<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JULY 2, 2000
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 1-9573
UNO RESTAURANT CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 04-2953702
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 CHARLES PARK ROAD, WEST ROXBURY, MASSACHUSETTS 02132
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(Address of principal executive offices) (Zip Code)
(617) 323-9200
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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 / /
As of August 1, 2000, 10,930,894 shares of the registrant's Common
Stock, $.01 par value, were outstanding.
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UNO RESTAURANT CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS.......................... 3
Consolidated Balance Sheets --
July 2, 2000 and October 3, 1999.............. 3
Consolidated Statements of Income --
Thirteen and thirty-nine weeks ended
July 2, 2000 and June 27, 1999................ 4
Consolidated Statements of Cash Flows --
Thirty-nine weeks ended July 2, 2000 and
June 27, 1999................................. 5
Notes to Consolidated Financial
Statements.................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................... 7
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISKS.................. 13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............... 13
</TABLE>
2
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
July 2, October 3,
2000 1999
----------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,450 $ 752
Accounts receivable, net 2,444 2,398
Inventory 2,850 2,436
Prepaid expenses and other assets 1,904 1,757
--------- ---------
TOTAL CURRENT ASSETS 8,648 7,343
PROPERTY AND EQUIPMENT
Land 19,657 17,143
Buildings 34,506 28,920
Leasehold improvements 110,279 101,326
Equipment 66,336 58,576
Construction in progress 5,816 2,930
--------- ---------
236,594 208,895
Allowance for depreciation and amortization 90,018 80,149
--------- ---------
146,576 128,746
OTHER ASSETS
Deferred income taxes 11,491 10,020
Liquor licenses and other assets 3,584 3,503
--------- ---------
$170,299 $149,612
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 9,248 $ 7,798
Accrued expenses 8,900 8,668
Accrued compensation and taxes 3,029 3,369
Income taxes payable 1,768 2,914
Current portion of long-term debt and capital
lease obligations 3,980 4,075
--------- --------
TOTAL CURRENT LIABILITIES 26,925 26,824
Long-term debt, net of current portion 49,265 31,612
Capital lease obligations, net of current portion 454 489
Other liabilities 9,882 9,708
SHAREHOLDERS' EQUITY
Preferred Stock, $1.00 par value, 1,000 shares
authorized, none issued
Common Stock, $.01 par value, 25,000 shares authorized, 15,707 and 15,375
shares issued and out-
standing in fiscal years 2000 and 1999, respectively 157 154
Additional paid-in capital 57,943 55,648
Retained earnings 58,910 52,003
--------- ---------
117,010 107,805
Treasury Stock (4,784 and 4,100 shares at cost,in
fiscal years 2000 and 1999, respectively) (33,237) (26,826)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 83,773 80,979
--------- ---------
$170,299 $149,612
========= =========
</TABLE>
3
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CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
-------------------------- -----------------------
July 2, June 27, July 2, June 27,
2000 1999 2000 1999
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Restaurant sales $54,792 $49,766 $154,321 $141,417
Consumer product sales 2,870 2,533 8,500 7,400
Franchise income 1,532 1,249 4,180 3,729
------- ------- ------- ---------
59,194 53,548 167,001 152,546
COSTS AND EXPENSES
Cost of food and beverages 14,644 13,292 41,615 39,397
Labor and benefits 17,949 16,197 51,245 46,617
Occupancy costs 7,548 7,267 22,510 21,598
Other operating costs 4,900 4,447 13,828 12,731
General and administrative 5,252 4,313 13,762 11,518
Depreciation and amortization 3,361 3,276 9,855 9,442
Pre-opening costs 665 180 1,533 584
------- -------- ------- --------
54,319 48,972 154,348 141,887
OPERATING INCOME 4,875 4,576 12,653 10,659
INTEREST AND OTHER EXPENSE 806 861 2,188 2,561
------- ------- -------- --------
INCOME BEFORE INCOME TAXES 4,069 3,715 10,465 8,098
PROVISION FOR INCOME TAXES 1,383 1,227 3,558 2,673
------- ------- -------- --------
NET INCOME $ 2,686 $ 2,488 $ 6,907 $ 5,425
======= ======= ======== ========
Earnings per Share:
Basic $ .24 $ .22 $ .61 $ .48
Diluted $ .23 $ .22 $ .58 $ .47
Weighted average shares outstanding:
Basic 11,106 11,175 11,237 11,349
Diluted 11,796 11,307 11,983 11,458
</TABLE>
4
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
----------------------------
July 2, June 27,
2000 1999
------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $6,907 $5,425
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,959 9,530
