FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For Quarterly period ended April 3, 1994
[ ] 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: 1-6192
GROUND ROUND RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
New York 13-5637682
(State or other jurisdiction of incorporation or organization) (I.R.S.
Employer Identification No.)
35 Braintree Hill Office Park, Braintree, Massachusetts 02184
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (617) 380-3100
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 [ ]
Number of shares of Common Stock, $ .1667 par value outstanding as of
May 9, 1994: 11,113,269
<PAGE>
<TABLE>
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
As of April 3, 1994 and October 3, 1993
(Dollars in thousands, except per share amounts)
<CAPTION>
1994 1993
(Unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 3,571 $ 1,262
Receivables, net of allowances
uncollectible accounts of $221 and $95
in 1994 and 1993, respectively 1,567 1,359
Inventories 2,662 2,511
Prepaid expenses and other current assets 2,514 6,413
Total current assets 10,314 11,545
Property and equipment:
Land 11,434 11,434
Buildings and leasehold improvements 112,545 106,869
Machinery and equipment 37,640 35,439
161,619 153,742
Accumulated depreciation and amortization 38,824 33,211
Property and equipment, net 122,795 120,531
Other assets 20,192 19,737
$ 153,301 $ 151,813
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 5,986 $ 7,871
Accrued expenses 15,420 15,105
Income taxes 554 69
Current portion of long-term debtations
and capital lease obligations 1,020 1,055
Total current liabilities 22,980 24,100
Long-term debt and capital lease obligations
obligation 58,802 59,250
Deferred income taxes 2,758 2,744
Other long-term liabilities 6,931 7,082
</TABLE>
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<TABLE>
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
As of April 3, 1994 and October 3, 1993
(Dollars in thousands, except per share amounts)
<CAPTION>
<S> <C> <C>
Stockholders' equity:
Preferred Stock, undesignated, par
value $100 per share;authorized
30,000 shares; none issued
Common Stock, par value $.1667 per share:
authorized 35,000,000 shares in 1994
and 15,000,000 shares in 1993; issued
11,113,000 in 1994 and 11,099,000
shares in 1993 1,852 1,850
Additional paid-in capital 57,629 57,572
Retained earnings (accumulated deficit) 2,491 (597)
61,972 58,825
Deferred Officer Compensation (142) (188)
Total stockholders' equity 61,830 58,637
$ 153,301 $ 151,813
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
April 3, April 4, April 3, April 4,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenue $ 59,885 $ 56,389 $ 122,084 $ 118,620
Costs and expenses:
Cost of products sold 50,485 46,966 101,953 98,468
Selling, general and
administrative 3,672 3,965 7,801 8,536
Depreciation and 3,367 2,651 6,636 5,496
amortization
Interest expense 979 999 2,055 2,174
Other (income)expense (902) 4 (901) 43
57,601 54,585 117,544 114,717
Income before taxes 2,284 1,804 4,540 3,903
Income taxes 730 577 1,452 1,249
Net income $ 1,554 $ 1,227 $ 3,088 $ 2,654
Weighted average common 11,113 11,085 11,106 11,074
shares outstanding
Net income per $ .14 $ .11 $ .28 $ .24
common share
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended April 3, 1994 and April 4, 1993
(Dollars in thousands)
(Unaudited)
<CAPTION>
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,088 $ 2,654
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 6,801 5,696
Deferred taxes 14 270
(Gain) Loss on disposition of
assets (1,542) 43
Other 46
Change in operating assets and
liabilities:
Accounts receivable (139) 162
Inventories and prepaid expenses 3,748 (774)
Accounts payable and other
liabilities (1,093) (3,523)
Net cash provided by 10,923 4,528
operating activities
Cash flows from investing activities:
Purchase of property and equipment (8,664) (5,051)
Proceeds on sale of property & equipment 1,950
Purchase of liquor license (181) (160)
Deposits received (paid) (101) 20
Pre-opening costs (532) (130)
Net cash used in investing activities (7,528) (5,321)
Cash flows from financing activities:
Proceeds from long-term borrowings 700 4,000
Payments of long-term borrowings (1,182) (3,113)
Payments of deferred debt costs (604) (57)
Net cash (used in) provided by
financing activities (1,086) 830
Net increase in cash 2,309 37
Cash and cash equivalents at
beginning of period 1,262 2,220
Cash and cash equivalents at
end of period $ 3,571 $ 2,257
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
GROUND ROUND RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the periods ended April 3, 1994 and April 4, 1993
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of Management, the accompanying unaudited Consolidated
Financial Statements contain all adjustments, which are of a normal
recurring nature, necessary to present fairly the Company's financial
position as of April 3, 1994 and the results of operations for the 13-week
and 26-week periods ended April 3, 1994 and the 13-week and 27-week
periods ended April 4, 1993. These financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such regulations, although the Company believes the disclosures provided
are adequate to prevent the information presented from being misleading.
