United States
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
AMENDMENT NO. 2
(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 24, 1996 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: 0-22402
HOMETOWN BUFFET, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0463002
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
9171 Towne Centre Drive, Suite 575
San Diego, California 92122
(Address of principal executive offices) (Zip Code)
(619) 546-9096
(Registrant's telephone number, including area code)
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) had been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares of Common Stock outstanding as of May 29, 1996: 11,615,304
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TABLE OF CONTENTS
-----------------
Item in
Form 10-Q Page No.
--------- --------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets-
April 24, 1996 and January 3, 1996............................3
Consolidated Income Statements-
Sixteen Weeks Ended April 24, 1996 and
April 19, 1995 ...............................................4
Consolidated Statements of Cash Flows-
Sixteen Weeks Ended April 24, 1996 and
April 19, 1995................................................5
Notes to Consolidated Financial Statements....................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................7
Signature.....................................................12
2
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PART I FINANCIAL INFORMATION
HomeTown Buffet, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
April 24, January 3,
Assets 1996 1996
----------- ----------
(Unaudited)
Current assets:
Cash and cash equivalents ........................... $ 2,420 $ 1,155
Short-term investments .............................. 20,834 27,828
Receivables ......................................... 2,707 2,830
Inventories ......................................... 1,162 1,094
Prepaid expenses .................................... 1,018 865
Pre-opening costs ................................... 1,689 1,784
-------- --------
Total current assets .............................. 29,830 35,556
Property and equipment, net ........................... 112,353 107,946
Other assets .......................................... 3,323 2,355
-------- --------
$145,506 $145,857
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, trade ............................. $ 7,963 $ 12,357
Accrued expenses .................................... 8,193 5,453
Deferred income taxes ................................ 553 542
Current portion of capital leases ................... 2,062 2,012
Short-term debt ..................................... 1,000 2,000
-------- --------
Total current liabilities ......................... 19,771 22,364
Deferred income taxes ................................. 1,916 1,530
Long-term portion of capital leases ................... 6,592 7,143
Other liabilities ..................................... 1,697 1,102
Long term debt ........................................ 41,500 41,500
Stockholders' equity:
Common stock, $.01 par value. Authorized
20,000,000 shares; issued and outstanding 11,604,904
shares and 11,581,779 shares at the end of first
quarter 1996 and fiscal 1995, respectively .......... 116 116
Additional paid-in capital .......................... 62,122 62,065
Retained earnings ................................... 11,792 10,037
-------- --------
Total stockholders' equity ........................ 74,030 72,218
-------- --------
$145,506 $145,857
======== ========
See accompanying notes to consolidated financial statements.
3
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HomeTown Buffet, Inc. and Subsidiaries
Consolidated Income Statements
(In thousands, except per share data)
(Unaudited)
Sixteen Weeks
Ended
--------------------
April 24, April 19,
1996 1995
Revenues:
Net restaurant sales .................................. $ 61,403 $ 38,334
Franchise income, net (primarily related party) ....... 344 281
-------- --------
Total revenues ................................... 61,747 38,615
-------- --------
Costs and expenses:
Cost of restaurant sales .............................. 21,974 14,029
Restaurant operating expenses:
Labor ............................................... 17,972 11,286
Occupancy and other ................................. 9,831 5,800
General and administrative expenses ................... 4,050 2,605
Depreciation and amortization ......................... 4,204 2,607
-------- --------
Total costs and expenses ......................... 58,031 36,327
-------- --------
Income from operations ........................... 3,716 2,288
Interest expense ...................................... (1,214) (180)
Interest income ....................................... 399 109
Other income, net ..................................... 24 1
-------- --------
Net income before taxes .......................... 2,925 2,218
Income taxes .......................................... 1,170 821
-------- --------
Net income ....................................... $ 1,755 $ 1,397
======== ========
Net income per common and
common equivalent share .......................... $ 0.15 $ 0.12
======== ========
Weighted average common and common
equivalent shares outstanding ....................... 12,051 11,935
======== ========
See accompanying notes to consolidated financial statements.
