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 January 2, 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
February 15, 1994: 11,113,269
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<TABLE>
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
As of January 2, 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 $ 4,757 $ 1,262
Receivables, net of allowances for
uncollectible accounts of $141 and $95
in 1994 and 1993, respectively 2,052 1,359
Inventories 2,612 2,511
Prepaid expenses and other current assets 2,064 6,413
______ ______
Total current assets 11,485 11,545
Property and equipment:
Land 11,434 11,434
Buildings and leasehold improvements 109,485 106,869
Machinery and equipment 37,018 35,439
_______ _______
157,937 153,742
Accumulated depreciation and amortization 35,999 33,211
_______ _______
Property and equipment, net 121,938 120,531
Other assets 20,412 19,737
_______ _______
TOTAL ASSETS $ 153,835 $ 151,813
======= =======
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY:
<S> <C> <C>
Current liabilities:
Accounts payable $ 6,201 $ 7,871
Accrued expenses 17,871 15,105
Income taxes 741 69
Current portion of long-term debt and
capital lease obligations 1,033 1,055
______ ______
Total Current Liabilities 25,846 24,100
Long-term debt and capital lease
obligations 57,850 59,250
Deferred income taxes 2,770 2,744
Other long-term liabilities 7,175 7,082
</TABLE>
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<TABLE>
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
As of January 2, 1994 and October 3, 1993
(Dollars in thousands, except per share amounts)
<CAPTION>
1994 1993
____ ____
(Unaudited)
<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
11,099,000 in 1994 and 11,099,000
shares in 1993 $ 1,850 $ 1,850
Additional paid-in capital 57,572 57,572
Retained earnings (accumulated deficit) 937 (597)
_______ _______
60,359 58,825
Deferred Officer Compensation (165) (188)
_______ _______
Total stockholders' equity 60,194 58,637
_______ _______
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 153,835 $ 151,813
======= =======
<FN>
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<CAPTION>
13 Weeks Ended 14 Weeks Ended
January 2, January 3,
1994 1993
____ ____
<C> <C>
<S>
Revenue $ 62,199 $ 62,231
Costs and expenses:
Cost of products sold 51,468 51,502
Selling, general and administrative 4,129 4,571
Depreciation and amortization 3,269 2,845
Interest expense 1,076 1,175
Other (income) expense 1 39
______ ______
59,943 60,132
______ ______
Income before taxes 2,256 2,099
Income taxes 722 672
______ ______
Net income $ 1,534 $ 1,427
====== ======
Weighted average common
shares outstanding 11,099 11,064
Net income (loss) per common share $ .14 $ .13
====== ======
<FN>
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
13 Weeks Ended 14 Weeks Ended
January 2, January 3,
1994 1993
____ ____
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,534 $ 1,427
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 3,349 2,940
Deferred taxes 26 52
Loss on disposition of assets 15 45
Other 23
Change in operating assets and
liabilities:
Accounts receivable (661) (104)
Inventories and prepaid expenses 4,248 (431)
Accounts payable and other 39 (670)
liabilities
______ ______
Net cash provided by
operating activities: 8,573 3,259
Cash flows from investing activities:
Purchase of property and equipment (4,444) (2,929)
Deposits received (paid) 1,840 19
Notes receivable and working capital
loan collections 5
Pre-opening costs (332) (77)
_______ _______
Net cash used in investing activities (2,936) (2,982)
Cash flows from financing activities:
Proceeds from long-term borrowings 700 800
Payments of long-term borrowings (2,121) (1,009)
Payments of deferred debt costs (721) (27)
_______ _______
Net cash used in financing
activities (2,142) (236)
_______ _______
Net increase in cash 3,495 41
Cash and cash equivalents at
beginning of period 1,262 2,220
_______ _______
Cash and cash equivalents at
end of period $ 4,757 $ 2,261
======= =======
<FN>
See notes to consolidated financial statements.
</TABLE>
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GROUND ROUND RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For January 2, 1994 and January 3, 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 January 2, 1994 and the results of operations for the 13
weeks ended January 2, 1994 and the 14 weeks ended January 3, 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 conjunction 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.
