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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 1, 1995
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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 .
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Commission file number 1-9573
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UNO RESTAURANT CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 04-2953702
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 CHARLES PARK ROAD, WEST ROXBURY, MA 02132
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 323-9200
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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
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Securities registered pursuant to Section 12(g) of the Act:
NONE
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(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, 1995, was
$51,430,177, based on the closing price of $6.875 on that date on the New York
Stock Exchange. As of November 30, 1995, 13,189,306 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 27, 1996 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-2
(Registration No. 33-38944) (the "1991 Registration Statement"), the
registrant's Registration Statement on Form S- 2 (Registration No. 33-59193)
(the "1995 Registration Statement"), 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 Annual Report on Form 10-K for the
fiscal year ended October 2, 1994, the registrant s Quarterly Report on Form
10-Q for the fiscal quarter ended April 2, 1995, the registrant's Proxy
Statement for the Annual Meeting of Stockholders held on March 2, 1993, the
registrant's Proxy Statement for the Annual Meeting of Stockholders held on
February 22, 1994, the registrant's Proxy Statement for the Annual Meeting of
Stockholders held on February 8, 1995, are incorporated by reference in Part IV
of this Report.
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PART I
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ITEM 1. BUSINESS
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GENERAL AND DEVELOPMENTS DURING FISCAL YEAR 1995
The Company owns and operates or franchises a total of 150 restaurants,
including 80 owned and 60 franchised casual dining, full-service restaurants
under the name "Pizzeria Uno...Chicago Bar & Grill." The Pizzeria Uno
restaurants offer a diverse, high-quality menu at moderate prices in a casual,
friendly atmosphere. The restaurants feature the Company's signature
Chicago-style deep- dish pizza and a selection of entrees, including thin crust
pizza, pasta, fajitas, ribs, steak and chicken, as well as a variety of
appetizers, salads, sandwiches and desserts. The Company's restaurants average
approximately 6,200 square feet with seating for an average of approximately
180 guests. For the fiscal year ended October 1, 1995, Company-owned
restaurants averaged $1,925,000 in sales. Company-owned restaurants are
located predominantly in the Northeast and Mid- Atlantic states, and franchised
restaurants are located throughout the United States.
In fiscal 1993, the Company began implementing strategic initiatives
intended to strengthen its position in casual dining and to distinguish its
restaurants from quick service pizza, pizza and pasta, and full-service Italian
restaurants. As part of this strategy, during fiscal 1994, the Company
invested approximately $2.5 million in new kitchen capabilities, including
saute stations, grills and fryers, for its Company-owned restaurants enabling
the Company to enhance the quality, breadth and appeal of its non-pizza menu
items. To better communicate its concept and broadened menu to consumers, the
Company refined the name of its restaurants to Pizzeria Uno ...Chicago Bar &
Grill and upgraded the design and decor of its restaurants to be consistent
with its casual dining theme. In addition, in fiscal 1993, the Company
increased the size of its deep-dish pizzas to provide greater value and added
additional restaurant managers in many of its higher volume units to improve
overall service. The Company believes these strategic initiatives directly
contributed to an increase in its average guest check and increases in
comparable store sales of 3.3% in fiscal 1995.
The Company recently has been expanding its channels of distribution to
capitalize on the Pizzeria Uno brand name and the appeal of its signature
Chicago- style deep-dish pizza. Currently, the Company is distributing
refrigerated and frozen Chicago-style deep-dish pizza to approximately 900
supermarkets, primarily in New England, for sale in their fresh deli counters
and frozen food sections. Since January 1993, the Company has also been
supplying frozen Pizzeria Uno brand, Chicago-style deep-dish pizza to American
Airlines for service on its flights. Approximately 1.7 million Pizzeria Uno
brand pizzas were served aboard American Airlines flights during fiscal 1995.
The Company is testing a similar pizza product at Pizzeria Uno kiosks in 14
General Cinema theaters. The Company also operates four neighborhood,
limited-seating take-out units under the name "Uno...Pizza Takery." These units
are located in strip centers, occupy approximately 2,000 square feet and offer
limited seating for up to 40 customers.
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.
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During the fiscal year ended October 1, 1995, the Company opened 16
full-service Company-owned restaurants, and exchanged ownership of its
restaurant in Fairview Heights, Illinois for a competitor s restaurant in
Orlando, Florida. Five franchised restaurants opened during the fiscal year,
and five closed.
During the fiscal year ending September 29, 1996, the Company
anticipates opening up to 12 Company-owned full-service restaurants and up to
10 franchised restaurants. The timing of these planned openings is subject to
various factors, including locating satisfactory sites and negotiating leases
and franchise agreements.
In December, 1994, the Company purchased three Bay Street Grill
restaurants located in Schaumburg, Illinois; Woodbridge, New Jersey; and
Philadelphia, Pennsylvania. The three full-service, casual dining restaurants,
which specialize in seafood, generated total annual sales of $6.6 million
during fiscal 1995. The Company has no current plans to open additional Bay
Street Grill restaurants.
In December 1994, the Company obtained a $50 million unsecured,
revolving credit and term loan facility through Fleet Bank. The new facility
replaced a $20 million unsecured revolving credit facility. 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 either the bank's prime
rate plus .25%, or alternatively, at 100-150 basis points above LIBOR.
On October 26, 1995, the Company entered into a five year interest rate
swap agreement with Fleet Bank involving the exchange of floating rate interest
payment obligations for fixed rate interest payment obligations. The notional
amount of this interest rate swap agreement was $20 million. The Company
entered into this agreement in order to manage interest costs and risks
associated with fluctuating interest rates.
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 resulted in one additional share of Common Stock being issued for each
four shares of Common Stock issued and outstanding on the record date. Cash
was issued in lieu of fractional shares.
During June 1995, the Company completed a secondary public equity
offering of 2.3 million shares of its Common Stock underwritten by Montgomery
Securities. The Company received $22.6 million in net proceeds from the
offering.
In October 1995, the Board of Directors of the Company authorized the
repurchase of up to a total of 1.5 million shares of the Company s Common Stock
in the market from time to time during the subsequent six months. This
superseded the Board of Directors previous authorization in July 1995 for the
repurchase of up to a total of 500,000 shares of the Company's Common Stock. As
of November 30, 1995, the Company had repurchased a total of 494,100 shares of
its Common Stock at prices between $7.00 and $8.25 per share.
RESTAURANT CONCEPT AND MENU
Pizzeria Uno restaurants are full-service, casual dining restaurants,
featuring the Company's signature Chicago-style deep-dish pizza and a diverse
menu of high quality, moderately-priced menu items. The Company's target market
is middle to upper-middle income individuals in the 17 to 49 year-old age
group. The restaurants are
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generally open from 11:00 a.m. to midnight, seven days per week.
The restaurants feature the Company's signature Chicago-style deep-dish
pizzas and a selection of entrees, including thin crust pizza, pastas, fajitas,
ribs, steak and chicken, as well as a variety of appetizers, salads, sandwiches
and desserts. The Company's signature product, its Chicago-style, deep-dish
pizza, filled with ingredients such as fresh meats, spices, vegetables and real
cheeses, is baked according to proprietary recipes. The Company believes that
its proprietary recipes produce a superior pizza that is difficult to
duplicate. In fiscal 1994, the Company invested approximately $2.5 million in
new kitchen capabilities, including saute stations, grills and fryers, for its
Company-owned restaurants enabling the Company to enhance the quality, breadth
and appeal of its non-pizza items. At the end of fiscal 1995, the Company's
average check per guest for full service Company-owned restaurants was
approximately $9.50. For fiscal 1995, sales of alcoholic beverages accounted
for approximately 18% of total restaurant sales.