Deferred income taxes (1,471) (887)
Provision for deferred rent 236 266
Gain on disposal of equipment (43) (7)
Contribution to employee benefit program 152 200
Changes in operating assets and liabilities, net of effects from business
acquisitions:
Accounts receivable (431) (20)
Inventory (414) (153)
Prepaid expenses and other assets (318) (150)
Accounts payable and other liabilities 1,280 2,070
Income taxes payable (1,146) 360
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 14,711 16,634
INVESTMENT ACTIVITIES
Additions to property, equipment and
leasehold improvements (27,699) (13,281)
Proceeds from sale of fixed assets 43 7
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (27,656) (13,274)
FINANCING ACTIVITIES
Proceeds from revolving credit agreement 67,012 59,223
Principal payments on revolving credit agreement
and capital lease obligations (49,489) (59,077)
Purchase of Treasury Stock (6,060) (4,421)
Exercise of stock options 2,180 196
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 13,643 (4,079)
-------- --------
INCREASE (DECREASE) IN CASH 698 (719)
CASH AT BEGINNING OF YEAR 752 2,030
-------- --------
CASH AT END OF PERIOD $1,450 $1,311
======== ========
</TABLE>
Certain amounts in fiscal 1999 have been reclassified to permit comparison.
5
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited, consolidated financial statements have been prepared
in accordance with instructions to Form 10-Q and, therefore, do not include all
information and footnotes normally included in financial statements prepared in
conformity with generally accepted accounting principles. They should be read in
conjunction with our financial statements for the fiscal year ended October 3,
1999.
The accompanying financial statements include all adjustments (consisting only
of normal recurring accruals) that management considers necessary for a fair
presentation of its financial position and results of operations for the interim
periods presented.
NOTE B - EARNINGS PER SHARE
Basic earnings per share represents net income divided by the weighted average
shares of common stock outstanding during the period. Weighted average shares
used in diluted earnings per share include common stock equivalents arising from
stock options using the treasury stock method.
The following table sets forth the computation of basic and diluted earnings per
share.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
July 2, June 27, July 2, June 27,
2000 1999 2000 1999
----------- ---------- --------- --------
<S> <C> <C> <C> <C>
Numerator for Basic Earnings per share:
Weighted average shares outstanding 11,105,877 11,175,309 11,237,111 11,348,625
Common Stock equivalents:
Stock options 689,911 131,347 746,191 109,172
----------- ----------- ----------- -----------
Numerator for Diluted Earnings per share:
Weighted average shares outstanding including common
stock equivalents 11,795,788 11,306,656 11,983,302 11,457,797
=========== =========== =========== ===========
Net income $ 2,686,000 $ 2,488,000 $ 6,907,000 $ 5,425,000
=========== =========== ----------- ===========
Basic and Diluted Earnings per share:
Basic $ .24 $ .22 $ .61 $ .48
=========== =========== =========== ===========
Diluted $ .23 $ .22 $ .58 $ .47
=========== =========== =========== ===========
</TABLE>
NOTE C - 10% COMMON STOCK DIVIDEND
On November 30, 1999, the Company declared a 10% Common Stock dividend payable
on December 23, 1999 to stockholders of record as of December 13, 1999. All
share and per share data in the accompanying financial statements have been
retroactively adjusted to reflect the stock dividend.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SAFE HARBOR CAUTIONARY STATEMENT
From time to time, information and statements provided by our filings with the
Securities and Exchange Commission, shareholder reports, press releases and oral
statements may include forward-looking statements which reflect our current view
with respect to future events and financial performance. Forward-looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that all
forward-looking statements involve risks and uncertainties, which could cause
actual results to differ materially from historical results or those
anticipated. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. Risks and uncertainties include, without limitation, the
ability to open new restaurants and operate new and existing restaurants
profitably, changes in local, regional and national economic conditions,
especially economic conditions in the areas in which our restaurants are
concentrated, increasingly intense competition in the restaurant industry,
increases in food, labor, employee benefits and similar costs, and other risks
detailed from time to time in our news releases, reports to shareholders and
periodic reports filed with the Securities and Exchange Commission.
