<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 December 31, 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 (I.R.S. Employer Identification No.)
of 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
9, 1996: 11,173,421
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND OCTOBER 1, 1995
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 2,388 $ 2,425
Receivables, net of allowances for uncollectible accounts
of $835 and $797 at December 31, 1995 and
October 1, 1995, respectively 1,378 1,147
Income tax refunds receivable 359 1,541
Inventories 2,551 2,511
Prepaid expenses and other current assets 1,631 2,115
--------- ---------
Total current assets 8,307 9,739
Property and equipment:
Land 9,902 10,240
Buildings and leasehold improvements 119,377 119,749
Machinery and equipment 40,347 40,399
--------- ---------
169,626 170,388
Accumulated depreciation and amortization 56,220 53,484
--------- ---------
Property and equipment, net 113,406 116,904
Other assets 18,451 18,713
--------- ---------
$ 140,164 $ 145,356
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 7,003 $ 5,933
Accrued expenses 11,100 11,190
Current portion of long-term debt and capital lease obligations 8,842 8,277
--------- ---------
Total current liabilities 26,945 25,400
Long-term debt and capital lease obligations 47,241 50,303
Deferred income taxes 117 1,120
Other long-term liabilities 9,196 8,849
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 at December 31, 1995 and October 1, 1995; issued 11,174,000
at December 31, 1995 and October 1, 1995 1,862 1,862
Additional paid-in capital 57,883 57,883
Accumulated deficit (3,080) (61)
--------- ---------
Total stockholders' equity 56,665 59,684
$ 140,164 $ 145,356
========= =========
</TABLE>
See notes to consolidated financial statements
1
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GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
December 31, January 1,
1995 1995
-------------- --------------
<S> <C> <C>
REVENUE $ 54,725 $ 62,398
-------- --------
COSTS AND EXPENSES:
Cost of products sold 50,223 52,061
Selling, general and administrative 4,056 4,509
Depreciation and amortization 3,213 3,665
Interest expense, net 1,258 1,204
Other expense 780
-------- --------
58,750 62,219
-------- --------
Income (loss) before taxes (4,025) 179
Income taxes (benefit) (1,006) 57
-------- --------
NET INCOME (LOSS) $ (3,019) $ 122
======== ========
Weighted average common shares outstanding 11,174 11,114
PER SHARE DATA:
Net income (loss) per common share $ (.27) $ .01
======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
December 31, January 1,
1995 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (3,019) $ 122
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 3,315 3,746
Deferred taxes (1,003) 23
Other, net 22
Change in operating assets and liabilities:
Accounts receivable (231) 168
Income tax refunds receivable 1,182
Inventories and prepaid expenses 444 (605)
Accounts payable and other liabilities 1,694 38
-------- --------
Net cash provided by operating activities 2,382 3,514
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (495) (4,413)
Proceeds from sales of property and equipment 658 2,829
Deposits received 171
Sale of liquor license 125
Purchase of liquor license (16)
Pre-opening costs (197)
-------- --------
Net cash provided by (used in) investing activities 288 (1,626)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 13,700
Payments of long-term borrowings (2,497) (15,625)
Payments of deferred debt costs (210) (14)
-------- --------
Net cash used in financing activities (2,707) (1,939)
-------- --------
NET DECREASE IN CASH (37) (51)
Cash and cash equivalents at beginning of period 2,425 1,457
-------- --------
Cash and cash equivalents at end of period $ 2,388 $ 1,406
======== ========
</TABLE>
See notes to consolidated financial statements.
3
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GROUND ROUND RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR DECEMBER 31, 1995 AND JANUARY 1, 1995
(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 December 31, 1995 and the
results of operations for the 13-week period ended December 31, 1995 and
the 13-week period ended January 1, 1995. 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 1, 1995.
Certain items in specific captions in the accompanying consolidated
financial statements have been reclassified for comparative purposes.
2. COST OF PRODUCTS SOLD
Cost of products sold comprises the following:
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
December 31, January 1,
1995 1995
-------------- --------------
<S> <C> <C>
Food and beverage costs $18,809 $19,639
Labor costs 19,329 20,070
Other costs 12,085 12,352
------- -------
$50,223 $52,061
======= =======
</TABLE>
3. LITIGATION
The Company has been named in a number of separate claims brought by former
employees alleging that the Company engaged in discriminatory practices
including those based on age, race or sex. Plaintiffs bringing claims of
employment discrimination, such as those being brought against the Company,
generally are entitled to have their claims tried by a jury and such claims
may result in punitive damage awards. Most of the proceedings against the
Company are still in the discovery phase. Management believes that the
discrimination claims against the Company are without merit and the Company
is actively defending the claims. Management does not expect that the
resolution of these matters will have a material adverse effect on the
consolidated financial position of the Company.
4
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The Company operated 147 and franchised 45 family-oriented, full service casual
dining restaurants at December 31, 1995.