RESTAURANT DESIGN AND SITE SELECTION
The Company has recently upgraded the design and decor of its
restaurants to be consistent with its theme as "Pizzeria Uno...Chicago Bar &
Grill." Pizzeria Uno restaurants are designed and decorated to provide a
friendly and comfortable atmosphere expected of full-service, casual dining
restaurants and distinguished from typical pizza restaurants. The decor of each
restaurant emphasizes quality with wood, brick and brass. To ensure quality and
compliance with Company standards, preliminary exterior design and complete
interior and kitchen design for all Company-owned and franchised restaurants
are prepared by the Company. The Company's current prototype free-standing
restaurant occupies approximately 6,400 square feet, with a seating capacity of
approximately 200 customers.
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. One or more of the Company's
executive officers inspect and approve the site for each Company-owned and
franchised restaurant. Within each target market area, the Company evaluates
population density and demographics, major retail and office concentration and
traffic patterns. In addition, the Company evaluates visibility, accessibility,
proximity to direct competition and various other site specific factors.
Pizzeria Uno restaurants are located in both urban and suburban markets, in
free-standing buildings, strip centers and malls. Restaurant development is
currently targeted at high profile, free-standing locations.
Historically, the Company has leased most of its restaurants to
minimize investment costs. Since fiscal 1992, however, the Company began
selectively purchasing real estate to develop new restaurants where available
and when the expected long-term cost of owning the real estate is less than the
cost of leasing. Of the 88 Company-owned restaurants open as of November 30,
1995, 74 are located in leased facilities and 14 are fee owned properties. See
"Item 2. - Properties."
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RESTAURANT LOCATIONS
The following tables provide the locations for Company-owned and
franchised restaurants as of November 30, 1995.
COMPANY-OWNED RESTAURANTS (88)
COLORADO (2) Burlington Lynbrook
Denver Cambridge(2) Massapequa
Greenwood Danvers New York City
Dedham Bayside
CONNECTICUT (5) Framingham Bay Ridge
Danbury Hanover Forest Hills
Fairfield Hyannis Manhattan(5)
Manchester Kingston Syracuse
Milford Lynnfield Victor
West Hartford Newton(2)(c) Vestal
Newtonville (d) Yonkers
FLORIDA (5) Revere
Daytona Beach Shrewsbury(d) OHIO (1)
Kissimmee Springfield Columbus
Ormond Beach Waltham (d)
Orlando (2) Woburn PENNSYLVANIA (4)
Philadelphia (3)(e)
ILLINOIS (6) MISSOURI (1) Pittsburgh
Aurora St. Louis Monroeville
Chicago (3)(a) Chesterfield
Schaumburg (2)(e) RHODE ISLAND (1)
NEW HAMPSHIRE(3) Warwick
MAINE (1) Concord
Portland Manchester VIRGINIA (7)
Nashua Balston
MARYLAND (5) Fairfax
Baltimore NEW JERSEY (2) Newport News
Bel Air Paramus Norfolk
Bethesda Woodbridge (b) Potomac Mills
Towson Reston
Waldorf NEW YORK (18) Williamsburg
Albany
MASSACHUSETTS (25) Amherst WASHINGTON, DC(2)
Boston(5) Buffalo Cleveland Park
Braintree Henrietta Union Station
Brockton
<FN>
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See footnotes on next page
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FRANCHISED RESTAURANTS (62)
ARIZONA (2) MARYLAND (1) OHIO (6)
Phoenix Deep Creek Cincinnati(2)
Tempe Cleveland(3)
MASSACHUSETTS (4) Dayton
CALIFORNIA (10) Holyoke
Cupertino Marlborough OKLAHOMA (1)
Fremont Springfield(2)(c) Tulsa
Los Angeles
San Diego(2) MICHIGAN (2) PENNSYLVANIA (6)
San Francisco(3) Ann Arbor King of Prussia
Santa Clara Bloomfield Langhorne
West Hollywood Media
MINNESOTA (2) Philadelphia(3)
CANADA (1) Minnetonka
Toronto Edina PUERTO RICO (2)
San Juan
FLORIDA (4) NEVADA (1) San Patricio
Miami Las Vegas
Orlando(3) TEXAS (4)
NEW JERSEY (4) Addison
ILLINOIS (2) Cherry Hill Arlington
Champaign Secaucus Ft. Worth
Chicago(d) South Plainfield Houston
Wayne
INDIANA (2) WASHINGTON, DC(1)
Indianapolis NEW YORK (2) Georgetown
Merrillville Poughkeepsie
White Plains WISCONSIN (4)
KENTUCKY (1) Janesville
Lexington Milwaukee
Madison(2)
<FN>
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(a) Includes one Mexican restaurant.
(b) Bay Street Grill.
(c) Includes one limited seating, take-out restaurant.
(d) Limited seating, take-out restaurant.
(e) Includes one Bay Street Grill.
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UNIT ECONOMICS
For the fiscal year ended October 1, 1995, the 62 Company-owned
restaurants open for the entire fiscal year generated average restaurant sales
of approximately $1,935,000, average restaurant operating income of
approximately $279,000 (or 14.4% of sales) and average restaurant cash flow of
approximately $410,000 (or 21.2% of sales). The 23 Company-owned restaurants
opened in fiscal 1994 and fiscal 1995 had an average cash investment of
approximately $1,545,000 for building, leasehold improvements, furniture,
fixtures and equipment, but excluding land costs and pre-opening expenses.
The Company expects that the average cash investment required to open a
full-service Pizzeria Uno restaurant will be approximately $1.5 million,
excluding land and pre-operating expenses. In the future, the Company
anticipates that it will continue to purchase a portion of its new restaurant
locations and expects that its total investment for each fee owned unit will be
approximately $2.0 to $2.5 million.
RESTAURANT EXPANSION
The Company intends to continue opening Company-owned restaurants in
two of its primary metropolitan markets, New York and Baltimore/Washington,
D.C. The Company is also engaged in site development efforts in Chicago,
Orlando and Denver. Due to its current concentration of restaurants in New
England, future expansion in this market will be more selective. In fiscal
1995, the Company opened 16 restaurants, and exchanged ownership of one
restaurant in metropolitan St. Louis for a competitor's restaurant in Orlando,
Florida. The Company expects to open approximately 12 restaurants in fiscal
1996.
The Company will continue to grant franchisees the right to expand the
Pizzeria Uno restaurant business throughout the United States and, as
opportunities arise, outside the United States. In fiscal 1995, five
franchised restaurants were opened, and five franchised restaurants were
closed. During fiscal 1996, the Company expects franchisees to open
approximately 10 restaurants. See "-- Franchise Program."
OTHER BUSINESS DEVELOPMENT
The Company has recently been expanding its consumer product business
principally through distribution of its deep-dish pizza in the fresh deli
counters and frozen food sections of approximately 900 supermarkets in New
England, New York, New Jersey, Pennsylvania and Ohio. Currently, Pizzeria Uno
deep-dish pizza is the leading brand of fresh, refrigerated pizza sold in New
England supermarkets. The Company also is currently supplying private-label
thin-crust pizza to selected New England supermarket chains. In addition, in
January 1993, the Company began supplying frozen deep-dish pizzas to American
Airlines for service on its flights. Approximately 1.7 million pizzas were
served aboard American Airlines flights during fiscal 1995. During 1995, the
Company also began distributing frozen deep-dish pizza to two wholesale club
chains. Finally, the Company is testing the sale of frozen pizzas at Pizzeria
Uno kiosks currently located in 14 General Cinema movie theaters. To support
the growth of the Company's consumer product business, a production facility in
Brockton, Massachusetts began operation in January 1993. The Company expanded
the facility later in fiscal 1993 and further expanded the facility in fiscal
1995. See "Item 2 - Properties."
The Company is continuing to test other traditional and
non-traditional distribution channels for its signature, deep-dish pizza
product. The Company is currently operating four limited-seating take-out units
with the name "Uno...Pizza
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Takery." The units are located in strip centers, occupy approximately
2,000 square feet and offer limited seating for up to 40 customers.