The following tables set forth the percentage relationship to total revenues,
unless otherwise indicated, of certain items included in our income statements
and operating data for the periods indicated:
THIRTEEN WEEKS ENDED JULY 2, 2000 COMPARED TO THIRTEEN WEEKS ENDED
JUNE 27, 1999
<TABLE>
<CAPTION>
13 WEEKS ENDED
7/2/00 6/27/99
<S> <C> <C>
REVENUES:
Restaurant sales 92.6% 93.0%
Consumer product sales 4.8 4.7
Franchise income 2.6 2.3
------ ------
Total 100.0% 100.0%
------ ------
COSTS AND EXPENSES:
Cost of food and beverages (1) 25.4% 25.4%
Labor and benefits (1) 31.1 31.0
Occupancy costs (1) 13.1 13.9
Other operating costs (1) 8.5 8.5
General and administrative 8.9 8.1
Depreciation and amortization (1) 5.8 6.3
Pre-opening costs (2) 1.2 .4
----- -----
Operating income 8.2 8.5
Interest and other expense 1.3 1.6
------ ------
Income before income taxes 6.9 6.9
Provision for income taxes 2.4 2.3
------ ------
Net income 4.5% 4.6%
====== ======
</TABLE>
(1) Percentage of restaurant and consumer product sales
(2) Percentage of restaurant sales
NUMBER OF RESTAURANTS AT END OF QUARTER:
<TABLE>
<S> <C> <C>
Company-owned Uno's - full service 106 98
Franchised Uno's - full service 62 66
</TABLE>
7
<PAGE>
TOTAL REVENUES. Total revenues increased 10.5% to $59.2 million from $53.5
million last year.
RESTAURANT SALES. Company-owned restaurant sales rose 10.1% to $54.8 million
from $49.8 million last year due primarily to a 3.6% increase in comparable
store sales for the third quarter versus the same period last year. Average
weekly sales, which includes sales at comparable stores as well as new units,
increased 4.8% during the third quarter. Store operating weeks of full-service
Pizzeria Uno...Chicago Bar & Grill units grew 5.2% as eight restaurants were
added during the past four quarters, three of them in the third quarter of
fiscal 2000.
CONSUMER PRODUCT SALES. Consumer product sales increased 13.3% for the third
quarter this year to $2.9 million from $2.5 million last year. Sales in the
contract food service category grew 14.6% over last year. The growth was led by
increased shipments to airlines, hotels, and convenience store business. Sales
of fresh product to retail grocers in the New England region increased 10.6%
over the same period last year.
FRANCHISE INCOME. Franchise income, which includes royalty income and initial
franchise fees, increased to $1.53 million versus $1.25 million last year.
Royalty income increased 6.0% to $1.30 million this year compared to $1.22
million last year. The increase in royalty income was primarily due to an 11.7%
increase in average weekly sales for full-service franchised restaurants.
