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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 29, 1998
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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 May 1, 1998, 10,908,281 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
ITEM 1. FINANCIAL STATEMENTS............................3
Consolidated Balance Sheets --
March 29, 1998 and September 28, 1997...........3
Consolidated Statements of Income --
Thirteen and twenty-six weeks ended
March 29, 1998 and March 30, 1997...............4
Consolidated Statements of Cash Flows --
Twenty-six weeks ended March 29, 1998 and
March 30, 1997..................................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
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...............12
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3
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share data)
March 29, Sept. 28,
1998 1997
-------- --------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 1,801 $ 1,486
Royalties receivable 349 728
Consumer products receivable 499 844
Inventory 2,199 2,326
Deferred pre-opening costs 1,054 949
Prepaid expenses and other assets 2,187 1,959
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TOTAL CURRENT ASSETS 8,089 8,292
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Land 16,686 15,883
Buildings 27,635 25,265
Leasehold improvements 89,865 87,047
Equipment 51,251 49,802
Construction in progress 3,304 4,201
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188,741 182,198
Less allowance for depreciation and amortization 62,844 56,841
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125,897 125,357
OTHER ASSETS
Deferred income taxes 7,302 6,599
Royalty fee 199 241
Liquor licenses and other assets 3,256 3,243
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$144,743 $143,732
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 5,706 $ 6,966
Accrued expenses 7,674 7,563
Accrued compensation and taxes 2,389 2,641
Income taxes payable 649 2,076
Current portion of long-term debt and capital
lease obligations 4,066 3,132
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TOTAL CURRENT LIABILITIES 20,484 22,378
Long-term debt, net of current portion 43,648 42,516
Capital lease obligations, net of current portion 768 867
Other liabilities 7,225 7,091
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,
13,756,052 and 13,754,480 shares issued and out-
standing in Fiscal Years 1998 and 1997, respectively 138 138
Additional paid-in capital 53,813 53,803
Retained earnings 38,928 36,816
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92,879 90,757
Treasury Stock (2,850,697 and 2,790,597 shares at cost, in
Fiscal Years 1998 and 1997, respectively) (20,261) (19,877)
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TOTAL SHAREHOLDERS' EQUITY 72,618 70,880
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$144,743 $143,732
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CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share data)
Thirteen Weeks Ended Twenty-six Weeks Ended
---------------------- ----------------------
March 29, March 30, March 29, March 30,
1998 1997 1998 1997
-------- -------- -------- --------
REVENUES
Restaurant sales $43,272 $39,460 $84,883 $78,427
Consumer product sales 2,323 2,154 4,608 4,316
Franchise income 1,087 1,097 2,159 2,132
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46,682 42,711 91,650 84,875
COSTS AND EXPENSES
Cost of sales 11,835 10,485 23,166 21,188
Labor and benefits 14,547 13,294 28,296 26,193
Occupancy 6,970 6,507 13,960 13,081
Other operating costs 4,433 4,260 8,191 7,861
General and administrative 3,211 3,140 6,337 6,250
Depreciation and amortization 3,400 3,126 6,688 6,138
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44,396 40,812 86,638 80,711
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OPERATING INCOME 2,286 1,899 5,012 4,164
OTHER INCOME (EXPENSE) (935) (666) (1,858) (1,276)
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Income before income taxes 1,351 1,233 3,154 2,888
Provision for income taxes 447 418 1,042 981
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NET INCOME $ 904 $ 815 $ 2,112 $ 1,907
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BASIC EARNINGS PER SHARE $ .08 $ .07 $ .19 $ .16
======= ======= ======= =======
Weighted average shares outstanding 10,930 12,213 10,948 12,208
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DILUTED EARNINGS PER SHARE $ .08 $ .07 $ .19 $ .16
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Weighted average shares outstanding-
including common stock equivalents 10,955 12,271 10,988 12,275
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Twenty-six weeks Ended
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March 29, March 30,
