UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission file number
MARCH 24, 1998 000-22753
TOTAL ENTERTAINMENT RESTAURANT CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 52-2016614
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
300 CRESCENT COURT
BUILDING 300, SUITE 850
DALLAS, TEXAS 75201
(Address of principal executive offices) (Zip code)
(214) 754-0414
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
documents and 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.
/X/ YES / / NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 8, 1998
COMMON STOCK, $.01 PAR VALUE 10,415,000 SHARES
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
AT MARCH 24, 1998 AND DECEMBER 30, 1997 2
CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWELVE WEEKS ENDED
MARCH 24, 1998 AND PRO FORMA FOR
THE TWELVE WEEKS ENDED MARCH 25, 1997 3
CONDENSED CONSOLIDATED STATEMENT OF
CASH FLOWS FOR THE TWELVE WEEKS ENDED
MARCH 24, 1998 AND FOR THE PERIOD FROM
FEBRUARY 7, 1997 (INCEPTION) THROUGH
MARCH 25, 1997 4
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS 5
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 6
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
-1-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 24, 1998 December 30, 1997
-------------- -----------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 5,153,798 1,220,598
Marketable securities, available for sale - 3,315,056
Inventories 445,693 396,758
Pre-opening costs - net 373,963 386,402
Deferred income taxes 156,571 156,571
Other current assets 359,069 350,324
----------- -----------
Total current assets 6,489,094 5,825,709
Property and equipment, net 13,155,341 12,582,081
Intangible and other assets, net (principally goodwill) 4,810,629 4,816,479
----------- -----------
Total assets $24,455,064 $23,224,269
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 828,471 $ 823,765
Other current liabilities 907,231 422,983
----------- -----------
Total current liabilities $ 1,735,702 $ 1,246,748
Deferred income taxes 375,450 312,450
Stockholders' Equity:
Preferred stock - -
Common stock 104,150 104,150
Additional paid-in capital 20,580,764 20,580,764
Retained earnings 1,658,998 980,157
----------- -----------
Total stockholders' equity 22,343,912 21,665,071
----------- -----------
Total liabilities and stockholders' equity $24,455,064 $23,224,269
=========== ===========
</TABLE>
See accompanying notes.
- 2 -
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Company
Pro Forma
---------------
Twelve weeks Twelve weeks
ended ended
Mar. 24, 1998 Mar. 25, 1997
-------------- ---------------
Net sales:
<S> <C> <C>
Food and beverage $ 5,741,982 $3,360,193
Entertainment and other 1,032,601 724,638
----------- ----------
Total net sales 6,774,583 4,084,831
Costs and expenses:
Costs of sales 1,785,313 1,083,697
Restaurant operating expenses 2,855,797 1,800,139
Depreciation and amortization 464,742 222,669
----------- ----------
Entertainment and restaurant costs and expenses 5,105,852 3,106,505
----------- ----------
Entertainment and restaurant operating income 1,668,731 978,326
General and administrative expenses 566,856 429,062
Goodwill amortization 56,345 53,773
----------- ----------
Income from operations 1,045,530 495,491
Other income (expense):
Other income, principally interest 32,174 -
Interest expense (178) (190,719)
----------- ----------
Income before income taxes 1,077,526 304,772
Provision for income taxes 398,685 114,290
----------- ----------
Net income $ 678,841 $ 190,482
=========== ==========
Basic and diluted earnings per share $ 0.07 $ 0.02
=========== ==========
Average shares outstanding $10,415,000 8,000,000
=========== ==========
</TABLE>
See accompanying notes.
-3-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
February 7, 1997
For the twelve (inception)
weeks ended through March 25,
March 24, 1998 1997
-------------- -----------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 678,841 $ 89,447
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 521,087 115,585
Net change in operating assets and liabilities:
Change in operating assets (239,446) (69,941)
Change in operating liabilities 551,954 739,871
---------- -----------
Net cash provided by operating activities 1,512,436 874,962
Cash flows from investing activities:
Purchases of property and equipment (894,292) (181,336)
Proceeds from sale of marketable securities 3,315,056 -
Cash of companies acquired in Exchange - 733,804
---------- -----------
Net cash provided by investing activities 2,420,764 552,468
Cash flows from financing activities:
Net proceeds from sale of stock - -
Proceeds from revolving note payable to bank - 10,835,695
Payment of dividends to certain stockholders - (1,675,332)
Payment of notes payable to stockholders - (4,530,071)
Payment of notes payable to affiliates - (233,000)
Payment of notes payable to banks - (4,366,933)
---------- -----------
Net cash provided by financing activities - 30,359
---------- -----------
Net increase in cash and cash equivalents 3,933,200 1,457,789
Cash and cash equivalents at beginning of period 1,220,598 1,000
---------- -----------
Cash and cash equivalents at end of period $5,153,798 $ 1,458,789
========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 178 $ 30,359
Cash paid for income taxes 34,100 -
</TABLE>
See accompanying notes.
