10-Q 1 FIRST QUARTER 10-Q FISCAL 1995 UNITED STATES SECURITIES & EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 19, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from Commission file number 0-12343 VICORP Restaurants, Inc. (Exact name of registrant as specified in its charter) COLORADO 84-0511072 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 400 West 48th Avenue Denver, Colorado, 80216 (Address of principal executive offices) (Zip Code) (303) 296-2121 (Registrant's telephone number, including area code) Not Applicable (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 The registrant had 9,520,759 shares of its $.05 par value Common Stock outstanding as of March 22, 1995. PART I - FINANCIAL INFORMATION Item 1. Financial Statements VICORP Restaurants, Inc. CONSOLIDATED BALANCE SHEETS (in thousands) February 19, October 30, 1995 1994 ------------ ----------- (unaudited) ASSETS Current assets Cash $ 4,598 $ 6,123 Receivables 3,393 9,801 Inventories 7,948 10,585 Deferred income taxes 6,000 6,000 Prepaid expenses and other 3,037 2,592 ------------ ----------- Total current assets 24,976 35,101 ------------ ----------- Property and equipment, net 160,035 165,802 Deferred income taxes 32,391 33,550 Other assets 14,781 14,570 ------------ ----------- Total assets $ 232,183 $ 249,023 ============ =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current maturities of long-term debt and capitalized lease obligations $ 1,748 $ 1,796 Accounts payable, trade 12,857 19,246 Accrued compensation 4,563 5,965 Accrued taxes 9,160 9,979 Accrued insurance 6,860 6,537 Other accrued expenses 4,945 6,930 ------------ ----------- Total current liabilities 40,133 50,453 ------------ ----------- Long-term debt (Note 2) 20,500 28,573 Capitalized lease obligations 13,379 13,981 Non-current accrued insurance 7,907 7,750 Other non-current liabilities and credits 12,760 13,400 Commitments and contingencies Shareholders' equity Series A Junior Participating Preferred Stock, $.10 par value, 200,000 shares authorized, no shares issued -- -- Common stock, $.05 par value, 20,000,000 shares authorized, 9,519,759 and 9,509,426 shares issued and outstanding 476 476 Paid-in capital 91,683 91,544 Retained earnings 45,345 42,846 ------------ ----------- Total shareholders' equity 137,504 134,866 ------------ ----------- Total liabilities and shareholders' equity $ 232,183 $ 249,023 ============ =========== The accompanying notes are an integral part of the financial statements. VICORP Restaurants, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Sixteen weeks ended ---------------------------- February 19, February 20, 1995 1994 ------------ ------------ (unaudited) Revenues Restaurant operations $ 123,041 $ 129,959 Franchise operations 992 867 ------------ ------------ Total revenues 124,033 130,826 ------------ ------------ Costs and expenses Restaurant operations Food 39,651 39,445 Labor 37,877 38,422 Other operating 33,807 35,749 General and administrative 7,802 10,254 Interest 1,168 1,204 Other (income) expense, net (270) (39) ------------ ------------ Total costs and expenses 120,035 125,035 ------------ ------------ Income before income tax expense 3,998 5,791 Income tax expense 1,499 2,171 ------------ ------------ Net income $ 2,499 $ 3,620 ============ ============ Earnings per common and dilutive common equivalent share $ .26 $ .36 ============ ============ Weighted average common shares and dilutive common share equivalents 9,656 10,049 The accompanying notes are an integral part of the financial statements. VICORP Restaurants, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Sixteen weeks ended ---------------------------- February 19, February 20, 1995 1994 ------------ ------------ (unaudited) OPERATIONS Net income $ 2,499 $ 3,620 Reconciliation to cash provided by operations Depreciation and amortization 7,067 7,838 Deferred income tax provision 1,160 1,708 Loss on disposition of assets 247 508 Other, net (21) (65) ------------ ----------- 10,952 13,609 Change in assets and liabilities Trade receivables 334 (62) Inventories 2,612 3,817 Accounts payable, trade (6,389) (6,285) Other current assets and liabilities (4,361) (3,293) Non-current accrued insurance 157 (70) ------------ ----------- Cash provided by operations 3,305 7,716 ------------ ----------- INVESTING ACTIVITIES Purchase of property and equipment (1,816) (10,319) Purchase of other assets (84) (376) Disposition of property (539) (384) Additions to non-trade receivables -- (1,088) Collection of non-trade receivables 6,100 674 ------------ ----------- Cash provided by (used for) investing activities 3,661 (11,493) ------------ ----------- FINANCING ACTIVITIES Issuance of debt 12,500 7,750 Payment of debt and capitalized lease obligations (21,114) (574) Purchase of common stock -- (2,855) Other, net 123 36 ------------ ----------- Cash provided by (used for) financing activities (8,491) 4,357 ------------ ----------- Increase (decrease) in cash (1,525) 580 Cash at beginning of period 6,123 5,288 ------------ ----------- Cash at end of period $ 4,598 $ 5,868 ============ =========== Supplemental information Cash paid during the period for Interest (net of amount capitalized) $ 1,168 $ 1,127 Income taxes 456 560 The accompanying notes are an integral part of the financial statements. VICORP Restaurants, Inc. NOTES TO FINANCIAL STATEMENTS (unaudited) 1. The consolidated financial statements should be read in conjunction with the annual report to shareholders for the year ended October 30, 1994. The unaudited financial statements for the sixteen weeks ended February 19, 1995 and February 20, 1994 contain all adjustments which, in the opinion of management, were necessary for a fair statement of the results for the interim periods presented. All of the adjustments included were of a normal and recurring nature. 2. As of February 19, 1995, the Company had $20,250,000 of borrowings outstanding and $9,421,000 of letters of credit placed under its bank credit facility. 3. In the fourth quarter of 1994, the Company adopted a plan to dispose of 50 restaurant locations in trade areas that are no longer considered appropriate for the Company's existing concepts. As part of the disposal plan, the carrying value of those restaurants' assets were written down to net realizable values. The Company also accrued for expected carrying costs pending disposition and sublease disposition losses. As of February 19, 1995, the Company had closed 14 of those locations, of which five stores were disposed through sublease arrangements. The remaining 36 restaurants will continue to be operated until a satisfactory sale or sublease can be negotiated or until individual restaurant unit economics dictate closure. Operating results for the 50 locations for the first quarters of fiscal 1995 and 1994 were as follows: Quarter ended Quarter ended February 19, 1995 February 20, 1994 ----------------- ----------------- Sales $ 9,837,000 $ 12,312,000 Store operating profit(loss) (27,000) 124,000 During the first quarter of 1995, $451,000 of closure related costs and $710,000 of severance were charged against the liability established for such costs. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of VICORP Restaurants, Inc. : We have reviewed the accompanying condensed consolidated balance sheet of VICORP Restaurants, Inc. (a Colorado corporation) and subsidiary as of February 19, 1995, and the related condensed consolidated statements of operations for the sixteen week periods ended February 19, 1995 and February 20, 1994, and the condensed consolidated statements of cash flows for the sixteen week periods ended February 19, 1995 and February 20, 1994. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of VICORP Restaurants, Inc. and subsidiary as of October 30, 1994, (not presented herein), and, in our report dated December 6, 1994, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of October 30, 1994, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. ARTHUR ANDERSEN LLP Denver, Colorado, March 24, 1995. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS --------------------- The Company's quarterly financial information is subject to seasonal fluctuation. Also, the quarterly periods ended February 19, 1995 and February 20, 1994 were comprised of sixteen weeks each, while the remainder of the Company's quarterly periods are comprised of twelve weeks each. As a result, the financial information for the periods presented is not indicative of results that may be achieved on an annual basis. RESTAURANT OPERATIONS The following table sets forth certain information for the Company's two primary operating concepts and the Company as a whole. Sixteen weeks ended -------------------------------- February 19, February 20, 1995 1994 ------------ ------------ VILLAGE INN Restaurant sales $ 41,895,000 $ 45,674,000 Store operating profit percentage 13.8% 13.1% Restaurants at quarter-end 106 126 BAKERS SQUARE Restaurant sales $ 77,230,000 $ 83,766,000 Store