<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
_______________________
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 27, 1995
OR
[ ] 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 0-13234
KETTLE RESTAURANTS, INC.
(Exact name of Registrant as Specified in its Charter)
TEXAS 76-0276342
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3131 ARGONNE
HOUSTON, TEXAS 77098
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code:(713) 524-3464
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
----- -----
_______________________
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, at the latest practicable date.
COMMON STOCK, 1,147,767 SHARES OUTSTANDING AT MAY 24, 1995
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Part I - Financial Information
Item 1 - Financial Statements (Unaudited)
Balance Sheets Page 3
Statements of Income (Loss) Page 4
Statements of Cash Flows Page 5
Notes to Financial Statements Page 7
Item 2 - Management's Discussion and Analysis
Financial Condition Page 12
Results of Operations Page 13
Part II - Other Information Page 16
<PAGE> 3
ITEM 1 - FINANCIAL STATEMENTS
KETTLE RESTAURANTS, INC.
BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
APRIL 27, OCTOBER 27,
1995 1994
--------- ----------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,767 $ 4,868
Receivables, net 3,255 3,293
Inventories 955 945
Investments 479 479
Prepaid expenses 529 619
Assets held for disposition 476 177
Current Portion of deferred income taxes 37 57
------- -------
Total current assets 8,498 10,438
------- -------
Property and equipment, net 23,637 25,302
Net investment in direct financing leases 6,148 7,261
Investment in leveraged leases 341 439
Notes receivable, net 397 737
Intangibles, net 31 47
Other 496 569
------- -------
$39,548 $44,793
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt,
including capitalized lease obligations $ 1,363 $ 3,172
Debt associated with assets held for
disposition 239 177
Accounts payable 328 346
Accrued liabilities 1,973 2,760
------- -------
Total current liabilities 3,903 6,455
------- -------
Long-term debt, including capitalized
lease obligations 18,290 17,774
Subordinated debentures 5,725 8,774
Deferred income taxes 982 1,153
Deferred revenues and other credits 1,093 845
Commitments and contingencies
Shareholders' equity:
Common Stock, par value $.01 per
share, authorized 5,000,000 shares,
issued and outstanding 1,147,767 at
April 27, 1995 and October 27, 1994 11 11
Additional paid-in capital 74 74
Retained earnings 9,470 9,707
------- -------
Total shareholders' equity 9,555 9,792
------- -------
$39,548 $44,793
------- -------
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
3
<PAGE> 4
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
KETTLE RESTAURANTS, INC.
STATEMENTS OF INCOME (LOSS)
(Unaudited)
(Amounts in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
QUARTER ENDED TWO QUARTERS ENDED
--------------------- ---------------------
APRIL 27, APRIL 28, APRIL 27, APRIL 28,
--------- --------- --------- ---------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Restaurant sales $ 9,347 $ 8,888 $ 18,061 $ 17,521
Franchise fees 720 839 1,535 1,683
Lease rental income 938 1,129 1,889 2,288
Income from leveraged leases 24 34 47 68
Gain on sale of property and equipment 135 627 317 775
Industrial catering revenues - 29 - 35
Other, net 243 120 492 246
------- ------- -------- -------
11,407 11,666 22,341 22,616
------- ------- -------- -------
COSTS AND EXPENSES:
Restaurant Operations:
Food 2,934 2,784 5,714 5,484
Labor 3,305 2,899 6,366 5,825
Other operating costs,
including depreciation, rent 2,964 3,104 5,586 6,032
Franchise expenses 256 401 581 696
Cost of lease rental income,
excluding interest 492 484 1,175 1,026
General and administrative 678 758 1,410 1,811
Interest 919 1,106 1,901 2,227
------- ------- -------- -------
11,548 11,536 22,733 23,101
------- ------- -------- -------
Income (loss) before income
taxes and cumulative effect of
change in accounting principle (141) 130 (392) (485)
Provision (benefit) for income taxes (51) 47 (155) (179)
-------- ------- -------- -------
NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE (90) 83 (237) (306)
-------- ------- -------- -------
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE - - - 258
