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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 JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________to ____________
Commission file number 1-9573
UNO RESTAURANT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2953702
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Charles Park Road, West Roxbury, Massachusetts 02132
(Address of principal executive offices) (Zip Code)
(617) 323-9200
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of August 8, 1996, 12,375,926 shares of the registrant's Common
Stock, $.01 par value, were outstanding.
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UNO RESTAURANT CORPORATION
INDEX
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS............................3
Consolidated Balance Sheets --
June 30, 1996 and October 1, 1995...............3
Consolidated Statements of Income --
Thirteen and thirty-nine weeks ended
June 30, 1996 and July 2, 1995..................4
Consolidated Statements of Cash Flows --
Thirty-nine weeks ended June 30, 1996 and
July 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
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................12
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CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share data)
June 30, Oct. 1,
1996 1995
----------- ---------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 169 $ 1,305
Royalties receivable 715 725
Consumer product receivable 493 567
Inventory 2,454 2,226
Deferred pre-opening costs 548 1,253
Prepaid expenses and other assets 3,350 2,221
--------- ---------
TOTAL CURRENT ASSETS 7,729 8,297
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Land 14,816 11,093
Buildings 20,129 18,056
Leasehold improvements 79,320 74,011
Equipment 44,228 42,430
Construction in progress 4,974 3,263
--------- ---------
163,467 148,853
Less allowance for depreciation and amortization 44,035 36,355
--------- ---------
119,432 112,498
OTHER ASSETS
Deferred income taxes 3,637 1,151
Royalty fee 344 405
Liquor licenses and other assets 2,449 2,909
--------- ---------
$ 133,591 $ 125,260
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,735 $ 6,238
Accrued expenses 5,879 3,913
Accrued compensation and taxes 2,293 2,231
Income taxes payable 915 126
Current portion of long-term debt and capital
lease obligations 175 3,404
--------- ---------
TOTAL CURRENT LIABILITIES 13,997 15,912
Long-term debt, net of current portion 38,140 21,750
Capital lease obligations, net of current portion 1,102 749
Other liabilities 4,255 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,
13,697,526 and 13,682,270 shares issued and out-
standing in Fiscal Years 1996 and 1995, respectively 137 137
Additional paid-in capital 53,496 53,433
Retained earnings 31,837 32,457
--------- ---------
85,470 86,027
Treasury Stock (1,299,600 and 358,100 shares at cost, in
Fiscal Years 1996 and 1995, respectively) (9,373) (2,900)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 76,097 83,127
--------- ---------
$ 133,591 $ 125,260
========= =========
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CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share data)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
---------------------- ------------------------
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
--------- --------- --------- ---------
REVENUES
Restaurant sales $ 41,558 $ 38,176 $ 115,930 $ 104,943
Consumer product sales 2,118 2,320 6,557 6,673
Franchise income 1,018 1,040 3,054 3,047
--------- --------- --------- ---------
44,694 41,536 125,541 114,663
COSTS AND EXPENSES
Cost of sales 11,579 10,318 32,255 28,750
Labor and benefits 13,216 12,456 38,285 34,545
Occupancy 6,732 5,864 19,633 16,448
Other operating costs 4,163 3,736 11,545 9,925
General and administrative 2,996 2,661 9,205 8,282
Depreciation and amortization 3,045 2,974 9,529 7,845
Asset Impairment Charge 3,937
--------- --------- --------- ---------
41,731 38,009 124,389 105,795
--------- --------- --------- ---------
OPERATING INCOME 2,963 3,527 1,152 8,868
OTHER INCOME (EXPENSE) (655) (587) (2,121) (1,541)
--------- --------- --------- ---------
Income before income taxes 2,308 2,940 (969) 7,327
Provision for income taxes 831 1,088 (349) 2,712
--------- --------- --------- ---------
NET INCOME $ 1,477 $ 1,852 ($ 620) $ 4,615
========= ========= ========= =========
EARNINGS PER COMMON SHARE $ .12 $ .15 ($ .05) $ .39
========= ========= ========= =========
Weighted average shares outstanding 12,515 12,491 12,887 11,953
========= ========= ========= =========
