<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the Quarterly Period Ended JUNE 28, 2000
Commission File Number 333-62775
NE RESTAURANT COMPANY, INC.
---------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-1311266
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5 CLOCK TOWER PLACE, MAYNARD, MASSACHUSETTS 01754
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 897-1400
-------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filled by Section 13 or 15(d) of the Securities Exchange Act of the 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 the filing
requirements for the past 90 days.
Yes X No
----- -----
2,978,955 shares of the registrant's Common Stock were outstanding on August 11,
2000.
<PAGE>
NE RESTAURANT COMPANY, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements:
1) Consolidated Balance Sheets
June 28, 2000 (unaudited) and December 29, 1999 3
2) Consolidated Statements of Operations
For the Three and Six Months Ended
June 28, 2000 (unaudited) and June 30, 1999 (unaudited) 4
3) Consolidated Statement of Shareholders'
Equity for the Six Months Ended
June 28, 2000 (unaudited) 5
4) Consolidated Statements of Cash
Flows for the Six Months Ended
June 28, 2000 (unaudited) and June 30, 1999 (unaudited) 6
5) Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 8
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 14
PART II: OTHER INFORMATION 14
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 15
</TABLE>
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
NE RESTAURANT COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 28, DECEMBER 29,
2000 1999
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash 5,577,006 7,578,632
Credit card receivables 1,458,952 1,630,844
Inventories 2,088,549 1,804,346
Prepaid expenses and other current assets 52,056 668,698
Short-term assets held for sale 542,028 1,847,584
Prepaid and current deferred income taxes 8,647,600 8,647,600
---------------------- ----------------------
Total current assets 18,366,191 22,177,704
---------------------- ----------------------
PROPERTY AND EQUIPMENT, AT COST:
Land and land right 8,331,725 8,422,025
Buildings 12,480,308 12,199,895
Leasehold improvements 81,919,016 76,017,712
Furniture and equipment 47,719,728 44,732,345
---------------------- ----------------------
150,450,777 141,371,977
Less - Accumulated depreciation (34,021,722) (27,662,046)
---------------------- ----------------------
116,429,055 113,709,930
Construction work in process 1,392,237 4,300,112
---------------------- ----------------------
Net property and equipment 117,821,292 118,010,042
GOODWILL, NET 29,543,237 30,682,037
DEFERRED FINANCE COSTS, NET 8,376,666 8,761,004
LIQUOR LICENSES 3,122,235 3,057,235
RESTRICTED INVESTMENTS - 1,177,685
DEFERRED TAXES, NONCURRENT 4,294,982 4,294,982
OTHER ASSETS, NET 1,424,116 1,417,140
---------------------- ----------------------
$ 182,948,719 $ 189,577,830
====================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of mortgage loan and bonds payable 1,255,406 1,255,406
Accounts payable 12,623,850 13,720,971
Accrued expenses 20,495,010 23,337,877
Capital lease obligation- current portion 72,647 72,647
---------------------- ----------------------
Total current liabiliites 34,446,913 38,386,901
CAPITAL LEASE OBLIGATION, NET OF CURRENT PORTION 11,127 57,861
MORTGAGE LOAN PAYABLE, NET OF CURRENT PORTION 38,461,074 38,017,489
BONDS PAYABLE, NET OF CURRENT PORTION 100,000,000 100,000,000
DEFERRED RENT AND OTHER LONG-TERM LIABILITES 4,497,988 5,590,024
---------------------- ----------------------
Total liabilities 177,417,102 182,052,274
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 36,760 36,760
Less Treasury stock at cost (8,087,856) (8,017,070)
Additional paid in capital 29,003,920 29,003,920
Accumulated deficit (15,421,207) (13,498,055)
---------------------- ----------------------
Total stockholders' equity 5,531,617 7,525,555
---------------------- ----------------------
====================== ======================
$ 182,948,719 $ 189,577,830
====================== ======================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
NE RESTAURANT COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED:
JUNE 28, JUNE 30,
2000 1999
------------------ -----------------
<S> <C> <C>
Net Sales $ 71,344,979 $ 67,648,295
------------------ -----------------
Cost of Sales and Expenses
Cost of sales 18,798,650 18,272,848
Operating expenses 40,614,212 39,224,272
General and administrative expenses 4,135,235 3,742,966
Deferred rent, depreciation and
amortization and preopening expenses 4,559,446 4,600,689
------------------ -----------------
Total cost of sales and expenses 68,107,543 65,840,775
------------------ -----------------
Income from operations 3,237,436 1,807,520
Interest Expense, net 3,705,913 3,431,047
------------------ -----------------
Loss before benefit for income taxes
and change in accounting principle (468,477) (1,623,527)
Income Tax Benefit (17,100) (461,200)
------------------ -----------------
Loss before change in accounting principle (451,377) (1,162,327)
Change in accounting principle (net of tax) - -
------------------ -----------------
Net Loss $ (451,377) $ (1,162,327)
================== =================
Basic and diluted loss per share before change in
accounting principle $ (0.15) $ (0.39)
