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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 29, 1997
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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 _______________
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 August 4, 1997, 10,963,883 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 --
June 29, 1997 and September 29, 1996............3
Consolidated Statements of Income --
Thirteen and thirty-nine weeks ended
June 29, 1997 and June 30, 1996.................4
Consolidated Statements of Cash Flows --
Thirty-nine weeks ended June 29, 1997 and
June 30, 1996...................................5
Notes to Consolidated Financial
Statements......................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.......................7
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISKS..................11
PART II. OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................12
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CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share data)
June 29, Sept.29,
1997 1996
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(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 816 $ 1,828
Royalties receivable 693 710
Consumer product receivable 558 322
Inventory 2,315 2,333
Deferred pre-opening costs 727 470
Prepaid expenses and other assets 2,342 2,267
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TOTAL CURRENT ASSETS 7,451 7,930
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Land 15,934 14,796
Buildings 25,029 22,037
Leasehold improvements 86,939 82,014
Equipment 48,352 45,690
Construction in progress 3,114 2,119
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179,368 166,656
Less allowance for depreciation and amortization 54,592 46,146
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124,776 120,510
OTHER ASSETS
Deferred income taxes 5,696 3,613
Royalty fee 262 324
Liquor licenses and other assets 2,735 2,568
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$ 140,920 $ 134,945
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,838 $ 6,009
Accrued expenses 11,197 5,163
Accrued compensation and taxes 2,402 2,187
Income taxes payable 833 1,581
Current portion of long-term debt and capital
lease obligations 366 178
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TOTAL CURRENT LIABILITIES 19,636 15,118
Long-term debt, net of current portion 37,673 37,085
Capital lease obligations, net of current portion 915 1,056
Other liabilities 4,999 4,550
SHAREHOLDERS' EQUITY
Preferred Stock, $1.00 par value, 1,000,000 shares
authorized, none issued
Common Stock, $.01 par value, 25,000,000 shares
authorized, 13,752,793 and 13,697,526 shares issued and out-
standing in Fiscal Years 1997 and 1996, respectively 138 137
Additional paid-in capital 53,756 53,509
Retained earnings 34,980 34,143
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88,874 87,789
Treasury Stock (1,582,973 and 1,500,000 shares at cost,in
Fiscal Years 1997 and 1996, respectively) (11,177) (10,653)
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TOTAL SHAREHOLDERS' EQUITY 77,697 77,136
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$ 140,920 $ 134,945
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CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share data)
Thirteen Weeks Ended Thirty-nine Weeks Ended
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June 29, June 30, June 29, June 30,
1997 1996 1997 1996
---- ---- ---- ----
REVENUES
Restaurant sales $ 41,987 $ 41,558 $ 120,414 $ 115,930
Consumer product sales 2,210 2,118 6,526 6,557
Franchise income 1,189 1,018 3,322 3,054
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45,386 44,694 130,262 125,541
COSTS AND EXPENSES
Cost of sales 11,118 11,579 32,307 32,255
Labor and benefits 13,803 13,216 39,996 38,285
Occupancy 6,825 6,732 19,905 19,633
Other operating costs 4,027 4,163 11,889 11,545
General and administrative 3,338 2,996 9,588 9,205
Depreciation and amortization 3,183 3,045 9,321 9,529
Asset impairment charge 4,000 4,000 3,937
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46,294 41,731 127,006 124,389
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OPERATING INCOME (LOSS) (908) 2,963 3,256 1,152
OTHER INCOME (EXPENSE) (711) (655) (1,987) (2,121)
-------- --------- --------- ---------
Income before income taxes (1,619) 2,308 1,269 (969)
Provision for income taxes (549) 831 432 (349)
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NET INCOME (LOSS) ($ 1,070) $ 1,477 $ 837 ($ 620)
======== ========= ========= =========
EARNINGS PER COMMON SHARE ($ .09) $ .12 $ .07 ($ .05)
======== ========= ========= =========
Weighted average shares outstanding 12,216 12,515 12,256 12,887
======== ========= ========= =========
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Thirty-nine Weeks Ended
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June 29, June 30,
1997 1996
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OPERATING ACTIVITIES
Net Income (Loss) $ 837 $ (620)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,401 9,605
Deferred income taxes (2,083) (2,486)
Provision for deferred rent 446 533
(Gain)\Loss on disposal of equipment (15) 282
Asset impairment charge 4,000 3,937
Changes in operating assets and liabilities,
net of effects from business acquisitions:
Royalties\consumer product receivables 17 84
Inventory 18 (228)
Prepaid expenses and other assets (1,385) (1,774)
Accounts payable and other liabilities 1,024 437
Income taxes payable (748) 789
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NET CASH PROVIDED BY OPERATING ACTIVITIES 11,512 10,559
INVESTMENT ACTIVITIES
Additions to property, equipment and
leasehold improvements (13,830) (18,935)
Proceeds from sale of fixed assets 1,103 136
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(12,727) (18,799)
NET CASH USED FOR INVESTING ACTIVITIES
FINANCING ACTIVITIES
Proceeds from revolving credit agreement 49,043 44,058
Principal payments on revolving credit agreement
and capital lease obligations (48,564) (30,544)
Purchase of Treasury Stock (524) (6,473)
Exercise of stock options 248 63
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NET CASH PROVIDED BY FINANCING ACTIVITIES 203 7,104
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INCREASE (DECREASE) IN CASH (1,012) (1,136)
CASH AT BEGINNING OF PERIOD 1,828 1,305
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CASH AT END OF PERIOD $ 816 $ 169
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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 September 29, 1996.