It is suggested that these financial statements be read in conjuction with
the financial statements and notes thereto included in the Company's annual
report on Form 10-K for the year ended October 3, 1993 and Form 10-Q for
the quarterly period ended January 2, 1994.
Certain items in specific captions in the accompanying Consolidated
Financial Statements have been reclassified for comparative purposes.
2. DEFERRED PRE-OPENING COSTS
Pre-opening costs consist of incremental amounts directly associated with
opening a new restaurant. These costs, which principally include initial
purchases of expendables and expenses of the restaurant staff, hired to
operate the restaurant upon opening, for the training period before the
restaurant opens, are capitalized and amortized for all restaurants opened
in fiscal 1994 over the twelve-month period following the restaurant
opening. For all restaurants opened prior to fiscal 1994, these costs are
amortized over a 24-month period. The impact of the change in
amortization period was not material on the financial statements for the
quarter and six months ended April 3, 1994.
3. COST OF PRODUCTS SOLD
<TABLE>
Cost of products sold comprises the following:
<CAPTION>
Three Months Ended Six Months Ended
April 3, April 4, April 3, April 4,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Food and beverage $ 19,107 $ 17,734 $ 38,829 $ 37,015
costs
Labor Costs 19,110 17,733 38,576 37,568
Other Costs 12,268 11,499 24,548 23,885
$ 50,485 $ 46,966 $ 101,953 $ 98,468
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Ground Round Restaurants, Inc. (the "Company") operated 167 and franchised 45
family-oriented, full service casual dining restaurants at April 3, 1994.
Fiscal year 1994 will have 52 weeks as compared with 53 weeks in 1993. The
six months ended April 3, 1994 is comprised of 26 weeks while the six months
ended April 4, 1993 is comprised of 27 weeks. The three month periods ended
April 3, 1994 and April 4, 1993 are each comprised of 13 weeks.
COMPARATIVE RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS
ENDED APRIL 3,
1994 AND APRIL 4, 1993
<TABLE>
The following table sets forth the percentages which the items in the Company's
Consolidated Statements of Operations bear to total revenue or
Company-operated restaurant revenue, as indicated:
<CAPTION>
Three Months Ended Six Months Ended
April 3, April 4, April 3, April 4,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Restaurant revenue 99.2% 99.0% 99.1% 99.0%
Franchise revenue .8 1.0 .9 1.0
Total Revenue 100.0 100.0 100.0 100.0
Cost of products sold (1) 85.0 84.2 84.2 83.9
Selling, general & 6.1 7.0 6.4 7.2
administrative
Depreciation and amortization 5.6 4.7 5.4 4.6
Interest expense, net 1.6 1.8 1.7 1.8
Other (income) expense (1.5) 0 (.7) 0
Income before taxes 3.8 3.2 3.7 3.2
Income taxes 1.2 1.0 1.2 1.0
Net Income 2.6% 2.2% 2.5% 2.2%
(1)As a percentage of Company-operated restaurant revenue.
