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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-9573
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UNO RESTAURANT CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 04-2953702
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Charles Park Road, West Roxbury, Massachusetts 02132
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(Address of principal executive offices) (Zip Code)
(617) 323-9200
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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As of May 1, 1996, 12,394,520 shares of the registrant's Common Stock,
$.01 par value, were outstanding.
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UNO RESTAURANT CORPORATION
INDEX
Page
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PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS............................ 3
Consolidated Balance Sheets --
March 31, 1996 and October 1, 1995.............. 3
Consolidated Statements of Income --
Twenty-six weeks ended March 31, 1996
and April 2, 1995............................... 4
Consolidated Statements of Cash Flows --
Twenty-six weeks ended March 31, 1996
and April 2, 1995............................... 5
Notes to Consolidated Financial
Statements...................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....................... 7
PART II. OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................12
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3
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share data)
Mar. 31, Oct. 1,
1996 1995
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(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 1,452 $ 1,305
Royalties receivable 838 725
Consumer product receivable 790 567
Inventory 2,256 2,226
Deferred pre-opening costs 667 1,253
Prepaid expenses and other assets 4,031 2,221
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TOTAL CURRENT ASSETS 10,034 8,297
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Land 14,077 11,093
Buildings 20,115 18,056
Leasehold improvements 74,321 74,011
Equipment 42,244 42,430
Construction in progress 6,991 3,263
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157,748 148,853
Less allowance for depreciation and amortization 41,330 36,355
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116,418 112,498
OTHER ASSETS
Deferred income taxes 3,629 1,151
Royalty fee 365 405
Liquor licenses and other assets 2,435 2,909
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$132,881 $125,260
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 6,476 $ 6,238
Accrued expenses 5,359 3,913
Accrued compensation and taxes 2,330 2,231
Income taxes payable 254 126
Current portion of long-term debt and capital
lease obligations 3,506 3,404
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TOTAL CURRENT LIABILITIES 17,925 15,912
Long-term debt, net of current portion 33,695 21,750
Capital lease obligations, net of current portion 1,147 749
Other liabilities 4,069 3,722
SHAREHOLDERS' EQUITY
Preferred Stock, $1.00 par value, 1,000,000 shares
authorized, none issued
Common Stock, $.01 par value, 25,000,000 shares authorized,
12,594,520 and 13,682,270 shares issued and outstanding
in Fiscal Years 1996 and 1995, respectively 137 137
Additional paid-in capital 53,482 53,433
Retained earnings 30,360 32,457
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83,979 86,027
Treasury Stock (1,099,600 and 358,100 shares at cost, in
Fiscal Years 1996 and 1995, respectively) (7,934) (2,900)
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TOTAL SHAREHOLDERS' EQUITY 76,045 83,127
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$132,881 $125,260
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CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share data)
Thirteen Weeks Ended Twenty-Six Weeks Ended
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Mar 31, Apr 2, Mar 31, Apr 2,
1996 1995 1996 1995
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REVENUES
Restaurant sales $37,003 $33,873 $74,372 $66,767
Consumer product sales 2,253 2,245 4,439 4,353
Franchise income 1,031 1,033 2,036 2,007
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40,287 37,151 80,847 73,127
COSTS AND EXPENSES
Cost of sales 10,380 9,365 20,676 18,432
Labor and benefits 12,582 11,429 25,069 22,089
Occupancy 6,495 5,274 12,901 10,584
Other operating costs 3,807 3,000 7,382 6,189
General and administrative 3,167 2,924 6,209 5,621
Depreciation and amortization 3,201 2,604 6,484 4,871
Asset Impairment Charge 3,937 3,937
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43,569 34,596 82,658 67,786
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OPERATING INCOME (3,282) 2,555 (1,811) 5,341
OTHER INCOME (EXPENSE) (847) (583) (1,466) (954)
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Income before income taxes (4,129) 1,972 (3,277) 4,387
Provision for income taxes (1,487) 729 (1,180) 1,624
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NET INCOME $(2,642) $ 1,243 $(2,097) $ 2,763
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EARNINGS PER COMMON SHARE $ (.21) $ .11 $ (.16) $ .24
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Weighted average shares outstanding 12,831 11,748 13,073 11,684
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Twenty-six weeks Ended
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Mar 31, Apr 2,
1996 1995
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OPERATING ACTIVITIES
Net Income (Loss) $(2,097) $ 2,763
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,534 4,921
Deferred income taxes (2,478) (231)
