<PAGE> 1
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 1, 1995
[ ] 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 (I.R.S. Employer Identification No.)
incorporation or organization)
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, $ .16 2/3 par value outstanding as of
February 10, 1995: 11,114,371
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GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 1, 1995 AND OCTOBER 2, 1994
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1994
---- ----
(Unaudited)
ASSETS:
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,406 $ 1,457
Receivables, net of allowances for uncollectible
accounts of $301 and $276 in 1995 and 1994, respectively 1,343 1,511
Inventories 2,697 2,577
Prepaid expenses and other current assets 2,734 2,249
---------- ----------
Total current assets 8,180 7,794
Property and equipment:
Land 10,240 11,203
Buildings and leasehold improvements 119,292 120,034
Machinery and equipment 40,122 39,867
---------- ----------
169,654 171,104
Accumulated depreciation and amortization 45,972 43,531
---------- ----------
Property and equipment, net 123,682 127,573
Other assets 20,841 21,405
---------- ----------
$ 152,703 $ 156,772
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 6,608 $ 7,107
Accrued expenses 13,055 14,900
Income taxes 201
Current portion of long-term debt and capital lease obligations 2,612 902
---------- ----------
Total current liabilities 22,275 23,110
Long-term debt and capital lease obligations 54,131 57,868
Deferred income taxes 3,103 3,080
Other long-term liabilities 8,014 7,678
STOCKHOLDERS' EQUITY:
Preferred Stock, undesignated, par value $100 per share;
authorized 30,000 shares; none issued
Common Stock, par value $.16 2/3 per share: authorized 35,000,000
shares in 1995 and 1994; issued 11,114,000 in 1995 and
11,099,000 shares in 1994 1,852 1,852
Additional paid-in capital 57,631 57,631
Retained earnings 5,771 5,649
---------- ----------
65,254 65,132
Deferred Officer Compensation (74) (96)
----------- ----------
Total stockholders' equity 65,180 65,036
---------- ----------
$ 152,703 $ 156,772
========== ==========
</TABLE>
See notes to consolidated financial statements.
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GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
January 1, January 2,
1995 1994
---- ----
<S> <C> <C>
REVENUE $ 62,398 $ 62,199
--------- ---------
COSTS AND EXPENSES:
Cost of products sold 52,061 51,468
Selling, general and administrative 4,509 4,129
Depreciation and amortization 3,665 3,269
Interest expense, net 1,204 1,076
Other expense 780 1
--------- ---------
62,219 59,943
--------- ---------
Income before taxes 179 2,256
Income taxes 57 722
--------- ---------
NET INCOME $ 122 $ 1,534
========= =========
Weighted average common shares outstanding 11,114 11,099
NET INCOME PER COMMON SHARE $ .01 $ .14
========= =========
</TABLE>
See notes to consolidated financial statements.
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GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
January 1, January 2,
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 122 $ 1,534
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,746 3,349
Deferred taxes 23 26
Loss on disposition of assets 15
Other 22 23
Change in operating assets and liabilities:
Accounts receivable 168 (661)
Inventories and prepaid expenses (605) 4,248
Accounts payable and other liabilities 38 39
----- -------
Net cash provided by operating activities 3,514 8,573
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (4,413) (4,444)
Proceeds from sales of property and equipment 2,829
Deposits received 171 1,840
Purchase of liquor license (16)
Pre-opening costs (197) (332)
-------- -------
Net cash used in investing activities (1,626) (2,936)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 13,700 14,100
Payments of long-term borrowings (15,625) (15,521)
Payments of deferred debt costs (14) (721)
------- --------
Net cash used in financing activities (1,939) (2,142)
------ -------
NET INCREASE (DECREASE) IN CASH (51) 3,495
Cash and cash equivalents at beginning of period 1,457 1,262
------- --------
Cash and cash equivalents at end of period $ 1,406 $ 4,757
======== ========
</TABLE>
See notes to consolidated financial statements.
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GROUND ROUND RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR JANUARY 1, 1995 AND JANUARY 2, 1994
(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 Ground Round Restaurants,
Inc.'s (the "Company") financial position as of January 1, 1995 and the
results of operations for the 13 weeks ended January 1, 1995 and the 13
weeks ended January 2, 1994. 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 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 for the
training period before the restaurant opens, are capitalized and amortized
for all restaurants opened in fiscal 1994 over the 12 - month period
following the restaurant opening. For all restaurants opened prior to
fiscal 1994 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
Cost of products sold comprises the following:
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
January 1, January 2,
1995 1994
---- ----
<S> <C> <C>
Food and beverage costs $ 19,639 $ 19,722
Labor costs 20,070 19,466
Other costs 12,352 12,280
--------- ---------
$ 52,061 $ 51,468
========= =========
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company operated 160 and franchised 42 family-oriented, full service casual
dining restaurants at January 1, 1995.
For the purposes of this discussion and analysis, the 13-week period ended
January 1, 1995 and the 13-week period ended January 2, 1994 are referred to as
the first quarter of 1995 and 1994, respectively.
COMPARATIVE RESULTS OF OPERATIONS FOR THE FIRST QUARTER OF 1995 AND 1994
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:
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
January 1, January 2,
1995 1994
---- ----
<S> <C> <C>
Restaurant revenue 99.1% 99.1%
Franchise revenue 0.9 0.9
Total revenue 100.0 100.0
Cost of products sold (1) 84.2 83.5
Selling, general and administrative 7.2 6.6
Depreciation and amortization 5.9 5.3
Interest expense, net 1.9 1.7
Income before taxes .3 3.6
Income taxes .1 1.2
Net Income .2% 2.5%
<FN>
(1) As a percentage of Company-operated restaurant revenue.
