term of the lease. The Company is responsible for all
taxes, utilities, insurance, maintenance and repairs. Rent during any option
period will be 120% of the rent for the prior term of the lease. Management
believes that the terms of the leases for the two offices are as favorable as
otherwise available in the real estate market. With the two buildings, the
executive offices currently consist of approximately 25,000 square feet and
house the Company's executive, administrative and clerical offices.
ITEM 3. LEGAL PROCEEDINGS
As of November 30, 1994, the Company was not a party to any material
pending legal proceedings other than ordinary routine litigation incidental to
the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock, $.01 par value, is listed on the New York Stock
Exchange under the symbol "UNO." The table below sets forth the range of high
and low sales prices on the New York Stock Exchange for the period from
September 28, 1992 to October 2, 1994:
COMMON STOCK
PRICE
------------
HIGH LOW
---- ---
FISCAL YEAR ENDED OCTOBER 3, 1993
- ---------------------------------
First Quarter 9 7/8 5 5/8
Second Quarter 8 5/8 6 1/4
Third Quarter 8 1/8 6 3/4
Fourth Quarter 9 5/8 7 3/8
FISCAL YEAR ENDED OCTOBER 2, 1994
- ---------------------------------
First Quarter 10 7/8 8 3/4
Second Quarter 10 5/8 8 1/8
Third Quarter 10 3/4 8 7/8
Fourth Quarter 13 5/8 9 7/8
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NUMBER OF STOCKHOLDERS
As of October 2, 1994, there were approximately 3,000 beneficial
owners of the Company's Common Stock.
DIVIDENDS
The Company has never paid any cash dividends on its Common Stock and
for the foreseeable future intends to continue its policy of retaining earnings
to finance the development and growth of the Company. The Board of Directors
may reconsider this policy from time to time in light of conditions then
existing, including the Company's earnings performance, financial condition and
capital requirements. Pursuant to both the private placement in June 1990 of
$10 million of senior, unsecured notes with a major insurance company, and a
$50 million unsecured revolving and term credit agreement obtained in December
1994, the Company became subject to various financial and operating covenants,
including limitations on the payment of cash dividends. The most restrictive
limitations, in general, preclude the Company from paying cash dividends, if
such payment, when aggregated with certain other payments, would exceed 35% of
net income for the then most recent four-quarter period or would cause certain
net tangible asset and debt ratios to be exceeded.
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ITEM 6. SELECTED FINANCIAL DATA
Fiscal Year Ended
--------------------------------------------------------------------------
Oct. 2 Oct. 3 Sept. 27 Sept. 29 Sept. 30
1994 1993 1992 1991 1990
------ ------ -------- -------- --------
(53 weeks)
(Amounts in thousands except per share data)
INCOME STATEMENT DATA:
REVENUES
Restaurant sales ................ $112,674 $ 98,234 $77,500 $65,921 $50,593
Consumer product sales........... 7,418 7,073 3,106 1,996 1,136
Franchise income ................ 3,973 3,638 3,507 3,408 2,962
-------- -------- ------- ------- -------
124,065 108,945 84,113 71,325 54,691
COSTS AND EXPENSES
Cost of food and beverages ...... 30,177 26,024 19,224 16,187 12,589
Labor and benefits............... 36,935 32,990 24,912 21,017 15,438
Occupancy costs.................. 18,979 17,295 14,492 10,735 7,387
Other operating costs............ 10,751 9,166 9,638 5,013 2,981
General and administrative....... 9,277 8,233 7,022 7,298 5,886
Depreciation and amortization.... 7,655 7,152 5,773 5,096 3,416
-------- -------- ------- ------- -------
113,774 100,860 81,061 65,346 47,697
-------- -------- ------- ------- -------
OPERATING INCOME ................. 10,291 8,085 3,052 5,979 6,994
OTHER INCOME (EXPENSE) ........... (845) (1,085) (150) (487) (328)
-------- -------- ------- ------- -------
INCOME BEFORE INCOME TAXES ....... 9,446 7,000 2,902 5,492 6,666
Provision for income taxes ...... 3,690 2,837 1,140 2,337 2,846
-------- -------- ------- ------- -------
NET INCOME ....................... $ 5,756 $ 4,163 $ 1,762 $ 3,155 $ 3,820
======== ======== ======= ======= =======
EARNINGS PER COMMON SHARE ........ $ 0.63 $ 0.46 $ 0.19 $ 0.37 $ 0.48
======== ======== ======= ======= =======
WEIGHTED AVERAGE SHARES
OUTSTANDING .................... 9,088 9,033 9,051 8,590 8,018
======== ======== ======= ======= =======
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ITEM 6. (CONT'D)
Fiscal Year Ended
--------------------------------------------------------------------------
Oct. 2 Oct. 3 Sept. 27 Sept. 29 Sept. 30
1994 1993 1992 1991 1990
------ ------ -------- -------- --------
(53 weeks)
(Amounts in thousands except number of restaurants)
BALANCE SHEET DATA:
Total assets ..................... $92,221 $74,735 $68,117 $61,260 $43,299
Long-term debt ................... 17,303 8,167 10,000 10,000 10,000
Capital lease obligations ........ 820 472 474 476 477
Shareholders' equity ............. 55,958 49,375 45,090 43,131 26,141
OPERATING DATA:
SYSTEM-WIDE SALES(a)
Company-owned ................... $110,272 $96,540 $77,226 $65,840 $50,695
Franchised ...................... 87,612 82,710 77,891 69,545 60,014
-------- -------- -------- -------- --------
TOTAL ........................... $197,884 $179,250 $155,117 $135,385 $110,709
======== ======== ======== ======== ========
AVERAGE RESTAURANT SALES(a)
Company-owned ................... $1,886 $1,807 $1,786 $1,874 $2,037
Franchised ...................... 1,487 1,389 1,356 1,322 1,381
NUMBER OF RESTAURANTS
Company-owned(b)................. 66 57 51 40 33
Franchised(c) ................... 61 58 59 55 47
-------- -------- -------- -------- --------
TOTAL AT YEAR END ............... 127 115 110 95 80
======== ======== ======== ======== ========
______________________
(a) Pizzeria Uno full-service restaurants only.
(b) Includes one Mexican restaurant and two quick-service Uno units in 1994;
one Mexican restaurant and one quick-service Uno unit in 1993 and 1992; one
steakhouse restaurant in 1991; and two steakhouse restaurants and two
quick-service Uno units in 1990.