Franchise fees of $234,000, which includes a deposit forfeiture of approximately
$180,000, were recorded this year compared to $25,000 last year. Two
full-service Pizzeria Uno...Chicago Bar & Grill franchise restaurants opened
during the third quarter of fiscal 2000 while two Pizzeria Uno Restaurant & Bar
franchise restaurants were closed.
COST OF FOOD AND BEVERAGES. Cost of food and beverage as a percentage of
restaurant and consumer product sales remained stable at 25.4% compared to last
year.
LABOR AND BENEFITS. Labor costs increased slightly to 31.1% from 31.0% last year
as a percentage of restaurant and consumer product sales primarily due to
increases in the average wage rate.
OCCUPANCY COSTS. Occupancy costs declined as a percentage of restaurant and
consumer product sales to 13.1% from 13.9% due to sales leverage gains.
OTHER OPERATING COSTS. Other operating costs at 8.5% as a percentage of
restaurant and consumer product sales remained stable compared to last year.
GENERAL AND ADMINISTRATIVE. General and administrative expenditures as a
percentage of total revenues increased to 8.9% from 8.1% last year due primarily
to approximately $360,000 of legal and professional fees associated with the
company's aborted equity offering. Higher salary and wage expense associated
with infrastructure spending to support our accelerated growth objectives also
contributed to higher costs compared to last year.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense as a
percentage of restaurant and consumer product sales was down to 5.8% versus 6.3%
last year due to increased sales leverage.
PRE-OPENING COSTS. Pre-opening costs increased as a percentage of restaurant
sales to 1.2% from .4% due to the opening of three new company restaurants
during the third quarter compared to one company restaurant opened last year.
Pre-opening costs were also recorded for two existing company restaurants that
were reopened during the quarter after undergoing major facilities upgrades.
OPERATING INCOME. Operating income was $4.9 million, which represents an
operating margin of 8.2%. Operating income for last year was $4.6 million, which
represents an operating margin of 8.5%.
INTEREST AND OTHER EXPENSE. Interest and other expense of $806,000 decreased
from $861,000 last year as a higher level of capitalized interest associated
with accelerated construction activities offset increased debt balances.
8
<PAGE>
PROVISION FOR INCOME TAXES. The effective tax rate of 34.0% for the quarter was
higher than the 33.0% effective tax rate for the same quarter last year, but
consistent with the full year tax rate of 34.0%.
NET INCOME. Net income increased to $2.7 million from $2.5 million last year
based on the factors noted above.
THIRTY-NINE WEEKS ENDED JULY 2, 2000 COMPARED TO THIRTY-NINE WEEKS ENDED
JUNE 27, 1999
<TABLE>
<CAPTION>
39 WEEKS ENDED
7/2/00 6/27/99
<S> <C> <C>
REVENUES:
Restaurant sales 92.4% 92.7%
Consumer product sales 5.1 4.9
Franchise income 2.5 2.4
------ ------
Total 100.0% 100.0%
------ ------
COSTS AND EXPENSES:
Cost of food & beverages (1) 25.6% 26.5%
Labor and benefits (1) 31.5 31.3
Occupancy costs (1) 13.8 14.5
Other operating costs (1) 8.5 8.6
General and administrative 8.2 7.6
Depreciation and amortization (1) 6.1 6.3
Pre-opening costs (2) 1.0 .4
----- -----
Operating income 7.6 7.0
Interest and other expense 1.3 1.7
------ ------
Income before taxes 6.3 5.3
Provision for income taxes 2.2 1.7
------ ------
Net income 4.1% 3.6%
====== ======
</TABLE>
(1) Percentage of restaurant and consumer product sales
(2) Percentage of restaurant sales
TOTAL REVENUES. Total revenues increased 9.5% to $167.0 million from $152.5
million last year.