-------- ------- -------- -------
NET INCOME (LOSS) $ (90) $ 83 $ (237) $ (48)
======== ======= ======== =======
INCOME (LOSS) PER SHARE BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE $ (.08) $ .07 $ (.21) $ (.27)
======== ======= ======== =======
EARNINGS PER SHARE OF CUMULATIVE CHANGE
IN ACCOUNTING PRINCIPLE $ - $ - $ - $ .23
======== ======= ======== =======
EARNINGS (LOSS) PER SHARE $ (.08) $ .07 $ (.21) $ (.04)
======== ======= ======== =======
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 1,147,767 1,147,767 1,147,767 1,147,767
========= ========= ========= =========
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
4
<PAGE> 5
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
KETTLE RESTAURANTS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
TWO QUARTERS ENDED
-------------------------
APRIL 27, APRIL 28,
1995 1994
------------ -----------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net loss $ (237) $ (48)
Adjustments to reconcile net income (loss) to
net cash from (used in) operating activities:
Depreciation and amortization 948 1,001
Provision for losses on accounts receivable 341 285
Unearned income amortization from leases (46) (68)
Decrease in deferred taxes (151) (587)
Gain on cancellation of leases and
disposition of fixed assets (160) (782)
Decrease (increase) in net operating notes
receivable and accounts receivable (285) 282
Increase in inventories, prepaids and
other assets (3) (143)
Decrease in accounts payable, accrued
liabilities and other deferred credits (495) (208)
------- -------
NET CASH FROM (USED IN) OPERATING
ACTIVITIES (88) (268)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment and property 1,244 2,229
Additions to property and equipment (189) (53)
Payments received on notes for sale of
equipment and property 331 206
Payments received on leveraged leases and
minimum lease receipts in excess of income
recognized on direct financing leases 729 809
------- -------
NET CASH FROM INVESTING ACTIVITIES 2,115 3,191
------- -------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Proceeds from long-term debt - 1,000
Payments of long-term debt, subordinated
debentures, and capital lease obligations (4,128) (1,625)
------- -------
NET CASH USED IN FINANCING ACTIVITIES (4,128) (625)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (2,101) 2,298
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 4,868 1,515
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,767 $ 3,813
======= =======
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
5
<PAGE> 6
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
KETTLE RESTAURANTS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
DISCLOSURE OF ACCOUNTING POLICY:
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of 90 days or
less to be cash equivalents.
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES:
During the two quarters ended April 28, 1994, the Company received a note
for $47,500 as partial payment on the sale of one property.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
TWO QUARTERS ENDED
----------------------------
APRIL 27, APRIL 28,
1995 1994
----------- -----------
<S> <C> <C>
Cash paid during the period for:
Interest $ 2,074,000 $ 2,114,000
Income taxes 185,000 226,000
</TABLE>
6
<PAGE> 7
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
KETTLE RESTAURANTS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: PREPARATION OF FINANCIAL STATEMENTS
The accompanying unaudited financial statements for the two quarters ended
April 27, 1995, have been prepared in accordance with the rules and regulations
of the Securities and Exchange Commission. Accordingly, 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 rules and regulations. In the opinion of management,
all significant intercompany accounts and transactions have been eliminated, and
all adjustments necessary for fair presentations of financial position and
results of operations have been made. It is suggested that these unaudited
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 fiscal
year 1994, filed with the Securities and Exchange Commission on January 25,
1995.
Certain reclassifications have been made to the April 28, 1994 financial
statements contained herein to conform to the classifications presented in
fiscal 1995.