In December 1994, the Company purchased three Bay Street Grill
restaurants located in Schaumburg, Illinois; Woodbridge, New Jersey; and
Philadelphia, Pennsylvania. The Bay Street Grill restaurants are
full-service, casual dining restaurants, which specialize in seafood. The
Company has no current plans to open additional Bay Street Grill restaurants.
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 believes that turnover among the Company's
restaurant managers is below the industry average.
The Company conducts an initial ten-week training program for all
managers and franchisees focusing on restaurant operations. There is
continuing training of Company-owned restaurant managers through specialized
training programs and regular meetings that emphasize the areas of leadership,
quality of food preparation and service. The Company requires its food
handling personnel and alcohol serving employees to participate in a training
program to ensure the sanitary and responsible service of food and alcohol.
The training program is conducted on an ongoing basis. The Company also holds
quarterly regional meetings and an annual national meeting of franchisees and
Company managers which focus on continuing training in marketing, new products,
site selection and aspects of business management.
Each Company-owned restaurant manager and franchisee is required to
comply with an extensive operations manual which contains detailed standards
and specifications for all elements of operations. The Company generally
visits franchisees on a quarterly basis, but continuing training of franchised
restaurant managers is the responsibility of the franchisees.
The Company employs three operations vice presidents and 13 regional
operations directors. The Company also currently employs three 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 a periodic basis no less than annually for
each supplier. The Company approves suppliers of these ingredients and
products and requires its suppliers 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 substantially all food and beverage
products from authorized local or national distributors. In some cases,
franchisees find it more economical to purchase most of these products from
the same distributors
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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
For fiscal 1995, the Company spent 2.7% of restaurant and consumer
product sales on advertising and marketing. The Company relies primarily on
television, radio, direct mail and print advertising. Through an advertising
cooperative fund, the Company prepares 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 up to 1.0% 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.
FRANCHISE PROGRAM
As of October 1, 1995, the Company had 61 franchised Pizzeria Uno
restaurants operated by 34 franchisees located in 18 states, the District of
Columbia, Puerto Rico and Canada. Historically, franchises were granted on a
unit-by-unit basis, rather than by territory. The Company is currently
pursuing territory development with franchisees for construction of one or more
restaurants over a certain period of time and within a certain geographic area.
For example, the Company recently signed an area franchise agreement with a
Portland, Oregon franchisee covering several counties in Oregon requiring the
franchisee to open four restaurants prior to March 31, 2000. The Company is in
continual discussions with existing and prospective franchisees for the
development of certain geographic areas 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 at the time the
development agreement is signed a nonrefundable fee of $10,000 per restaurant
committed to be developed. The Company's current franchise agreement also
requires franchisees to pay a unit franchise fee of $30,000 per restaurant
before signing a franchise agreement for a specific location and a continuing
monthly royalty of 5% of restaurant sales. Royalties and franchise fees for
international franchises are negotiated on an individual basis. Royalties
received by the Company averaged 4.4% of franchised restaurant sales for the
fiscal year ended October 1, 1995. At the beginning of fiscal 1992, the
Company implemented a variable royalty plan that allows royalty rate reductions
from contractual rates for those franchised restaurants meeting certain
criteria. It 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 5%. Seven franchised restaurants currently qualify for some
degree of royalty rate reduction under the variable royalty plan.
The Company receives weekly and monthly sales reports from its
franchisees and,
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in addition, conducts test sales audits of all franchisees on an annual
basis. Based upon these reports, the Company believes that the average
annualized sales for its franchised restaurants in fiscal 1995 was
approximately $1.4 million.
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 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.
The Company's initial training program for franchisees is similar to
its training program for management trainees and employees in Company-owned
restaurants. See "-- Restaurant Management." 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 at least four times per year.
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 million for all franchisees combined. The
Company has also guaranteed up to a maximum of $431,000 of future lease
payments in the event of default by specific franchisees.
COMPETITION
The restaurant business is highly competitive with respect to price,
service and food quality, and is often affected by changes in consumer tastes,
economic conditions and population and traffic patterns. There is also intense
competition for real estate sites, personnel and qualified franchisees. 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.
EMPLOYEES
The Company employed approximately 5,815 persons, 118 of whom were
corporate personnel and 333 of whom were field service or restaurant managers
or trainees. The remaining employees were restaurant personnel, many of whom
were part-time. Of the 118 corporate employees, 62 were in management positions
and 56 were general office employees.
The Company considers its employee relations to be good. None of the
Company's employees is covered by collective bargaining agreements except for
employees of its
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three Restaurants in urban Chicago who are members of the
Hotel Employees and Restaurant Employees International Union of the AFL-CIO,
and who are subject to a collective bargaining agreement with the Company
through November 30, 1996.
TRADEMARKS
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," "Pizzeria
Due" and "Bay Street." The Company's registrations of its significant marks
are subject to renewal at various times from 1998 to 2005. However, the Company
intends to renew its registration of such marks prior to expiration. The
Company has applied for federal registration of the trademark "Pizzeria Uno . .
. Chicago Bar & Grill." The Company's policy is to pursue registration of its
marks whenever possible and to oppose strenuously any infringement of its
marks.
GOVERNMENT 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.
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.
The Company is subject to the rules and regulations of various federal,
state and local health agencies, including the United States Food and Drug
Administration (the "FDA") and the United States Department of Agriculture. The
FDA specifies standards for nutrition content claims and health claims made in
connection with food items offered in the Company's restaurants. The FDA also
prescribes the format and content of nutrition information required to appear
on labels of certain products,
-12-
13
including the Company's line of fresh and frozen items sold through
supermarkets.
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 ...... 64 Chairman, Chief Executive 1979
Officer and Director
Craig S. Miller ....... 46 President, Chief Operating 1985
Officer and Director
Robert M. Brown ....... 48 Senior Vice President- 1987
Finance, Chief Financial
Officer, Treasurer and Director
Alan M. Fox ........... 48 Senior Vice President- --
Purchasing, President-Uno
Foods Inc.
William A. Gallucci ... 64 Senior Vice President- --
Franchising
Thomas W. Gathers ..... 39 Senior Vice President- --
Human Resources and Training
Eugene I. Lee ......... 34 Senior Vice President- --
Operations
Damon M. Liever ....... 41 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 30 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 28 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
-13-
14
Vice President-Finance of the Company. From 1984 to 1987, Mr. Brown
served as vice 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 24
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 38 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 19
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 17 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."
-14-
15
ITEM 2. PROPERTIES
- -------------------
The Company owns a 30,000 square foot production plant in Brockton,
Massachusetts. The production plant produces frozen product for service aboard
American Airlines flights, as well as fresh, refrigerated pizzas that are sold
at deli counters in approximately 900 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 1995. See "ITEM 1.
Other Business Development."
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, and also purchased the real estate related to its three
urban Chicago restaurants; during fiscal 1993 the Company purchased real estate
to develop new restaurants in Orlando, Florida; during fiscal 1994 in Amherst,
New York, and Paoli and Franklin Mills, Pennsylvania; and in fiscal 1995, in
Potomac, Virginia, Schaumburg, Illinois, Denver, Colorado and Williamsburg,
Virginia. During fiscal 1996, the Company intends to purchase approximately
four additional restaurant properties.
The leases for Company-owned restaurants typically have initial terms
of 20 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
-15-
16
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 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 was $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.
-16-
17
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
As of November 30, 1995, 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.
-17-
18
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
October 4, 1993 to October 1, 1995, adjusted to reflect the stock split paid on
February 28, 1995:
COMMON STOCK
PRICE
-----------------
HIGH LOW
------ ------
FISCAL YEAR ENDED OCTOBER 2, 1994
- ---------------------------------
First Quarter $ 8.70 $ 7.00
Second Quarter $ 8.50 $ 6.50
Third Quarter $ 8.60 $ 7.10
Fourth Quarter $10.90 $ 7.90
FISCAL YEAR ENDED OCTOBER 1, 1995
- ---------------------------------
First Quarter $11.10 $ 9.30
Second Quarter $12.80 $10.10
Third Quarter $12.00 $10.25
Fourth Quarter $10.375 $ 7.75
NUMBER OF STOCKHOLDERS
As of October 1, 1995, there were approximately 4,300 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.