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
first quarter of 1994.
3. COST OF PRODUCTS SOLD
<TABLE>
Cost of products sold comprises the following:
(Dollars in thousands)
<CAPTION>
13 Weeks Ended 14 Weeks Ended
January 2, January 3,
1994 1993
____ ____
<S> <C> <C>
Food and beverage costs $ 19,722 $ 19,281
Labor costs 19,466 19,835
Other costs 12,280 12,386
______ ______
$ 51,468 $ 51,502
====== ======
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Ground Round Restaurants, Inc. (the "Company") operated 166 and franchised 45
family- oriented, full service casual dining restaurants at January 2, 1994.
Fiscal year 1994 will have 52 weeks as compared with 53 weeks in 1993. For
the purposes of this discussion and analysis, the 13-week period ended January
2, 1994 and the 14-week period ended January 3, 1993 are referred to as the
first quarter of 1994 and 1993, respectively.
COMPARATIVE RESULTS OF OPERATIONS FOR THE FIRST QUARTER OF 1994 AND 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>
13 Weeks Ended 14 Weeks Ended
January 2, January 3,
1994 1993
____ ____
<S> <C> <C>
Restaurant revenue 99.1% 99.0%
Franchise revenue 0.9 1.0
Total revenue 100.0 100.0
Cost of products sold (1) 83.5 83.6
Selling, general and administrative 6.6 7.4
Depreciation and amortization 5.3 4.6
Interest expense, net 1.7 1.9
Income from continuing operations
before tax 3.6 3.4
Income taxes 1.2 1.1
Income from continuing operations 2.5% 2.3%
(1) As a percentage of Company-operated restaurant revenue.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESTAURANT REVENUE. Restaurant revenue totalled $61.6 million in both the
13-week quarter ended January 2, 1994 and the 14-week quarter ended
January 3, 1993. Restaurant revenue is comprised of comparable restaurant
revenue (revenue from restaurants open during all of both fiscal years) and
non-comparable restaurant revenue.
Comparable restaurant revenue increased in the first quarter of 1994 by .3%
from $56.5 million to $56.7 million. In the first quarter of 1994, the
Company implemented a radio and television image advertising campaign in
selected markets, whereas the first quarter of 1993 was characterized by
intensive point of purchase marketing efforts.
Non-comparable restaurant revenue for the first quarter of 1994 increased by
$4.0 million to $4.9 million, as a result of operations of eight new
restaurants opened during the fourth quarter of 1993.
The average guest check has continued to increase, from $7.70 in the first
quarter of 1993 to $8.26 in the first quarter of 1994, due primarily to
changes in sales mix and reduced discounting. An insignificant amount of
the increase in average guest check is due to price increases on existing
menu items, which were primarily limited to an increase in steak price in
response to higher purchase costs. In addition, there was a .3% decrease in
alcoholic beverage sales as a percentage of total restaurant revenue.
FRANCHISE REVENUE. The Company increased its franchise base by one restaurant,
opened in Minot, South Dakota in December. Revenue from franchised restaurants
(consisting of royalties and franchise fees) were approximately $567,000 and
$601,000 in the 13-week quarter of 1994 and the 14-week quarter of 1993,
respectively. The first quarter of 1994 included initial fees for one new
franchisee versus two in 1993.
COST OF PRODUCTS SOLD. Cost of products sold consists of both food and
beverage costs and operating expenses. Food and beverage costs totalled
32.0% and 31.3% of Company- operated restaurant revenue in the first quarter
of 1994 and 1993, respectively. Restaurant operating expenses were 51.5% and
52.3% of Company-operated restaurant revenue in the first quarter of 1994 and
1993, respectively.
Food and beverage costs as a percentage of Company-operated restaurant revenue
increased by .7% from the first quarter of 1993 to the first quarter of 1994,
due largely to higher steak costs and changes in overall sales mix towards
menu items with higher prices and dollar contributions but lower percentage
margins. In addition, the company has not implemented systemwide price
increases to pass on general product cost increases.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Restaurant operating expenses decreased .8% from the first quarter of 1993 to
the first quarter of 1994 principally due to decreases in labor costs, which
were offset in part by increases in rent and other fixed operating costs.