NOTE 2: RECEIVABLES
A summary of receivables follows (in thousands):
<TABLE>
<CAPTION>
APRIL 27, OCTOBER 27,
1995 1994
----------- -----------
<S> <C> <C>
Trade receivables $ 1,168 $ 1,232
Workers' compensation insurance refund 1,104 1,101
Current portion of net investment in direct
financing leases 1,188 1,178
Other 74 87
------- -------
3,534 3,598
Less allowance for doubtful accounts 279 305
------- -------
$ 3,255 $ 3,293
------- -------
</TABLE>
7
<PAGE> 8
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
NOTE 3: PROPERTY AND EQUIPMENT
A summary of property and equipment follows (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL APRIL 27, OCTOBER 27,
LIVES (YEARS) 1995 1994
------------- ----------- -----------
<S> <C> <C> <C>
Land - 10,678 $ 11,297
Buildings and leasehold
improvements 15-25 19,962 20,384
Restaurant equipment 6-19 10,999 10,886
Automobiles, trucks and other 3-10 1,480 1,473
Construction in progress - 6 14
Real property under capitalized
leases term of lease 4,676 5,084
-------- --------
$ 47,801 $ 49,138
Less accumulated depreciation
and amortization 24,164 23,836
-------- --------
$ 23,637 $ 25,302
-------- --------
</TABLE>
As of April 27, 1995, and October 27, 1994, the Company had entered into
agreements to sell or transfer ownership of certain real and personal property.
In management's opinion, the agreements will be consummated within twelve
months; therefore, a current asset and a current liability were recorded as
detailed below:
The following details assets held for dispositions (in thousands):
<TABLE>
<CAPTION>
APRIL 27, OCTOBER 27,
1995 1994
----------- ----------
<S> <C> <C>
Land $ 179 $ 132
Buildings and leasehold improvements 427 195
Restaurant equipment and other 189 102
--------- --------
795 429
Less accumulated depreciation 319 252
--------- --------
Assets held for disposition 476 177
Debt associated with asset held for
disposition 239 177
--------- --------
Net assets held for disposition $ 237 $ 0
--------- --------
</TABLE>
8
<PAGE> 9
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
NOTE 4: OTHER ASSETS
A summary of other assets follows (in thousands):
<TABLE>
<CAPTION>
APRIL 27, OCTOBER 27,
1995 1994
--------- --------
<S> <C> <C>
Deferred financing cost $ 380 $ 427
Deferred bond offering cost 42 73
Other 74 69
--------- --------
$ 496 $ 569
--------- --------
</TABLE>
NOTE 5: ACCRUED LIABILITIES
A summary of accrued liabilities follows (in thousands):
<TABLE>
<CAPTION>
APRIL 27, OCTOBER 27,
1995 1994
----------- -----------
<S> <C> <C>
Accrued interest $ 475 $ 681
Accrued payroll and payroll taxes 462 408
Accrued sales taxes 232 213
Accrued federal income taxes 13 200
Accrued other taxes 112 344
Accrued legal and professional 25 60
Accrued insurance 90 115
Accrued workers' compensation insurance 174 204
Accrued ESOP 77 70
Accrued administrative bonuses - 48
Accrued other 313 417
--------- --------
$ 1,973 $ 2,760
--------- --------
</TABLE>
NOTE 6: ACCOUNTING STANDARDS
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"). SFAS No. 109 requires a change from the deferred
method of accounting for income taxes to the asset and liability method. Under
the asset and liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates expected to be recovered or
settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period of
enactment.
9
<PAGE> 10
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
Effective October 29, 1993, the Company adopted SFAS No. 109. The
cumulative effect of the change in method of accounting for income taxes of
$258,000 is determined as of October 29, 1993 and is reported separately in The
fiscal 1994 Statement of Income. This effect is primarily attributable to the
difference between tax rates in effect when deferred tax assets and liabilities
arose and current tax rates. Deferred taxes accounted for under the deferred
method and existing prior to the adoption of SFAS No. 109, included the effect
of net operating loss and alternative minimum tax credit carryforwards.
Management has calculated that future reversals of existing deferred tax
liabilities will be sufficient to realize existing deferred tax assets,
including those related to net operating loss and alternative minimum tax
credit carryforwards within the available carryforward period. Accordingly,
the Company has recorded no valuation allowance for deferred tax assets.