Provision for deferred rent 347 293
(Gain)\Loss on disposal of equipment 286 (9)
Asset Impairment Charge 3,937
Changes in operating assets and liabilities, net
of effects from business acquisitions:
Royalties/Consumer Product Receivables (336) (253)
Inventory (30) (192)
Prepaid expenses and other assets (2,224) (2,977)
Accounts payable and other liabilities 1,695 2,131
Income taxes payable 128 (516)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 5,762 5,930
INVESTMENT ACTIVITIES
Additions to property, equipment and
leasehold improvements (13,206) (22,625)
Proceeds from sale of fixed assets 131 9
Business acquisition, less cash acquired (316)
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NET CASH USED FOR INVESTING ACTIVITIES (13,075) (22,932)
FINANCING ACTIVITIES
Proceeds from revolving credit agreement 29,358 31,075
Principal payments on revolving credit agreement
and capital lease obligations (16,913) (15,060)
Purchase of Treasury Stock (5,034)
Exercise of stock options 49 240
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NET CASH PROVIDED BY FINANCING ACTIVITIES 7,460 16,255
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INCREASE (DECREASE) IN CASH 147 (747)
CASH AT BEGINNING OF PERIOD 1,305 961
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CASH AT END OF PERIOD $ 1,452 $ 214
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited, consolidated financial statements have been
prepared in accordance with instructions to Form 10-Q and, therefore, do not
include all information and footnotes normally included in financial statements
prepared in conformity with generally accepted accounting principles. They
should be read in conjunction with the financial statements of the company for
the fiscal year ended October 1, 1995.
The accompanying financial statements include all adjustments (consisting
only of normal recurring accruals) that management considers necessary for a
fair presentation of its financial position and results of operations for the
interim periods presented.
NOTE B - INTEREST RATE SWAP
On October 26, 1995, the Company entered into a five year interest rate swap
agreement to convert a portion of its floating rate debt to a fixed rate basis,
thus reducing the impact of interest rate changes on future income. The notional
amount of this interest rate swap agreement was $20 million. The differential to
be paid or received is accrued as interest rates change and recognized as an
adjustment to interest expense related to the debt.
NOTE C - ASSET IMPAIRMENT CHARGE
On February 26, 1996 the Company announced that it would adopt the provisions of
Statement of Financial Accounting Standards No. 121 (SFAS No. 121) "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." The Company is not required to adopt SFAS 121 until fiscal 1997. In
connection with such adoption, five restaurant units (one Uno Restaurant, three
Uno Pizza Takery's and one Bay Street Grill restaurant), which will continue to
be operated, were identified as impaired as the future undiscounted cash flows
of each of these units is estimated to be insufficient to recover the related
carrying value. As such, the carrying values of these units were written down to
their estimated fair value.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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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:
THIRTEEN WEEKS ENDED MARCH 31, 1996 COMPARED TO THIRTEEN WEEKS ENDED
APRIL 2, 1995
13 Weeks 13 Weeks
Ended Ended
3/31/96 4/2/95
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REVENUES:
Restaurant sales 91.8% 91.2%
Consumer product sales 5.6 6.0
Franchise income 2.6 2.8
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Total 100.0% 100.0%
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COSTS AND EXPENSES:
Cost of food & beverages (1) 26.4% 25.9%
Labor and benefits (1) 32.1 31.6
Occupancy costs (1) 16.5 14.6
Other operating costs (1) 9.7 8.3
General and administrative 7.9 7.9
Depreciation and amortization (1) 8.2 7.2
Asset Impairment Charge 9.8
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Operating income (8.1) 6.9
Other income (expense) (2.1) (1.6)
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Income before taxes (10.2) 5.3
Provision for income taxes (3.7) 2.0
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Net income (6.6)% 3.3%
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(1) Percentage of restaurant and consumer product sales
NUMBER OF RESTAURANTS
AT END OF QUARTER:
Company-owned Uno's full service 80 71
Franchised Uno's - full service 62 58
Total revenue increased 8.4% to $40.3 million from $37.2 million last year.
Company-owned restaurant sales rose 9.2% to $37.0 million from $33.9 million
last year due primarily to 16% growth in store operating weeks of full-service
Pizzeria Uno units resulting from the addition of 10 restaurants during the past
four quarters. Comparable-store sales for the second quarter were 1.2% below the
same period last year and were significantly impacted by record snowfalls in
most of the Northeast. During the same period, average weekly sales, which
includes sales at comparable stores as well as new units, were 4.4% below last
year, reflecting lower-than-average sales levels for the 10 units opened during
the past four quarters.
Consumer product sales increased slightly to $2,253,000 from $2,245,000 for the
second quarter this year. Sales for the frozen product category increased as
shipments to our wholesale club store customers rose, while airline sales
declined. Sales volumes within our fresh refrigerated category experienced
modest growth for the quarter.