For the purposes of this discussion and analysis, the 13-week period ended
December 31, 1995 and the 13-week period ended January 1, 1995 are referred to
as the first quarter of 1996 and 1995, respectively.
COMPARATIVE RESULTS OF OPERATIONS FOR THE FIRST QUARTER OF 1996 AND 1995
The following table sets forth the percentages which the items in the Company's
consolidated Statements of Operations bear to total revenue unless otherwise
indicated:
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
December 31, January 1,
1995 1995
-------------- --------------
<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) 92.6 84.2
Selling, general and administrative 7.5 7.2
Depreciation and amortization 5.9 5.9
Interest expense, net 2.3 1.9
Income (loss) before taxes (7.4) .3
Income taxes (benefit) (1.8) .1
Net income (loss) (5.6)% .2%
</TABLE>
(1) As a percentage of Company-operated restaurant revenue.
RESTAURANT REVENUE. Restaurant revenue totalled $54.2 and $61.9 million for the
first quarter of 1996 and 1995, 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 8.3% from $57.7
million in the first quarter of 1995 to $52.9 million in the first quarter of
1996, primarily due to decreased customer visits resulting from the reduced menu
offered by the Company throughout fiscal 1995. In order to increase the number
and frequency of guest visits, the Company determined to improve the quality and
variety of its food offering. In December 1995, the Company introduced a newly
designed menu featuring more than 150 offerings; however, due to the short time
the new menu was available in Company restaurants during the first quarter of
1996, it had limited effect on revenues for that period.
Non-comparable restaurant revenue decreased by $2.8 million in the first quarter
of 1996 as a result of the sale or closing of 11 restaurants during the last
three quarters of fiscal 1995 and the closing of two restaurants during the
first quarter of 1996. The first quarter of 1995 includes revenue from 16
restaurants which were closed or sold during the 1995 fiscal year and two
restaurants which were closed in the first quarter of 1996.
5
<PAGE> 7
FRANCHISE REVENUE. The Company's franchise base consisted of 45 restaurants in
the first quarter of 1996 and 42 restaurants in the first quarter of 1995. The
Company received no initial franchise fees during the first quarter of 1995 or
1996.
COST OF PRODUCTS SOLD. Cost of products sold consists of both food and beverage
costs and restaurant operating expenses. Food and beverage costs totalled 34.7%
and 31.7% of Company-operated restaurant revenue in the first quarter of 1996
and 1995, respectively. Restaurant operating expenses were 57.9% and 52.5% of
Company-operated restaurant revenue in the first quarter of 1996 and 1995,
respectively.
Food and beverage costs as a percentage of revenue increased by 3.0% from the
first quarter of 1995 to the first quarter of 1996, as the Company implemented a
substantially re-designed menu during the first week of December 1995. The
increase can be attributed to higher product costs associated with higher-priced
menu items and increases in portions on various menu items. Product costs were
also negatively impacted due to non-recurring training costs during the
implementation.
Restaurant operating expenses as a percent of restaurant revenue increased 5.4%
from the first quarter of 1995 to the first quarter of 1996 principally due to
increases in labor costs of 3.2% associated with increased kitchen staffing
during the implementation of the new menu, as the number of menu items increased
from approximately 50 items to over 150 items, as well as an increase in
management labor base pay in order to remain competitive within the industry.
Other costs increased by 2.2%, mainly as a result of costs associated with the
implementation of the new menu, and includes increases in menu design and
printing costs, plateware and supplies costs. In addition, maintenance costs for
snow plowing increased due to the heavy snow in the Northeast and Mid-Atlantic
regions during the month of December. Most other costs have remained at constant
dollar levels due to the fixed nature of certain costs associated with operating
a restaurant. These increases were partially offset by a decrease in percentage
(contingent) rent expense.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were 7.5% and 7.2% of total revenue in the first quarter
of 1996 and 1995, respectively. Selling expenses, comprised of advertising,
point of purchase materials, development and production costs, were .5% and 1.3%
of total revenue in the first quarter of 1996 and 1995, respectively. The
decrease in selling expense during the first quarter of 1996 was primarily due
to the Company's suspension of radio advertising. The first quarter of 1995
included approximately $ .8 million of advertising and production costs for
radio.
General and administrative costs, comprised of restaurant manager training
expenses, regional overhead and corporate administrative costs were 7.0% and
5.9% of total revenue in the first quarter of 1996 and 1995, respectively.
General and administrative costs have remained at a constant dollar level from
1995 to 1996, with increases in restaurant training costs during the first
quarter of 1996 being offset by a decrease in a one-time expense taken as part
of a new menu roll-out in the first quarter of 1995.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were 5.9%
of total revenue in both the first quarters of 1996 and 1995. The decrease in
depreciation and amortization on a constant dollar basis was due mainly to the
sale or closing of 18 restaurants during fiscal 1995 and the first quarter of
1996.