(c) Includes two quick-service Pizzeria Uno units in 1994 and one in 1991.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to total
revenues, unless otherwise indicated, of certain items included in the Company's
income statements and operating data for the periods indicated:
52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended
10/2/94 10/3/93 9/27/92
-------- -------- --------
REVENUES:
Restaurant sales ........................... 90.8% 90.2% 92.1%
Consumer product sales...................... 6.0 6.5 3.7
Franchise income ........................... 3.2 3.3 4.2
----- ----- -----
Total ..................................... 100.0 100.0 100.0
COSTS AND EXPENSES:
Cost of food & beverages (1) ............... 25.1 24.7 23.9
Labor & benefits (1) ....................... 30.8 31.3 30.9
Occupancy costs (1) ........................ 15.8 16.4 18.0
Other operating costs (1) .................. 9.0 8.7 12.0
General & administrative ................... 7.5 7.6 8.3
Depreciation & amortization (1)............. 6.4 6.8 7.2
----- ----- -----
OPERATING INCOME ............................ 8.3 7.4 3.7
OTHER EXPENSE ............................... (.7) (1.0) (.2)
----- ----- -----
INCOME BEFORE TAXES ......................... 7.6 6.4 3.5
Provision for income taxes .................. 3.0 2.6 1.4
----- ----- -----
NET INCOME .................................. 4.6% 3.8% 2.1%
===== ===== =====
(1) Percentage of restaurant and consumer product sales
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FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993
Total revenue, which includes Company-owned restaurant sales, consumer
product sales primarily through supermarkets and American Airlines, and
franchise income, increased 14% to $124.1 million in fiscal 1994 from $108.9
million the prior year. Company-owned restaurant sales increased 15% to $112.7
million due primarily to a 9.4% increase in operating weeks of full-service
restaurants resulting from the addition of eight restaurants. Revenue this year
was higher also due to a 6.5% increase in comparable-store sales, which were
stronger in each successive quarter this year, finishing up 7.4% for the second
half of the year.
Consumer product sales increased 5% to $7.4 million from $7.1 million
in fiscal 1993. This year's sales growth was due to expanded sales of private
label thin-crust pizzas to several supermarket chains in New England. Initial
shipments of both refrigerated and frozen Pizzeria Uno brand pizzas have
recently begun to new customers in New York, New Jersey, Pennsylvania and Ohio
in order to expand our regional presence beyond New England.
Franchise income, which includes royalty income and initial franchise
fees, increased 9% to $4 million from $3.6 million last year. Royalty income
increased 10% to $3.8 million due to an increase of 7.1% in average unit sales
and the opening of four new restaurants, for a net addition of one (three units
were purchased by the Company from a franchisee in fiscal 1994). Initial
franchise fees totaled $150,000 compared to $147,500 in fiscal 1993.
Operating income for fiscal year 1994 was up 27% to $10.3 million
compared to $8.1 million for the previous year, as the operating profit margin
increased to 8.3% from 7.4%.
Cost of food and beverages as a percentage of sales increased to 25.1%
from 24.7% in the prior year. This percentage cost increase primarily reflected
changes in sales mix intended to enhance customers' value perception. Labor and
benefits decreased slightly to 30.8% from 31.3% in the previous year,
principally due to the leverage of higher unit sales. Occupancy costs, as a
percent of sales, declined to 15.8% from 16.4% last year. The factors
responsible for this improvement included the Company's purchase of several
restaurant properties since fiscal 1992, and the operating leverage provided by
the increase in comparable-store sales. Other operating costs remained
relatively stable from year to year. General and administrative expenses, as
well as depreciation and amortization expenses, continued to decline as a
percent of total revenue, due principally to the leverage generated by the
Company's strong sales growth.
Other expense, net, declined to $845,000 from $1,085,000 in the
previous year. The principal factor for this change was a gain of $312,000 on
the sale of a restaurant in Orlando to a franchisee in fiscal 1994. The
effective income tax rate declined to 39.1% from 40.5% in fiscal 1993. Fiscal
1994's rate was lower due primarily to the FICA tip credit, which was effective
on January 1, 1994.
FISCAL YEAR 1993 COMPARED TO FISCAL YEAR 1992
Total revenue increased 30% to $108.9 million for fiscal 1993 from
$84.1 million in 1992. Company-owned restaurant sales increased 27% to $98.2
million due to a 24% increase in operating weeks of full-service restaurants
resulting from the addition of six new restaurants. Average annual sales, which
includes all units,
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were up 1.1% over 1992, and comparable-store sales declined slightly by .4%.
Comparable-store sales trends turned positive in April 1993 and, for the last
two quarters of fiscal 1993, were up 1.6% and 4.2%, respectively.
Consumer product sales increased 128% to $7.1 million from $3.1 million
in fiscal 1992. The growth of this business was due principally to the new
channels of distribution that were added. Specifically, a major contract with
American Airlines, and penetration into the New York metropolitan area were
responsible for the rapid expansion of this business. Also, shipments were
initiated to new customers in Pennsylvania and New Jersey. A new production
facility opened in January 1993, and additional capacity was added in fiscal
1993 to support this continued growth.
Franchise income, which includes royalty income and initial franchise
fees, increased 4% to $3.6 million from $3.5 million in fiscal 1992. Royalty
income increased 6% to $3.5 million due to a 6% increase in operating weeks
resulting from the opening of three new restaurants. Initial franchise fees
totaled $147,500 compared to $220,000 in fiscal 1992 due to fewer new franchise
openings.
Operating income for fiscal year 1993 was $8.1 million compared to $3.1
million for the previous year. The 1992 results included a one-time pre-tax
charge of $2.5 million related to the closure of two restaurants. Operating
income rose 45% for fiscal 1993, and operating margins improved to 7.4% from
6.6% in fiscal 1992 (before the $2.5 million pre-tax charge).
Cost of food and beverages as a percentage of sales increased to 24.7%
from 23.9% in the prior year. This increase in part reflected changes in menu
products intended to enhance customers' value perception. Labor and benefits
increased slightly to 31.3% from 30.9% in the previous year, principally due to
the addition of an additional manager in certain units to enhance customer
service. Occupancy costs, as a percent of restaurant sales, declined to 16.4%
from 18%. The factors responsible for this improvement included the Company's
purchase of several restaurant properties in fiscal years 1992 and 1993, and the
operating leverage provided by the substantial sales growth of the consumer
products business. Other operating costs remained relatively stable from year
to year after adjusting for the one-time charge associated with the store
closure provision previously mentioned. Administrative expenses as well as
depreciation and amortization charges continued to decline as a percent of total
revenue, due principally to the leverage generated by the Company's strong sales
growth.
Other expense, net, increased to $1,085,000 from $150,000 in the
previous year. The principal factors for this change were increased interest
costs and a decline in investment income as the company financed its growth in
1993 through the use of its available cash and partial use of its revolving
credit facility. The effective income tax rate was 40.5% compared to 39.3% in
fiscal 1992. Fiscal 1992's rate was lower due to the benefit of tax-exempt
interest income.
LIQUIDITY AND SOURCES OF CAPITAL
Capital expenditures of $24 million during fiscal year 1994 were funded
by cash flow from operations and partial use of the Company's revolving credit
facility. In December 1994, the Company obtained a $50 million unsecured
revolving credit facility to replace its then existing $20 million credit line.
The new revolving credit facility will convert to a three year term loan in
December 1997, and advances under this agreement will accrue interest at the
bank's prime rate, or alternatively, 125 basis points above LIBOR. Company
management believes that sufficient cash will be
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22
available from operations and its revolving credit facility to finance
development plans for the foreseeable future and to fund its remaining principal
payments under its senior note agreement of $3.3 million each due in June 1995
and 1996.