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Thirty-nine weeks Ended
-----------------------
June 30, July 2,
1996 1995
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OPERATING ACTIVITIES
Net Income (Loss) $ (620) $ 4,615
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,605 6,726
Deferred income taxes (2,486) (218)
Provision for deferred rent 533 388
(Gain)\Loss on disposal of equipment 282 (14)
Asset Impairment Charge 3,937
Changes in operating assets and liabilities, net
of effects from business acquisitions:
Royalties\consumer product receivables 84 (56)
Inventory (228) (392)
Prepaid expenses and other assets (1,774) (2,025)
Accounts payable and other liabilities 437 1,397
Income taxes payable 789 (298)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 10,559 10,123
INVESTMENT ACTIVITIES
Additions to property, equipment and
leasehold improvements (18,935) (32,349)
Proceeds from sale of fixed assets 136 28
Business acquisition, less cash acquired (316)
-------- --------
NET CASH USED FOR INVESTING ACTIVITIES (18,799) (32,637)
FINANCING ACTIVITIES
Proceeds from revolving credit agreement 44,058 44,570
Principal payments on revolving credit agreement
and capital lease obligations (30,544) (45,423)
Issuance of Common Stock 22,565
Purchase of Treasury Stock (6,473)
Exercise of stock options 63 271
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,104 21,983
-------- --------
INCREASE (DECREASE) IN CASH (1,136) (531)
CASH AT BEGINNING OF PERIOD 1,305 961
-------- --------
CASH AT END OF PERIOD $ 169 $ 430
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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 potential impact of interest rate increases 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 was not required to adopt SFAS 121 until fiscal 1997. In
connection with such adoption during the second quarter of fiscal year 1996,
five restaurant units (one Uno Restaurant, three Uno Pizza Takery's and one Bay
Street Grill restaurant) were identified as impaired, since the future
undiscounted cash flows of each of these units was estimated to be insufficient
to recover the related carrying value. As such, the carrying values of these
units were written down by $3,937,000 to their estimated fair value.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SAFE HARBOR CAUTIONARY STATEMENT
From time to time, information and statements provided by the Company in filings
with the Securities and Exchange Commission, shareholder reports, press releases
and oral statements may include forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
Forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that all forward-looking statements involve risks and uncertainties, which could
cause actual results to differ materially from historical results or those
anticipated. The Company undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise. Risks and uncertainties include, without limitation, the
Company's ability to open new restaurants and operate new and existing
restaurants profitably, changes in local, regional and national economic
conditions, especially economic conditions in the areas in which the Company's
restaurants are concentrated, increasingly intense competition in the restaurant
industry, increases in food, labor, employee benefits and similar costs, and
other risks detailed from time to time in the Company's news releases, reports
to shareholders and periodic reports filed with the Securities and Exchange
Commission.
THIRTEEN WEEKS ENDED JUNE 30, 1996 COMPARED TO THIRTEEN WEEKS ENDED JULY 2, 1995
The following tables set 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:
13 Weeks Ended
----------------------
6/30/96 7/2/95
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REVENUES:
Restaurant sales 93.0% 91.9%
Consumer product sales 4.7 5.6
Franchise income 2.3 2.5
----- -----
Total 100.0% 100.0%
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COSTS AND EXPENSES:
Cost of food & beverages (1) 26.5% 25.5%
Labor and benefits (1) 30.3 30.8
Occupancy costs (1) 15.4 14.5
Other operating costs (1) 9.5 9.2
General and administrative 6.7 6.4
Depreciation and amortization (1) 7.0 7.3
----- -----
Operating income 6.6 8.5
Other income (expense) (1.4) (1.4)
----- -----
Income before taxes 5.2 7.1
Provision for income taxes 1.9 2.6
----- -----
Net income 3.3% 4.5%
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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 84 75
Franchised Uno's - full service 62 59
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Total revenue increased 7.6% to $44.7 million from $41.5 million last year.