The tax effects of temporary differences that give rise to significant
components of deferred income tax liabilities and assets under the asset and
liability method of SFAS No. 109 are as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS DEFERRED
APRIL 27, PROVISION OCTOBER 27,
1995 (BENEFIT) 1994
-------------- ------------- ------------
<S> <C> <C> <C>
Deferred Income Tax Assets:
Allowance for doubtful accounts 118 (51) 169
Accrued expenses 68 (11) 79
Capital leases 1,924 (93) 2,017
Deferred gains 123 (96) 219
Net operating loss carryforwards - (14) 14
Alternative minimum tax credit
carryforwards 605 - 605
Other, net 30 (17) 47
--------- --------- ---------
Total deferred income tax assets 2,868 (282) 3,150
Valuation allowance - - -
--------- --------- ---------
Net deferred income tax assets 2,868 (282) 3,150
--------- --------- ---------
Deferred Income Tax Liabilities:
Depreciation (2,005) 177 (2,182)
Direct financing, sales and leverage
type leases (1,721) 263 (1,984)
Other (87) (7) (80)
--------- --------- ---------
Total deferred income tax liabilities (3,813) 433 (4,246)
--------- --------- ---------
Total net deferred income tax
assets/(liabilities) (945) 151 (1,096)
========= ========= ==========
</TABLE>
10
<PAGE> 11
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
NOTE 7: COMMITMENTS AND CONTINGENCIES
The Company's workers' compensation policies are retrospectively adjusted
policies for which the estimated premiums paid are subject to adjustment based
upon actual claims incurred. Although no assurances can be given, management
believes, based upon the Company's historical workers' compensation claims
experience that related amounts recorded by the Company for unpaid workers'
compensation claims and claims adjustment expenses are adequate.
The Company is a party to various lawsuits and claims generally incidental
to its business. In the opinion of management, the ultimate disposition of
these matters is not expected to have a significant adverse effect on the
Company's financial position or results of operations.
The Company currently has employment agreements with substantially all of
its executive officers. The employment agreements provide for the continuation
of employment of each executive officer through January 1, 1996, subject to
termination by the Company under certain conditions, and automatically
extending for one year on each January 1, beginning in 1996, unless otherwise
terminated. Each executive officer is entitled to receive a base salary, bonus
and incentive awards, benefits and perquisites, all as established from time to
time by the Board of Directors of the Company.
11
<PAGE> 12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
At April 27, 1995, the Company had working capital of approximately
$4,595,000 and a cash position consisting of cash and cash equivalents of
approximately $2,767,000. The Company has no lines of credit. On
February 11, 1994, the Company signed a promissory note with the holder of its
13.3% senior secured notes for a $1,000,000 term loan bearing interest at
11.1%. The use of these proceeds was restricted to the reimbursement of the
payment of interest on the 15 7/8% subordinated debentures (the "Debentures")
due December 1, 1993 and for general corporate purposes. This term loan had an
outstanding balance of approximately $2,300 at April 27, 1995. It is expected
that additional future cash funds will be derived from operating and investing
activities similar to those outlined in the Statements of Cash Flows and the
sale of properties identified for disposition. The Company currently has
sixteen locations identified for possible sale. These locations primarily
include tracts of surplus land and previously closed restaurant locations. The
loss of operating profit/loss associated with operating properties included in
locations identified for possible sale is not anticipated to materially affect
future results from operations. The Company's cash requirements within its
restaurant operations are typical of the food service industry; therefore, it
does not require large amounts of working capital for its restaurant operations
since restaurant sales are primarily for cash, purchases are on open accounts
and restaurant inventories are generally limited to a three or four day supply.
Of the $479,000 in investments at April 27, 1995, approximately $474,000
is restricted by a pledge to collateralize a $470,000 letter of credit
associated with the current worker's compensation insurance policy.
The Company presently has no locations under construction.
The net decrease in cash and cash equivalents during the two quarters ended
April 27, 1995, relates, in part, to the repurchase of $3,049,000 of the
Debentures and payment of related interest thereon, payment of the semiannual
interest payment due on the Debentures, and payment of monthly interest
payments due on the 13.3% senior secured notes. This cash outflow was
partially offset by proceeds from the sale of property and equipment.