1998 1997
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OPERATING ACTIVITIES
Net Income (Loss) $ 2,112 $ 1,907
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,743 6,190
Deferred income taxes (703) (725)
Provision for deferred rent 271 285
(Gain)Loss on disposal of equipment (1) (13)
Changes in operating assets and liabilities, net
of effects from business acquisitions:
Royalties\consumer product receivables 379 130
Inventory 127 69
Prepaid expenses and other assets (777) (2,174)
Accounts payable and other liabilities (1,417) 683
Income taxes payable (1,427) (1,087)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 5,307 5,265
INVESTMENT ACTIVITIES
Additions to property, equipment and
leasehold improvements (6,586) (8,488)
Proceeds from sale of fixed assets 1 1,101
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NET CASH USED FOR INVESTING ACTIVITIES (6,585) (7,387)
FINANCING ACTIVITIES
Proceeds from revolving credit agreement 31,215 32,809
Principal payments on revolving credit agreement
and capital lease obligations (29,248) (32,148)
Purchase of Treasury Stock (384) (18)
Exercise of stock options 10 117
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NET CASH PROVIDED BY FINANCING ACTIVITIES 1,593 760
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INCREASE (DECREASE) IN CASH 315 (1,362)
CASH AT BEGINNING OF PERIOD 1,486 1,828
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CASH AT END OF PERIOD $ 1,801 $ 466
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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 28, 1997.
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 - EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earnings per Share. Statement 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where necessary, restated to conform to the
Statement 128 requirements. Basic and diluted earnings per share were equivalent
to each other for the quarter ended March 29, 1998.
Thirteen Weeks Ended Twenty-six Weeks Ended
---------------------- ----------------------
March 29, March 30, March 29, March 30,
1998 1997 1998 1997
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Numerator for Basic Earnings
per Share:
Weighted average shares
outstanding 10,930,209 12,212,571 10,947,731 12,207,780
Common Stock equivalents:
Stock options 24,758 58,056 40,321 67,682
---------- ---------- ---------- ----------
Numerator for Diluted Earnings
per Share:
Weighted average shares
outstanding including common
stock equivalents 10,954,967 12,270,627 10,988,052 12,275,462
========== ========== ========== ==========
Net Income(Loss) $ 904,000 $ 815,000 $2,112,000 $1,907,000
========== ========== ========== ==========
Basic Earnings Per Share $ .08 $ .07 $ .19 $ .16
========== ========== ========== ==========
Diluted Earnings per Common
Share $ .08 $ .07 $ .19 $ .16
========== ========== ========== ==========
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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.
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:
THIRTEEN WEEKS ENDED MARCH 29, 1998 COMPARED TO THIRTEEN WEEKS ENDED
MARCH 30, 1997
13 Weeks Ended
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3/29/98 3/30/97
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REVENUES:
Restaurant sales 92.7% 92.4%
Consumer product sales 5.0 5.0
Franchise income 2.3 2.6
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Total 100.0% 100.0%
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COSTS AND EXPENSES:
Cost of food & beverages (1) 26.0% 25.2%
Labor and benefits (1) 31.9 31.9
Occupancy costs (1) 15.3 15.6
Other operating costs (1) 9.7 10.2
General and administrative 6.9 7.4
Depreciation and amortization (1) 7.5 7.5
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Operating income 4.9 4.4
Other income (expense) (2.0) (1.5)
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Income before taxes 2.9 2.9
Provision for income taxes 1.0 1.0
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Net income 1.9% 1.9%
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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 94 88
Franchised Uno's - full service 64 65
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Total revenue increased 9.3% to $46.7 million from $42.7 million last year.
Company-owned restaurant sales rose 9.7% to $43.3 million from $39.5 million
last year due primarily to 8.3% 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 second quarter were up 2.2%
from the same period last year. Average weekly sales, which includes sales at
comparable stores as well as new units, increased 2.3% during the second
quarter, reflecting higher-than-average sales levels for its newest prototype
units. These units generated sales volumes approximately 6% higher than our
comparable-store average for the quarter.