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 - ASSET IMPAIRMENT CHARGE
The company adopted Financial Accounting Standard No. 121 (SFAS 121),
"Accounting for the Impairment of Long-Lived Assets and For Long-Lived Assets to
be Disposed Of" during fiscal year 1996. During the third quarter of fiscal year
1997 in accordance with FAS 121, two Pizzeria Uno restaurants 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 by $4,000,000 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 29, 1997 COMPARED TO THIRTEEN WEEKS ENDED
JUNE 30, 1996
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
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6/29/97 6/30/96
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REVENUES:
Restaurant sales 92.5% 93.0%
Consumer product sales 4.9 4.7
Franchise income 2.6 2.3
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Total 100.0% 100.0%
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COSTS AND EXPENSES:
Cost of food & beverages (1) 25.2% 26.5%
Labor and benefits (1) 31.2 30.3
Occupancy costs (1) 15.4 15.4
Other operating costs (1) 9.1 9.5
General and administrative 7.4 6.7
Depreciation and amortization (1) 7.2 7.0
Asset impairment charge (1) 9.1
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Operating income (2.0) 6.6
Other income (expense) (1.6) (1.4)
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Income before taxes (3.6) 5.2
Provision for income taxes (1.2) 1.9
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Net income (2.4)% 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 90 84
Franchised Uno's - full service 65 61
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Total revenue increased 1.5% to $45.4 million from $44.7 million last year.
Company-owned restaurant sales rose 1.0% to $42 million from $41.6 million last
year due primarily to 7.6% growth in store operating weeks of full-service
Pizzeria Uno units resulting from the addition of seven restaurants during the
past four quarters. Comparable-store sales for the third quarter were 2.8% below
the same period last year. Average weekly sales, which includes sales at
comparable stores as well as new units, declined 2.5% during the third quarter,
reflecting higher-than-average sales levels for the seven newest units opened
during the past four quarters.
Consumer product sales increased 4.3% for the third quarter this year to
$2,210,000 from $2,118,000 last year. Sales for the frozen product category
continue to grow as shipments to contract food service account and American
Airlines rose for the quarter. Sales volumes within our fresh refrigerated
category experienced modest declines for the quarter, as supermarkets continue
to reduce their promotional activities.
Franchise income, which includes royalty income and initial franchise fees,
increased 16.8% to $1,189,000 versus $1,018,000 last year. Royalty income
increased 18.8% to $1,162,000 this year compared to $978,000 last year as a
result of seven new restaurant openings during the past four quarters. Sales for
these restaurants during the third quarter averaged approximately $2.1 million,
annualized. Initial franchise fees amounted to $27,500 this year compared to
$40,000 last year.
For the third fiscal quarter, the Company recorded an operating loss of 908,000
as a result of a $4,000,000 charge in accordance with SFAS 121. The Company
recorded this write-down for two full-service Pizzeria Uno units. The writedown
represents non-cash adjustments made to reduce assets to net realizable value
for each of these restaurants. Exclusive of the FAS 121 charge, operating income
for the period was $3,092,000, which represents an operating margin of 6.8%.
Last year's operating income was $2,963,000, which represents an operating
margin of 6.6%.