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Franchise income, which includes royalty income and initial franchise fees,
remained virtually flat at $1,031,000 versus $1,033,000 last year. Royalty
income remained relatively stable at $1,003,000 this year compared to $1,008,000
last year. Initial franchise fees amounted to $27,500 this year as two new units
were opened during the quarter.
The Company's operating loss of $3,282,000 includes a charge for asset
impairment of $3,937,000 in connection with the adoption of SFAS 121. The
Company recorded this write-down for three Uno Pizza Takery's, one full-service
Pizzeria Uno unit and a partial write-down of its investment in three Bay Street
Grill units. The write-down represents non-cash adjustments made to reduce
assets to net realizable value for each of these restaurants.
Operating income exclusive of the asset impairment charge was $655,000, which
represents an operating margin of 1.6%. Last year's operating income was
$2,555,000, generating an operating margin of 6.9%. The declines in operating
income and margin are due mostly to the lower sales level at comparable stores,
as well as the below-average sales level at newly-opened units.
Cost of food and beverage as a percentage of restaurant and consumer product
sales increased to 26.4% compared to 25.9% last year. This increase in part
reflects changes in menu products and menu pricing intended to enhance
customers' value perception. Labor costs increased to 32.1% as a percentage of
restaurant and consumer product sales from 31.6% in the prior year due to
additional training costs associated with the introduction of several new menu
items. Occupancy costs rose as a percentage of restaurant and consumer product
sales to 16.5% from 14.6% primarily due to lower sales levels at comparable
stores and new units. Other operating costs increased to 9.7% from 8.3% last
year due primarily to higher advertising expenditures associated with the roll
out of a new menu during the current quarter. General and administrative
expenditures were up approximately 8% from a year ago, however, as a percentage
of total revenues these expenses remained unchanged. Depreciation and
amortization expenses as a percentage of restaurant and consumer product sales
increased to 8.2% from 7.2% last year due primarily to lower sales levels at
comparable stores and new units, and increased capital expenditures for facility
renovations.
Other expense of $847,000 increased from $583,000 last year due principally to a
net loss of approximately $252,000 this year for the disposition of various
fixed assets. The effective tax rate of 36% for the quarter compared favorably
to last year's rate of 37% due in part to generally lower state income taxes.
Net income decreased from $1,243,000 last year to a net loss of $2,642,000 this
year based on the factors noted above.
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TWENTY-SIX WEEKS ENDED MARCH 31, 1996 COMPARED TO TWENTY-SIX WEEKS ENDED
APRIL 2, 1995
26 Weeks 26 Weeks
Ended Ended
3/31/96 4/2/95
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REVENUES:
Restaurant sales 92.0% 91.3%
Consumer product sales 5.5 6.0
Franchise income 2.5 2.7
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Total 100.0% 100.0%
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COSTS AND EXPENSES:
Cost of food & beverages (1) 26.2% 25.9%
Labor and benefits (1) 31.8 31.1
Occupancy costs (1) 16.4 14.9
Other operating costs (1) 9.4 8.7
General and administrative 7.7 7.7
Depreciation and amortization (1) 8.2 6.8
Asset Impairment Charge 4.9
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Operating income (2.2) 7.3
Other income (expense) (1.8) (1.3)
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Income before taxes (4.1) 6.0
Provision for income taxes (1.5) 2.2
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Net income (2.6)% 3.8%
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<FN>
(1) Percentage of restaurant and consumer product sales
Total revenue increased 10.6% to $80.8 million from $73.1 million last year.
Company-owned restaurant sales rose 11.4% to $74.4 million from $66.8 million
last year due primarily to 19.6% growth in store operating weeks of full-service
Pizzeria Uno units resulting from the addition of 10 restaurants during the past
four quarters. Comparable-store sales for Uno units for the first half of the
fiscal year were 2.9% below the same period last year. During the same period,
average weekly sales, which includes sales at comparable stores as well as new
units, were 6.0% below last year.
Consumer product sales increased 2.0% to $4,439,000 from $4,353,000 for the
first six months this year compared to the same period last year. The growth
reflects new business within the frozen products and contract food service
categories, and modest growth in sales volumes for existing customers in the
fresh refrigerated segment. Sales to the airline industry have declined as the
number of flights in which food service is offered has been reduced.
Franchise income, which includes royalty income and initial franchise fees,
increased 1.4% to $2,036,000 from $2,007,000 last year. Royalty income increased
approximately 1% to $1,968,000 from $1,952,000 and initial franchise fees
amounted to $67,500 this year compared to $55,000 last year.