On November 15, 1994, the Board of Directors declared a five-for-four
stock split effected in the form of a stock dividend paid in shares of the
Company s Common Stock on February 28, 1995 to stockholders of record on
February 8, 1995.
-18-
19
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
Fiscal Year Ended
------------------------------------------------------------
Oct. 1 Oct. 2 Oct. 3 Sept. 27 Sept. 29
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
INCOME STATEMENT DATA:
REVENUES
Restaurant sales...................... $146,100 $112,674 $ 98,234 $ 77,500 $ 65,921
Consumer product sales................ 8,477 7,418 7,073 3,106 1,996
Franchise income...................... 4,129 3,973 3,638 3,507 3,408
-------- -------- -------- -------- --------
158,706 124,065 108,945 84,113 71,325
-------- -------- -------- -------- --------
COSTS AND EXPENSES
Cost of food and beverages............ 39,420 30,177 26,024 19,224 16,187
Labor and benefits.................... 47,377 36,935 32,990 24,912 21,017
Occupancy costs....................... 22,925 18,979 17,295 14,492 10,735
Other operating costs................. 13,583 10,751 9,166 9,638 5,013
General and administrative............ 11,229 9,277 8,233 7,022 7,298
Depreciation and amortization......... 10,795 7,655 7,152 5,773 5,096
-------- -------- -------- -------- --------
145,329 113,774 100,860 81,061 65,346
-------- -------- -------- -------- --------
OPERATING INCOME...................... 13,377 10,291 8,085 3,052 5,979
OTHER EXPENSE......................... (1,944) (845) (1,085) (150) (487)
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES............ 11,433 9,446 7,000 2,902 5,492
Provision for income taxes............ 4,230 3,690 2,837 1,140 2,337
-------- -------- -------- -------- --------
NET INCOME............................ $ 7,203 $ 5,756 $ 4,163 $ 1,762 $ 3,155
======== ======== ======== ======== ========
EARNINGS PER COMMON SHARE............. $ 0.58 $ 0.51 $ 0.37 $ 0.16 $ 0.29
======== ======== ======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING... 12,364 11,360 11,291 11,313 10,738
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets.......................... $125,260 $ 92,153 $ 74,735 $ 68,117 $ 61,260
Long-term debt........................ 21,750 17,703 8,167 10,000 10,000
Capital lease obligations............. 749 820 472 474 476
Shareholders' equity.................. 83,127 55,958 49,375 45,090 43,131
OPERATING DATA:
SYSTEM-WIDE SALES(a)
Company-owned......................... $136,659 $110,272 $ 96,540 $ 77,226 $ 65,605
Franchised............................ 91,988 87,706 82,710 77,891 69,545
-------- -------- -------- -------- --------
TOTAL................................. $228,647 $197,978 $179,250 $155,117 $135,150
======== ======== ======== ======== ========
- 19 -
20
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
Fiscal Year Ended
------------------------------------------------------------
Oct. 1 Oct. 2 Oct. 3 Sept. 27 Sept. 29
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
AVERAGE RESTAURANT SALES(a)
Company-owned......................... $ 1,925 $ 1,886 $ 1,807 $ 1,786 $ 1,874
Franchised............................ 1,557 1,489 1,389 1,356 1,322
NUMBER OF RESTAURANTS
Company-owned(b)...................... 87 66 57 51 40
Franchised(c)......................... 61 61 58 59 55
-------- -------- -------- -------- --------
TOTAL AT YEAR END..................... 148 127 115 110 95
======== ======== ======== ======== ========
<FN>
- --------------------------------------
(a) Pizzeria Uno full-service restaurants, annualized.
(b) Includes one Mexican restaurant, three Bay Street Grill restaurants and four quick-
service Uno units in 1995; 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.
(c) Includes two quick-service Pizzeria Uno units in 1995 and 1994 and one in 1991.
-20-
21
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 52 Weeks 53 Weeks
Ended Ended Ended
10/1/95 10/2/94 10/3/93
------- ------- -------
REVENUES:
Restaurant sales........... 92.1% 90.8% 90.2%
Consumer product sales..... 5.3 6.0 6.5
Franchise income .......... 2.6 3.2 3.3
----- ----- -----
Total ................... 100.0 100.0 100.0
COSTS AND EXPENSES:
Cost of food and beverages (1) 25.5 25.1 24.7
Labor and benefits (1) .... 30.6 30.8 31.3
Occupancy costs (1) ....... 14.8 15.8 16.4
Other operating costs (1) . 8.8 9.0 8.7
General and administrative 7.1 7.5 7.6
Depreciation and amortization(1) 7.0 6.4 6.8
----- ----- -----
OPERATING INCOME............ 8.4 8.3 7.4
OTHER EXPENSE .............. (1.2) (.7) (1.0)
----- ----- -----
INCOME BEFORE TAXES......... 7.2 7.6 6.4
Provision for income taxes . 2.7 3.0 2.6
----- ----- -----
NET INCOME ................. 4.5% 4.6% 3.8%
===== ===== =====
<FN>
(1) Percentage of restaurant and consumer product sales
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
Total revenues increased 28% to $158.7 million in fiscal 1995 from
$124.1 million the prior year. Company-owned restaurant sales increased 29.7%
to $146.1 million due primarily to a 21.4% increase in operating weeks of
full-service Pizzeria Uno restaurants resulting from the addition of 16
restaurants during the past four quarters, as well as the purchase of three Bay
Street Grill restaurants in December 1994. The increase in restaurant sales was
also due to a 3.3% increase in comparable store sales for the 52 weeks ended
October 1, 1995.
Consumer product sales increased 14.3% to $8.5 million from $7.4 million
in fiscal 1994 due to higher sales of Pizzeria Uno brand and private label
refrigerated pizza, as well as increased shipments of frozen pizza for tests by
customers outside New England.
Franchise income increased 3.9% to $4.1 million in fiscal 1995 from $4.0
million the prior year. Royalty income increased 4.7% to $4.0 million
principally due to an increase in comparable store sales of 2.4% for the year.
Initial franchise fees totaled $125,000 for fiscal 1995 compared to $150,000 in
fiscal 1994.
-21-
22
Cost of food and beverages as a percentage of restaurant and consumer
product sales increased to 25.5% for fiscal 1995 from 25.1% the prior year.
This percentage cost increase primarily reflected changes in sales mix toward a
larger percentage of higher-cost non-pizza menu items.
Labor and benefits as a percentage of restaurant and consumer product
sales decreased slightly to 30.6% for fiscal 1995 from 30.8% the prior year,
principally due to the leverage of higher comparable store sales.
Occupancy costs as a percentage of restaurant and consumer product
sales declined to 14.8% for fiscal 1995 from 15.8% the prior year, primarily
due to an increased number of owned restaurant properties and the operating
leverage provided by the increase in comparable store sales noted above.
Other operating costs declined as a percentage of restaurant and
consumer product sales to 8.8% for fiscal 1995 from 9.0% the prior year,
principally due to the operating leverage provided by the increase in
comparable store sales.
General and administrative expenses decreased as a percentage of total
revenues to 7.1% for fiscal 1995 from 7.5% the prior year as a result of
allocating certain fixed expenses over a larger revenue base.
Depreciation and amortization expenses as a percentage of restaurant
and consumer product sales increased to 7.0% for fiscal 1995 from 6.4% the
prior year, principally due to increased amortization of pre-opening costs
associated with the higher rate of unit growth.
Operating income increased 30.0% to $13.4 million for fiscal 1995
compared to $10.3 million in fiscal 1994. The operating profit margin improved
slightly to 8.4% from 8.3%, primarily as a result of the increase in
Company-owned restaurants and comparable store sales.