- 4 -
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Total Entertainment Restaurant Corp. (the "Company") was organized as a
Delaware corporation on February 7, 1997, for the purpose of developing
entertainment restaurant locations. Effective February 20, 1997, the Company
entered into simultaneous securities exchange transactions pursuant to which the
Company issued an aggregate of 8,000,000 shares of its common stock, $.01 par
value per share (the "Common Stock"), in exchange for all of the outstanding
common stock of each of Bailey's Sports Grille, Inc., F&H Restaurant Corp., Fox
& Hound, Inc. and Fox & Hound II, Inc. and the remaining 25% minority interest
in each of 505 Entertainment, Ltd., F&H Dallas, L.P., Midway Entertainment, Ltd.
and N. Collins Entertainment, Ltd. (the "Exchange"). For further information
regarding the Exchange, reference is made to the Company's Form 10-K for the
fiscal year ended December 30, 1997. The unaudited pro forma consolidated
statements of income for the twelve weeks ended March 25, 1997 give effect to
the Exchange as if such transactions occurred on January 1, 1997.
The unaudited condensed consolidated financial statements have been
prepared by the Company, pursuant to the rules and regulations of the Securities
and Exchange Commission. The information furnished herein reflects all
adjustments (consisting of normal recurring accruals and adjustments) which are,
in the opinion of management, necessary to fairly present the operating results
for the respective periods. Certain information and footnote disclosures
normally presented in annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to such
rules and regulations. These financial statements should be read in conjunction
with the Company's audited consolidated financial statements in its 1997 Form
10-K. The results of the twelve weeks ended March 24, 1998 are not necessarily
indicative of the results to be expected for the full year ending December 29,
1998.
2. STOCK OPTIONS
During the twelve week period ended March 24, 1998, the Company granted to
certain key employees stock options for 27,311 shares of Common Stock at
exercise prices ranging from $5.25 to $5.75 per share pursuant to its 1997
Incentive and Nonqualified Stock Option Plan.
3. RECENTLY ISSUED ACCOUNTING STANDARDS
As of December 31, 1997, the Company adopted Statement 130, REPORTING
COMPREHENSIVE INCOME. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or stockholders'
equity. The Company has no items of other comprehensive income in any period
presented.
In February 1998, the FASB cleared Accounting Standards Executive
Committee's ("AcSEC") Statement of Position ("SOP"), ACCOUNTING FOR THE COSTS OF
START-UP ACTIVITIES, for final issuance subject to certain editorial changes.
AcSEC plans to issue the final SOP by June 1998. The SOP will require the
Company to expense start-up costs, including organizational costs, as incurred
and to report the initial adoption as a cumulative effect of a change in
accounting principle as described in APBO No. 20, ACCOUNTING CHANGES, during the
first quarter of its fiscal year 1999. The cumulative effect upon adoption would
result in a one-time charge to income in an amount equal to the net book value
of the Company's start-up costs. A resulting benefit of this change is the
discontinuance of amortization expense in subsequent periods.
-5-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto included elsewhere in this Form 10-Q.
The Company began operations February 20, 1997 with three Fox & Hound and
eight Bailey's entertainment restaurant locations. The Company opened one Fox &
Hound location during the twelve weeks ended March 24, 1998 and currently
operates ten Bailey's units and seven Fox & Hound units located in Alabama,
Arkansas, Illinois, Indiana, Nebraska, North Carolina, South Carolina, Tennessee
and Texas.
The components of the Company's net sales are food and non-alcoholic
beverages, alcoholic beverages, and entertainment and other. For the twelve
weeks ended March 24, 1998, food and non-alcoholic beverages were 28.4% of total
sales, alcoholic beverages were 56.4% of total sales and entertainment and other
were 15.2% of total sales.
Components of restaurant operating expenses include operating payroll and
fringe benefit costs, occupancy costs and advertising and promotion costs. These
costs are generally variable and will fluctuate with changes in sales volume and
sales mix. All but one of the Company's locations are leased and provide for a
minimum annual rent, with some leases calling for additional rent based on sales
volume at the particular location of specified minimum levels.
Pre-opening costs include labor costs, costs of hiring and training
personnel and certain other costs relating to opening new restaurants, and are
capitalized and amortized over a twelve month period, beginning in the period
that the restaurants open.
