<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 29, 1996
[ ] 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 7, 1997: 11,173,421
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
GROUND ROUND RESTAURANTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<CAPTION> As of As of
December 29, September 29,
1996 1996
---- ----
(Unaudited)
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 2,161 $ 1,775
Receivables, net of allowances for uncollectible accounts
of $1,151 and $1,123 at December 29, 1996 and
September 29, 1996, respectively 1,085 1,299
Income tax refunds receivable 279 2,550
Inventories 1,839 2,056
Prepaid expenses and other current assets 1,644 1,471
Assets held for sale 2,144 12,806
-------- --------
Total current assets 9,152 21,957
Property and equipment:
Land 7,042 7,042
Buildings and leasehold improvements 96,941 97,235
Machinery and equipment 33,646 33,441
-------- --------
137,629 137,718
Accumulated depreciation and amortization 55,101 53,154
-------- --------
Property and equipment, net 82,528 84,564
Other assets 13,357 14,717
-------- --------
$105,037 $121,238
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 6,630 $ 8,630
Accrued expenses 12,631 15,002
Current portion of long-term debt and capital lease obligations 751 11,499
-------- --------
Total current liabilities 20,012 35,131
Long-term debt and capital lease obligations 39,583 39,947
Other long-term liabilities 9,508 9,423
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 29, 1996 and September 29, 1996; issued 11,174,000
at December 29, 1996 and September 29, 1996 1,862 1,862
Additional paid-in capital 57,883 57,883
Accumulated deficit (23,811) (23,008)
-------- --------
Total stockholders' equity 35,934 36,737
-------- --------
$105,037 $121,238
======== ========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 3
<TABLE>
GROUND ROUND RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<CAPTION>
13 Weeks Ended 13 Weeks Ended
December 29, December 31,
1996 1995
---- ----
<S> <C> <C>
REVENUE $49,916 $54,725
------- -------
COSTS AND EXPENSES:
Cost of products sold 43,076 50,223
Selling, general and administrative 3,788 4,056
Depreciation and amortization 2,376 3,213
Interest expense, net 1,219 1,258
Other expense 260
------- -------
50,719 58,750
------- -------
Loss before taxes (803) (4,025)
Income taxes (benefit) (1,006)
------- -------
NET LOSS $ (803) $ (3,019)
======= ========
Weighted average common shares outstanding 11,174 11,174
PER SHARE DATA:
Net loss per common share $ (.07) $ (.27)
======= ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
<TABLE>
GROUND ROUND RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
13 Weeks Ended 13 Weeks Ended
December 29, December 31,
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (803) $(3,019)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 2,749 3,315
Deferred taxes (1,003)
Change in operating assets and liabilities:
Accounts receivable 214 (231)
Income tax refunds receivable 2,271 1,182
Inventories and prepaid expenses 921 444
Acccounts payable and other liabilities (4,205) 1,694
-------- -------
Net cash provided by operating activities 1,147 2,382
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (376) (495)
Proceeds from sales of property and equipment 10,727 658
Sale of liquor license 125
-------- -------
Net cash provided by investing activities 10,351 288
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term borrowings (11,112) (2,497)
Payments of deferred debt costs (210)
-------- -------
Net cash used in financing activities (11,112) (2,707)
-------- -------
NET INCREASE (DECREASE) IN CASH 386 (37)
Cash and cash equivalents at beginning of period 1,775 2,425
-------- -------
Cash and cash equivalents at end of period $ 2,161 $ 2,388
======== =======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
GROUND ROUND RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR DECEMBER 29, 1996 AND DECEMBER 31, 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 29, 1996 and the
results of operations for the 13-week period ended December 29, 1996 and
the 13-week period ended December 31, 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 September 29, 1996.
Certain items in specific captions in the accompanying consolidated
financial statements have been reclassified for comparative purposes.