</TABLE>
<PAGE>
Restaurant Revenue: Restaurant revenue totalled $59.4 million for the
quarter and $121.0 million for the six months ended April 3, 1994,
respectively, versus $55.8 million and $117.4 million for the
quarter and six months ended April 4, 1993. Restaurant revenue is comprised
of comparable restaurant revenue (revenue from restaurants open during all of
the most recently completed fiscal year) and non-comparable restaurant revenue.
Comparable restaurant revenue decreased .7% and .5% for the quarter and six
months ended April 3,1994, respectively, versus the same periods in the prior
year. This decrease is principally attributable to record snowfalls and cold
temperatures in January, which caused the Company to suffer a 7.8% decrease
in comparable restaurant sales levels. Comparable restaurant sales increased
2.7% and 2.3% in February and March of 1994, respectively, over the same months
in 1993.
Non-comparable restaurant revenue increased by $4.0 million in the quarter
and $8.0 million in the six months ended April 3, 1994, respectively, over
the same periods ended April 4, 1993. This increase is due to eight new
restaurants built in late 1993 and three new restaurants opened to date in
fiscal 1994.
Changes in sales mix have continued to result in an increased average guest
check of $8.31 for the six months ended April 3, 1994, versus $7.81 for the
six months ended April 4, 1993. An insignificant amount of this increase is
due to price increases on existing menu items.
Franchise Revenue. Net revenue from franchise restaurants (consisting of
royalties and franchise fees) were approximately $487,000 for the quarter and
$1.1 million for the six months ended April 3, 1994, respectively, versus
approximately $590,000 and $1.2 million for the quarter and ended
April 4, 1993. No initial franchise fees were recognized during the quarter
and fees for one were included in the six months ended April 3, 1994 versus
fees for one in the second quarter and three in the six months ended
April 4, 1993, respectively.
<PAGE>
Cost of Products Sold. Cost of products sold consists of food and beverage
costs and restaurant operating expenses. Food and beverage costs totalled
32.2% and 32.1% of Company-operated restaurant revenue in the second quarter
and six months ended April 3, 1994, respectively, versus 31.8% and 31.5% for
the second quarter and six months ended April 4, 1993. Restaurant operating
expenses were 52.8% and 52.1% of Company-operated restaurant revenue in the
second quarter and six months ended April 3, 1994, respectively, as compared
with 52.4% in both the second quarter and six months ended April 4, 1993.
Food and beverage costs as a percentage of Company-operated restaurant
revenue increased by .4% and .6% for the second quarter and six months ended
April 3, 1994. This increase is due largely to higher beef costs, changes in
overall sales mix and waste resulting from weather-related sales shortfalls
in January. Additionally, the Company has not implemented any systemwide price
increases in the past year to pass on inflationary product costs.
Restaurant operating expenses as a percentage of Company-operated restaurant
revenue increased .4% in the second quarter of 1994 versus 1993, but
decreased .3% for the six month period. The increase in the second quarter of
1994 is principally due to the weather-related sales shortfalls in January
resulting in fixed costs increasing as a percentage of revenue. Labor costs
continue to hold at lower levels than in the prior year, partly as a result
of a change in the Company's policy on paying accrued vacation to employees
upon termination of employment.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were 6.1% and 6.4% of total revenue for the second
quarter and six months ended April 3, 1994, respectively, as compared with
7.0% and 7.2% for the same periods in 1993. Selling expenses,comprised of
advertising and point of purchase materials, development and production
costs, were .4% and .5% of revenue in the quarter and six months ended
April 3, 1994, versus .7% and .8% for the quarter and six months ended
April 4, 1993. While the first quarter of 1994 included television and
radio image-oriented campaigns, the second quarter of 1994 and 1993 consisted
primarily of point of purchase and restaurant-directed advertising.