During the quarter ended April 27, 1995, the Company entered into several
agreements with the holder of the 13.3% senior secured notes, pursuant to which
six properties securing the 13.3% senior secured notes were released from the
lien of the related Indenture and in substitution therefore, eight other
properties owned by the Company were mortgaged and made subject to the lien of
the Indenture securing the 13.3% senior secured notes. Two of the released
properties were subsequently sold by the Company and then leased back by the
Company. In addition, another of the released properties was sold. The net
proceeds from these sales, together with other
12
<PAGE> 13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
funds of the Company, were used to purchase $3,049,000 principal amount of the
Debentures plus accrued interest. The holder of the 13.3% senior secured
notes also agreed that the $1,800,000 principal payment due June 30, 1995,
with respect to the 13.3% senior secured notes would be deferred until June 30,
1999. In addition, the Company and the holder of the 13.3% senior secured
notes agreed to modify a property disposition covenant of the Indenture that
effects the use of proceeds resulting from future property sales. Additional
information is available in the Company's Form 8-K filed with the Securities
and Exchange Commission on May 30, 1995.
The Company used cash in operating activities of $88,000 and $268,000
during the two quarters ended April 27, 1995 and April 28, 1994, respectively.
The Company is currently in compliance with all financial covenants, as
amended.
RESULTS OF OPERATIONS
The change in the number of restaurants in the Kettle Restaurant System
during fiscal 1994 and the first two quarters of fiscal 1995 is shown in the
following table.
<TABLE>
<CAPTION>
TWO QUARTERS PERIOD TWO QUARTERS
ENDED 04/28/94- ENDED
04/28/94 10/29/94 04/27/95
------------ ---------- ------------
<S> <C> <C> <C>
Company operated restaurants:
Open at beginning of period 61 63 60
Opened - - -
Closed (1) (4) -
Acquired from franchisees 3 1 4
Franchised - - -
----- ----- -----
Open at end of period 63 60 64
----- ----- -----
Franchised restaurants:
Open at beginning of period 95 89 87
Opened - 1 1
Closed (3) (2) (3)
Acquired by Company (3) (1) (4)
Franchised from Company - - -
----- ----- -----
Open at end of period 89 87 81
----- ----- -----
All restaurants:
Open at beginning of period 156 152 147
Opened - 1 1
Closed (4) (6) (3)
----- ----- -----
Open at end of period 152 147 145
----- ----- -----
</TABLE>
13
<PAGE> 14
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Restaurant revenues increased 5.2% and 3.1% to $9,347,000 and $18,061,000,
respectively, for the quarter and two quarters ended April 27, 1995 compared to
the same period in 1994. The increase is due in part to the acquisition of
five franchised stores during the twelve months ended April 27, 1995 offset, in
part, by a .9% decrease in same store average restaurant sales for the two
quarters ended April 27, 1995.
Restaurant food costs were 31.4% of restaurant sales for the quarter and
31.6% for the two quarters ended April 27, 1995 compared to 31.3% of restaurant
sales for both the quarter and two quarters ended April 28, 1994.
Labor and related costs were 35.4% and 35.2% of restaurant sales for the
quarter and two quarters ended April 27, 1995 compared to 32.6% and 33.2% of
restaurant sales, respectively, for the same periods in the prior year. This
increase is due, in part, to the increase in the number of management personnel
in certain locations and the increase in the number of participants in the
Company's management training program.
Other restaurant operating expenses were 31.7% and 30.9% of restaurant
sales for the quarter and two quarters ended April 27, 1995 compared to 34.9%
and 34.4% of restaurant sales, respectively, for the same periods in the prior
year. The components of other restaurant operating expenses as a percentage of
restaurant sales in the quarter and two quarters ended April 27, 1995 and April
28, 1994 were as follows:
<TABLE>
<CAPTION>
PERCENT OF RESTAURANT SALES
QUARTER ENDED TWO QUARTERS ENDED
--------------------- ----------------------
APRIL 27, APRIL 28, APRIL 27, APRIL 28,
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating expenses 6.7 5.3 6.5 5.4
Maintenance and repairs 2.5 2.7 2.3 2.5
Marketing expenses 1.2 0.9 0.9 1.0
Utilities 5.1 5.6 5.4 6.0
Insurance 6.6 10.7 6.1 9.7
Depreciation 3.2 3.2 3.2 3.3
Other 6.4 6.5 6.5 6.5
------ ------ ----- ------
31.7 34.9 30.9 34.4
------ ------ ----- ------
</TABLE>
The decrease in restaurant operating expense, as a percentage of sales, is
primarily due to a decrease in worker's compensation insurance costs.