Other expense increased to $1,944,000 or 1.2% as a percentage of total
revenues in fiscal 1995 from $845,000 or .7% of total revenues the prior year.
This increase was due to higher interest expense associated with the increased
level of debt used to fund the Company's accelerated expansion plan and its
ownership of an increasing number of restaurant properties. In addition, other
expense in the comparable period in 1994 was favorably affected by a $312,000
gain on the sale of a restaurant to a franchisee.
The effective income tax rate declined to 37% for fiscal 1995 from
39.1% in fiscal 1994, primarily due to the effect of the FICA tip tax credit,
which became effective on January 1, 1994 and generally lower state income
taxes.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR (53 WEEKS) 1993
Total revenues increased 13.9% to $124.1 million in fiscal 1994 from
$108.9 million in the prior year. Company-owned restaurant sales increased
14.7% to $112.7 million in fiscal 1994 due primarily to a 9.4% increase in
operating weeks of full-service restaurants resulting from the addition of
eight new restaurants, and a 6.5% increase in comparable store sales.
Consumer product sales increased 4.9% to $7.4 million in fiscal 1994
from $7.1 million in the prior year primarily due to expanded sales of private
label, thin-crust pizzas to several supermarket chains in New England. Initial
shipments
-22-
23
of both refrigerated and frozen Pizzeria Uno brand pizzas commenced in
fiscal 1994 to new customers in New York, New Jersey, Pennsylvania and Ohio in
order to expand the Company's regional presence beyond New England.
Franchise income increased 9.2% to $4.0 million in fiscal 1994 from
$3.6 million in the prior year. Royalty income increased 9.5% to $3.8 million
in fiscal 1994 from $3.5 million in the prior year primarily due to an increase
of 7.1% in average unit sales. Initial franchise fees totaled $150,000 in
fiscal 1994 compared to $147,500 in fiscal 1993.
Cost of food and beverages as a percentage of restaurant and consumer
product sales increased to 25.1% in fiscal 1994 from 24.7% in the prior year,
reflecting primarily changes in sales mix toward a larger percentage of higher
cost non-pizza menu items.
Labor and benefits as a percentage of restaurant and consumer product
sales decreased slightly to 30.8% in fiscal 1994 from 31.3% in the prior year,
principally due to the leverage of higher comparable store sales.
Occupancy costs as a percentage of restaurant and consumer product
sales declined to 15.8% in fiscal 1994 from 16.4% in the prior year, resulting
from the Company's purchase of the real estate for several restaurants since
fiscal 1992, and the operating leverage provided by the increase in comparable
store sales.
Other operating costs as a percentage of restaurant and consumer
product sales were 9.0% for fiscal 1994, remaining relatively unchanged from
8.7% in the prior year.
General and administrative expenses decreased as a percentage of total
revenues to 7.5% in fiscal 1994 from 7.6% in the prior year, principally due to
the allocation of certain fixed expenses over a larger revenue base.
Depreciation and amortization expenses as a percentage of restaurant
and consumer product sales decreased to 6.4% in fiscal 1994 from 6.8% in the
prior year principally due to the increase in comparable store sales.
Operating income increased 27.3% to $10.3 million in fiscal 1994 from
$8.1 million for the prior year. The operating profit margin increased to 8.3%
in fiscal 1994 from 7.4% in the prior year, principally due to an increase in
Company-owned restaurants and comparable store sales.
Other expense declined to $845,000 in fiscal 1994 from $1.1 million in
the prior year, principally due to a $312,000 gain on the sale of a restaurant
to a franchisee in fiscal 1994.
The effective income tax rate declined to 39.1% in fiscal 1994 from
40.5% in fiscal 1993, primarily due to the FICA tip credit, which became
effective on January 1, 1994.
-23-
24
Liquidity and Sources of Capital
The following table (000's omitted) presents a summary of the Company's
cash flows for fiscal 1995.
Net cash provided by operating activities....... $16,136
Net cash used in investing activities........... (40,138)
Net cash provided by financing activities....... 24,346
-------
Increase in cash ............................... $ 344
=======
Historically, the Company has leased most of its restaurant locations
and pursued a strategy of controlled growth, financing its expansion
principally from operating cash flow, equity offerings and from the sale of
senior, unsecured notes and short-term borrowing under revolving lines of
credit. During fiscal 1995, the Company's investment in property, equipment and
leasehold improvements was $39.9 million.
The Company opened 16 restaurants during fiscal 1995 and currently
plans to open up to 12 restaurants in fiscal 1996. The Company expects that
the average cash investment required to open a full-service Pizzeria Uno
restaurant, excluding land and pre-opening costs, will be approximately $1.5
million.
As of October 1, 1995, the Company had outstanding indebtedness of
$21.8 million under its unsecured, revolving line of credit, $3.3 million of
senior, unsecured notes and $820,000 in capital lease obligations. In December
1994, the Company obtained a $50.0 million unsecured revolving credit facility
to replace its then existing $20.0 million revolving credit facility. The new
revolving credit facility will convert to a three year term loan in December
1997. Advances under the revolving credit facility will accrue interest at
either the bank's prime rate plus .25%, or alternatively, at 100-150 basis
points above LIBOR. The Company anticipates using the revolving credit
facility in the future for repayment of the $3.3 million of principal
outstanding under its senior, unsecured notes, for the development of
additional restaurants, and for working capital.
On October 26, 1995, the Company entered into a five year interest rate
swap agreement involving the exchange of floating rate interest payment
obligations for fixed rate interest payment obligations. The notional amount
of this interest rate swap agreement was $20 million. The Company entered into
this agreement in order to manage interest costs and risks associated with
fluctuating interest rates.
During June 1995, the Company completed a secondary public equity
offering of 2.3 million shares of its Common Stock underwritten by Montgomery
Securities. The Company received $22.6 million in net proceeds from the
offering.
In October 1995, the Board of Directors of the Company authorized the
repurchase of up to a total of 1.5 million shares of the Company's Common stock
in the market from time to time during the subsequent six months. This
superseded the Board of Directors previous authorization in July 1995 for the
repurchase of up to a total of 500,000 shares of the Company's Common Stock. As
of November 30, 1995, the Company had repurchased a total of 494,100 shares of
its Common Stock at prices between $7.00 and $8.25 per share.
-24-
25
The Company believes that existing cash balances, cash generated from
operations and borrowings under its revolving line of credit will be sufficient
to satisfy the Company's working capital and capital expenditure requirements
through fiscal 1996.
IMPACT OF INFLATION
Inflation has not been a major factor in the Company's business for the
last several years. The Company believes it has historically been able to pass
on increased costs through menu price increases, but there can be no assurance
that it will be able to do so in the future. Future increases in local area
construction costs could adversely affect the Company's ability to expand.
SEASONALITY
The Company's business is seasonal in nature, with revenues and, to a
greater degree, operating income being lower in its first and second quarters
than its other quarters due to reduced winter volumes.
-25-
26
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.
-26-
27
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 13 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.
-27-
28
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 ........................... 32
Consolidated Balance Sheets -- October 1, 1995 and
October 2, 1994 ......................................... 33
Consolidated Statements of Income -- Years ended
October 1, 1995, October 2, 1994, and
October 3, 1993 ......................................... 34
Consolidated Statements of Shareholders' Equity --
Years ended October 1, 1995, October 2, 1994, and
October 3, 1993 ......................................... 35
Consolidated Statements of Cash Flows -- Years ended
October 1, 1995, October 2, 1994, and
October 3, 1993 ......................................... 36
Notes to Consolidated Financial Statements ............... 37
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, as amended, filed as Exhibit
3.1 to the Company s Quarterly Report on Form 10-Q for the fiscal
quarter ended April 2, 1995 (the "April 2, 1995 Form 10-Q").*
(b) By-laws filed as Exhibit 3.2 to the April 2, 1995 Form 10-Q.*
(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
-28-
29
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 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, 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 8,
1995.* **
(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) Variable Royalty Plan for Franchises, filed as Exhibit 10(l) to the
1991 Annual Report on Form 10-K.*
(j) $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) filed as Exhibit
10(p) to the 1994 Annual Report on Form 10-K,* and First Amendment to
Revolving Credit and Term Loan Agreement dated as of January 30,
1995, and Second Amendment to Revolving Credit and Term Loan
Agreement dated as of November 7, 1995.