Consumer product sales increased 7.8% for the second quarter this year to
$2,323,000 from $2,154,000 last year. Sales for the frozen product category
increased as shipments to contract food service providers rose and initial
shipments of product to a regional restaurant chain began. Sales volumes within
our fresh refrigerated category and wholesale club accounts experienced modest
declines for the quarter.
Franchise income, which includes royalty income and initial franchise fees,
decreased slightly to $1,087,000 versus $1,097,000 last year. Royalty income
increased 6.3% to $1,087,000 this year compared to $1,022,000 last year. No
initial franchise fees were recorded this year compared to $75,000 last year.
Operating income was $2,286,000, which represents an operating margin of 4.9%.
Operating income for last year was $1,899,000, which represents an operating
margin of 4.4%.
Cost of food and beverage as a percentage of restaurant and consumer product
sales increased to 26.0% compared to 25.2% last year. This increase was due in
part to higher cheese costs, which were up approximately 11% over last years
levels, a shift in mix towards higher cost menu items and a higher cost of sales
in the consumer products segment. Labor costs were even at 31.9% as a percentage
of restaurant and consumer product sales as an increase in the average wage rate
was offset by increased productivity and lower benefit expense. Occupancy costs
declined as a percentage of restaurant and consumer product sales to 15.3% from
15.6% due to operating leverage gains from higher unit volumes. Other operating
costs decreased to 9.7% as a percentage of restaurant and consumer product sales
from 10.2% last year due primarily to lower advertising expenditures for the
period. General and administrative expenditures as a percentage of total
revenues decreased to 6.9% from 7.4% last year as a result of continuing cost
control measures and increased operating leverage. Depreciation and amortization
expense as a percentage of restaurant and consumer product sales was flat at
7.5% versus last year as slightly higher pre-opening cost amortization was
offset by lower depreciation expense caused by increased sales leverage.
Other expense of $935,000 increased from $666,000 last year. Interest expense
increased to $903,000 from $621,000 last year due to a slightly higher borrowing
rate and a higher level of debt. The increase in the debt level was a result of
the Company's share repurchase program completed in the fourth quarter of fiscal
1997. The effective tax rate of 33% for the quarter compared favorably to last
years tax rate of 34% due to the impact of various tax credits. Net income
increased to $904,000 from $815,000 last year based on the factors noted above.
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TWENTY-SIX WEEKS ENDED MARCH 29, 1998 COMPARED TO TWENTY-SIX WEEKS ENDED
MARCH 30, 1997
26 Weeks Ended
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3/29/98 3/30/97
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REVENUES:
Restaurant sales 92.6% 92.4%
Consumer product sales 5.0 5.1
Franchise income 2.4 2.5
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Total 100.0% 100.0%
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COSTS AND EXPENSES:
Cost of food & beverages (1) 25.9% 25.6%
Labor and benefits (1) 31.6 31.7
Occupancy costs (1) 15.6 15.8
Other operating costs (1) 9.2 9.5
General and administrative 6.9 7.4
Depreciation and amortization (1) 7.5 7.4
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Operating income 5.5 4.9
Other income (expense) (2.1) (1.5)
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Income before taxes 3.4 3.4
Provision for income taxes 1.1 1.2
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Net income 2.3% 2.2%
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(1) Percentage of restaurant and consumer product sales
Total revenue increased 8.0% to $91.7 million from $84.9 million last year.
Company-owned restaurant sales rose 8.2% to $84.9 million from $78.4 million
last year due primarily to 8.7% growth in store operating weeks of full-service
Pizzeria Uno units. Comparable-store sales for for the first half of the fiscal
year were 0.9% above the same period last year. During the same period, average
weekly sales, which includes sales at comparable stores as well as new units,
were up 1.5% above last year.