14
<PAGE> 15
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Franchise fees decreased by 14.2% and 8.8%, respectively, for the quarter
and two quarters ended April 27, 1995, compared to the same periods in the
prior year. These decreases are due mainly to the decrease of eight franchised
units during the twelve months ended April 27, 1995. Additionally, same store
average sales per store decreased by 5.1% and 3.6%, respectively, for the
quarter and two quarters ended April 27, 1995, compared to the same periods the
previous year.
The decrease in franchise fees was accompanied by decreases in franchise
expenses of 36.2% for the quarter and 16.5% for the two quarters ended April
27, 1995, compared to the prior year.
Lease rental income decreased 16.9% and 17.4%, respectively, for the
quarter and two quarters ended April 27, 1995, when compared to the same
periods in the prior year. The decrease in lease rental income reflects the
termination of twelve lease agreements associated with certain franchise
agreements terminated during the twelve months ended April 27, 1995.
Cost of lease rental income increased 1.7% and 14.5%, respectively, for
the quarter and two quarters ended April 27, 1995, compared to the same periods
in the prior year. These increases were due primarily to the increase in bad
debt expense and the cost of terminating two leases during the first quarter of
fiscal year 1995
General and Administrative costs for the two quarters ended April 27,
1995, decreased by 22.1% to $1,410,000 from $1,811,000 for the same period the
previous year. This decrease is due primarily to a $306,000 decrease in legal
and professional fees combined with decreases in other taxes, insurance and
warehouse expenses.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders.
At the annual meeting of shareholders of Kettle Restaurants,
Inc. (the "Company") held on February 13, 1995, Berthyl Embry
and Carlette Woods were elected directors of the Company.
Carlette Woods and Berthyl Embry will hold office until the
Annual Meeting of Shareholders in 1998 and until their
successors are duly elected and qualified. The holders of
1,145,267 shares of common stock of the Company, constituting
99% of the total outstanding shares of the Company, were
present in person or by proxy at the annual meeting. An
aggregate of 1,145,267 shares were voted for the election of
each nominee for director. There were no votes cast against
the election of any director, nor were there any votes
withheld.
Also at the annual meeting an aggregate of 1,091,767 shares were
voted for the ratification of the selection of Arthur Andersen &
Co. as independent auditors of the Company for the fiscal year
ending October 26, 1995. An aggregate of 53,500 shares abstained
with respect to this matter. No votes were cast against such
ratification.
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
16
<PAGE> 17
(b) Reports on Form 8-K
The following report on Form 8-K was filed by Kettle
Restaurants, Inc.
Form Date of Report
---- --------------
Form 8-K May 30, 1995
17
<PAGE> 18
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.
KETTLE RESTAURANTS, INC.
(Registrant)
June 12, 1994 By: /s/ Carlette Woods
---------------------------
Carlette Woods
Vice President-Finance
(Chief Financial and
Accounting Officer)
18
<PAGE> 19
INDEX TO EXHIBITS
Exhibit 27 - Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-26-1995
<PERIOD-START> OCT-28-1995
<PERIOD-END> APR-27-1995
<CASH> 2,767
<SECURITIES> 5
<RECEIVABLES> 3,534
<ALLOWANCES> 279
<INVENTORY> 955
<CURRENT-ASSETS> 8,498
<PP&E> 47,801
<DEPRECIATION> 24,164
<TOTAL-ASSETS> 39,548
<CURRENT-LIABILITIES> 3,903
<BONDS> 24,015
<COMMON> 11
0
0
<OTHER-SE> 9,544
<TOTAL-LIABILITY-AND-EQUITY> 39,548
<SALES> 18,061
<TOTAL-REVENUES> 22,341
<CGS> 5,714
<TOTAL-COSTS> 17,666
<OTHER-EXPENSES> 2,876
<LOSS-PROVISION> 290
<INTEREST-EXPENSE> 1,901
<INCOME-PRETAX> (392)
<INCOME-TAX> (155)
<INCOME-CONTINUING> (237)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (237)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