The Company is currently obligated under 78 leases, including 75 leases
for Company-owned restaurants, two leases for its executive offices, and a lease
for an office building containing one of its restaurants.
IMPACT OF INFLATION
Inflation has not been a major factor in the Company's business for the
last several years. Menu prices have been adjusted for increases in food and
labor costs when appropriate. However, there can be no assurance that this will
continue.
SEASONALITY
The Company's results of operations have not been materially affected
by seasonality.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are listed under Part
IV, Item 14 in this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-22-
23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item 10 is hereby incorporated by
reference to the text appearing under Part I, Item 1 - Business, under the
caption "Executive Officers of the Registrant" at page 11 of this Report, and by
reference to the Company's definitive Proxy Statement which is expected to be
filed by the Company within 120 days after the close of its fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is hereby incorporated by
reference to the Company's definitive Proxy Statement which is expected to be
filed by the Company within 120 days after the close of its fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is hereby incorporated by
reference to the Company's definitive Proxy Statement which is expected to be
filed by the Company within 120 days after the close of its fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is hereby incorporated by
reference to the Company's definitive Proxy Statement which is expected to be
filed by the Company within 120 days after the close of its fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors .......................... 29
Consolidated Balance Sheets -- October 2, 1994 and
October 3, 1993 ........................................ 30
Statements of Consolidated Income -- Years ended
October 2, 1994, October 3, 1993, and
September 27, 1992 ..................................... 31
Statements of Consolidated Shareholders' Equity --
Years ended October 2, 1994, October 3, 1993, and
September 27, 1992 ..................................... 32
Statements of Consolidated Cash Flows -- Years ended
October 2, 1994, October 3, 1993 and
September 27, 1992 ..................................... 33
Notes to Consolidated Financial Statements .............. 34
-23-
24
2. FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or
are inapplicable and, therefore, have been omitted.
3. EXHIBITS
(3) Articles of Incorporation and By-laws.
(a) Restated Certificate of Incorporation filed as Exhibit 3.1
to Registration Statement on Form S-1 (Registration No.
33-13100) (the "1987 Registration Statement").*
(b) By-laws filed as Exhibit 3.2 to the 1987 Registration
Statement.*
(4) Instruments Defining the Rights of Security Holders,
including Indentures.
(a) Specimen Certificate of Common Stock filed as Exhibit 4(a)
to the Company's Annual Report on Form 10-K for the fiscal
year ended September 29, 1991 (the "1991 Annual Report on
Form 10- K.")*
(b) Note Purchase Agreement dated as of June 1, 1990 between the
Company, Uno Restaurants, Inc., Connecticut General Life
Insurance Company, CIGNA Property and Casualty Insurance
Company on behalf of one or more separate accounts, Insurance
Company of North America and Life Insurance Company of North
America, filed as Exhibit 4 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended July 1, 1990,* and
First Amendment to Note Purchase Agreement dated as of July
31, 1991, filed as Exhibit 4(b) to the 1991 Annual Report on
Form 10-K,* and Second Amendment to Note Purchase Agreement
dated as of April 30, 1992, filed as Exhibit 4(b) to the 1992
Annual Report on Form 10-K,* and Third Amendment to Note
Purchase Agreement dated as of February 15, 1993, filed as
Exhibit 4(b) to the 1993 Annual Report on Form 10-K.*
(10) Material Contracts.
(a) Lease between the Company and Aaron D. Spencer dated March
30, 1987 for premises in West Roxbury, Massachusetts, filed
as Exhibit 10.2 to the 1987 Registration Statement.*
(b) Lease between the Company and Aaron D. Spencer dated March
30, 1987 for premises in Boston, Massachusetts, filed as
Exhibit 10.3 to the 1987 Registration Statement.*
(c) Lease between Uno Restaurants, Inc. and Lisa S. Cohen and
Mark N. Spencer dated February 1, 1990 for premises in West
Roxbury, Massachusetts, filed as Exhibit 10(d) to the
Company's Annual
-24-
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Report on Form 10-K for the fiscal year ended September 30,
1990 (the "1990 Annual Report on Form 10-K").*
(d) Form of Franchise Agreement and Area Franchise Agreement, filed as
Exhibit 10.5 to the Registration Statement on Form S-2 (Registration No.
33-38944) (the "1991 Registration Statement"*).
(e) Uno Restaurant Corporation 1987 Employee Stock Option Plan, filed as
Exhibit 10.5 to the 1987 Registration Statement,* and the Uno Restaurant
Corporation 1987 Employee Stock Option Plan, As Amended, filed as
Exhibit A to the Company's Proxy Statement for the Annual Meeting of
Stockholders held on February 22, 1994.*
(f) Uno Restaurant Corporation 1989 Non-Qualified Stock Option Plan for
Non-Employee Directors, filed as Exhibit A to the Company's Proxy
Statement for the Annual Meeting of Stockholders held on February 7,
1990.*
(g) Uno Restaurant Corporation 1993 Non-Qualified Stock Option Plan for
Non-Employee Directors, filed as Exhibit A to the Company's Proxy
Statement for the Annual Meeting of Stockholders held on March 2, 1993.*
(h) Form of Indemnification Agreement between the Company and its Directors
filed as Exhibit 10.6 to the 1987 Registration Statement.* **
(i) $5,000,000 Revolving and Term Loan and Guaranty Agreement dated as of
August 24, 1988 among Uno Restaurants, Inc. as Borrower, Uno Restaurant
Corporation as Guarantor, Pizzeria Uno Corporation as Guarantor and Bank
of New England, N.A. as Lender (without exhibits) filed as Exhibit 10(g)
to the Company's Annual Report on Form 10-K for the fiscal year ended
October 2, 1988.*
(j) Uno Buena Vista Associates Joint Venture Agreement dated March 8, 1991
between Pizzeria Uno of Buena Vista, Inc. and Grayborn Buena Vista,
Inc., filed as Exhibit 10(k) to the 1991 Annual Report on Form 10-K.*
(k) Variable Royalty Plan for Franchises, filed as Exhibit 10(l) to the 1991
Annual Report on Form 10- K.*
(l) Stock Purchase Agreement dated September 22, 1992 by and among Florence
D. Sewell, the Estate of Ike Sewell, Deceased, and Uno Restaurants,
Inc., filed as Exhibit 10(m) to the 1992 Annual Report on Form 10-K.*
(m) Agreement dated November 17, 1992 by and between Uno Restaurants, Inc.,
Jeffrey H. Grayson, and Pizzeria Uno Corporation, filed as Exhibit 10(n)
to the 1992 Annual Report on Form 10-K.*
-25-
26
(n) $10,000,000 Revolving Credit and Guaranty Agreement dated as
of December 7, 1992 by and among Uno Restaurants, Inc., as
Borrower, Uno Foods Inc., Pizzeria Uno Corporation, Uno
Holding Company and Uno Restaurant Corporation, collectively
as the Loan Parties, and Fleet Bank of Massachusetts, N.A. as
Lender (without exhibits) filed as Exhibit 10(o) to the 1992
Annual Report on Form 10-K.*
(o) $20,000,000 Amended Revolving Credit and Guaranty Agreement
dated as of May 31, 1994 by and among Uno Restaurants, Inc.,
as Borrower, Uno Foods Inc., Pizzeria Uno Corporation, Uno
Holding Company and Uno Restaurant Corporation, collectively
as the Loan Parties, and Fleet Bank of Massachusetts, N.A. as
Lender (without exhibits).