2. COST OF PRODUCTS SOLD
<TABLE>
Cost of products sold comprises the following:
<CAPTION>
13 Weeks Ended 13 Weeks Ended
December 29, December 31,
1996 1995
---- ----
<S> <C> <C>
Food and beverage costs $16,666 $18,809
Labor costs 16,417 19,329
Other costs 9,993 12,085
------- -------
$43,076 $50,223
======= =======
</TABLE>
3. LITIGATION
The Company is subject to various claims and legal actions that arise in
the ordinary course of business, including, but not limited to, claims and
actions brought pursuant to "dram shop" statutes and under federal and
state employment laws prohibiting employment discrimination. The Company
believes it is not currently a party to any material pending legal
proceedings as defined in Item 103 of Regulation S-K of the Securities
Exchange Act of 1934, as amended.
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 or sex. Plaintiffs maintaining
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 or motion phase
and 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 results of operations, cash
flows or 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 124 and franchised 41 family-oriented, full service casual
dining restaurants at December 29, 1996.
For the purposes of this discussion and analysis, the 13-week period ended
December 29, 1996 and the 13-week period ended December 31, 1995 are referred to
as the first quarter of 1997 and 1996, respectively.
COMPARATIVE RESULTS OF OPERATIONS FOR THE FIRST QUARTER OF 1997 AND 1996
<TABLE>
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:
<CAPTION>
13 Weeks Ended 13 Weeks Ended
December 29, December 31,
1996 1995
---- ----
<S> <C> <C>
Restaurant revenue 99.0% 99.1%
Franchise revenue 1.0 0.9
----- -----
Total revenue 100.0 100.0
Cost of products sold (1) 87.1 92.6
Selling, general and administrative 7.6 7.5
Depreciation and amortization 4.8 5.9
Interest expense, net 2.4 2.3
Loss before taxes (1.6) (7.4)
Income tax benefit (1.8)
Net loss (1.6)% (5.6)%
<FN>
(1) As a percentage of Company-operated restaurant revenue.
</TABLE>
RESTAURANT REVENUE. Restaurant revenue totalled $49.4 and $54.2 million for the
first quarter of 1997 and 1996, respectively. 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, comprised of revenue from restaurants open during
all of the first quarter of 1997 and the first quarter of 1996, increased by
3.8% from $46.2 million in the first quarter of 1996 to $47.9 million in the
first quarter of 1997. Management believes that improved comparable sales in the
first quarter of 1997 vs. the first quarter of 1996, were a result of improved
execution and greater consumer awareness of the new menu introduced in the first
quarter of 1996.
The average guest check was approximately $9.66 and $8.62 for the first quarter
of 1997 and 1996, respectively. The increase in guest check is a result of
evolving menu mix with higher priced menu items, as well as improved server
communications with the guest on the new menu offerings.
5
<PAGE> 7
Non-comparable restaurant revenue decreased by $6.6 million in the first quarter
of 1997 as a result of the sale or closing of 6 restaurants during the last
three quarters of fiscal 1996 and the sale or closing of 18 restaurants during
the first quarter of 1997.
FRANCHISE REVENUE. The Company's franchise base consisted of 46 restaurants with
franchise agreements (of which 41 are presently operating) and 45 restaurants in
the first quarter of 1997 and 1996, respectively. Revenue from franchised
restaurants (consisting of royalties and franchise fees) were $.4 million and
$.4 million in the first quarter of 1997 and 1996, respectively. The Company
received no initial franchise fees during the first quarter of 1997 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 33.7%
and 34.7% of Company-operated restaurant revenue in the first quarter of 1997
and 1996, respectively. Restaurant operating expenses were 53.4% and 57.9% of
Company-operated restaurant revenue in the first quarter of 1997 and 1996,
respectively.
Food and beverage costs as a percentage of Company-operated restaurant revenue
decreased by 1.0% from the first quarter of 1996 to the first quarter of 1997.
The decrease can be attributed to the restaurant managers prediction of guest
preferences on new menu items and through a reduction in waste. In addition,
product costs in the first quarter of 1996 were negatively impacted due to
non-recurring training costs during the implementation of the new menu.
Restaurant operating expenses as a percent of Company-operated restaurant
revenue decreased 4.5% from the first quarter of 1996 to the first quarter of
1997 principally due to decreases in labor costs of 2.4% 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 200 items in
the first quarter of 1996 which were not repeated in the first quarter of 1997.