(k) Interest Rate Swap Agreement between Fleet Bank of Massachusetts,
N.A. and Uno Restaurants, Inc. dated October 25, 1995.
-29-
30
(l) 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") filed as Exhibit 10(q) to the 1994
Annual Report on Form 10-K.*
(m) 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 filed as
Exhibit 10(r) to the 1994 Annual Report on Form 10-K.* **
(n) 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 filed as Exhibit 10(s) to the
1994 Annual Report on Form 10-K.*.
(11) Statement Re: Computation of Per Share Earnings
(21) Subsidiaries of the Registrant
(23) Consent of Ernst & Young LLP, Independent Auditors
(27) Financial Data Schedule
- --------------------------
* 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
-30-
31
(B) REPORTS ON FORM 8-K
-------------------
During the fiscal quarter ended October 1, 1995, the Company did not
file any Current Reports on Form 8-K.
-31-
32
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 (the Company) as of October 1, 1995 and October 2,
1994, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended October 1, 1995.
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 1, 1995 and October 2, 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended October 1, 1995, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
November 1, 1995
32
33
Uno Restaurant Corporation and Subsidiaries
Consolidated Balance Sheets
OCTOBER 1 OCTOBER 2
1995 1994
-------------------
(In thousands)
ASSETS
Current assets:
Cash $ 1,305 $ 961
Royalties receivable 725 553
Consumer product receivable 567 473
Inventory 2,226 1,744
Deferred pre-opening costs 1,253 568
Prepaid expenses and other assets 2,221 1,532
-------------------
Total current assets 8,297 5,831
Property, equipment and leasehold improvements, net 112,498 80,057
Deferred income taxes 1,151 1,442
Other assets:
Liquor licenses and other assets 3,314 1,823
Deposit 3,000
-------------------
3,314 4,823
-------------------
$125,260 $92,153
===================
OCTOBER 1 OCTOBER 2
1995 1994
-----------------------------
(Dollar amounts in thousands,
except per share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
urrent liabilities:
Accounts payable $ 6,238 $ 5,006
Accrued expenses 3,913 3,996
Accrued compensation and taxes 2,231 2,357
Income taxes payable 126 654
Current portions of long-term debt and capital lease
obligations 3,404 3,400
----------------------------
Total current liabilities 15,912 15,413
Long-term debt, net of current portion 21,750 17,303
Capital lease obligations, net of current portion 749 820
Other liabilities 3,722 2,659
Commitments and contingencies
Shareholders' equity:
Preferred Stock, $1.00 par value, 1,000,000 shares
authorized, no shares issued or outstanding
Common Stock, $.01 par value, 25,000,000 shares
authorized, 13,682,270 shares in 1995 and 9,072,499
shares in 1994 issued 137 91
Additional paid-in capital 53,433 30,613
Retained earnings 32,457 25,254
----------------------------
86,027 55,958
Treasury Stock (358,100 shares, at cost) (2,900)
----------------------------
Total shareholders' equity 83,127 55,958
----------------------------
$ 125,260 $92,153
============================
See accompanying notes.
33
34
Uno Restaurant Corporation and Subsidiaries
Consolidated Statements of Income
YEAR ENDED
---------------------------------------------------------
OCTOBER 1 OCTOBER 2 OCTOBER 3
1995 1994 1993
---------------------------------------------------------
(53 WEEKS)
(Amounts in thousands, except
per share data)
Revenues:
Restaurant sales $ 146,100 $ 112,674 $ 98,234
Consumer product sales 8,477 7,418 7,073
Franchise income 4,129 3,973 3,638
---------------------------------------------------------
158,706 124,065 108,945
Costs and expenses:
Cost of food and beverages 39,420 30,177 26,024
Labor and benefits 47,377 36,935 32,990
Occupancy costs 22,925 18,979 17,295
Other operating costs 13,583 10,751 9,166
General and administrative 11,229 9,277 8,233
Depreciation and amortization 10,795 7,655 7,152
---------------------------------------------------------
145,329 113,774 100,860
---------------------------------------------------------
Operating income 13,377 10,291 8,085
Other income (expense):
Interest expense (1,924) (1,147) (1,077)
Other income (expense) (20) 302 (8)
---------------------------------------------------------
(1,944) (845) (1,085)
---------------------------------------------------------
Income before income taxes 11,433 9,446 7,000
Provision for income taxes 4,230 3,690 2,837
---------------------------------------------------------
Net income $ 7,203 $ 5,756 $ 4,163
=========================================================
Earnings per common share $ .58 $ .51 $ .37
=========================================================
Weighted-average number of common
shares 12,364 11,360 11,291
=========================================================
See accompanying notes.
34
35
Uno Restaurant Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity
COMMON STOCK
-------------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
-----------------------------------------------------------------------
(Amounts in thousands)
Balance at September 27, 1992 8,964 $ 90 $ 29,744 $15,335 $ (79) $45,090
Net income (53 weeks) 4,163 4,163
Exercise of stock options 12 20 79 99
Tax benefit from exercise of
nonqualified stock options 23 23
-----------------------------------------------------------------------
Balance at October 3, 1993 8,976 90 29,787 19,498 49,375
Net income 5,756 5,756
Exercise of stock options 96 1 712 713
Tax benefit from exercise of
nonqualified stock options 114 114
-----------------------------------------------------------------------
Balance at October 2, 1994 9,072 91 30,613 25,254 55,958
Net income 7,203 7,203
5-for-4 stock split 2,275 23 (23)
Sale of Common Stock, net of offering
costs 2,300 23 22,541 22,564
Exercise of stock options 35 226
Purchase of Treasury Stock (2,900) (2,900)
Tax benefit from exercise of
nonqualified stock options 76 76
-----------------------------------------------------------------------
Balance at October 1, 1995 13,682 $137 $ 53,433 $32,457 $(2,900) $83,127
=======================================================================
See accompanying notes.
35
36
Uno Restaurant Corporation and Subsidiaries
Consolidated Statements of Cash Flows
YEAR ENDED
----------------------------------------------
OCTOBER 1 OCTOBER 2 OCTOBER 3
1995 1994 1993
----------------------------------------------
(53 WEEKS)
(In thousands)
OPERATING ACTIVITIES
Net income $ 7,203 $ 5,756 $ 4,163
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,896 7,765 7,235
Deferred income taxes 291 547 (424)
Provision for deferred rent 637 462 735
Gain on disposal of equipment (28) (321) (82)
Changes in operating assets and liabilities, net
of effects from business acquisitions:
Royalties receivable (172) (77) (55)
Inventory (482) (429) (127)
Prepaid expenses and other assets (3,736) (960) (1,629)
Accounts payable and other liabilities 2,055 1,948 794
Income taxes payable (528) (229) 377
----------------------------------------------
Net cash provided by operating activities 16,136 14,462 10,987
INVESTING ACTIVITIES
Additions to property, equipment and leasehold
improvements (39,864) (22,170) (12,460)
Proceeds from sale of fixed assets 42 2,529 483
Increase in deposit (3,000)
Purchase of business, net of cash acquired (316) (1,800) 108
----------------------------------------------
Net cash used in investing activities (40,138) (24,441) (11,869)
FINANCING ACTIVITIES
Proceeds from revolving line of credit 60,950 39,895 31,735
Principal payments on debt and capital lease
obligations (56,570) (30,780) (30,417)
Issuance of Common Stock 22,564
Purchase of Treasury Stock (2,900)
Exercise of stock options 302 827 122
----------------------------------------------
Net cash provided by financing activities 24,346 9,942 1,440
----------------------------------------------
Increase (decrease) in cash 344 (37) 558
Cash at beginning of year 961 998 440
----------------------------------------------
Cash at end of year $ 1,305 $ 961 $ 998
==============================================
See accompanying notes.