4
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<TABLE>
<CAPTION>
HomeTown Buffet, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Sixteen
Weeks Ended
--------------------
April 24, April 19,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................. $ 1,755 $ 1,397
Adjustments to reconcile net income to cash provided (used)
by operating activities:
Depreciation and amortization ........................... 4,204 2,607
Amortization of premium/discount on investments ......... -- (71)
Changes in assets and liabilities:
Receivables .......................................... 123 1,901
Inventories .......................................... (68) (133)
Prepaid expenses ..................................... (153) (249)
Pre-opening costs .................................... (615) (533)
Other assets ......................................... (1,009) 132
Accounts payable, trade .............................. (4,394) (3,907)
Accrued expenses ..................................... 2,740 184
Deferred taxes ....................................... 397 411
Other Liabilities .................................... 595 72
-------- --------
Net cash provided by operating activities ......... 3,575 1,811
-------- --------
Cash flows from (used in) investing activities:
Purchase of investments ..................................... (57,583) (3,673)
Proceeds from sale of investments ........................... 64,577 6,178
Purchase of property and equipment .......................... (7,860) (12,689)
-------- --------
Net cash used in investing activities ............. (866) (10,184)
-------- --------
Cash flows from (used in) financing activities:
Sale of common stock ........................................ 57 25
Proceeds on borrowings ...................................... 2,500 14,366
Payments on borrowings ...................................... (3,500) (5,475)
Payments on capital leases .................................. (501) (297)
-------- --------
Net cash provided by (used in) financing activities (1,444) 8,619
-------- --------
Increase in cash and cash equivalents ...................... 1,265 246
Cash and cash equivalents at beginning of period ............ 1,155 85
-------- --------
Cash and cash equivalents at end of period .................. $ 2,420 $ 331
======== ========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest .................................................. $ 237 $ 180
======== ========
Income taxes .............................................. $ 805 $ 890
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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HomeTown Buffet, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. 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 the financial position
as of April 24, 1996 and the results of operations and cash flows for
the sixteen weeks ended April 24, 1996 and April 19, 1995. The results
of operations for the sixteen weeks are not necessarily indicative of
the results for the entire fiscal year ending January 1, 1997.
These financial statements have been prepared by HomeTown Buffet, Inc.
(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.
These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's
Annual Report for the fiscal year ended January 3, 1996.
2. Primary and fully diluted net income per share are computed using the
weighted average number of common and dilutive common equivalent
shares assumed to be outstanding during the period. Common equivalent
shares consist of options to purchase common shares. The treasury
stock method was used to calculate the common equivalent number of
shares from options.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
HomeTown Buffet, Inc. (the "Company") operates and franchises scatter
bar buffet restaurants under the name "HomeTown Buffet." As of April 24,
1996, the Company had 74 Company-owned HomeTown Buffet restaurants in
operation in 11 states and 19 franchised restaurants in eight states. The
Company also operates two Roadhouse Grill steakhouse restaurants, located
in two states.
During the 1996 first quarter the Company acquired the minority
interest in its one remaining 80 percent-owned joint venture. The 10
restaurants in that joint venture are now part of the Company-owned
operations. The Company acquired the 20 percent minority interest in the
joint venture for $950,000 and the forgiveness of a $200,000 loan (plus
accrued interest) that the Company made to its joint venture partner to
finance the initial purchase of the joint venture partner's minority
interest.
The Company's fiscal year ends on the Wednesday nearest December 31
and is comprised of fifty-two or fifty-three weeks divided into four
quarters of sixteen, twelve, twelve, and twelve or thirteen weeks,
respectively.
7
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Results of Operations
The following table sets forth the percentage relationship to total
revenues, unless otherwise indicated, of certain income statement data. The
table also sets forth certain restaurant data for the periods indicated.
Sixteen Weeks Ended
----------------------
April 24, April 19,
1996 1995
--------- ---------
Income Statement Data:
Revenues:
Net restaurant sales.................................. 99.4% 99.3%
Franchise income, net................................. 0.6 0.7
Total revenues............................... 100.0 100.0
Costs and expenses:
Cost of restaurant sales(1)........................... 35.8 36.6
Restaurant operating expenses:
Labor(1)............................................ 29.3 29.4
Occupancy and other(1).............................. 16.0 15.1
General and administrative expenses................... 6.6 6.7
Depreciation and amortization......................... 6.8 6.8
Income from operations....................... 6.0 5.9
Interest expense...................................... -2.0 -0.5
Interest income....................................... 0.6 0.3
Other income, net..................................... 0.0 0.0
Net income before taxes...................... 4.7 5.7
Income taxes.......................................... 1.9 2.1
Net income................................... 2.8% 3.6%
Restaurant Data:
Company-owned restaurants............................. 76 49
Franchised restaurants................................ 19 17
Total restaurants..................................... 95 66
Average weekly net sales during the period $53,018 $53,639
Total number of operating weeks during the period 1,153 711
- ------------------------------
(1) As a percentage of net restaurant sales.