</TABLE>
RESTAURANT REVENUE. Restaurant revenue totalled $61.9 and $61.6 million for the
first quarter of 1995 and 1994, respectively. Restaurant revenue is comprised
of comparable restaurant revenue (revenue generated from restaurants open
during all of both fiscal years) and non-comparable restaurant revenue.
Comparable restaurant revenue for the first quarter decreased by 2.5% from
$57.6 million in the first quarter of 1994 to $56.2 million in the first
quarter of 1995. The comparable restaurant revenue from remodeled locations
increased by .5%.
Non-comparable restaurant revenue increased by $1.7 million in the first
quarter of 1995 as a result of seven new restaurants opened during the last
three quarters of 1994 and one new restaurant opened in the first quarter of
1995. The first quarter of 1994 includes revenue from 11 restaurants which
were closed or sold during the 1994 fiscal year and 5 restaurants which were
sold or closed in the first quarter of 1995.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FRANCHISE REVENUE. The Company's franchise base consisted of 42 restaurants in
the first quarter of 1995 and 45 restaurants in the first quarter of 1994. The
first quarter of 1994 included initial franchisee fees for one new location.
COST OF PRODUCTS SOLD. Cost of products sold consists of both food and
beverage costs and restaurant operating expenses. Food and beverage costs
totalled 31.7% and 32.0% of Company-operated restaurant revenue in the first
quarter of 1995 and 1994, respectively. Restaurant operating expenses were
52.3% and 51.5% of Company-operated revenue in the first quarter of 1995 and
1994, respectively.
Food and beverage costs as a percentage of revenue decreased by .3% from the
first quarter of 1994 to the first quarter of 1995, due to lower product costs
and management's increased efforts on controlling waste and portions as the
Company introduced a new menu in the first quarter of 1995.
Restaurant operating expenses increased by .8% from the first quarter of 1994
to the first quarter of 1995 principally due to increases in labor costs of .6%
and real estate taxes of .3% offset by a decrease in local promotion expenses
of .1%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were 7.2% and 6.6% of total revenue in the first
quarter of 1995 and 1994, respectively. Selling expenses, comprised of
advertising, point of purchase materials, development and production costs,
were 1.3% and .6% of total revenue in the first quarter of 1995 and 1994,
respectively. The first quarter of 1995 included approximately $.8 million of
radio advertising and production costs as compared to $ .3 million of
advertising costs for television and radio in the first quarter of 1994.
General and administrative costs, comprised of restaurant manager training
expenses, regional overhead and corporate administrative costs were 5.9% and
6.0% of total revenue in the first quarter of 1995 and 1994, respectively. The
first quarter of 1995 reflects a decrease in corporate bonus expense of .3%
offset by an increase in plateware costs associated with the roll-out of the
new menu of .2%.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were
5.9% and 5.3% of total revenue in the first quarter of 1995 and 1994,
respectively. The increase is the result of nine new restaurants opened during
1994 and one in the first quarter of 1995, as well as 93 completed remodels as
of the first quarter of 1995 as compared to 38 completed remodels as of the
first quarter of 1994.
OTHER EXPENSE. The first quarter of 1995 reflects $.8 million in expenses
related to the termination of the Merger Agreement among The Company, GRR
Acquisition Corp. and GRR, Inc., which the parties entered into on
August 23, 1994. Developments in the high yield financing market prevented the
completion of the financing for the acquisition.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTEREST EXPENSE. Interest expense increased .2% of total revenue from the
first quarter of 1994 primarily as a result of higher interest rates. The
Company's weighted average borrowing rates were 7.1% and 5.2% for the first
quarter of 1995 and the first quarter of 1994, respectively.
INCOME TAXES. The Company's effective income tax rate was 32% in the first
quarter of 1995 and 1994.
NET INCOME. As a result of the above, the Company reported net income of $.1
million, or $.01 per share, in the first quarter of 1995, and $1.5 million, or
$.14 per share, in the first quarter of 1994.
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 $14.1 million and $15.3 million as of
January 1, 1995 and October 2, 1994, respectively.
Net cash provided by operating activities totalled $3.5 million in the first
quarter of 1995, and $8.6 million in 1994. The first quarter of 1994 included
$4.7 million related to the exchange of an irrevocable letter of credit for
cash casualty insurance reserves. The Company incurred capital expenditures
totalling $4.4 million and $4.4 million in 1995 and 1994, respectively,
primarily for new restaurant construction, restaurant remodeling and capital
maintenance. Cash flow from operations plus proceeds from sales of locations
funded 1995 capital expenditures and provided for the repayment of
approximately $2.0 million in long term borrowings.
On October 8, 1993, the credit facilities were amended to a $70 million
commitment with the aggregate balance of $53.7 million of the combined facility
balances on the date converted to term debt. The balance of $16.3 million is a
revolving facility to fund operations and new store development and 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.
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II. OTHER INFORMATION
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) The Company filed a report on Form 8-K dated November 22,
1994 to report under Item 5, "Other Events", the
amendment of the Agreement and Plan of Merger dated
August 23, 1994 among the Company, GRR Acquisition
Corp., and GRR, Inc.
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, 1995 By: /s/ Michael R. Jorgensen
------------------------
Senior Vice President, Chief Financial
Officer and Treasurer
duly authorized