Other costs decreased by 2.1%, mainly as a result of costs associated with the
implementation of the new menu, which included menu design and printing costs,
plateware and supplies costs in the first quarter of 1996 which were not
repeated in the first quarter of 1997. Most other costs have remained at
constant dollar levels due to the fixed nature of certain costs associated with
operating a restaurant.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were 7.6% and 7.5% of total revenue in the first quarter
of 1997 and 1996, respectively. Selling expenses, comprised of advertising,
point of purchase materials, development and production costs, were .3% and .5%
of total revenue in the first quarter of 1997 and 1996, respectively. The
decrease in selling expense during the first quarter of 1997 was primarily due
to the Company's reduction in production costs for the in-store marketing
programs.
General and administrative costs, comprised of restaurant manager training
expenses, regional overhead and corporate administrative costs were $3.6 million
or 7.3% and $3.7 million or 7.0% of total revenue in the first quarter of 1997
and 1996, respectively. General and administrative costs have remained at a
constant dollar level from 1997 to 1996, with the exception of decreases in
management training expenses due to fewer restaurants and in corporate overhead
expenses as a result of a reduction in administrative personnel.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were 4.8%
and 5.9% of total revenue in the first quarter of 1997 and 1996, respectively.
The decrease in depreciation and amortization on a constant dollar basis was due
mainly to the sale or closing of 27 restaurants during fiscal 1996 and the first
quarter of 1997.
6
<PAGE> 8
OTHER EXPENSE. The first quarter of 1997 reflects approximately $.3 million in
expenses related to the settlement of a lawsuit for $.5 million of which $.2
million was reserved for in fiscal 1996.
INTEREST EXPENSE. Interest expenses were 2.4% and 2.3% of total revenue in the
first quarter of 1997 and 1996, respectively. The Company's weighted average
borrowing rates were 8.1% and 7.7% for the first quarter of 1997 and the first
quarter of 1996, respectively.
INCOME TAXES. The Company's effective income tax rates were 0% and 25% during
the first quarter of 1997 and the first quarter of 1996, respectively.
NET INCOME. As a result of the above, the Company reported a net loss of $.8
million, or $ (.07) per share, in the first quarter of 1997, and a net loss of
$3.0 million, or $ (.27) per share, in the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
A significant amount of the Company's restaurant sales are tendered in 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 $10.9 million and $13.2 million as
of December 29, 1996 and September 29, 1996, respectively.
Net cash provided by operating activities totalled $1.1 million in the first
quarter of 1997 as compared with $2.4 million in 1996. The decrease is
primarily attributed to the costs associated with closing 18 restaurants in the
first quarter of 1997 and the payout of the restaurant management's annual
bonus. The Company incurred capital expenditures totalling $.4 million for
restaurant capital maintenance during the first quarter of 1997, and $.5
million for restaurant capital maintenance during the first quarter of
1996. Available cash, cash flow from operations and proceeds from sales of
restaurant locations of approximately $10.4 million funded first quarter 1997
capital expenditures and provided for the repayment of $10.7 million in
borrowings under the Company's credit facility with its banks.
On September 12, 1996 the Company and its lenders restructured its
existing credit facility by entering into the Amended and Restated Credit
Agreement ("Amended Credit Agreement") which consolidated the then existing
Tranche A revolving loan, Tranche A Term Loans and Tranche B Term Loans into a
single term loan in the aggregate principle amount of approximately
$48,485,000. The interest rate is calculated at LIBOR plus 2.625% on the
Company's LIBOR loans and alternate base rate ("ABR") plus .75% on the Company
ABR based loans. The loan is scheduled to mature on May 31, 1997, subject to an
automatic extension to December 31, 1997 if the principal amount of the loan is
reduced by $10.8 million prior to May 31, 1997 (which amount has been repaid as
of the date hereof) and the absence of one event of default under the Amended
Credit Agreement on such date. Through February 7, 1997 the Company has reduced
its outstanding debt balance by $12.5 million. On December 29, 1996 and
September 29, 1996, the Company's borrowings under its credit facility were
$37.8 million and $48.4 million, respectively. There are no material unused
amounts of credit. The Amended Credit Agreement contains financial covenants,
including minimum levels of net worth and certain required measures of
profitability. The Company is required to make accelerated principal payments
based upon excess cash flows from operations, the sale of certain assets and
the offering proceeds from the sale of stock of the Company. Provisions of the
Amended Credit Agreement restricting the payment of dividends would prevent the
Company from paying dividends over the term of the Amended Credit Agreement.