RESTAURANT SALES. Company-owned restaurant sales rose 9.1% to $154.3 million
from $141.4 million last year due primarily to a 4.3% increase in comparable
store sales for the thirty-nine weeks versus the same period last year. Average
weekly sales, which includes sales at comparable stores as well as new units,
also increased 4.8% during the thirty-nine week period. Store operating weeks of
full-service Pizzeria Uno...Chicago Bar & Grill units grew 4.4%.
CONSUMER PRODUCT SALES. Consumer product sales increased 14.9% for the first
nine months this year to $8.5 million from $7.4 million last year. Sales in the
contract food service category grew 24.2% over last year. The growth was led by
increased shipments to airlines, hotels, and convenience stores. Sales of fresh
product to retail grocers primarily in the New England region were essentially
flat versus the same period last year.
FRANCHISE INCOME. Franchise income, which includes royalty income and initial
franchise fees, increased to $4.18 million versus $3.73 million last year.
Royalty income increased 5.4% to $3.79 million this year compared to $3.60
million last year. The increase in royalty income was primarily due to a 9.8%
increase in average weekly sales for full-service franchised restaurants.
Franchise fees of $387,000 were recorded this year, including approximately
$180,000 from a deposit forfeiture, compared to $130,000 last year. Seven
full-service Pizzeria Uno...Chicago Bar & Grill franchise restaurants opened
during the first nine months of fiscal 2000 while five franchise restaurants
closed, including four Pizzeria Uno Restaurant & Bar units.
9
<PAGE>
COST OF FOOD AND BEVERAGES. Cost of food and beverage as a percentage of
restaurant and consumer product sales decreased to 25.6% from 26.5% last year,
reflecting greater purchasing efficiencies and lower cheese costs. We have
entered into several contracts for key food items, including one with our cheese
supplier to fix the cost of mozzarella cheese for calendar year 2000 at
favorable pricing versus fiscal 1999 pricing.
LABOR AND BENEFITS. Labor costs increased slightly to 31.5% from 31.3% last year
as a percentage of restaurant and consumer product sales, primarily due to
increases in the average wage rate.
OCCUPANCY COSTS. Occupancy costs declined as a percentage of restaurant and
consumer product sales to 13.8% from 14.5% due to sales leverage gains.
OTHER OPERATING COSTS. Other operating costs were 8.5% of restaurant and
consumer product sales, down slightly from 8.6% last year on sales leverage
gains.
GENERAL AND ADMINISTRATIVE. General and administrative expenditures as a
percentage of total revenues increased to 8.2% from 7.6% last year, reflecting
the increase in legal and professional fees associated with the canceled stock
offering as well as higher salary and wage expense related to infrastructure
spending to support our accelerated growth objectives.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense as a
percentage of restaurant and consumer product sales was down to 6.1% versus 6.3%
last year due to increased sales leverage.
PRE-OPENING COSTS. Pre-opening costs as a percentage of restaurant sales
increased to 1.0% from .4% due to the opening of eight new company restaurants
this year compared with five during the first nine months of fiscal 1999.
Pre-opening costs for two existing company restaurants that underwent major
facilities upgrades this year also contributed to the increase.
OPERATING INCOME. Operating income was $12.7 million, which represents an
operating margin of 7.6%. Operating income for last year was $10.7 million,
which represents an operating margin of 7.0%.
INTEREST AND OTHER EXPENSE. Interest and other expense of $2,188,000 decreased
from $2,561,000 last year due primarily to a higher level of capitalized
interest associated with accelerated growth plans along with a slightly lower
average debt balance.
PROVISION FOR INCOME TAXES. The effective tax rate of 34.0% for the first nine
months of fiscal 2000 was higher than the 33.0% effective tax rate for the same
period last year, but consistent with the full year tax rate of 34.0%.
NET INCOME. Net income increased to $6.9 million from $5.4 million last year
based on the factors noted above.