Consumer product sales increased 6.7% to $4,608,000 from $4,316,000 for the
first six months this year compared to the same period last year. Sales volumes
in the fresh retail and wholesale segments have declined due in part to a
reduction in promotional activities and a increase in competition in the
supermarket segment. Growth in the frozen products and contract food service
categories continues, as the Company continues to fill initial orders to
Sainsbury's Supermarket PLC and other food service providers.
Franchise income, which includes royalty income and initial franchise fees
increased 1.3% to $2,159,000 from $2,132,000 last year. Royalty income increased
6.4% as average weekly sales improved by 2.4% for the first six months of the
fiscal year. Due to the timing of new unit openings no initial franchise fees
were recorded this year compared to $102,500 last year.
Operating income was $5,012,000, which represents an operating margin of 5.5%.
Operating income for last year was $4,164,000, which represents an operating
margin of 4.9%.
Cost of food and beverage as a percentage of restaurant and consumer product
sales increased to 25.9% compared to 25.6% last year due to a shift in mix
towards higher cost menu items. Labor costs remained virtually unchanged at
31.6% this year compared to 31.7% last year as higher direct labor costs, driven
by an increase in the average wage rate, were offset by continued savings in
workers compensation and medical expense. Occupancy costs decreased as a
percentage of restaurant and consumer product sales to 15.6% from 15.8% due to
improved sales levels and an unusually mild winter season. Other operating costs
decreased slightly to 9.2% from 9.5% last year due primarily to lower
advertising expenditures. General and administrative costs as a percentage of
total revenues decreased to 6.9% from 7.4% last year as a result of continuing
cost control measures and increased sales leverage. Depreciation and
amortization expenses as a percentage of restaurant and consumer product sales
increased slightly to 7.5% from 7.4% last year due to slightly higher
pre-opening cost amortization.
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Other expense of $1,858,000 increased from $1,276,000 last year. Interest
expense increased to $1,787,000 from $1,239,000 last year due to a slightly
higher borrowing rate and a higher level of debt. The increase in the debt level
was a result of the Company's share repurchase program completed in the fourth
quarter of fiscal 1997. The effective tax rate of 33% for the first half of the
fiscal year compared favorably to last years tax rate of 34% due to the impact
of various tax credits. Net income increased to $2,112,000 from $1,907,000 last
year based on 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 29, 1998.
(In Thousands)
Net cash provided by operating activities $ 5,307
Net cash used in investing activities (6,585)
Net cash provided by financing activities 1,593
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Increase (Decrease) in cash $ 315
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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 six months of fiscal
1998, the Company's investment in property, equipment and leasehold improvements
was $6.6 million.
The Company currently plans to open approximately six restaurants in fiscal
1998, three of which were open by the second 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 March 29, 1998, the Company had outstanding indebtedness of $42.6 million
under its $55 million unsecured revolving credit facility, $963,000 in capital
lease obligations and $4,889,000 under its mortgage financing. Advances under
the revolving credit facility will accrue interest at the lender's prime rate
plus 0-50 basis points, 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 for working capital.
On April 22, 1998, the Board of Directors of the Company authorized the
repurchase of up to 1,000,000 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. During the first half of the fiscal year the Company has
repurchased 60,100 shares at an average price of $6.33. The Company currently
has 2,850,697 shares in its treasury account.
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 for the foreseeable future.
The Company is currently obligated under 92 leases, including 90 leases for
Company-owned restaurants, two leases for its executive offices. The Company is
currently negotiating the renewal of a lease for an office building containing
one of its restaurants and continues to pay rent on a tenancy at will basis in
the interim.
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.
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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
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None.
(b) REPORTS ON FORM 8-K
Uno Restaurant Corporation did not file any Reports on Form
8-K during the quarter ended March 29, 1998.
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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: May 8, 1998 By: /s/ Craig S. Miller
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Craig S. Miller
Chief Executive Officer
(Principal Executive Officer)
Date: May 8, 1998 By: /s/ Robert M. Vincent
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Robert M. Vincent
Senior Vice President-Finance,
and Chief Financial Officer
(Principal Financial Officer)
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