36
37
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements
October 1, 1995
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. Company-owned
restaurants are located predominately in the Northeast and Mid-Atlantic states
and franchised restaurants are located throughout the 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.
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.
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
37
38
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
respective franchise agreements. Expenses related to franchise activities
amounted to approximately $1,889,000, $1,427,000 and $1,210,000 in fiscal years
1995, 1994 and 1993, respectively.
A summary of full-service franchise unit activity is as follows:
YEAR ENDED
------------------------------------------------
OCTOBER 1 OCTOBER 2 OCTOBER 3
1995 1994 1993
------------------------------------------------
Units operating at beginning of year 59 58 59
Units opened 5 5 3
Units closed (5) (1) (2)
Units converted to Company-owned units (3) (2)
------------------------------------------------
Units operating at end of year 59 59 58
================================================
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 years 1995 and 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 year 1993, 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.
38
39
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER COMMON SHARE
Earnings per common share amounts are calculated based upon the weighted-average
number of shares outstanding, giving effect to the dilutive effect of stock
options. Average shares outstanding and all per share amounts included in the
accompanying consolidated financial statements and notes thereto are based on
the increased number of shares, giving retroactive effect to the five-for-four
stock split in fiscal year 1995 (see Note 7).
RECLASSIFICATIONS
Certain amounts in the accompanying 1994 and 1993 financial statements have been
reclassified to permit comparison with 1995.
2. BUSINESS ACQUISITIONS AND DISPOSITIONS
In December 1994, the Company completed an agreement with Bay Street
Restaurants, Inc. to purchase the net assets of three restaurants located in
Illinois, New Jersey and Pennsylvania. In December 1993, the Company acquired
the leasehold improvements and equipment of three franchised restaurants in
Connecticut. 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 1995, 1994 and 1993.
During 1995, the Company assigned its leasehold interest in its Fairview
Heights, Illinois restaurant to an unaffiliated party in exchange for the
leasehold interest in that unaffiliated party's restaurant located in Orlando,
Florida. The Company recorded the transaction at fair market value, and wrote
off the net book value of equipment no longer usable.
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 in fiscal year 1994.
39
40
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 1 OCTOBER 2
1995 1994
----------------------------
(In thousands)
Land $ 11,093 $ 7,601
Buildings 18,056 9,729
Equipment 42,430 31,797
Leasehold improvements 74,011 55,657
Construction in progress 3,263 2,870
----------------------------
148,853 107,654
Less allowances for depreciation and amortization 36,355 27,597
----------------------------
$112,498 $ 80,057
============================
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 amount of
approximately $442,000 was charged to operations in each of the fiscal years
presented. 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 takery, 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 takery, which is being operated as a test concept and, as a result, is not
currently being charged royalties.
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
40
41
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. LEASES (CONTINUED)
upon revenues of the restaurant. Contingent rent amounted to $1,017,000,
$981,000 and $842,000 in fiscal years 1995, 1994 and 1993, respectively. At
October 1, 1995, 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
FISCAL YEAR LEASES LEASES
- ----------- ----------------------------
(In thousands)
1996 $ 8,334 $ 130
1997 8,741 130
1998 8,647 130
1999 8,457 130
2000 8,398 93
Thereafter 83,869 1,293
----------------------------
$126,446 1,906
========
Less amount representing interest 1,086
-------
Present value of net minimum lease payments 820
Less current portion of obligation under capital leases 71
-------
Long-term obligation under capital leases $ 749
=======
Total expenses for all leases were as follows:
CAPITAL
CAPITAL LEASE LEASE ASSET OPERATING LEASE
FISCAL YEAR INTEREST AMORTIZATION RENTALS
- ----------- -------------------------------------------------
(In thousands)
1995 $63 $71 $11,509
1994 51 58 10,193
1993 41 44 9,337
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. The deferred rent
liability, included in other liabilities, amounted to $3,296,000 at October 1,
1995 and $2,659,000 at October 2, 1994.
41
42
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. FINANCING ARRANGEMENTS
Long-term debt consists of the following:
OCTOBER 1 OCTOBER 2
1995 1994
---------------------------
(In thousands)
Revolving credit and note agreement $21,750 $13,969
10.22% senior notes payable to Cigna Insurance
Company
3,333 6,667
-------------------------
25,083 20,636
Less current portion 3,333 3,333
-------------------------
$21,750 $17,303
=========================
The Company has a $50,000,000 unsecured revolving line of credit which converts
to a three-year term loan in December 1997. The Company is entitled to borrow at
its discretion amounts which accrue interest at variable rates based on either
the LIBOR or prime rate. At October 1, 1995, interest on outstanding borrowings
ranged from 6.87% to 8.75%. A commitment fee of approximately .33% is accrued on
unused borrowings under the credit agreement. The note agreements contain
certain financial and operating covenants, including maintenance of certain
levels of net worth and income.
The Company made cash payments of interest of $2,445,000, $1,465,000 and
$1,219,000 during fiscal years 1995, 1994 and 1993, respectively. The Company
capitalized interest during the construction period of newly constructed
restaurants amounting to $509,000 in fiscal year 1995, $228,000 in fiscal year
1994 and $186,000 in fiscal year 1993 and included those amounts in leasehold
improvements.
42
43
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. FINANCING ARRANGEMENTS (CONTINUED)
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 $1,993,000 at October 1, 1995. The Company has
also guaranteed up to a maximum of $431,000 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 1, 1995, which expires in December 1996.
7. COMMON STOCK TRANSACTIONS
On November 15, 1994, the Board of Directors of the Company declared a
five-for-four stock split payable to shareholders on February 28, 1995. In the
third quarter of fiscal 1995, the Company obtained $22.6 million in exchange for
2.3 million shares of common stock in connection with a secondary common stock
offering.
In July 1995, the Board of Directors authorized the purchase of up to 500,000
shares of the Company's common stock in the open market. Under this arrangement,
the Company purchased 358,100 shares as treasury stock during fiscal year 1995.
Subsequent to year end, the Board of Directors increased its authorization to
purchase up to a total of 1.5 million shares of the Company's common stock in
the open market.
8. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
OCTOBER 1 OCTOBER 2
1995 1994
-------------------------
(In thousands)
Prepaid insurance $ 821 $ 621
Prepaid rent 359 202
Prepaid other 233 100
Other accounts receivable 808 609
-------------------------
$2,221 $1,532
=========================
43
44
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. ACCRUED EXPENSES
Accrued expenses consist of the following:
OCTOBER 1 OCTOBER 2
1995 1994
----------------------------
(In thousands)
Accrued rent $1,290 $1,380
Accrued insurance 778 459
Accrued utilities 616 539
Accrued vacation 330 175
Accrued interest 210 282
Other 689 1,161
---------------------
$3,913 $3,996
=====================
10. EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) Savings and Employee Stock Ownership Retirement
Plan (the Plan) for all of its eligible employees. The 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. Under the Plan,
the Company matches a specified percentage of the employees' contributions,
subject to certain limitations, and makes annual discretionary contributions of
the Company's Common Stock. Total contributions made to the plans were $153,000,
$110,000 and $25,000 in fiscal years 1995, 1994 and 1993, respectively.
The Company sponsors a Deferred Compensation Plan which allows officers to defer
up to 20% of their annual compensation. These assets are placed in a rabbi trust
and are presented as assets of the Company in the accompanying balance sheet as
they are available to the general creditors of the Company in the event of the
Company's insolvency. The related liability of $426,000 at October 1, 1995 is
included in other liabilities in the accompanying balance sheet. Deferred
compensation expense in the amounts of $173,000 and $265,000 were recorded in
fiscal year 1995 and 1994, respectively.