General and administrative expenses include all corporate and
administrative functions that support existing operations and provide an
infrastructure to support future growth. In addition, certain expenses of
recruiting and training unit management personnel prior to meeting the criteria
to be capitalized as pre-opening expenses are also included. Management,
supervisory and staff salaries, employee benefits, travel, information systems,
training, rent and office supplies as well as accounting services fees are major
items of costs in this category.
-6-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated (i) the
percentages which certain items included in the Consolidated Statement of Income
bear to net sales, and (ii) other selected operating data:
<TABLE>
<CAPTION>
PRO FORMA (2)
TWELVE WEEKS TWELVE WEEKS
ENDED (1) ENDED (1)
------------ ---------
MAR. 24, MAR. 25,
1998 1997
------------ ---------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
<S> <C> <C>
Net sales 100.0% 100.0%
Costs and expenses:
Costs of sales................................ 26.3 26.5
Restaurant operating expenses................. 42.2 44.1
Depreciation and amortization................. 6.9 5.5
----- -----
Restaurant costs and expenses............ 75.4 76.1
----- -----
Restaurant operating income......................... 24.6 23.9
General and administrative expenses................. 8.4 10.5
Goodwill amortization............................... 0.8 1.3
----- -----
Income from operations.............................. 15.4 12.1
Other income, principally interest.................. 0.5 --
Interest expense.................................... -- (4.6)
---- ------
Income before provision for income taxes (2)........ 15.9 7.5
Provision for income taxes.......................... 5.9 2.8
---- -----
Net income.......................................... 10.0% 4.7%
==== =====
RESTAURANT OPERATING DATA:
Annualized average weekly sales per location (3).... $1,759 $1,573
Number of restaurants at end of the period.......... 17 12
</TABLE>
(1) The Company operates on a fifty-two or fifty-three week fiscal year ending
the last Tuesday in December. The fiscal quarters for the Company consist
of accounting periods of twelve, twelve, twelve and sixteen or seventeen
weeks, respectively.
(2) The pro forma data gives effect to the Exchange as if it occurred on
January 1, 1997.
(3) Annualized average weekly sales per location are computed by dividing net
sales for full weeks open during the period by the number of full weeks
open and multiplying the result by fifty-two.
-7-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
TWELVE WEEKS ENDED MARCH 24, 1998 COMPARED TO PRO FORMA TWELVE WEEKS ENDED MARCH
25, 1997
Net sales increased $2,690,000 (65.8%) for the twelve weeks ended March
24, 1998 to $6,775,000 from $4,085,000 for the twelve weeks ended March 25,
1997, which is principally attributable to $2,404,000 in sales from the five new
locations opened since March 1997. Same store sales increased 3.2% in the first
quarter.
Costs of sales, primarily food and beverages increased $701,000 (64.7%)
for the twelve weeks ended March 24, 1998 to $1,785,000 from $1,084,000 in the
twelve weeks ended March 25, 1997, and such expenses decreased as a percentage
of sales from 26.5% to 26.3%. This decrease is attributable to improved control
procedures offset by an increase in the food sales mix, which has a higher cost
of sales compared to beverages and entertainment.
Restaurant operating expenses increased $1,056,000 (58.6%) for the twelve
weeks ended March 24, 1998 to $2,856,000 from $1,800,000 in the twelve weeks
ended March 25, 1997, and such expenses decreased as a percentage of net sales
from 44.1% to 42.2%. Most of this improvement is attributable to improved labor
controls at the locations and leveraging the fixed portion of these costs with
higher sales volumes.
Depreciation and amortization increased $242,000 (108.7%) for the twelve
weeks ended March 24, 1998 to $465,000 from $223,000 in the twelve weeks ended
March 25, 1997, and such expenses increased as a percentage of sales from 5.5%
to 6.9%. This increase is due principally to the depreciation and amortization
relating to the opening of five new restaurants since March 1997.
General and administrative expenses increased $138,000 (32.1%) for the
twelve weeks ended March 24, 1998 to $567,000 from $429,000 in the twelve weeks
ended March 25, 1997, and such expenses decreased as a percentage of sales from
10.5% to 8.4%. This increase reflects the additional corporate infrastructure
added during the first quarter of 1997 enabling the Company to rapidly develop
additional units and operate as a public company. Certain accounting and
administrative services are contracted from Coulter Enterprises, Inc., a
restaurant management services company owned by the Company's Chairman of the
Board. The service agreement provides for specified accounting and
administrative services to be provided on a cost pass-through basis. For fiscal
1998, the fixed annual charge is $194,500, plus and an additional fee of $466
per restaurant per 28-day accounting period.
Other income, principally interest, increased $32,000 for the twelve weeks
ended March 24, 1998 to $32,000 from zero in the twelve weeks ended March 25,
1997. The increase is a result of interest earned from the investment of the net
proceeds of the initial public offering of the Company, which commenced on July
17, 1997 (the "Initial Public Offering").