The Company's operating loss of $1,811,000 includes a charge for asset
impairment of $3,937,000 in connection with the adoption of SFAS 121. The
Company recorded this write-down for three Uno Pizza Takery's, one full-service
Pizzeria Uno unit and a partial write-down of its investment in three Bay Street
Grill units. The write-down represents non-cash adjustments made to reduce
assets to net realizable value for each of these restaurants.
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Operating income exclusive of the asset impairment charge was $2,126,000, which
represents an operating margin of 2.6%. Last year's operating income was
$5,341,000, generating an operating margin of 7.3%. The declines in operating
income and margin are due mostly to the lower sales level at comparable stores,
as well as the below-average sales level at newly-opened units.
Cost of food and beverage as a percentage of restaurant and consumer product
sales increased to 26.2% compared to 25.9% last year. This increase in part
reflects changes in menu products and menu pricing intended to enhance
customers' value perception. Labor costs increased to 31.8% as a percentage of
restaurant and consumer product sales from 31.1% in the prior year due to
additional training costs associated with the introduction of several new menu
items. Occupancy costs rose as a percentage of restaurant and consumer product
sales to 16.4% from 14.9% primarily due to lower sales levels at comparable
stores and new units. Other operating costs increased to 9.4% from 8.7% last
year due primarily to higher advertising expenditures associated with the roll
out of a new menu during the current quarter. General and administrative
expenditures were up approximately 10% from a year ago, however, as a percentage
of total revenues these expenses remain unchanged. Depreciation and amortization
expenses as a percentage of restaurant and consumer product sales increased to
8.2% from 6.8% last year for several reasons: lower sales levels at comparable
stores and new units, increased capital expenditures for facility renovations,
and increased amortization of pre-opening costs associated with the higher rate
of unit growth.
Other expense of $1,466,000 increased from $954,000 last year due principally to
the Company recording a net loss of approximately $286,000 for the disposition
of various fixed assets. In addition, the Company absorbed higher interest costs
relating to the increased level of debt used to fund the Company's accelerated
expansion plan and its ownership of an increasing number of restaurant
properties. The effective tax rate of 36% for the first half of the fiscal year
compared favorably to last year's rate of 37% due in part to generally lower
state income taxes. Net income decreased from $2,763,000 last year to a net loss
of $2,097,000 this year based the factors noted above.
LIQUIDITY AND SOURCES OF CAPITAL
The following table presents a summary of the Company's cash flows for the
period ended March 31, 1996.
(In Thousands)
Net cash provided by operating activities $ 5,762
Net cash used in investing activities (13,075)
Net cash provided by financing activities 7,460
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Increase (Decrease) in cash $ 147
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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, public equity offerings, the sale of senior, unsecured
notes, and revolving lines of credit. During the first six months of fiscal
1996, the Company's investment in property, equipment and leasehold improvements
was $13.1 million.
The Company currently plans to open approximately seven 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 March 31, 1996, the Company had outstanding indebtedness of $33.7 million
under its $50.0 million unsecured revolving credit facility, $3.3 million of
senior,
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unsecured notes and $1,319,000 in capital lease obligations. The current
revolving credit facility will convert to a three year term loan in December
1997. Advances under the revolving credit facility will accrue interest at the
lender's prime rate, or alternatively, 100-175 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.
In October 1995, the Board of Directors of the Company authorized the repurchase
of up to 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 May 13, 1996 the
Company has repurchased a total of 1,299,600 shares of its Common Stock at an
average price of $7.16 per share.
The Company believes that existing cash balances, cash generated from operations
and borrowings under its revolving line of credit will be sufficient to fund the
Company's capital requirements through fiscal 1996.
The Company is currently obligated under 85 leases, including 82 leases for
Company-owned restaurants, two leases for its executive offices, and a lease
for an office building containing one of its restaurants.
IMPACT OF INFLATION
Inflation has not been a major factor in the Company's business for the last
several years. 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 fiscal quarters
than its other quarters. The Company's seasonal business pattern is due to its
concentration of units in the Northeast, and the resulting lower winter volumes.
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PART II. OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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11. Statement re: computation of per share earnings
(b) Reports on Form 8-K
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On February 26, 1996 Uno Restaurant Corporation filed Form 8-K in
connection with the Company's adoption of Financial Accounting
Standard No.121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," (SFAS No. 121).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNO RESTAURANT CORPORATION
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(Registrant)
Date: May 13, 1996 By: /s/ Craig S. Miller
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Craig S. Miller
President
Date: May 13, 1996 By: /s/ Robert M. Brown
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Robert M. Brown
Senior Vice President-Finance,
and Chief Financial Officer
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