OTHER EXPENSE. The first quarter of 1995 reflects approximately $.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 and which was terminated on January 13, 1995.
INTEREST EXPENSE. Interest expense increased from the first quarter of 1995
primarily as a result of higher interest rates. The Company's weighted average
borrowing rates were 7.7% and 7.1% for the first quarter of 1996 and the first
quarter of 1995, respectively.
6
<PAGE> 8
INCOME TAXES. The Company's effective income tax rates were 25% and 32% during
the first quarter of 1996 and the first quarter of 1995, respectively.
NET INCOME. As a result of the above, the Company reported a net loss of $3.0
million, or $ (.27) per share, in the first quarter of 1996, and net income of
$.1 million, or $.01 per share, in the first quarter of 1995.
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 $18.6 million and $15.7 million as of December
31, 1995 and October 1, 1995, respectively.
Net cash provided by operating activities totalled $2.4 million in the first
quarter of 1996, and $3.5 million in in the first quarter of 1995. The Company
incurred capital expenditures totalling $.5 million for restaurant capital
maintenance during the first quarter of 1996, and $4.4 million for restaurant
capital maintenance, remodeling and new restaurant construction during the first
quarter of 1995. Cash flow from operations plus proceeds from sales of locations
of $.7 million funded 1996 capital expenditures and provided for the repayment
of approximately $2.5 million in long-term borrowings. On December 31, 1995 and
October 1, 1995, the Company's borrowings under its credit facilities with its
banks (the "Credit Facility") were approximately $51.8 million and $54.1
million, respectively. Quarterly principal payments under the Credit Facility
began in October 1995 and are scheduled through July 2000.
The Credit Facility obligates the Company to hedge its interest rate risk on
approximately 50% of its total term borrowings. The Company has entered into
interest rate cap agreements solely to hedge its interest rate risk as required
by the Credit Facility. In 1995 and 1994, the Company entered into interest rate
cap agreements under which the maximum base interest rate of its LIBOR-based
payments would have been 12.0% and 7.0%, respectively. The interest rate cap
agreements had an immaterial effect on the Company's interest expense during the
first quarter of 1996 and the first quarter of 1995.
The Credit Facility contains certain restrictions on the conduct of the
Company's business including a prohibition on the payment of dividends. In
addition, the Company is required to comply with certain financial covenants
relating to maintenance of net worth, debt leverage, earnings before interest,
taxes, depreciation and amortization, and maintenance capital expenditures.
As a consequence of the first quarter results, the Company was not in compliance
with the earnings before interest, taxes, depreciation and amortization covenant
as contained in the Fourth Amendment of the Credit Facility, dated November 22,
1995. The Company has obtained a waiver with respect to such non-compliance as
part of the Fifth Amendment to the Credit Facility, dated February 12, 1996,
which also permits the Company to retain the proceeds from the sales of two
restaurant locations until April 15, 1996. The Company has entered into
discussions with its banks to restructure its Credit Facility. While Management
believes its Credit Facility will be restructured in a manner that will be
satisfactory to the Company and its banks, there can be no assurance in this
regard.
The Company expects to incur approximately $3.4 million in capital expenditures
during the 1996 fiscal year. Based upon the Company's present plans, Management
believes that existing cash, cash flow from operations, and proceeds from the
sale of restaurant locations will be sufficient to meet operating needs, fund
anticipated capital expenditures and service debt requirements during fiscal
1996.
7
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The effect of inflation has not been significant upon either the operations or
financial condition of the Company.
8
<PAGE> 10
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On February 12, 1996 the Company entered into the Fifth Amendment to the Amended
and Restated Credit Agreement. See the "Liquidity and Capital Resources" section
of the Management's Discussion and Analysis of Financial Condition and Results
of Operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None.
(b) No reports on Form 8-K were filed during the first quarter of fiscal 1996.
9
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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.
GROUND ROUND RESTAURANTS, INC.
Date: February 13, 1996 By: /s/ Michael R. Jorgensen
------------------------
Michael R. Jorgensen
Senior Vice President, Chief Financial
Officer and Treasurer
duly authorized
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-START> OCT-02-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,388
<SECURITIES> 0
<RECEIVABLES> 2,213
<ALLOWANCES> 835
<INVENTORY> 2,551
<CURRENT-ASSETS> 8,307
<PP&E> 169,626
<DEPRECIATION> 56,220
<TOTAL-ASSETS> 140,164
<CURRENT-LIABILITIES> 26,945
<BONDS> 56,083
0
0
<COMMON> 1,862
<OTHER-SE> 54,803
<TOTAL-LIABILITY-AND-EQUITY> 140,164
<SALES> 54,224
<TOTAL-REVENUES> 54,725
<CGS> 50,223
<TOTAL-COSTS> 58,750
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,258
<INCOME-PRETAX> (4,025)
<INCOME-TAX> (1,006)
<INCOME-CONTINUING> (3,019)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,019)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