Interest expense decreased $191,000 for the twelve weeks ended March 24,
1998 to zero from $191,000 in the twelve weeks ended March 25, 1997. This
decrease reflects the repayment of all debt outstanding immediately following
the Initial Public Offering.
The effective income tax rate for the twelve weeks ended March 24, 1998
was 37.0% and the effective pro forma income tax rate for the twelve weeks ended
March 25, 1997 was 37.5%. This decrease was primarily due to the impact of tax
exempt interest income earned during the twelve weeks ended March 24, 1998.
-8-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
IMPACT OF INFLATION
The primary inflationary factors affecting the Company's operations
include food, liquor and labor costs. Although a large number of the Company's
restaurant personnel are paid at the federal minimum wage level, the majority of
personnel are tipped employees, and therefore, recent as well as future minimum
wage changes will have very little effect on labor costs. As costs of food and
labor have increased, the Company has historically been able to offset these
increases through economies of scale and improved operating procedures. To date,
inflation has not had a material impact on operating margins.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations were $1,512,000 and purchases of property and
equipment were $894,000 for the twelve week period ending March 24, 1998.
At March 24, 1998, the Company had $5,154,000 in cash and cash
equivalents. While the Company has not established a credit facility, the
Company believes it could establish a facility on suitable terms. The Company
intends to open twenty locations in 1998 (one of which was opened during the
twelve week period ending March 24, 1998). Three additional units are currently
under construction, and leases have been signed on four additional sites. The
Company expects to expend approximately $22.0 mllion to open new locations
through the remainder of fiscal 1998.
The Company believes the net proceeds from the Initial Public Offering,
its cash flow from operations and funds anticipated to be available from a
credit facility will be sufficient to satisfy its working capital and capital
expenditure requirements for at least the next twelve months. There can be no
assurance, however, that changes in the Company's operating plans, the
unavailability of a credit facility, the acceleration of the Company's expansion
plans, lower than anticipated revenues, increased expenses, potential
acquisitions or other events will not cause the Company to seek additional
financing sooner than anticipated. There can be no assurance additional
financing will be available on terms acceptable to the Company or at all.
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Stockholders are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the ability of the Company to open new restaurants, general market
conditions, competition and pricing. Although the Company believes the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and, therefore, there
can be no assurance the forward-looking statements contained in the report will
prove to be accurate.
-9-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
SECURITIES SOLD
(c) The following unregistered securities were issued by the Company during the
twelve weeks ended March 24, 1998:
<TABLE>
<CAPTION>
Number of Shares
Description of Sold/Issued/Subject Offering/Exercise
Date of Sale/Issuance Securities Issued to Options or Warrants Price Per Share
- --------------------- ----------------- ---------------------- ----------------
<S> <C> <C> <C>
January 26, 1998 Common Stock Options 9,091 $ 5.50
February 4, 1998 Common Stock Options 9,524 $ 5.25
February 25, 1998 Common Stock Options 8,696 $ 5.75
</TABLE>
All of the above options were granted to certain key employees pursuant to the
1997 Incentive and Nonqualified Stock Option Plan.
The issuance of these securities is claimed to be exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended, as
transactions by an issuer not involving a public offering. There were no
underwriting discounts or commissions paid in connection with the issuance of
any of these securities.
USE OF PROCEEDS OF INITIAL PUBLIC OFFERING
(4) (vii) Estimated purchases and installation of furniture, fixtures
and equipment 4,444,174
Estimated remaining net offering proceeds invested in
various tax exempt securities and funds 3,815,702
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
The following exhibits are filed as part of this report:
Exhibit No.
27.......................................Financial Data Schedule
Reports on Form 8-K
None
-10-
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
TOTAL ENTERTAINMENT RESTAURANT CORP.
(Registrant)
Date MAY 7, 1998 /s/ James K. Zielke
------------------------------------
James K. Zielke
Chief Financial Officer,
Secretary and Treasurer
(Duly Authorized Officer)
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED MARCH 24, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1998
<PERIOD-START> DEC-31-1997
<PERIOD-END> MAR-24-1998
<CASH> 5,154
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 446
<CURRENT-ASSETS> 6,489
<PP&E> 13,155
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,455
<CURRENT-LIABILITIES> 1,736
<BONDS> 0
0
0
<COMMON> 104
<OTHER-SE> 22,240
<TOTAL-LIABILITY-AND-EQUITY> 24,455
<SALES> 6,775
<TOTAL-REVENUES> 6,775
<CGS> 1,785
<TOTAL-COSTS> 5,106
<OTHER-EXPENSES> 623
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,078
<INCOME-TAX> 399
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 679
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