General and administrative costs, comprised of restaurant manager training,
regional overhead, and corporate administrative costs, were 5.7% and 5.9% in
the second quarter and six months ended April 3, 1994, respectively, versus
6.3% and 6.4% for the same periods in 1993. For the quarter and six month
periods, the Company has experienced lower corporate payroll and bonus than
in the comparable periods in 1993. These reductions have been partially
offset by increased training and recruitment costs associated largely with
hiring of new restaurant management, as well as increased expenditures to
support new restaurant development programs.
<PAGE>
Depreciation and Amortization. Depreciation and amortization increased to 5.6%
and 5.4% of total revenue for the second quarter and six months ended
April 3, 1994, respectively, from 4.7% and 4.6% for the second quarter and six
months ended April 4, 1993. This increase is the result of eight new
restaurants opened in fiscal 1993, three new restaurants opened in fiscal
1994 and forty-nine restaurants remodeled since fiscal 1992.
Interest Expense. Interest expense decreased .2% in the second quarter and .1%
for the six months ended April 3, 1994 over the same periods in 1993. While
debt balances are above 1993 levels due to borrowings for new store
construction in fiscal 1993 and 1994, the termination of a swap agreement in
late fiscal 1993 resulted in lower effective interest rates.
Other Income and Expense. During the second quarter of 1994, the Company
completed a sale of one location for approximately $2.0 million and realized
a pretax gain of approximately $1.4 million. This gain was partially offset
by the write-off of $.6 million in expenses associated with a proposed public
offering of convertible subordinated debentures which the Company withdrew
due to market conditions.
Income Taxes. The Company's effective income tax rate was 32% in the second
quarter and first six months of 1994 and 1993.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
A significant amount of the Company's restaurant sales are for cash, with the
remainder made with credit cards that are generally realized in cash within a
few days. Because the Company does not have significant accounts receivable
or inventories and pays its expenses within normal terms the Company operates
with working capital deficits as is typical in the restaurant industry.
The Company had working capital deficits of $12.7 million and $12.6 million
as of April 3, 1994 and October 3, 1993, respectively.
Net cash provided by operating activities totalled $10.9 million in the first
six months of 1994 as compared with $4.5 million in the first six months of
1993. This increase is primarily the result of an irrevocable letter of
credit exchanged for cash insurance reserves related to the Company's casualty
insurance program. The Company had capital expenditures totalling $9.4
million and $5.3 million for the six months ended April 3, 1994 and April 4,
1993, respectively, primarily for new restaurant construction, restaurant
remodeling and capital maintenance.
The Company has a $70 million credit facility, with availability of $68.1
million after a prepayment made during the second quarter of 1994, comprising
$51.8 million in term debt and $16.3 million as a revolving facility to fund
operations and new store development. This revolving facility converts to a
term debt on October 8, 1995. Principal payments under these facilities
begin in October 1995 and are scheduled through July 2000. The credit
facilities contain certain restrictions on the conduct of the Company's
business.
<PAGE>
II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The following nominees for the Board of Directors, each to be elected
for the ensuing fiscal year and until his successor is elected and
qualified, were elected at the Annual Meeting of Shareholders held on
January 14, 1994:
FOR WITHHELD
Michael P . O'Donnell 9,347,453 545,727
J. Eric Hanson 9,347,553 545,627
Robert E. Lee 9,348,553 544,627
David J.P. Meachin 9,348,553 544,627
Stanley J. Moss 9,346,056 547,127
Thomas J. Russo 9,348,553 544,627
Daniel R. Scoggin 9,348,553 544,627
At such Annual Meeting, the shareholders approved a proposal to amend
the Company's Restated Certificate of Incorporation to increase the
number of shares of Common Stock which the Company is authorized to issue
to 35,000,000 from 15,000,000:
FOR AGAINST ABSTAIN
9,297,983 581,438 13,759
No other matters were submitted to a vote of security holders.
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) No reports of Form 8-K were filed during the first quarter, 1994.
<PAGE>
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.
GROUND ROUND RESTAURANTS, INC.
Date: _________________ By:/s/ Michael R. Jorgensen
Senior Vice President, Chief Financial
Officer and Treasurer
duly authorized