Change in accounting principle per share - -
------------------ -----------------
Basic and diluted loss per share $ (0.15) $ (0.39)
================== =================
Weighted Average Shares Outstanding 2,981,281 2,977,026
<CAPTION>
SIX MONTHS ENDED:
JUNE 28, JUNE 30,
2000 1999
------------------ -----------------
<S> <C> <C>
Net Sales $ 138,379,640 $ 130,682,480
------------------ -----------------
Cost of Sales and Expenses
Cost of sales 36,361,701 35,626,185
Operating expenses 79,571,846 76,216,507
General and administrative expenses 8,623,239 7,431,569
Deferred rent, depreciation and
amortization and preopening expenses 9,088,889 8,833,477
------------------ -----------------
Total cost of sales and expenses 133,645,675 128,107,738
------------------ -----------------
Income from operations 4,733,965 2,574,742
Interest Expense, net 7,379,717 6,794,391
------------------ -----------------
Loss before benefit for income taxes
and change in accounting principle (2,645,752) (4,219,649)
Income Tax Benefit (722,600) (1,405,811)
------------------ -----------------
Loss before change in accounting principle (1,923,152) (2,813,838)
Change in accounting principle (net of tax) - (677,968)
------------------ -----------------
Net Loss $ (1,923,152) $ (3,491,806)
================== =================
Basic and diluted loss per share before change in
accounting principle $ (0.64) $ (0.95)
Change in accounting principle per share - (0.23)
------------------ -----------------
Basic and diluted loss per share $ (0.64) $ (1.17)
================== =================
Weighted Average Shares Outstanding 2,983,966 2,977,026
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
NE RESTAURANT COMPANY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
For the six months ended June 28, 2000
<TABLE>
<CAPTION>
Common Stock Treasury Stock
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Number of $.01 per Number of
Shares Share Shares Amount
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<S> <C> <C> <C> <C>
Balance December 29, 1999 3,675,966 $ 36,760 (689,344) $(8,017,070)
Repurchase of 7,667 shares at $9.23 (7,667) (70,786)
per share to treasury
Net (Loss) - - - -
===================== =================== ================= =======================
Balance June 28, 2000 3,675,966 $ 36,760 (697,011) $(8,087,856)
===================== =================== ================= =======================
<CAPTION>
Total
Stockholders'
Additional Paid Accumulated (Deficit)
In Capital Deficit Equity
------------------------ ------------------------- ----------------------
<S> <C> <C> <C>
Balance December 29, 1999 $29,003,920 $ (13,498,055) $ 7,525,555
Repurchase of 7,667 shares at $9.23 (70,786)
per share to treasury
Net (Loss) - (1,923,152) (1,923,152)
======================== ========================= ======================
Balance June 28, 2000 $29,003,920 $ (15,421,207) $ 5,531,617
======================== ========================= ======================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
NE RESTAURANT COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 28, 2000 JUNE 30, 1999
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $ (1,923,152) $ (3,491,806)
----------------------- -----------------------
Adjustments to reconcile net loss
to net cash used in operating
activities
Change in accounting principle - 1,135,055
Total Depreciation, amortization and deferred rent 8,474,719 7,489,171
Change in deferred taxes - (1,428)
Changes in operating assets and liabilities
Inventories (284,203) 126,109
Prepaid expenses, receivables and other 788,534 221,386
Accrued expenses (2,927,478) (2,735,086)
Accounts payable (1,097,122) 285,778
Other operating assets and liabilities (473,232) 159,708
----------------------- -----------------------
Total adjustments 4,481,218 6,680,693
----------------------- -----------------------
Net cash provided by operating activities 2,558,066 3,188,887
======================= =======================
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (6,264,523) (9,124,166)
Proceeds from sale of restaurant properties 1,483,767 -
Franchise fees paid (40,000) -
Acquisition of liquor licenses (65,000) (127,393)
----------------------- -----------------------
Net cash used for investing activities (4,885,756) (9,251,559)
======================= =======================
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings of mortgage loans 1,100,000 6,120,034
Repayments of mortgage loans (656,415) (472,911)
Repurchase of common stock (70,786) -
Return of capital - (50,000)
Principal payments under capital lease obligations (46,735) (45,962)
----------------------- -----------------------
Net cash provided by financing activities 326,064 5,551,161
======================= =======================
Net Decrease in Cash (2,001,626) (511,511)
Cash, beginning of period 7,578,632 5,456,110
----------------------- -----------------------
Cash, end of period $ 5,577,006 $ 4,944,599
======================= =======================
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest, net of amounts capitalized $ 7,159,086 $ 6,543,137
----------------------- -----------------------
Cash paid for income taxes, net of tax refunds $ 85,239 $ 7,015
======================= =======================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
NE RESTAURANT COMPANY, INC.