Cost of food and beverage as a percentage of restaurant and consumer product
sales decreased to 25.2% compared to 26.5% last year. This decline was due
primarily to lower cheese costs, but also reflects overall lower commodity costs
for many of our menu products. Labor costs increased to 31.2% as a percentage of
restaurant and consumer product sales from 30.3% in the prior year due
principally to full unit level management staffing and reduced operating
leverage as a result of lower sales levels. Occupancy costs was unchanged at
15.4% as a percentage of restaurant and consumer product sales from last year.
Other operating costs declined to 9.1% as a percentage of restaurant and
consumer product sales from 9.5% last year due primarily to lower advertising
expenditures for the period. General and administrative expenditures increased
as a percentage of total revenues to 7.4% from 6.7% last year due in part to the
costs of additional personnel in the franchise and operations areas and the
negative impact of operating leverage as a result of lower sales levels.
Depreciation and amortization expenses as a percentage of restaurant and
consumer product sales increased slightly to 7.2% from 7.0% last year.
Other expense of $711,000 increased from $655,000 last year due partially to
higher interest costs associated with the company's decision to purchase several
restaurant properties during the past four quarter. Net income from operations
for the quarter, excluding the SFAS 121 charge noted above, was $1,570,000.
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THIRTY-NINE WEEKS ENDED JUNE 29, 1997 COMPARED TO THIRTY-NINE WEEKS ENDED
JUNE 30, 1996
39 Weeks Ended
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6/29/97 6/30/96
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REVENUES:
Restaurant sales 92.4% 92.4%
Consumer product sales 5.0 5.2
Franchise income 2.6 2.4
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Total 100.0% 100.0%
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COSTS AND EXPENSES:
Cost of food & beverages (1) 25.5% 26.3%
Labor and benefits (1) 31.5 31.3
Occupancy costs (1) 15.7 16.0
Other operating costs (1) 9.4 9.4
General and administrative 7.4 7.3
Depreciation and amortization (1) 7.3 7.8
Asset impairment charge (1) 3.2 3.2
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Operating income 2.5 .9
Other income (expense) (1.5) (1.7)
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Income before taxes 1.0 (.8)
Provision for income taxes .3 (.3)
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Net income .7% (.5)%
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(1) Percentage of restaurant and consumer product sales
Total revenue increased 3.8% to $130.3 million from $125.5 million last year.
Company-owned restaurant sales rose 3.9% to $120.4 million from $115.9 million
last year due primarily to 8.0% growth in store operating weeks of full-service
Pizzeria Uno units. Comparable-store sales for for the three quarter of the
fiscal year were 1.4% 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 1.0% below last year's levels.
Consumer product sales were virtually flat from a year ago at $6,526,000 from
$6,557,000 for the first nine months of this fiscal year. Sales volumes in the
fresh retail supermarket segment have declined, as competition for prepared food
items for consumption at home has increased, as well as supermarkets reducing
their overall promotional activities. The Company continues to experience growth
in the frozen products and contract food service categories. Several tests with
large food service customers are underway and the Company continues to implement
programs to supply guests at various hotels, including the DoubleTree Hotel
chain, with Uno branded pizzas and calzones.
Franchise income, which includes royalty income and initial franchise fees
increased 8.8% to $3,322,000 from $3,054,000 last year. Royalty income increased
8.3% as average weekly sales improved by 2.3% for the first nine months of the
fiscal year and operating weeks increased by 5.4%. Franchise fees increased to
$130,000 from $107,500 as seven new full-service units have been added during
the past four quarters.
Operating income for the first three quarter of the fiscal year was $3,256,000,
which represents an operating margin of 2.5%. Last year's operating income of
$1,152,000 represents an operating margin of 0.9%. Operating income for both
periods includes a charge for asset impairment of $3,937,000 in 1996 and
$4,000,000 in 1997, in connection with the Company's adoption of SFAS 121.
Cost of food and beverage as a percentage of restaurant and consumer product
sales decreased to 25.5% compared to 26.3% last year. This decline was a result
of lower cheese costs as well as other commodity costs having stabilized and/or
declined. Labor costs increased slightly to 31.5% this year compared to 31.3%
last year as gains in direct labor were offset by somewhat higher unit
management costs. Occupancy costs decreased as a percentage of restaurant and
consumer product sales to 15.7% from 16.0% due in part to savings generated by a
milder winter season. Other operating costs remained unchanged at 9.4% of
restaurant and consumer products sales. General and administrative expenditures
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increased by 4.2% from last year, and as a percentage of total revenue,
increased slightly to 7.4% from 7.3% in the prior year. Depreciation and
amortization expenses as a percentage of restaurant and consumer product sales
declined to 7.3% from 7.8% last year due primarily to lower pre-opening cost
amortization as the Company's unit growth rate has moderated.