LIQUIDITY AND SOURCES OF CAPITAL
The following table presents a summary of our cash flows for the thirty-nine
weeks ended July 2, 2000.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Net cash provided by operating activities $ 14,711
Net cash used in investing activities (27,656)
Net cash provided by financing activities 13,643
-------
Increase in cash $ 698
=======
</TABLE>
Historically, we have leased most of our restaurant locations and pursued a
strategy of controlled growth, financing our expansion principally from
operating cash flow, public equity offerings, the sale of senior, unsecured
notes, and revolving lines of credit. During the first nine months of fiscal
2000, our investment in property, equipment and leasehold improvements was $27.7
million.
10
<PAGE>
We currently plan to open approximately 12 restaurants in fiscal 2000, eight of
which were opened in the first nine months of the fiscal year. The average cash
investment required to open a full service Pizzeria Uno restaurant, excluding
land and pre-opening costs, is approximately $1.6 million.
During the quarter the company amended its $55 million credit facility to expand
the revolver component from $26.6 million to $36.6 million, leaving the
remaining term loans of the facility unchanged. The maturity of the revolver is
now June 2005.
As of July 2, 2000, we had outstanding indebtedness of $48.7 million under our
$55 million credit facility, $521,000 in capital lease obligations and $4.4
million under our mortgage financing. Advances under the revolving credit
facility will accrue interest at the lender's prime rate plus 0-50 basis points,
or alternatively, at 75-175 basis points above LIBOR. We anticipate using the
revolving credit facility in the future for the development of additional
restaurants, and for working capital.
On November 30, 1999 our board of directors declared a 10% stock dividend on the
outstanding shares of our common stock. The stock dividend was payable on
December 23, 1999 to shareholders of record as of December 13, 1999.
On February 25, 2000, the board of directors amended its authorization regarding
the repurchase of the company's common stock. Under this amendment, the company
has approval to repurchase up to 1,500,000 shares of its common stock at such
time and at such prices as the company deems appropriate. To date under this
authorization, we have repurchased 1,392,775 shares, of which 688,505 shares
have been purchased during fiscal 2000.
We believe that existing cash balances, cash generated from operations and
borrowing under our revolving line of credit will be sufficient to fund our
capital requirements for the foreseeable future.
We are currently obligated under 108 leases, including 104 leases for
Company-owned restaurants, two leases for our executive offices, one lease for
an office building containing one of our restaurants and one lease for a mill
shop.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal year 2001. This statement requires all derivatives to be
carried on the balance sheet as assets or liabilities at fair value. The
accounting for changes in the fair value of the derivatives would depend on the
hedging relationship and would be reported in the income statement, or as a
component of comprehensive income. We believe that the adoption of this new
accounting standard will not have a material impact on the consolidated
financial statements.
In March 2000, the FASB issued Interpretation No.44, Accounting for Certain
Transactions Involving Stock Compensation (the Interpretation). This
interpretation clarifies how companies should apply the Accounting Principles
Board's Opinion No.25, Accounting for Stock Issued to Employees. The
Interpretation will be applied prospectively to new awards, modifications to
outstanding awards, and changes in employee status on or after July 1, 2000,
except as follows: the definition of an employee applies to awards granted after
December 15, 1998; the Interpretation applies to modifications that reduce the
exercise price of an award after December 15, 1998; and the Interpretation
applies to modifications that add a reload feature to an award made after
January 12, 2000. At the present time, there are no awards granted by the
Company which would result in an adjustment at July 1, 2000 as a result of this
Interpretation.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements. SAB
101 clarifies the SEC staff's views on applying generally accepted accounting
principles to revenue recognition in financial statements. In March 2000, the
SEC issued an amendment, SAB 101A, which deferred the effective date of SAB 101.
In June 2000, the SEC issued an amendment, SAB 101B, which again deferred the
effective date of SAB 101. The Company will adopt SAB 101 in the fourth quarter
of fiscal 2001 in accordance with the
11
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amendment. The adoption of this SAB is not expected to have a significant impact
on the Company's financial statements.