(p) $50,000,000 Revolving Credit and Term Loan Agreement dated as
of December 9, 1994 by and among Uno Restaurants, Inc., as
Borrower, Uno Foods Inc., Pizzeria Uno Corporation, URC
Holding Company, Inc. and Uno Restaurant Corporation, as
Guarantors, and Fleet Bank of Massachusetts, N.A. as Agent
(without exhibits).
(q) Asset Purchase Agreement dated September 1, 1994, by and among
Bay Street Restaurants, Inc., Bay Street of Philadelphia,
Pennsylvania, Inc., Bay Street of Woodbridge, New Jersey,
Inc., Bay Street of Schaumburg, Illinois, Inc. and Bay Street
Services, Inc. (collectively, the "Seller"), and UNO Bay,
Inc., B.S. of Woodbridge, Inc., B.S. of Schaumburg, Inc. and
B.S. Intangible Asset Corp. (collectively, the "Purchaser").
(r) Change in Control Protection Agreements dated January 6, 1994
between Uno Restaurant Corporation and each of its named
executive officers, Mr. Spencer, Mr. Miller, Mr. Brown, Mr.
Fox and Mr. Gallucci.**
(s) Master Lease-Purchase Agreement between ORIX Credit Alliance,
Inc., as Lessor, and Massachusetts Industrial Finance Agency,
as Lessee, dated April 19, 1994, and Master Sublease-Purchase
Agreement between Massachusetts Industrial Finance Agency, as
Sublessor, and Uno Foods, Inc. as Sublessee, dated April 19,
1994.
(11) Statement Re: Computation of Per Share Earnings
(21) Subsidiaries of the Registrant
(23) Consent of Ernst & Young LLP, Independent Auditors
________________________
* In accordance with Rule 12b-23 and Rule 12b-32 under the Securities Exchange
Act of 1934, as amended, reference is made to the documents previously filed
with the Securities and Exchange Commission, which documents are hereby
incorporated by reference.
** Management Contract
-26-
27
(b) REPORTS ON FORM 8-K
During the fiscal quarter ended October 2, 1994, the Company did not
file any Current Reports on Form 8-K.
-27-
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Uno Restaurant Corporation
------------------------------------------------------------------
By (Signature and Title) /s/ Robert M. Brown
-----------------------------------------------
Robert M. Brown, Senior Vice President
Date December 22, 1994
-----------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
By (Signature and Title) /s/ Aaron D. Spencer
-----------------------------------------------
Aaron D. Spencer, Chairman, Chief Executive
Officer and Director
Date December 22, 1994
-----------------
By (Signature and Title) /s/ Craig S. Miller
-----------------------------------------------
Craig S. Miller, President, Chief Operating
Officer and Director
Date December 22, 1994
-----------------
By (Signature and Title) /s/ Robert M. Brown
-----------------------------------------------
Robert M. Brown, Treasurer, Senior Vice
President-Finance, Chief Financial Officer
and Director
Date December 22, 1994
-----------------
By (Signature and Title) /s/ John T. Gerlach
-----------------------------------------------
John T. Gerlach, Director
Date December 22, 1994
-----------------
By (Signature and Title) /s/ E. Robert Kinney
-----------------------------------------------
E. Robert Kinney, Director
Date December 22, 1994
-----------------
By (Signature and Title) /s/ S. James Coppersmith
-----------------------------------------------
S. James Coppersmith, Director
Date December 22, 1994
-----------------
By (Signature and Title) /s/ Stephen J. Sweeney
-----------------------------------------------
Stephen J. Sweeney, Director
Date December 22, 1994
-----------------
-28-
29
[LOGO ERNST & YOUNG LLP] 200 Clarendon Street Phone: 617 266 2000
Boston
Massachusetts 02116-5072
Report of Independent Auditors
The Board of Directors
Uno Restaurant Corporation
We have audited the accompanying consolidated balance sheets of Uno Restaurant
Corporation and subsidiaries as of October 2, 1994 and October 3, 1993, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended October 2, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Uno Restaurant
Corporation and subsidiaries at October 2, 1994 and October 3, 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended October 2, 1994, in conformity with generally
accepted accounting principles.
/s/ ERNEST & YOUNG LLP
------------------------------
ERNST & YOUNG LLP
November 1, 1994, except for
Note 13, as to which the date is
November 15, 1994
- 29 -
30
Uno Restaurant Corporation and Subsidiaries
Consolidated Balance Sheets
OCTOBER 2 OCTOBER 3
1994 1993
---------------------------
(In Thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 961 $ 998
Royalties receivable 553 476
Consumer product receivable 473 496
Inventory 1,744 1,315
Deferred pre-opening costs 568 483
Deferred income taxes 139 807
Prepaid expenses and other current assets 1,600 1,722
--------------------------
Total current assets 6,038 6,297
Property, equipment and leasehold improvements, net 80,057 65,509
Deferred income taxes 1,303 1,182
Other assets:
Deposit (Note 2) 3,000
Liquor licenses and other assets 1,336 1,179
Royalty fee, net 487 568
--------------------------
4,823 1,747
--------------------------
$92,221 $74,735
==========================
OCTOBER 2 OCTOBER 3
1994 1993
----------------------------
(Dollar Amounts in Thousands
Except Per Share Data)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,006 $ 4,600
Accrued expenses 4,064 4,167
Accrued compensation and taxes 2,357 1,541
Income taxes payable 654 883
Current portion of long-term debt and capital lease
obligations 3,400 3,333
-------------------------
Total current liabilities 15,481 14,524
Long-term debt, net of current portion 17,303 8,167
Capital lease obligations 820 472
Deferred rent 2,659 2,197
Shareholders' Equity:
Perferred Stock, $1.00 par value, 1,000,000 shares
authorized, no shares issued or outstanding
Common Stock, $.01 par value, 12,000,000 shares
authorized, 9,072,499 shares in 1994 and 8,976,418
shares in 1993 issued and outstanding 91 90
Additional paid-in capital 30,613 29,787
Retained earnings 25,254 19,498
-------------------------
Total shareholders' equity 55,958 49,375
-------------------------
$99,221 $74,735
=========================
See accompanying notes
31
Uno Restaurant Corporation and Subsidiaries
Statements of ConsOlidated Income
YEAR ENDED
------------------------------------------
OCTOBER 2 OCTOBER 3 SEPTEMBER 27
1994 1993 1992
------------------------------------------
(53 WEEKS)
(Amounts in Thousands Except
Per Share Data)
Revenues:
Restaurant sales $112,674 $ 98,234 $77,500
Consumer product sales 7,418 7,073 3,106
Franchise income 3,973 3,638 3,507
------------------------------------------
124,065 108,945 84,113
Costs and expenses:
Cost of food and beverages 30,177 26,024 19,224
Labor and benefits 36,935 32,990 24,912
Occupancy costs 18,979 17,295 14,492
Other operating costs 10,751 9,166 9,638
General and administrative 9,277 8,233 7,022
Depreciation and amortization 7,655 7,152 5,773
------------------------------------------
113,774 100,860 81,061
------------------------------------------
Operating income 10,291 8,085 3,052
Other income (expense):
Interest expense (1,147) (1,077) (783)
Other income (expense) 302 (8) 633
------------------------------------------
(845) (1,085) (150)
------------------------------------------
Income before income taxes 9,446 7,000 2,902
Provision for income taxes 3,690 2,837 1,140
------------------------------------------
Net income $ 5,756 $ 4,163 $ 1,762
==========================================
Earnings per common share $ .63 $ .46 $ .19
==========================================
Weighted average number of common
shares 9,088 9,033 9,051
==========================================
See accompanying notes.