8
<PAGE>
Sixteen Weeks Ended April 24, 1996 Compared to Sixteen Weeks Ended
April 19, 1995
Net restaurant sales. Net restaurant sales increased $23,069,000
(60.2%) to $61,403,000 for the sixteen week period ended April 24, 1996
(the "1996 first quarter") from $38,334,000 for the sixteen week period
ended April 19, 1995 (the "1995 first quarter"). This increase was largely
the result of the addition of 27 new HomeTown Buffet restaurants since the
1995 first quarter.
Average weekly net sales per restaurant decreased $621 (1.2%) to
$53,018 for the 1996 first quarter from $53,639 for the 1995 first quarter.
The Company is unable to predict if average weekly sales in the remaining
quarters of fiscal 1996 will equal or exceed those in the prior fiscal
quarters.
Franchise income. Net franchise income increased $63,000 (22.4%) in
the 1996 first quarter compared to the 1995 first quarter, primarily due to
the addition of two restaurants that opened in fiscal 1995 that were open
for the entire 1996 first quarter. Franchise income declined to 0.6% of
total revenues in the 1996 first quarter from 0.7% in the 1995 first
quarter primarily because of the lower growth in franchised restaurant
revenues as compared to Company-owned restaurant revenues. The Company
expects this trend to continue.
Costs and expenses. Cost of restaurant sales increased $7,945,000
(56.6%) during the 1996 first quarter compared to the 1995 first quarter,
but as a percentage of net restaurant sales declined to 35.8% in the 1996
first quarter from 36.6% in the 1995 first quarter. Management believes
this decrease was due to improved purchasing, improved controls at the
operating units and in part due to a small increase in the average meal
price since the 1995 first quarter.
Restaurant operating expenses increased $10,717,000 (62.7%) during the
1996 first quarter compared to the 1995 first quarter, and as a percentage
of net restaurant sales these expenses increased to 45.3% in the 1996 first
quarter from 44.6% in the 1995 first quarter. This increase was due to
higher costs of certain supplies, including paper, as well as increased
expenditures in repairs and maintenance, and the higher rent cost in the
more recently opened locations on the East Coast.
General and administrative expenses increased $1,445,000 (55.5%) to
$4,050,000 in the 1996 first quarter from $2,605,000 in the 1995 first
quarter. As a percentage of total revenues, these expenses remained
relatively constant at 6.6% in the 1996 first quarter compared to 6.7% in
the 1995 first quarter.
Depreciation and amortization increased $1,597,000 (61.3%) in the 1996
first quarter compared to the 1995 first quarter primarily due to opening
and operation of 27 additional restaurants in the 1996 first quarter. As a
percentage of restaurant sales these expenses remained constant at 6.8%.
Interest expense. Interest expense increased $1,034,000 in the 1996
first quarter to $1,214,000 from $180,000 in the 1995 first quarter due to
increased borrowings to fund restaurant development through equipment
financing and the recent issuance of convertible subordinated notes in a
public offering in November 1995 (the "1995 Debt Offering").
9
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Interest income. Interest income increased $290,000 in the 1996 first
quarter to $399,000 from $109,000 in the 1995 first quarter due to
increases in excess cash. Cash available for the purchase of investment
grade, interest-bearing securities increased as a result of receipt of net
proceeds of $40.3 million from the 1995 Debt Offering.
Income taxes. Income tax expense of $1,170,000 in the 1996 first
quarter reflects an estimated annual effective tax rate of 40.0% compared
to an estimated annual effective tax rate of 37.0% in the 1995 first
quarter. The increase in the effective tax rate from the 1995 first quarter
to the 1996 first quarter was due to additional state income taxes as the
utilization of the remainder of available net operating loss carryforwards
in the 1995 first quarter.