44
45
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. INCOME TAXES
Effective October 4, 1993, the Company adopted Financial Accounting Standards
Board (FASB) Statement No. 109 (Statement 109). 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 1994, as well as the
cumulative effect, was not material.
Deferred taxes are attributable to the following temporary differences:
OCTOBER 1 OCTOBER 2
1995 1994
---------------------------
(In thousands)
DEFERRED TAX ASSETS:
Deferred rent $1,337 $1,087
Accrued expenses 204 277
Franchise fees 100 101
Depreciation 38 350
Other 267 473
------------------------
Total deferred tax assets 1,946 2,288
DEFERRED TAX LIABILITIES:
Deferred pre-opening costs 484 313
Prepaid insurance 232 172
Royalty fee 76 92
Other 3 269
------------------------
Total deferred tax liabilities 795 846
------------------------
NET DEFERRED TAX ASSETS $1,151 $1,442
========================
45
46
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. INCOME TAXES (CONTINUED)
The provision (credit) for income taxes consisted of the following:
DEFERRED
LIABILITY METHOD METHOD
--------------------------------------------------
YEAR ENDED
--------------------------------------------------
OCTOBER 1 OCTOBER 2 OCTOBER 3
1995 1994 1993
--------------------------------------------------
(In thousands)
Current:
Federal $3,098 $2,536 $2,490
State 841 607 771
3,939 3,143 3,261
Deferred:
Federal 228 243 (370)
State 63 304 (54)
291 547 (424)
----------------------------------------------
Income tax expense $4,230 $3,690 $2,837
==============================================
A reconciliation of the effective tax rates with the federal statutory rates is
as follows:
DEFERRED
LIABILITY METHOD METHOD
--------------------------------------------------
YEAR ENDED
--------------------------------------------------
OCTOBER 1 OCTOBER 2 OCTOBER 3
1995 1994 1993
--------------------------------------------------
Federal statutory rate 34.1% 34.0% 34.0%
State income taxes, net of federal income
tax benefit 4.9 6.0 6.7
Tax credits (2.6) (1.8)
Other .6 .9 (.2)
--------------------------------------------------
Effective income tax rate 37.0% 39.1% 40.5%
==================================================
46
47
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. INCOME TAXES (CONTINUED)
The Company made income tax payments of $3,667,000, $3,779,000 and $2,826,000
during fiscal years 1995, 1994 and 1993, respectively.
12. STOCK OPTION PLANS
The 1987 Employee Stock Option Plan (the Plan) provides for up to 1,875,000
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 93,750 and 62,500 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 175,000 options granted to the Chairman,
which terminate five years after the date of grant. Options outstanding at
October 1, 1995 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 101,563 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.
47
48
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. STOCK OPTION PLANS (CONTINUED)
Information regarding the Company's stock option plans, updated to reflect the
five-for-four stock split described in Note 7, is summarized below:
YEAR ENDED
---------------------------------------------
OCTOBER 1 OCTOBER 2 OCTOBER 3
1995 1994 1993
---------------------------------------------
Options outstanding at beginning of period 1,043,735 960,483 713,013
Granted 277,489 257,298 334,966
Exercised (at $4.07 to $8.64 per share) (41,400) (120,101) (24,313)
Canceled (79,537) (53,945) (63,183)
---------------------------------------------
Options outstanding at close of period 1,200,287 1,043,735 960,483
=============================================
Option price range at close $4.07 $4.07 $4.07
of fiscal year TO $11.80 to $11.40 to $11.40
Options exercisable at close of period 538,932 430,249 444,126
Options available for grant at close of period 481,496 679,448
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED
-------------------------------------------------------------
JANUARY 1 APRIL 2 JULY 2 OCTOBER 1
1995 1995 1995 1995
-------------------------------------------------------------
(Amounts in thousands, except per share information.)
Revenues $35,976 $37,151 $41,536 $44,043
Gross profit (1) 7,773 7,771 9,466 10,519
Operating income 2,786 2,555 3,527 4,509
Income before income taxes 2,415 1,972 2,940 4,106
Net income 1,520 1,243 1,852 2,588
Earnings per common share .13 .11 .15 .19
48
49
Uno Restaurant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
QUARTER ENDED
-----------------------------------------------------------
JANUARY 2 APRIL 3 JULY 3 OCTOBER 2
1994 1994 1994 1994
-----------------------------------------------------------
(Amounts in thousands, except per share information.)
Revenues $27,567 $28,028 $32,259 $36,211
Gross profit (1) 5,501 5,575 6,903 8,512
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 common share .09 .08 .13 .20
<FN>
(1) Restaurant and consumer product sales, less cost of food and beverages,
labor and benefits, occupancy, and other operating expenses, excluding
advertising expenses.
14. SUBSEQUENT EVENT
On October 26, 1995, the Company entered into a five year interest rate swap
agreement involving the exchange of floating rate interest payment obligations
for fixed rate interest payment obligations. The notional amount of this
interest rate swap agreement was $20 million. The Company entered into this
agreement in order to manage interest costs and risks associated with
fluctuating interest rates. In the event that a counterparty fails to meet the
terms of the interest rate swap agreement, the Company's exposure is limited to
the interest rate differential. The Company has executed this agreement with a
creditworthy institution and considers the risk of nonperformance to be remote.
49
50
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-80584 and Post-Effective Amendment No. 2 to Form S-8 No.
33-22875) pertaining to the Uno Restaurant Corporation 1987 Employee Stock
Option Plan (Form S-8 No. 33-80586) pertaining to the Uno Restaurant Corporation
1989 Non-Qualified Stock Option Plan for Non-Employee Directors and (Form S-8
No. 33-80664) pertaining to the Uno Restaurant Corporation 1993 Non-Qualified
Stock Option Plan for Non-Employee Directors of our report dated November 1,
1995, with respect to the consolidated financial statements of Uno Restaurant
Corporation included in the Annual Report (Form 10-K) for the year ended October
1, 1995.
ERNST & YOUNG LLP
Boston, Massachusetts
December 18, 1995
50
51
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 20, 1995
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 20, 1995
-----------------
By (Signature and Title) /s/ Craig S. Miller
----------------------------------------------------------------
Craig S. Miller,
President, Chief Operating Officer and Director
Date December 20, 1995
-----------------
By (Signature and Title) /s/ Robert M. Brown
----------------------------------------------------------------
Robert M. Brown,
Treasurer, Senior Vice President-Finance,
Chief Financial Officer and Director
Date December 20, 1995
-----------------
By (Signature and Title) /s/ John T. Gerlach
----------------------------------------------------------------
John T. Gerlach, Director
Date December 20, 1995
-----------------
By (Signature and Title) /s/ E. Robert Kinney
----------------------------------------------------------------
E. Robert Kinney, Director
Date December 20, 1995
-----------------
By (Signature and Title) /s/ S. James Coppersmith
----------------------------------------------------------------
S. James Coppersmith, Director
Date December 20, 1995
-----------------
By (Signature and Title) /s/ Stephen J. Sweeney
-----------------------------------------------------------------
Stephen J. Sweeney, Director
Date December 20, 1995
-----------------
51
52
EXHIBIT INDEX
--------------
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) Variable Royalty Plan for Franchises. *
(10)(j) $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),* and First
Amendment to Revolving Credit and Term Loan Agreement dated as of
January 30, 1995, and Second Amendment to Revolving Credit and Term
Loan Agreement dated as of November 7, 1995.
52
53
EXHIBIT NUMBER PAGE
- -------------- ----
(10)(k) Interest Rate Swap Agreement between Fleet Bank of Massachusetts,
N.A. and Uno Restaurants, Inc. dated October 25, 1995.
(10)(l) 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)(m) 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)(n) 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
(27) Financial Data Schedule
- -------------------------------
<FN>
*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.
53