7
<PAGE> 9
In consideration of the banks entering into the Amended Credit Agreement, the
Company agreed to pay a maximum fee of $2.7 million to the lenders evidenced by
Convertible Notes. This fee is subject to reduction to $1.3 million if the
outstanding debt balance is reduced by $10.4 million before May 31, 1997.
Through February 7, 1997 the Company has reduced its outstanding debt balance by
$12.5 million, and accordingly $1.3 million has been included as a component of
other expense in the consolidated statement of operations at September 29, 1996.
The holder of each Convertible Note has the right to convert the principal
amount thereof into common stock of the Company, after May 1, 1997, at the price
of approximately $2.71 per share.
During 1996, in accordance with the terms of the Amended Credit Agreement, the
Company entered into two interest rate cap agreements for interest rate
protection in the aggregate of $25,000,000 expiring during fiscal 1997. The
fixed interest rate on these contracts ranged from 8% to 10%. The interest rate
cap agreements had an immaterial effect on the Company's interest expense during
the first quarter of 1997 and the first quarter of 1996.
The Company expects to incur approximately $2.7 million in capital expenditures
during fiscal 1997. Management believes that existing cash, net cash provided
by operating activities, and proceeds from the sale of restaurant locations,
already transacted, will be sufficient to meet operating needs, fund
anticipated capital expenditures and service debt requirements, assuming that
the Amended Credit Agreement is either extended or restructured. While
Management believes its Amended Credit Agreement will be restructured in a
manner that will be satisfactory to the Company and its banks, there can be no
assurance that the Company will be able to restructure or obtain alternative
financing.
The effect of inflation has not been a factor upon either the operations or the
financial condition of the Company. The Company's business is not significantly
seasonal in nature.
FORWARD-LOOKING INFORMATION
Statements contained in this Form 10-Q that are not historical facts, including,
but not limited to, statements found in this Item 2, Management's Discussion and
Analysis of Financial Condition and Results of Operations, are forward-looking
statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 that involve a number of risks and uncertainties.
The actual results of the future events described in such forward-looking
statements in this Form 10-Q could differ materially from those stated in such
forward-looking statements. Among the factors that could cause actual results to
differ materially are: the Company's ability to operate 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, the ability of
the Company to restructure its Amended Credit Agreement and the terms therof and
other risks detailed from time to time in the Company's periodic earnings
releases and reports filed with the Securities and Exchange Commission, as well
as the risks and uncertainties discussed in this Form 10-Q.
8
<PAGE> 10
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
In the first quarter of 1997, consummated the sale of 11 restaurants to Lone
Star Steakhouse and Saloon, Inc., as referenced on Form 8-K filed on
October 11, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None.
(b) Reports on Form 8-K filed during the first quarter of fiscal 1997.
Date of Report Items Reported
-------------- --------------
October 11, 1996 Under Item 2, the Company reported the sale of
restaurants and under Item 5, the Company
reported the restructuring of its credit
facility.
9
<PAGE> 11
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 11, 1997 By:/s/ Stephen J. Kiel
----------------------
Stephen J. Kiel
Senior Vice President, Chief Financial
Officer and Treasurer
duly authorized
10
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> SEPT-30-1996
<PERIOD-END> DEC-29-1996
<EXCHANGE-RATE> 1
<CASH> 2,161
<SECURITIES> 0
<RECEIVABLES> 2,236
<ALLOWANCES> 1,151
<INVENTORY> 1,839
<CURRENT-ASSETS> 9,152
<PP&E> 137,629
<DEPRECIATION> 55,101
<TOTAL-ASSETS> 105,037
<CURRENT-LIABILITIES> 20,012
<BONDS> 0
0
0
<COMMON> 1,862
<OTHER-SE> 34,072
<TOTAL-LIABILITY-AND-EQUITY> 105,037
<SALES> 49,916
<TOTAL-REVENUES> 49,916
<CGS> 43,076
<TOTAL-COSTS> 49,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,219
<INCOME-PRETAX> (803)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (803)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