Labor costs have continued to trend below prior year levels and were further
reduced .4% by a change in the Company's policy with respect to paying
vacation to employees upon termination of employment. Rent increased .2% along
with other fixed operating costs as a percent of restaurant revenue due
primarily to the first quarter of 1994 including one less week than 1993 over
which to spread these costs.
SELLING, GENERAL and ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were 6.6% and 7.3% of total revenue in the first
quarter of 1994 and 1993, respectively. Selling expenses, comprised of
advertising and point of purchase materials, development and production costs,
were .7% and .9% of total revenue in the first quarter of 1994 and 1993,
respectively. The first quarter of 1994 included approximately $.3 million
of advertising costs for television and radio image campaigns undertaken in
selected markets, whereas 1993 included approximately $.6 million spent on
point of purchase and restaurant directed marketing. The campaigns were
concluded in the first quarter of 1994.
General and administrative costs, comprised of restaurant manager training,
regional overhead, and corporate administrative costs, were 5.9% and 6.4% of
total revenue in the first quarter of 1994 and 1993, respectively. The first
quarter of 1994 included lower corporate payroll and bonus than the comparable
quarter of 1993. These reductions have been partially offset by increased
training and recruitment costs associated largely with hiring of new restaurant
management, as well as the increased expenditures to support new store
development programs. In addition, the Company incurred training costs
associated with its newly implemented Managing General Partner plan. This plan
provides for more autonomy for select managers and offers them greater
potential compensation based upon their restaurant's financial performance.
DEPRECIATION and AMORTIZATION. Depreciation and amortization increased to
5.3% of total revenue in the first quarter of 1994 from 4.6% of total revenue
in the first quarter of 1993. This increase is the result of eight new
restaurants opened during the last quarter of 1993 and two in the first
quarter of 1994, as well as 34 restaurants remodelled since the end of the
first quarter of 1993.
INTEREST EXPENSE. Interest expense decreased .2% of total revenue from the
first quarter of 1993 primarily as a result of the termination of a swap
agreement in late 1993. Debt balances were somewhat higher in 1994 than in
1993 due to the new store development over the past year.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INCOME TAXES. The Company's effective income tax rate was 32% in the first
quarter of 1993 and 1994.
NET INCOME. As a result of the above, the Company reported net income of
$1.5 million, or $.14 per share, in the 13-week first quarter of 1994, and
$1.4 million, or $.13 per share, in the 14-week first quarter of 1993.
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 $14.4 million and $12.6 million as of
January 2, 1994 and October 3, 1993, respectively.
Net cash provided by operating activities totalled $8.6 million in the first
quarter of 1994, and $3.3 million in the first quarter 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 program. The Company had
capital expenditures totalling $4.8 million and $3.0 million in 1994 and 1993,
respectively, primarily for new restaurant construction, restaurant remodeling
and capital maintenance. The Company received a deposit of $1.9 million for
the sale of one restaurant which was concluded in the second quarter of 1994.
The Company has a $70 million credit facility comprising $53.7 million in term
debt and $16.3 million as a revolving facility to fund operations and new store
development. The Company prepaid $1.8 million of this facility with the
proceeds of the restaurant sale discussed above. This revolving facility
converts to 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.
NEW ACCOUNTING STANDARDS
The financial Accounting Standards Board has issued SFAS No. 106 "Employers'
Accounting for Postretirement Benefits other than Pensions," SFAS No. 109
"Accounting for Income Taxes" and SFAS No. 112 "Employers' Accounting for
Postemployment Benefits." SFAS No. 106 and SFAS No. 112 are not currently
applicable to the Company because the Company does not currently provide
post-retirement or post-employment benefits to its employees. The Company
implemented SFAS No. 109 in 1993.
<PAGE>
OTHER INFORMATION
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, 1993.
<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: February 15, 1994 By: /s/ Michael R. Jorgensen
Senior Vice President,
Chief Financial Officer
and Treasurer
duly authorized