-3l-
32
Uno Restaurant Corporation and Subsidiaries
Statements of Consolidated Shareholders' Equity
COMMON STOCK ADDITIONAL
----------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
-----------------------------------------------------------------
(Amounts in Thousands)
Balance at September 30, 1991 8,939 $89 $29,548 $13,573 $(79) $43,131
Net income 1,762 1,762
Exercise of stock options 25 1 129 130
Tax benefit from exercise of
non-qualified stock options 67 67
-----------------------------------------------------------------
Balance at September 27, 1992 8,964 90 29,744 15,335 (79) 45,090
Net income 4,163 4,163
Exercise of stock options 12 20 79 99
Tax benefit from exercise of
non-qualified stock options 23 23
-----------------------------------------------------------------
Balance at October 3, 1993 8,976 90 29,787 19,498 0 49,375
Net income 5,756 5,756
Exercise of stock options 96 1 712 713
Tax benefit from exercise of
non-qualified stock options 114 114
-----------------------------------------------------------------
Balance at October 2, 1994 9,072 $91 $30,613 $25,254 $ 0 $55,958
=================================================================
See accompanying notes.
- 32 -
33
Uno Restaurant Corporation and Subsidiaries
Statements of Consolidated Cash Flows
YEAR ENDED
---------------------------------------
OCTOBER 2 OCTOBER 3 SEPTEMBER 27
1994 1993 1992
---------------------------------------
(53 WEEKS)
(In Thousands)
OPERATING ACTIVITIES
Net income $ 5,756 $ 4,163 $ 1,762
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,765 7,235 5,874
Deferred income taxes 547 (424) (1,968)
Provision for deferred rent 462 735 1,050
Gain on disposal of equipment (321) (82) (47)
Loss on closure of restaurants 2,500
Changes in operating assets and liabilities, net
of effects of purchase of business:
Royalties receivable (77) (55) 139
Inventory (429) (127) (283)
Prepaid expenses and other assets (960) (1,629) (1,108)
Accounts payable and accrued expenses 1,948 794 1,041
Income taxes payable (229) 377 68
------------------------------------
Net cash provided by operating activities 14,462 10,987 9,028
INVESTING ACTIVITIES
Additions to property, equipment and leasehold
improvements (22,170) (12,460) (18,731)
Proceeds from sale of fixed assets 2,529 483 303
Increase in deposit (3,000)
Purchase of business, net of cash acquired (1,800) 108 (2,744)
Sale of marketable securities 11,829
Net advances to unconsolidated subsidiary (547)
------------------------------------
Net cash used in investing activities (24,441) (11,869) (9,890)
FINANCING ACTIVITIES
Proceeds from long-term debt 39,895 31,735 11,595
Principal payments on long-term debt and capital
lease obligations (30,780) (30,417) (11,417)
Exercise of stock options 827 122 197
------------------------------------
Net cash provided by financing activities 9,942 1,440 375
Increase (decrease) in cash and cash equivalents (37) 558 (487)
Cash and cash equivalents at beginning of period 998 440 927
------------------------------------
Cash and cash equivalents at end of period $ 961 $ 998 $ 440
====================================
See accompanying notes.
-33-
34
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements
October 2, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Uno Restaurant
Corporation and its wholly-owned subsidiaries (the Company). All intercompany
accounts and transactions have been eliminated in consolidation. The Company
operates and franchises restaurants primarily in the Northeast, Mid-Atlantic and
Midwest United States.
FISCAL YEAR
The Company's fiscal year ends on the close of business on the Sunday closest to
September 30 in each year. The fiscal year ended October 3, 1993 included 53
weeks of operations.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.
INVENTORY
Inventory, which consists of food, beverages and store supplies, is stated at
the lower of cost (first-in, first-out method) or market.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements are recorded at cost. The Company
provides for depreciation of buildings and equipment over their estimated useful
lives using the straight-line method. Leasehold improvements are amortized over
the shorter of their estimated useful lives or the term of the lease using the
straight-line method.
-34-
35
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION--FRANCHISE FEES
The Company defers franchise fees until the franchisee opens the restaurant and
all services have been substantially performed; at that time, the entire amount
of the fee is recorded as income. Royalty income is recorded as earned based on
rates provided by the respective franchise agreements. Expenses related to
franchise activities amounted to approximately $1,427,000, $1,210,000 and
$1,506,000 in fiscal years 1994, 1993 and 1992, respectively.
A summary of franchise unit activity is as follows:
YEAR ENDED
--------------------------------------
OCTOBER 2 OCTOBER 3 SEPTEMBER 27
1994 1993 1992
--------------------------------------
Units operating at beginning of year 58 59 55
Units opened 5 3 8
Units closed (1) (2) (4)
Units converted to Company-owned units (3) (2)
--------------------------------------
Units operating at end of year 59 58 59
======================================
PRE-OPENING COSTS
Costs relating to the opening of new restaurants are deferred until the
restaurants open and are amortized over 12 months from that point using the
straight-line method.
INCOME TAXES
In fiscal year 1994, deferred income taxes are recognized for temporary
differences between financial statement and income tax bases of assets and
liabilities for which income tax benefits and obligations will be realized in
future years. In fiscal years 1993 and 1992, the provision for deferred income
taxes represents the tax effect of differences in the timing of income and
expense recognition for tax and financial statement purposes.
(See Note 10).
-35-
36
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Earnings per share amounts are calculated based upon the weighted average number
of shares outstanding, giving effect to the dilutive effect of stock options.
RECLASSIFICATIONS
Certain amounts in the accompanying 1993 and 1992 financial statements have been
reclassified to permit comparison with 1994.