Other expense of $1,987,000 decreased from $2,121,000 last year due principally
to a net loss of approximately $300,000 recorded in fiscal 1996 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 ownership of an increasing number of restaurant properties.
LIQUIDITY AND SOURCES OF CAPITAL
The following table presents a summary of the Company's cash flows for the
period ended June 29, 1997.
(In Thousands)
Net cash provided by operating activities $11,512
Net cash used in investing activities (12,727)
Net cash provided by financing activities 203
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Increase (Decrease) in cash ($1,012)
=========
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
1997, the Company's investment in property, equipment and leasehold improvements
was $13.8 million.
The Company will likely open seven restaurants in fiscal 1997, 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 29, 1997, the Company had outstanding indebtedness of $32.8 million
under its $50 million unsecured revolving credit facility, $1,101,800 in capital
lease obligations and $5,022,000 under its mortgage financing. 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 having a new revolving credit facility in place within the
next ninety days for the future development of additional restaurants and for
working capital.
On January 22, 1997, the Board of Directors of the Company authorized the
repurchase of up to 500,000 additional shares of the Company's Common Stock in
the market from time to time. The shares of Common Stock to be purchased will be
held in treasury and may be used by the Company from time to time for its
employee benefit plans. The Company currently has 1,582,973 shares in its
treasury account.
The Company announced on June 12, 1997, its intention to commence with a "dutch
auction" tender offer for up to 1,000,000 shares of its common stock. Under the
terms of the offer, the Company invited stockholders to tender their shares at
prices specified by the tendering stockholders within a range of $6.00 to $7.50
per share. The Company reserved the right to purchase more than 1,000,000
shares, and under certain circumstances, less than 1,000,000 share. On July 30,
1997, the Company announced final results of its tender offer. A total of
1,813,462 shares of common stock had been tendered. The Company will pay $7.00
per share for a total of 1,207,624 shares tendered at or below that price. The
Company will accept for payment all shares tendered at or below $7.00 per share
price, including the 207,624 shares tendered in excess of 1,000,000 shares so no
stockholders who tendered at or below that price will be pro rated. The
1,207,624 shares tendered at or below the $7.00 per share price which the
Company will accept for payment represents approximately 9.9% of common stock
shares outstanding.
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
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Company's capital requirements for the foreseeable future.
The Company is currently obligated under 89 leases, including 86 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
NOT-APPLICABLE
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PART II. OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
The Company agreed to a proposed consent order (the "agreement") with the
Federal Trade Commission (the "FTC") on October 23, 1996. The agreement was
announced by the FTC on January 22, 1997 for public comment and is expected to
become final 60 days later. The agreement is based on a complaint by the FTC
involving a print advertisement which ran once and a television commercial which
ran for two weeks. Although the FTC did not allege that the Company intended any
deception, it contended that portions of these advertisements misrepresented
that all of the Company's thin crust pizzas were low fat. The Company disputed
the FTC's interpretation of the commercial, and believed that it had a
reasonable basis for the advertising claims in question. However, rather than
contest this matter further, the Company chose to accept the proposed agreement,
which, among other things; imposes no fine; orders the Company to not
misrepresent the existence or amount of total fat or any other nutrient or
substance in any food product containing a baked crust; and requires the Company
to maintain substantiation for nutrition claims for its pizza products for five
years.
On January 23, 1997, a class action complaint (the "Complaint") was filed by
Rhonda D'Ambrosio against the Company and certain of its subsidiaries in the
Suffolk Superior Court of the Commonwealth of Massachusetts. The Complaint
alleges that the Company, through its advertisements, made false and misleading
representations about the fat content of the Company's thin crust pizzas. The
plaintiff seeks to have the action maintained as a class action and seeks to
recover unspecified damages allegedly sustained by the plaintiff and the other
members of the class. The class is alleged to include all purchasers of the
Company's "Thinzettas" thin crust pizzas who relied upon, and sustained damage
as a result of, the alleged misrepresentations. The Company intends to defend
vigorously against the Complaint.
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
-------------------
Uno Restaurant Corporation did not file any Reports on
Form 8-K during the quarter ended June 29, 1997.
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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 11, 1997 By: /S/ Craig S. Miller
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Craig S. Miller
Chief Executive Officer
Date: August 11, 1997 By: /S/ Robert M. Vincent
------------------ ----------------------
Robert M. Vincent
Senior Vice President-Finance,
and Chief Financial Officer
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