operating profit percentage 7.8% 12.4% Restaurants at quarter-end 182 192 CONSOLIDATED Restaurant sales $123,041,000 $129,959,000 Food cost percentage 32.2% 30.4% Labor cost percentage 30.8% 29.6% Other operating cost percentage 27.5% 27.5% Store operating profit percentage 9.5% 12.6% Consolidated restaurant sales decreased 5.3% during the first quarter of 1995 compared to the first quarter of 1994. The sales decrease was primarily due to a 4.0% decrease in comparable sales. Additionally, the Company operated approximately twelve fewer equivalent restaurants in 1995's first quarter compared to the same quarter in 1994 due to restaurant closures and dispositions. The comparable sales decrease occurred entirely in the Bakers Square division, where customer counts decreased for the fourteenth straight quarter. The declines were the result of various operational, demographic and competitive issues which lead to substantial organizational changes in 1994 and the decision to dispose of 50 restaurants as discussed below. Management is focused on increasing customer counts. This requires actions that include higher expense for both food and labor. Also, Bakers Square lowered its menu prices in the second quarter of 1995. The comparable sales decrease occurred despite severe winter weather in the Midwest and an earthquake in California during the first quarter of 1994. Menu price changes did not materially effect the first quarter sales comparison. Store operating profit decreased both in total and as a percentage of sales. Higher food and labor cost resulted from the changes discussed above and modest inflationary increases coupled with no menu price increases. Also, lower comparable sales in relationship to the fixed portion of labor costs and other fixed costs contributed to the decrease. These items were partially offset by lower depreciation expense as a result of asset dispositions. James F. Caruso resigned as President of the Bakers Square division on February 16, 1995. His duties were assumed by J. Michael Jenkins, President of the Company. Nicholas P. Galanos joined the Company as the President of the Angel's Diner division on February 1, 1995. ASSET DISPOSALS As of February 19, 1995, the Company had closed 14 of the 50 restaurants scheduled for disposition under a plan adopted in fiscal 1994. Five of the closed units have been disposed of through sublease. The remaining 36 locations will remain open until a satisfactory sale or sublease can be arranged, or until unit economics dictate closure. The following table details sales and operating results for the 50 restaurants for the first quarters of fiscal 1995 and 1994. The table also segregates those restaurants which are closed and therefore only operated for a partial quarter in 1995 but a full quarter in 1994 and those that remain open and operated for the full quarter in both fiscal 1995 and 1994.
1995 1994 ---------------------------- -------------------------- Operating Operating Sales Profit (Loss) Sales Profit (Loss) ----------- ------------- ----------- ------------- Village Inn Stores closed at February 19, 1995 $ 359,000 $ (57,000) $ 1,701,000 $ (26,000) Stores open at February 19, 1995 2,598,000 83,000 2,738,000 7,000 ----------- ------------- ----------- ------------- Total $ 2,957,000 $ 26,000 $ 4,439,000 $ (19,000) Bakers Square Stores closed at February 19, 1995 $ 866,000 $ (91,000) $ 1,330,000 $ (61,000) Stores open at February 19, 1995 6,014,000 38,000 6,543,000 204,000 ----------- ------------- ----------- ------------- Total $ 6,880,000 $ (53,000) $ 7,873,000 $ 143,000
During the third quarter of fiscal 1995, the Company plans to discontinue internal distribution and warehousing of grocery products to its restaurants. At that time, the Company will begin utilizing an external distribution company for those services. Management does not anticipate that significant changes in delivered product costs will result from the change, however, food inventories should be reduced by approximately $2.5 to $3.0 million. OTHER REVENUES AND EXPENSE General and administrative expense decreased largely as the result of administrative office consolidations, staff reductions and reduced incentive and legal expenses. As a percent of revenues, general and administrative costs were 6.3% in 1995 compared to 7.8% in the comparable period last year. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- Cash provided by operations decreased 57% in the first quarter of 1995 compared to the same period in 1994 primarily due to lower operating income, the payment of severance expenses and the fact that the Company reduced year-end inventories by $2.6 million in 1995 versus $3.8 million in 1994. As of February 19, 1995, $20,250,000 of advances were outstanding under the Company's bank credit facility and approximately $45,300,000 was available for additional direct advances, subject to limitations on combined direct advances and letters of credit. The Company reduced its outstanding bank advances by $8,000,000 in the first quarter of 1995 principally due to collection of an insurance receivable. As of February 19, 1995, authorizations granted by the Board for the purchase of 508,500 common shares of the Company's common stock remained available. No shares were purchased in the first quarter of 1995. Future purchases with respect to the authorizations may be made from time to time in the open market or through privately negotiated transactions and will be dependent upon various business and financial considerations. Capital expenditures for the first quarter of 1995 were significantly lower than those incurred during the first quarter of 1994 because of the Company's near- term focus on service enhancing initiatives rather than remodel and growth activities. Capital expenditures approximating $15,000,000 are expected during the remainder of the fiscal year. Cash provided by operations and the unused portion of the Company's bank credit facility are expected to be adequate to fund these expenditures and any cash outlays for the purchase of the Company's common stock as authorized by the Board. PART II - OTHER INFORMATION Item 6: Exhibits and Reports on Form 8-K. (a) Exhibits (10) Employment Severance and Release Agreement - James F. Caruso. (15) Letter regarding unaudited interim financial information. (27) Financial data schedule. 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. VICORP Restaurants, Inc. ------------------------ (Registrant) March 27, 1995 /s/ J. Michael Jenkins ---------------------- J. Michael Jenkins, President and Co-Chief Executive Officer March 27, 1995 /s/ Dennis L. Kuper ------------------- Dennis L. Kuper, Executive Vice President of Finance EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VICORP RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS AS OF FEBRUARY 19, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 703799 VICORP RESTAURANTS, INC. 1,000 3-MOS OCT-29-1995 FEB-19-1995 4,598 0 3,393 0 7,948 24,976 287,279 127,244 232,183 40,133 33,879 476 0 0 137,028 232,183 123,041 124,033 39,651 39,651 71,684 0 1,168 3,998 1,499 2,499 0 0 0 2,499 .26 .26
EX-15 3 LETTER REGARDING UNAUDITED INTERIM FINANCIAL INFORMATION EXHIBIT 15 March 24, 1995 VICORP Restaurants, Inc. : We are aware that VICORP Restaurants, Inc. has incorporated by reference into the Company's previously filed Registration Statements File No. 33-26650, 33-32608, 33-34447, 33-48205 and 33-49166, its Form 10-Q for the quarter ended February 19, 1995, which includes our report dated March 24, 1995, covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered a part of the registration statement prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, ARTHUR ANDERSEN LLP EX-10 4 EMPLOYMENT SEVERANCE AND RELEASE AGREEMENT - JAMES F. CARUSO EXHIBIT 10 February 16, 1995 James F. Caruso 173 Marion Street Denver, Colorado 80218 Re: Employment Severance and Release Agreement Dear Mr. Caruso: The purpose of this letter is to put into written form the agreement with respect to your termination of employment with VICORP Restaurants, Inc. ("VICORP"). The agreement is: EMPLOYMENT: You will be relieved of any further duties with VICORP on February 16, 1995. Your status as an employee shall terminate on February 17, 1995. SALARY: VICORP shall pay you your base salary through February 17, 1995, plus any accrued and unused vacation through that date. Federal and state with- holding and other authorized deductions shall be taken from those amounts. Such payments shall be made to you by no later than February 17, 1995. BENEFITS: Your entitlement to participate in the benefits offered by VICORP shall cease as of February 17, 1995. Any rights accrued under those plans to the date of termination shall be governed by the provisions of the respective plans. Notwithstanding that fact, however, you will be provided continuation rights with respect to medical and dental benefits as required under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"). STOCK OPTIONS: VICORP