Company-owned restaurant sales rose 8.9% to $41.6 million from $38.2 million
last year due primarily to 12% growth in store operating weeks of full-service
Pizzeria Uno units resulting from the addition of 9 restaurants during the past
four quarters. Comparable-store sales for the third quarter were .7% above the
same period last year. Average weekly sales, which includes sales at comparable
stores as well as new units, were 2.0% below last year, reflecting
lower-than-average sales levels for the 13 newest units opened during the past
five quarters, which are not included in the comparable-store base.
Year-over-year percentage increases and decreases in comparable-store sales and
average weekly sales for the past four quarters are as follows:
Sales Sep 1995 Dec 1995 Mar 1996 Jun 1996
- ---------------- -------- -------- -------- --------
Comparable-store (.1)% (4.6)% (1.2)% .7%
Average weekly (2.6)% (7.6)% (4.4)% (2.0)%
Consumer product sales decreased 8.7% for the second quarter this year to
$2,118,000 from $2,320,000 last 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.
Franchise income, which includes royalty income and initial franchise fees,
remained virtually flat at $1,018,000 versus $1,040,000 last year. Royalty
income remained relatively stable at $978,000 this year compared to $994,000
last year. Initial franchise fees amounted to $40,000 this year compared to
$45,000 last year.
Operating income was $2,963,000, which represents an operating margin of 6.6%.
Last year's operating income was $3,527,000, generating an operating margin of
8.5%. Cost of food and beverage as a percentage of restaurant and consumer
product sales increased to 26.5% compared to 25.5% last year. This increase was
due primarily to higher cheese costs, but also reflects changes in menu products
and menu pricing intended to enhance customers' value perception. Labor costs
decreased to 30.3% as a percentage of restaurant and consumer product sales from
30.8% in the prior year due to lower expenses associated with improved claims
experience for workers' compensation and health insurance. Occupancy costs rose
as a percentage of restaurant and consumer product sales to 15.4% from 14.5%
primarily due to lower average weekly sales levels at new units. Other operating
costs increased to 9.5% as a percentage of restaurant and consumer product sales
from 9.2% last year due primarily to the effect of lower average weekly sales on
fixed expenses. General and administrative expenditures as a percentage of total
revenues increased to 6.7% from 6.4% last year as a result of less leverage
resulting from the Company's slower rate of new unit growth this year.
Depreciation and amortization expenses as a percentage of restaurant and
consumer product sales decreased to 7.0% from 7.3% last year due primarily to
lower pre-opening cost amortization associated with the Company's slower rate of
new unit growth this year.
Other expense of $655,000 increased from $587,000 last year due to higher
interest expense related to the Company's increased debt level this year. The
effective tax rate of 36% for the quarter compared favorably to last year's rate
of 37% due to generally lower state income taxes. Net income decreased from
$1,852,000 last year to $1,477,000 this year based on the factors noted above.
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THIRTY-NINE WEEKS ENDED JUNE 30, 1996 COMPARED TO THIRTY-NINE WEEKS ENDED
JULY 2, 1995
39 Weeks Ended
-----------------------
6/30/96 7/2/95
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REVENUES:
Restaurant sales 92.4% 91.5%
Consumer product sales 5.2 5.8
Franchise income 2.4 2.7
----- -----
Total 100.0% 100.0%
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COSTS AND EXPENSES:
Cost of food & beverages (1) 26.3% 25.8%
Labor and benefits (1) 31.3 30.9
Occupancy costs (1) 16.0 14.7
Other operating costs (1) 9.4 8.9
General and administrative 7.3 7.2
Depreciation and amortization (1) 7.8 7.0
Asset Impairment Charge (1) 3.2
----- -----
Operating income .9 7.7
Other income (expense) (1.7) (1.3)
----- -----
Income before taxes (.8) 6.4
Provision for income taxes (.3) 2.4
----- -----
Net income (.5)% 4.0%
===== =====
(1) Percentage of restaurant and consumer product sales
Total revenue increased 9.5% to $125.5 million from $114.7 million last year.