Notes To Consolidated Financial Statements
(Unaudited)
1. The unaudited consolidated financial statements (the "Unaudited Financial
Statements") presented herein have been prepared by NE Restaurant Co., Inc.
and include all of its subsidiaries (collectively, the "Company") after
elimination of intercompany accounts and transactions, without audit, and,
in the opinion of management, reflect all adjustments of a normal recurring
nature necessary for a fair statement of the interim periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles ("GAAP") have been omitted, although the Company believes that
the disclosures included are adequate to make the information presented not
misleading. It is suggested that the Unaudited Financial Statements be read
in conjunction with the financial statements and notes included in the
Company's Form 10K.
In 1998, the Company changed its fiscal year to the 52 or 53-week period
ended on the Wednesday closest to December 31. The Company's fiscal
quarters end March 29, June 28, September 27, 2000 and January 3, 2001. In
1999, the Company's fiscal quarters ended March 31, June 30, September 29
and December 29, 1999.
2. In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued its Statement of Position 98-5 ("SOP 98-5"), REPORTING
ON THE COSTS OF START-UP ACTIVITIES. SOP 98-5 requires that costs
incurred during start-up activities, including organization costs, be
expensed as incurred. SOP 98-5 was effective for financial statements
for fiscal years beginning after December 15, 1998. The Company adopted
SOP 98-5 on December 31, 1998, the first day of fiscal 1999. Upon
adoption, the Company incurred a cumulative effect of a change in
accounting principle of approximately $678,000, net of tax. This
includes unamortized preopening costs which were previously amortized
over the 12-month period subsequent to restaurant openings.
3. In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS No. 133), Accounting
for Derivative Instruments and Hedging Activities. This statement
established accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded
in other contracts and for hedging activities) be recorded in the
balance sheet as either an asset or liability measured at its fair
value. SFAS No. 133 requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedging accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate and assess the effectiveness of transactions that
receive hedge accounting. SFAS 133, as amended by SFAS 137, is effective
for fiscal years beginning after June 15, 2000. A company may also
implement the Statement as of the beginning of any fiscal quarter after
issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). SFAS 133 cannot be applied retroactively. The Company has
not determined the timing of adoption, but does not anticipate the
adoption of this new standard to have a material impact on the Company's
fiscal position or results of operations.
4. Under the terms of the corporation agreements, the stockholders have
consented to the payment of an ongoing financial consulting fee to Jacobson
Partners, Limited Partnership ( "Jacobson Partners "), a stockholder of the
corporation. Under this agreement, Jacobson Partners will provide various
financial advisory services to the Company, including, among other things,
assistance in preparing internal budgets, performing cash management
activities, maintaining and improving accounting and other management
information systems, negotiating financing arrangements, complying with
public reporting and disclosure requirements and communicating with
creditors and investors. In consideration of these services, the Company
has entered into an agreement with Jacobson Partners whereby the Company
would pay Jacobson Partners $500,000 per year together with reimbursement
of certain travel and other incidental expenses. During 1999, Jacobson
Partners agreed to reduce its annual fee to $250,000 until further notice.
Effective with the beginning of fiscal year 2000, the Company has agreed to
reinstate the annual fee of $500,000 retroactive to July 1, 1999 which
required an additional payment in the first fiscal quarter 2000 of
$125,000.
5. Certain prior year amounts have been reclassified to conform to the current
year presentation.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with the
consolidated financial statements of The Company and the notes thereto
included herein. All mentions of period data refer to the Company's fiscal
periods as defined in Note 1 to the consolidated financial statements.
GENERAL
The Company was founded in 1991 as a Massachusetts corporation, serving
first as a general partner to a Massachusetts limited partnership and then as
the successor entity to such partnership and two other limited partnerships, and
was re-incorporated in Delaware on October 20, 1994. The Company was formed to
acquire 15 Chili's restaurants from a prior franchisee.