2. BUSINESS ACQUISITIONS AND DISPOSITIONS
Effective December 10, 1993, the Company acquired the leasehold improvements and
equipment of three franchised restaurants in Connecticut. Effective August 1,
1992, the Company purchased all of the outstanding shares of the original
Pizzeria Uno, Pizzeria Due and Su Casa restaurants and properties in Chicago.
The agreement also includes the rights to future development in the Illinois
market.
These acquisitions have been accounted for under the purchase method of
accounting. The results of operations of the acquired companies prior to the
dates of acquisition would not have a material impact on the consolidated
results of operations in fiscal years 1994, 1993 and 1992.
In September 1994, the Company entered into an agreement with Bay Street
Restaurants, Inc. to purchase the net assets of three restaurants located in
Illinois, New Jersey and Pennsylvania. The arrangement is subject to the
satisfaction of certain governmental licensing requirements, and accordingly,
the aggregate purchase price has been recorded as a refundable deposit as of
October 2, 1994.
On November 8, 1993, the Company sold to a franchisee for $2,500,000 a Pizzeria
Uno restaurant in Lake Buena Vista, Florida and recorded a gain of $312,000,
which has been included in other income. The Company acquired full ownership of
its previous joint venture during fiscal year 1993 by paying cash of $45,000 and
assuming liabilities in the amount of $2,500,000.
-36-
37
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consist of the following:
OCTOBER 2 OCTOBER 3
1994 1993
----------------------
(In Thousands)
Land $ 7,601 $ 5,030
Buildings 9,729 6,954
Equipment 31,797 24,410
Leasehold improvements 55,657 50,019
Construction in progress 2,870 690
----------------------
107,654 87,103
Less allowances for depreciation and amortization 27,597 21,594
----------------------
$ 80,057 $65,509
======================
4. RELATED-PARTY TRANSACTIONS
The Company leases three buildings from its principal shareholder for a
restaurant and for corporate office space. Rent expense in the amounts of
$442,000, $446,000 and $436,000 was charged to operations in fiscal years 1994,
1993 and 1992, respectively. The Company believes that the terms of these leases
approximate fair rental value.
The Company's President and his brother own and operate three franchised
restaurants. Additionally, the Chairman of the Company owns a 50% interest in a
franchised pizza bakery, and one of the directors of the Company has a
partnership interest in a franchised restaurant. These franchisees pay royalties
to the Company under standard franchise agreements, with the exception of the
pizza bakery, which is being operated as a test concept, and as a result, is not
currently being charged royalties. Royalties waived for the pizza bakery were
$14,000 and $3,000 in fiscal years 1994 and 1993, respectively.
5. LEASES
The Company conducts the majority of its operations in leased facilities, which
are accounted for as capital or operating leases. The leases typically provide
for a base rent plus real estate taxes, insurance and other expenses, plus
additional contingent rent based upon revenues of the restaurant. Contingent
rent amounted to $981,000, $842,000 and $916,000 in fiscal years 1994, 1993 and
1992, respectively.
- 37 -
38
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. LEASES (CONTINUED)
At October 2, 1994, the minimum rental commitments under all noncancelable
capital and operating leases with initial or remaining terms of more than one
year are as follows:
OPERATING CAPITAL
Year LEASES LEASES
- ---- --------------------------
(In Thousands)
1995 $ 7,485 $ 130
1996 7,569 130
1997 7,769 130
1998 7,671 130
1999 7,479 130
Thereafter 73,801 1,385
-------------------------
$111,774 2,035
========
Less amount representing interest 1,148
------------
Present value of net minimum lease payments 887
Less current portion of obligation under capital leases 67
------------
Long-term obligation under capital leases $ 820
============
Total expenses for all leases were as follows:
CAPITAL
CAPITAL LEASE LEASE ASSET OPERATING
Year INTEREST AMORTIZATION LEASE RENTALS
- ---- --------------------------------------------
(In Thousands)
1994 $51 $58 $10,193
1993 41 44 9,337
1992 40 44 8,149
Certain operating lease agreements contain free rent inducements and scheduled
rent increases which are being amortized over the terms of the agreements,
ranging from 15 to 20 years, using the straight-line method.
- 38 -
39
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. FINANCING ARRANGEMENTS
Long-term debt consists of the following:
OCTOBER 2 OCTOBER 3
1994 1993
-------------------------
(In Thousands)
10.22% senior notes payable to Cigna Insurance
Company in three annual installments of $3,333,
beginning June 1, 1994 $ 6,667 $10,000
Revolving credit and note agreement,
payable on June 1, 1997 13,969 1,500
------------------------
20,636 11,500
Less current portion 3,333 3,333
------------------------
$17,303 $ 8,167
========================
The note agreements contain certain financial and operating covenants, including
maintenance of certain levels of net worth and income.
During 1994, the Company expanded its $10,000,000 unsecured revolving line of
credit and note agreement to $20,000,000, expiring on June 1, 1997. The Company
is entitled to borrow at its discretion amounts which accrue interest at the
LIBOR rate plus 125 basis points or at the prime rate plus 1/4%. At October 2,
1994, borrowings of $8,500,000 accrue interest at 6.125% (LIBOR rate plus 125
basis points) and borrowings of $5,469,000 accrue interest at 8% (prime rate
plus 1/4%). At October 2, 1994, $6,031,000 was available to the Company for
borrowing under this agreement. A commitment fee, which ranges from .375% to
.5%, is accrued on unused borrowings under the credit agreement.
Annual principal maturities of long-term debt are as follows (in thousands):
Year
----
1995 $ 3,333
1996 3,334
1997 13,969
-------
$20,636
=======
- 39-
40
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. FINANCING ARRANGEMENTS (CONTINUED)
The Company made cash payments of interest of $1,465,000, $1,219,000 and
$1,091,000 during fiscal years 1994, 1993 and 1992, respectively. The Company
capitalized interest during the construction period of newly constructed
restaurants amounting to $228,000 in fiscal year 1994, $186,000 in fiscal year
1993 and $329,000 in fiscal year 1992 and included those amounts in leasehold
improvements.
The Company provides certain limited lease financing to qualified franchisees
through an agreement with an unaffiliated finance company. The Company's maximum
guarantee under the agreement was $2,100,000 at October 2, 1994.
The Company has also guaranteed up to a maximum of $447,000 of future lease
payments in the event of default by specific franchisees.
The Company has an outstanding letter of credit in the amount of $150,000 at
October 2, 1994, which expires in fiscal year 1996.
7. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
OCTOBER 2 OCTOBER 3
1994 1993
-------------------------------
(In Thousands)
Prepaid expenses $ 694 $ 434
Insurance refunds receivable 296 730
Other accounts receivable 610 558
-------------------------------
$1,600 $1,722
===============================
- 40 -
41
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. ACCRUED EXPENSES
Accrued expenses consist of the following:
OCTOBER 2 OCTOBER 3
1994 1993
-------------------------------
(In Thousands)
Accrued rent $1,380 $1,136
Accrued utilities 486 289
Accrual for loss on closure of restaurants 588 1,418
Accrued group insurance 252 209
Accrued interest 223 333
Other 1,135 782
-------------------------------
$4,064 $4,167
===============================
9. EMPLOYEE BENEFIT PLANS
The Company maintains an Employee Stock Ownership Plan (ESOP) and a 401(k)
Savings Plan (Savings Plan) for all of its eligible employees. Contributions to
the ESOP are discretionary and are allocated among all employees based upon the
participants' compensation. The Savings Plan is maintained in accordance with
the provisions of Section 401(k) of the Internal Revenue Code and allows all
employees with at least six months of service to make annual tax-deferred
voluntary contributions up to 15% of their salary. The Company may match 25% of
the first 2% and 10% of the next 4% of the employees' contributions. Total
contributions made to the plans were $110,000, $25,000 and $25,000 in fiscal
years 1994, 1993 and 1992, respectively.
Effective October 1, 1994, the Company adopted a Deferred Compensation Plan
which allows officers to defer a portion of their compensation. Annual deferral
amounts are limited to 20% of the participant's income. Deferred compensation
expense in the amount of $265,000 was recorded in fiscal year 1994.
-41 -
42
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. INCOME TAXES
Effective October 4, 1993, the Company adopted Financial Accounting Standards
Board (FASB) Statement No. 109 (Statement 109). Under Statement 109, the
liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on the differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
As permitted by Statement 109, the Company has elected not to restate the
financial statements of any prior years. The effect of the change on net income
for fiscal 1993, as well as the cumulative effect, was not material.
Deferred taxes are attributable to the following temporary differences at
October 2, 1994 (In Thousands).
DEFERRED TAX ASSETS:
Deferred rent $1,087
Depreciation 350
Accrued expenses 277
Franchise fees 101
Other 473
------
Total deferred tax assets 2,288
DEFERRED TAX LIABILITIES:
Deferred pre-opening costs 313
Prepaid insurance 172
Royalty fee 92
Other 269
------
Total deferred tax liabilities 846
------
NET DEFERRED TAX ASSETS $1,442
======
-42-
43
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. INCOME TAXES (CONTINUED)
The provision (credit) for income taxes consisted of the following:
LIABILITY
METHOD DEFERRED METHOD
-------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 2 OCTOBER 3 SEPTEMBER 27
1994 1993 1992
-------------------------------------------
(In Thousands)
Current:
Federal $2,536 $2,490 $ 2,052
State 607 771 1,056
---------------------------------------
3,143 3,261 3,108
Deferred:
Federal 243 (370) (1,298)
State 304 (54) (670)
---------------------------------------
547 (424) (1,968)
---------------------------------------
Income tax expense $3,690 $2,837 $1,140
=======================================
Components of the provision (credit) for deferred income taxes were as follows:
YEAR ENDED
------------------------
OCTOBER 3 SEPTEMBER 27
1993 1992
------------------------
(In Thousands)
Reserve for store closings $ 396 $ (932)
Provision for deferred rent (344) (432)
Pre-opening costs (275) (11)
Depreciation (203) (79)
Other 2 (514)
--------------------
$(424) $(1,968)
====================
- 43 -
44
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. INCOME TAXES (CONTINUED)
A reconciliation of the effective tax rates with the federal statutory rates is
as follows:
LIABILITY
METHOD DEFERRED METHOD
-------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 2 OCTOBER 3 SEPTEMBER 27
1994 1993 1992
-------------------------------------------
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes, net of federal income
tax benefit 6.0 6.7 8.8
Tax credits (1.8)
Other .9 (.2) (3.5)
------------------------------------
Effective income tax rate 39.1% 40.5% 39.3%
====================================
The Company made income tax payments of $3,779,000, $2,826,000 and $2,970,000
during fiscal years 1994, 1993 and 1992, respectively.
11. STOCK OPTION PLANS
The 1987 Employee Stock Option Plan (the Plan) provides for up to 1,500,000
shares of common stock issuable upon exercise of options granted under the Plan.
Options may be granted at an exercise price not less than fair market value on
the date of grant. All options vest at a rate of 20% per year beginning one
year after the date of grant, with the exception of 75,000 and 50,000 options
granted to the President and Chairman of the Company, respectively, which vest
immediately at the date of grant. All options terminate ten years after the date
of grant, with the exception of the 140,000 options granted to the Chairman,
which terminate five years after the date of grant. Options outstanding at
October 2, 1994 are non-qualified stock options.
The 1989 and 1993 Non-Qualified Stock Option Plans for Non-Employee Directors
(the Directors Plans) provide for up to 81,250 shares of Common Stock issuable
upon exercise of options granted under the Directors Plans. The 1989 and 1993
Directors Plans terminate on November 10, 1999 and August 17, 2002,
respectively, but such termination shall not affect the validity of options
granted prior to the dates of termination. Options are to be granted at an
exercise price equal to the fair market value of the shares of Common Stock at
the date of grant. Options granted under the Directors Plans may be exercised
commencing one year after the date of grant and ending ten years from the date
of grant.
- 44 -
45
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. STOCK OPTION PLANS (CONTINUED)
Information regarding the Company's stock option plans is summarized below:
YEAR ENDED
-------------------------------------------
OCTOBER 2 OCTOBER 3 SEPTEMBER 27
1994 1993 1992
-------------------------------------------
Options outstanding at beginning of fiscal
year 768,387 570,411 450,924
Granted 205,838 267,973 165,500
Exercised (at $5.09 to $10.80 per share) (96,081) (19,450) (24,330)
Canceled (43,157) (50,547) (21,683)
------------------------------------------
Options outstanding at close of fiscal year 834,987 768,387 570,411
==========================================
Option price range at close $5.09 $5.09 $5.09
of fiscal year to $14.25 to $14.25 to $14.25
Options exercisable at close of fiscal year 344,199 355,301 325,530
Options available for grant at close of fiscal
year 543,558 0 61,511
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46
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED
------------------------------------------------------
JANUARY 2 APRIL 3 JULY 3 OCTOBER 2
1994 1994 1994 1994
------------------------------------------------------
(Amounts in thousands, except per share information.)
Revenue $27,567 $28,028 $32,259 $36,211
Gross profit (1) 4,736 4,843 5,956 7,450
Operating income 1,755 1,771 2,639 4,126
Income before income taxes 1,780 1,483 2,362 3,821
Net income 1,059 882 1,490 2,325
Earnings per share .12 .10 .16 .25
QUARTER ENDED
------------------------------------------------------
DECEMBER 27 MARCH 28 JUNE 27 OCTOBER 3
1992 1993 1993 1993
------------------------------------------------------
(14 WEEKS)
Revenue $23,788 $24,767 $28,432 $31,958
Gross profit (1) 5,018 5,116 5,813 7,060
Operating income 1,600 1,415 2,030 3,040
Income before income taxes 1,407 1,108 1,740 2,745
Net income 815 643 1,014 1,691
Earnings per share .09 .07 .11 .19
(1) Restaurant and consumer product sales, less cost of food and beverages,
labor and benefits, occupancy, and other operating expenses, excluding
advertising expenses.