confirms your right to exercise until May 18, 1995 any options which were granted to you to purchase VICORP's common stock and which were vested as of February 17, 1995. In no event, however, shall any granted but unvested options vest subsequent to February 17, 1995. SEVERANCE: VICORP shall pay to you $201,666, less appropriate federal and state withholding, as severance pay in recognition of your service to VICORP. The payment shall be made to you in a lump sum payment immediately after the expira- tion of the revocation period provided for in this agreement. CONFIDENTIAL INFORMATION: In the course of your employment, you have been exposed to trade secrets and other information which is of vital importance to VICORP's business. All information, whether written or not, regarding VICORP's business, is confidential. You agree that you will not, directly or indirectly at any time disclose any trade secrets or confidential information of VICORP which you have obtained during the course of your employment with VICORP. Nothing in this agreement shall prevent you from using your general knowledge, skill and experience in gainful employment by a third party subsequent to your termination from VICORP. RETURN OF DOCUMENTS: You have agreed to immediately return to VICORP any and all keys, charge cards, company documents, and any and all other items of VICORP which are in your possession. CONTINUED ASSISTANCE: You have agreed to continue to cooperate with VICORP as needed with regard to any legal action which may necessitate your involvement and which arose during your tenure with VICORP. Any out-of-pocket expenses incurred by you in connection with your involvement shall be paid by VICORP. OUT-PLACEMENT ASSISTANCE: You will be eligible to receive the three-month out- placement package at the Company's expense through the firm of AIM/Enterchange. MUTUAL RELEASE: Except for any obligations described in this letter, you hereby release VICORP and its officers, directors, shareholders, and employees; and VICORP hereby releases you from any and all claims, agreements, promises, actions, and obligations that each may have against the other arising out of the employment relationship. This release covers claims and obligations, even if they are unknown at this time, including but not limited to any contract or tort claims and any claims based on rights under the Age Discrimination in Employment Act of 1967, 29 U.S.C. 621. VICORP and you also agree as to any such claim neither VICORP nor you will start or pursue any complaint or proceeding against the other before any court, tribunal or governmental agency. In consideration for the foregoing release, VICORP shall pay to you $18,333 at the expiration of the revocation period defined below. MISCELLANEOUS: You are entering into this agreement freely and voluntarily and acknowledge that you have been advised of your right to consult legal counsel and that you have had an opportunity to do so. In the event any term of this agreement is unenforceable, then such unenforceable term would be altered so as to be enforceable. If that is not possible, then it will be deleted from this agreement and the remaining part of the agreement will remain in effect. This agreement constitutes the entire agreement between the parties with respect to this matter and supercedes any prior agreements, whether oral or written. Any change or modification of this agreement to be valid must be in writing signed by each of us and the terms and provisions of this agreement shall be binding upon our respective successors, assigns, heirs, executors, administrators, and representatives. REVOCATION PERIOD: You (a) shall have a period of twenty-one (21) days from the date of delivery of this agreement to accept the agreement, and (b) shall have seven (7) days following your execution of this agreement during which you may revoke the agreement by providing VICORP written notice of your revocation. If this agreement is not revoked by you during said seven (7) day period, it shall be deemed accepted. The provisions of this agreement relating to severance, outplacement assistance, and mutual release shall not be effective or enforce- able until the revocation period has expired; all other provisions shall be effective as of February 17, 1995. Sincerely, /s/ J. Michael Jenkins ---------------------- J. Michael Jenkins Accepted and agreed to President /s/ James F. Caruso __________________________ James F. Caruso 17 February 1995 --------------------- Date