YEAR 2000 COMPLIANCE
The Year 2000 problem is a result of computer programs being written using
two digits rather than four to define the applicable year. Any of our programs
that have time sensitive software may recognize the date using "00" as the year
1900 rather than the year 2000, which could result in system failures or
miscalculations using existing software. We did not experience any significant
disruptions of business as a result of the Year 2000 problem. Business affairs
with our major vendors and food distributors, our credit card processor and our
franchisees continued without any critical interruptions. However, if
unanticipated problems arise from systems or equipment in the future, there
could be material adverse effects on our consolidated financial position,
results of operations and cash flows.
We expensed all maintenance and modification costs as we incurred them. We
capitalized and depreciated the cost of new software, if material, over its
expected useful life. We incurred costs of approximately $150,000 in testing and
remediation of all our systems and applications. Approximately $60,000 of the
total cost of testing and remediation related to repair issues and the remainder
to replacement of equipment. All costs were budgeted and funded by cash flows
from operations. No information technology projects were deferred due to Year
2000 compliance efforts. We did not pursue independent verification of our
systems because we believe that any effort would be as costly as the remediation
effort and was not warranted. The costs related to the Year 2000 compliance
project were not material to our financial position or results of operations.
IMPACT OF INFLATION
Inflation has not been a major factor in our business for the last several
years. We believe we have historically been able to pass on increased costs
through menu price increases, but there can be no assurance that we will be able
to do so in the future. Future increases in local area construction costs could
adversely affect our ability to expand.
SEASONALITY
Our business is seasonal in nature, with revenues and, to a greater degree,
operating income being lower in the first and second fiscal quarters than in
other quarters. Our seasonal business pattern is due to our concentration of
units in the Northeast, and the resulting lower winter volumes.
12
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
We have market risk exposure to interest rates on our fixed and
variable rate debt obligations and we manage this exposure through the use of
interest rate swaps. We do not enter into contracts for trading purposes. The
information below summarizes our market risk associated with debt obligations
and derivative financial instruments as of July 2, 2000. For debt obligations,
the table presents principal cash flows and related average interest rates by
expected fiscal year of maturity. For variable rate debt obligations, the
average variable rates are based on implied forward rates as derived from
appropriate quarterly spot rate observations as of the fiscal quarter end. For
interest rate swaps, the table presents the notional amounts and related
weighted average interest rates by fiscal year of maturity. The average variable
rates are the implied forward rates as derived from appropriate quarterly spot
rate observations as of the fiscal quarter end.
<TABLE>
<CAPTION>
Expected Fiscal Year of Maturity
(US$ in millions)
Fair
Value
2000 2001 2002 2003 2004 Thereafter 7/2/2000
---- ---- ---- ---- ---- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Liabilities:
Fixed Rate $0.06 $0.24 $0.26 $0.28 $0.31 $3.29 $4.44
Average Interest Rate 8.75% 8.75% 8.75% 8.75% 8.75%
Variable rate $0.92 $3.68 $3.68 $2.42 $2.00 $36.04 $48.74
Average Interest Rate 8.14% 8.31% 8.34% 8.35% 8.42%
Interest Rate Swaps:
Receive Variable/
Pay Fixed $30.00 $30.00 $0.17
Weighted Average
Pay Rate 5.96% 5.84% -- -- -- --
Average Receive Rate 6.80% 6.96% -- -- -- --
</TABLE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)REPORTS ON FORM 8-K
Uno Restaurant Corporation did not file any Reports
on Form 8-K during the quarter ended July 2, 2000
13
<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.
UNO RESTAURANT CORPORATION
(Registrant)
Date: AUGUST 4, 2000 By: /s/ Craig S. Miller
-------------- ---------------------------------
Craig S. Miller
Chief Executive Officer
(Principal Executive Officer)
Date: AUGUST 4, 2000 By: /s/ Robert M. Vincent
-------------- ---------------------------------
Robert M. Vincent
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
14