Liquidity and Capital Resources
Almost all of the Company's restaurants generate cash immediately
through sales. The Company does not have significant inventory or trade
receivable (nearly all of its sales are in cash) and it generally receives
several weeks of trade credit in purchasing food and supplies.
The Company's amended credit line with Sanwa Bank of California allows
for borrowings of up to $10 million. As of April 24, 1996, the outstanding
principal balance on the credit line was $1,000,000; loans under the credit
line bear interest at the bank's reference rate (8.25% on April 24, 1996)
and the credit line expires on April 30, 1998.
The Company plans to open approximately 25 to 28 restaurants in fiscal
1996, of which 6 had been opened through April 24, 1996. The Company has
estimated capital expenditures to be approximately $50 to $55 million in
fiscal 1996, of which approximately $7.9 million had been spent through
April 24, 1996. Actual capital needs could vary significantly depending on
the number of restaurants the Company develops through the lease of space
in existing buildings as compared to the purchase or lease of building
sites and the construction of free-standing restaurants. The development
costs for a restaurant increase substantially when the Company purchases or
leases land for the building site and constructs a free-standing
restaurant. The Company expects that in fiscal 1996 a greater percentage of
the restaurant development will come through the purchase or lease of
building sites and construction of free-standing units as compared to prior
years, and that therefore the Company's average cash investment in new unit
development will be somewhat greater than in prior years.
The Company's expansion plans constitute forward-looking information.
The Company's ability to achieve its projected expansion plans will depend
on a variety of factors, many of which may be beyond the Company's control,
including the Company's ability to locate suitable restaurant sites; to
negotiate acceptable lease or purchase terms; to obtain required
governmental approvals and construct new restaurants in a timely manner; to
attract, train and retain qualified and experienced personnel and
management; to obtain adequate funds; and to continue to operate its
restaurants profitably. Locating suitable restaurant sites at acceptable
costs and on acceptable terms has become increasingly difficult
10
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due to an improved real estate market in the Company's principal areas of
planned expansion, including California. In addition, part of the Company's
growth strategy includes expansion in the Northeast, a geographic region
where the Company has limited experience locating and developing sites and
operating restaurants. Moreover, the Company's construction may be delayed
in the Northeast due to inclement weather conditions and somewhat longer
build-out times and more complex labor relations than the Company
experiences in the western Untied States. Due to these factors and the
others set out above, there is no assurance that the Company will be able
to continue to effectively develop or operate additional restaurants in
this region or that it will be able to expand as planned. There is also no
assurance that additional restaurants that may be opened in the future will
be profitable or that expansion will not result in reduced sales in
existing restaurants in close proximity to new restaurants, and to the
extent this reduces cash flow available for new development and
construction, it could cause the Company to fail to meet its expansion
plans. Overall, the Company's forward looking information concerning
planned expansion should be considered in light of these factors.
The Company expects that proceeds from the 1995 Debt Offering along
with cash flows from restaurant operations, equipment financing, and
borrowings under the Company's credit line will fund planned expansion
through fiscal 1996. The Company will require additional capital to carry
out its current expansion plans beyond fiscal 1996. Various factors,
however, could cause the Company to use capital more rapidly than planned.
These factors include increased expansion, an increased number of
restaurants developed through the purchase or lease of a building site and
the construction of a free-standing building rather than through leased
in-line space, and decreased cash flows from existing or new restaurants.
Although to date the Company has developed each of its restaurants
individually, it has in the past considered expansion through the
acquisition of groups of existing restaurants (including restaurants owned
by its franchisees) and may do so again in the future. In that case the
Company might use capital more rapidly than expected. Moreover, the Company
may not be able to obtain the additional capital required to complete
projected growth. If the Company uses capital more rapidly than expected
and/or fails to obtain the additional required capital through some type of
financing, it would reduce future planned expansion, particularly beyond
fiscal 1996.
11
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Signature
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.
HomeTown Buffet, Inc.
(Registrant)
July 3, 1996 GLENN E. GLASSHAGEL
----------------------------------
Chief Financial and
Accounting Officer and Authorized Officer
12