13. SUBSEQUENT EVENT
On November 15, 1994, the Board of Directors of the Company voted a
five-for-four split of the Company's common stock, to be effected in the form of
a stock dividend, payable to shareholders of record on February 8, 1995. The
split is contingent upon shareholder approval of a proposal to amend the
Company's articles of incorporation to increase the number of authorized shares
of common stock from 12,000,000 to
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47
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. SUBSEQUENT EVENTS (CONTINUED)
25,000,000. The results of the shareholder vote will be announced at the annual
meeting of shareholders, scheduled to be held on February 8, 1995. Had the
additional shares resulting from the proposed stock split been outstanding
throughout all of fiscal years 1994, 1993 and 1992, earnings per share would
have been as follows:
FISCAL YEARS
1994 1993 1992
--------------------------
Pro forma earnings per share $.51 $.37 $.16
Financial information contained elsewhere in this report has not been adjusted
to reflect the impact of the proposed common stock split.
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48
EXHIBIT INDEX
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Exhibit
Number Page
- ------- ----
(3)(a) Restated Certificate of Incorporation *
(3)(b) By-laws *
(4)(a) Specimen Certificate of Common Stock *
(4)(b) Note Purchase Agreement dated as of June 1, 1990 between the Company,
Uno Restaurants, Inc., Connecticut General Life Insurance Company, CIGNA
Property and Casualty Company on behalf of one or more separate
accounts, Insurance Company of North America and Life Insurance Company
of North America,* and First Amendment to Note Purchase Agreement dated
as of July 31, 1991,* and Second Amendment to Note Purchase Agreement
dated as of April 30, 1992,* and Third Amendment to Note Purchase
Agreement dated as of February 15, 1993. *
(10)(a) Lease between the Company and Aaron D. Spencer dated March 30, 1987 for
premises in West Roxbury, Massachusetts *
(10)(b) Lease between the Company and Aaron D. Spencer dated March 30, 1987 for
premises in Boston, Massachusetts *
(10)(c) Lease between Uno Restaurants, Inc. and Lisa S. Cohen and Mark N.
Spencer dated February 1, 1990 for premises in West Roxbury,
Massachusetts *
(10)(d) Form of Franchise Agreement and Area Franchise Agreement *
(10)(e) Uno Restaurant Corporation 1987 Employee Stock Plan, and As Amended *
(10)(f) Uno Restaurant Corporation 1989 Non-Qualified Stock Option Plan for
Non-Employee Directors *
(10)(g) Uno Restaurant Corporation 1993 Non-Qualified Stock Option Plan for
Non-Employee Directors *
(10)(h) Form of Indemnification Agreement between the Company and its Directors *
(10)(i) $5,000,000 Revolving and Term Loan and Guaranty Agreement dated as of
August 24, 1988 among Uno Restaurants, Inc. as Borrower, Uno Restaurant
Corporation as Guarantor, Pizzeria Uno Corporation as Guarantor and Bank
of New England, N.A. as Lender (without exhibits) *
(10)(j) Uno Buena Vista Associates Joint Venture Agreement dated March 8, 1991
between Pizzeria Uno of Buena Vista, Inc. and Grayborn Buena Vista,
Inc. *
(10)(k) Variable Royalty Plan for Franchisees *
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49
(10)(l) Stock Purchase Agreement dated September 22, 1992 by and among Florence
D. Sewell, the Estate of Ike Sewell, Deceased, and Uno Restaurants,
Inc. *
(10)(m) Agreement dated November 17, 1992 by and between Uno Restaurants, Inc.,
Jeffrey H. Grayson, and Pizzeria Uno Corporation. *
(10)(n) $10,000,000 Revolving Credit and Guaranty Agreement dated as of December
7, 1992 by and among Uno Restaurants, Inc., as Borrower, Uno Foods Inc.,
Pizzeria Uno Corporation, Uno Holding Company and Uno Restaurant
Corporation, collectively as the Loan Parties, and Fleet Bank of
Massachusetts, N.A. as Lender (without exhibits). *
(10)(o) $20,000,000 Amended Revolving Credit and Guaranty Agreement dated as of
May 31, 1994 by and among Uno Restaurants, Inc., as Borrower, Uno Foods
Inc., Pizzeria Uno Corporation, Uno Holding Company and Uno Restaurant
Corporation, collectively as the Loan Parties, and Fleet Bank of
Massachusetts, N.A. as Lender (without exhibits).
(10)(p) $50,000,000 Revolving Credit and Term Loan Agreement dated as of
December 9, 1994 by and among Uno Restaurants, Inc., as Borrower, Uno
Foods Inc., Pizzeria Uno Corporation, URC Holding Company, Inc. and Uno
Restaurant Corporation, as Guarantors, and Fleet Bank of Massachusetts,
N.A. as Agent (without exhibits).
(10)(q) Asset Purchase Agreement dated September 1, 1994, by and among Bay
Street Restaurants, Inc., Bay Street of Philadelphia, Pennsylvania,
Inc., Bay Street of Woodbridge, New Jersey, Inc., Bay Street of
Schaumburg, Illinois, Inc. and Bay Street Services, Inc. (collectively,
the "Seller"), and UNO Bay, Inc., B.S. of Woodbridge, Inc., B.S. of
Schaumburg, Inc. and B.S. Intangible Asset Corp. (collectively, the
"Purchaser").
(10)(r) Change in Control Protection Agreements dated January 6, 1994 between
Uno Restaurant Corporation and each of its named executive officers, Mr.
Spencer, Mr. Miller, Mr. Brown, Mr. Fox and Mr. Gallucci.
(10)(s) Master Lease-Purchase Agreement between ORIX Credit Alliance, Inc., as
Lessor, and Massachusetts Industrial Finance Agency, as Lessee, dated
April 19, 1994, and Master Sublease-Purchase Agreement between
Massachusetts Industrial Finance Agency, as Sublessor, and Uno Foods,
Inc. as Sublessee, dated April 19, 1994.
(11) Statement Re: Computation of Per Share Earnings
(21) Subsidiaries of the Registrant
(23) Consent of Ernst & Young LLP, Independent Auditors
- --------------------
* In accordance with Rule 12b-23 and Rule 12b-32 under the Securities
Exchange Act of 1934, as amended, reference is made to the documents
previously filed with the Securities and Exchange Commission, which
documents are hereby incorporated by reference.
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50
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
November 1, 1994, except for Note 13, as to which the date is February 8,
1995, in the Registration Statement and related Prospectus of Uno Restaurant
Corporation for the registration of 2,300,000 shares of common stock, and to the
incorporation by reference therein of our report dated November 1, 1994, except
for Note 13, as to which the date is November 15, 1994, with respect to the
consolidated financial statements of Uno Restaurant Corporation included in its
Annual Report (Form 10-K) for the year ended October 2, 1994, filed with the
Securities and Exchange Commission.
ERNST & YOUNG LLP
Boston, Massachusetts
May 5, 1995