Company-owned restaurant sales rose 10.5% to $115.9 million from $104.9 million
last year due primarily to 17.1% growth in store operating weeks of full-service
Pizzeria Uno units resulting from the addition of 9 restaurants during the past
four quarters. Comparable-store sales for Uno units for the first three quarters
of the fiscal year were 1.6% 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 4.6% below last year.
Consumer product sales decreased 2% to $6,557,000 from $6,673,000 for the first
nine months this year compared to the same period last year. Sales to American
Airlines have declined, due probably to a reduction of the number of flights on
which food service is offered. This sales decline was mostly offset by 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.
Franchise income, which includes royalty income and initial franchise fees was
virtually unchanged from last year.
The Company's operating loss of $1,152,000 includes a charge for asset
impairment of $3,937,000 in connection with the adoption of SFAS 121 during the
second fiscal quarter. 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 $5,089,000,
which represents an operating margin of 4.1%. Last year's operating income was
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$8,868,000, generating an operating margin of 7.7%. 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 26.3% compared to 25.8% last year. This increase was due
primarily to higher cheese costs, but also reflects changes in menu products and
menu pricing intended to enhance customers' value perception. Labor costs
increased to 31.3% as a percentage of restaurant and consumer product sales from
30.9% in the prior year due to additional training costs associated with the
introduction of a revised menu during the first fiscal quarter. Occupancy costs
rose as a percentage of restaurant and consumer product sales to 16.0% from
14.7% primarily due to lower sales levels at comparable stores and new units.
Other operating costs increased to 9.4% from 8.9% last year due primarily to
higher advertising expenditures associated with the roll-out of the new menu.
General and administrative expenditures as a percentage of total revenues
remained virtually unchanged. Depreciation and amortization expenses as a
percentage of restaurant and consumer product sales increased to 7.8% from 7.0%
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 a higher rate of unit growth.
Other expense of $2,121,000 increased from $1,541,000 last year due partly to a
net loss of $282,000 for the disposition of various fixed assets. In addition,
the Company incurred higher interest expense relating to the increased level of
debt used to fund the Company's expansion plan and its ownership of an
increasing number of restaurant properties. The effective tax rate of 36% for
the first three quarters of the fiscal year compared favorably to last year's
rate of 37% due mostly to lower state income taxes.
LIQUIDITY AND SOURCES OF CAPITAL
The following table presents a summary of the Company's cash flows for the
period ended June, 1996.
(In Thousands)
Net cash provided by operating activities $ 10,559
Net cash used in investing activities (18,799)
Net cash provided by financing activities 7,104
--------
Increase (Decrease) in cash ($ 1,136)
========
Historically, the Company had 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 nine months of fiscal
1996, the Company's investment in property, equipment and leasehold improvements
was $18.9 million.
The Company currently plans to open seven restaurants in fiscal 1996, five of
which were open by the third quarter. The average cash investment required to
open a full service Pizzeria Uno restaurant, excluding land and pre-opening
costs, is approximately $1.6 million.
As of June 30, 1996, the Company had outstanding indebtedness of $38.1 million
under its $50 million unsecured revolving credit facility and $1,277,000 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 the development of additional restaurants, and
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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 August 8, 1996 the
Company has repurchased a total of 1,321,600 shares of its Common Stock at an
average price of $7.14 per share.
The Company believes that existing cash balances, cash generated from operations
and borrowing under its revolving line of credit will be sufficient to fund the
Company's capital requirements through fiscal 1997.
The Company is currently obligated under 86 leases, including 83 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.
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
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Statement re: computation of per share earnings
(b) Reports on Form 8-K
Uno Restaurant Corporation did not file any reports on
Form 8-K during the third fiscal quarter.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNO RESTAURANT CORPORATION
(Registrant)
Date: August 12, 1996 By: /s/ Aaron D. Spencer
------------------- ---------------------
Aaron D. Spencer
Chairman and
Chief Executive Officer
Date: August 12, 1996 By: /s/ Robert M. Brown
------------------- --------------------
Robert M. Brown
Senior Vice President-Finance,
and Chief Financial Officer
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