The Company is an operator of full-service, casual dining restaurants in
the northeastern United States. The Company's wholly owned subsidiary,
Bertucci's Restaurant Corp. ("Bertucci's") owns and operates a restaurant
concept under the name Bertucci's Brick Oven Pizzeria-Registered Trademark-
In July 1998, the Company completed its acquisition of Bertucci's'
parent entity, Bertucci's, Inc., a publicly-owned restaurant company for a
purchase price, net of cash received, of approximately $89.4 million (the
"Acquisition"). The Company financed the Acquisition primarily through the
issuance of $100 million of 10 3/4% senior notes due 2008 (the "Senior
Notes"). The Acquisition included 90 Bertucci's restaurants and one Sal &
Vinnie's restaurant. During 1999, the Company closed the Bertucci's test
kitchen restaurant in Wakefield, Massachusetts and closed ten under
performing Bertucci's restaurants. Between December 29, 1999 and January 31,
2000, the Company closed seven additional under performing Bertucci's
restaurants, thereby completing the planned closings identified shortly after
the Acquisition. As of June 28, 2000, Bertucci's owned and operated 72
full-service, casual dining, Italian-style restaurants under the name
Bertucci's Brick Oven Pizzeria-Registered Trademark- located primarily in New
England and Mid-Atlantic United States and one Sal and Vinnie's Sicilian
Steakhouse-TM-("Sal & Vinnie's") located in Massachusetts.
The Company also develops and operates two distinct restaurant
franchises, Chili's Grill & Bar-Registered Trademark- ("Chili's") and On The
Border Mexican Cafe-Registered Trademark-("On The Border"), under franchise
agreements with Brinker International, Inc., a publicly-owned company
("Brinker" or the "Franchisor"). The Company is the world's largest Chili's
franchisee and as of June 28, 2000, the Company operated 39 Chili's and 7 On
The Border restaurants in five New England states.
The Company offers its targeted customer base three distinct yet
complementary casual dining menus: Italian at Bertucci's,
"American/southwestern" at Chili's and "Tex-Mex" at On The Border.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to net sales,
unless otherwise indicated, of certain items included in the Company's income
statement, as well as certain operating data, for the periods indicated:
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 28, June 30, June 28, June 30,
2000 1999 2000 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- --------------- ------------ ----------------
Net Sales 100.0% 100.0% 100.0% 100.0%
------------- --------------- ------------ ----------------
<S> <C> <C> <C> <C>
Cost of sales and expenses
Cost of sales 26.3 27.0 26.3 27.3
Operating expenses 56.9 58.0 57.5 58.3
General and administrative expenses 5.8 5.5 6.2 5.7
Deferred rent, depreciation, amortization and preopening expenses 6.4 6.8 6.6 6.8
------------- --------------- ------------ ----------------
Total cost of sales and expenses 95.5 97.3 96.6 98.0
------------- --------------- ------------ ----------------
Income from operations 4.5 2.7 3.4 2.0
Interest expense, net 5.2 5.1 5.3 5.2
------------- --------------- ------------ ----------------
Loss before income tax benefit (0.7) (2.4) (1.9) (3.2)
Income tax benefit (0.1) (0.7) (0.5) (1.0)
============= =============== ============ ================
Loss before cumulative effect of change in accounting principle (0.6) (1.7) (1.4) (2.2)
============= =============== ============ ================
Cumulative effect of change in accounting principle (net of tax) - - - (0.5)
============= =============== ============ ================
Net Loss (0.6) (1.7) (1.4) (2.7)
============= =============== ============ ================
RESTAURANT OPERATING DATA (DOLLARS IN THOUSANDS):
------------------------------------------------------------------------------------------------ -----------------------------
EBITDA (a) $ 7,797 $ 6,408 $ 13,823 $ 11,408
EBITDA Margin 10.9% 9.5% 10.0% 8.7%
Comparable restaurant sales (b) 7.7% -1.4% 6.7% -1.0%
Number of restaurants - Chili's and On The Border restaurants:
Restaurants open at beginning of period 45 38 43 37
Restaurants opened 1 4 3 5
------------- --------------- ------------ ----------------
Total restaurants open at end of period 46 42 46 42
Number of restaurants - Bertucci's restaurants: (c)
Restaurants open at beginning of period 72 90 79 90
Restaurants opened - - - -
Restaurants closed - 1 7 1
------------- --------------- ------------ ----------------
Total restaurants open at end of period 72 89 72 89
</TABLE>
(a) "EBITDA" is defined as income from operations before deferred rent,
depreciation, amortization and preopening costs. EBITDA is not a measure of
performance defined by Generally Accepted Accounting Principles ("GAAP").
EBITDA should not be considered in isolation or as a substitute for net
income or the statement of cash flows which have been prepared in
accordance with GAAP. The Company believes EBITDA provides useful
information regarding the Company's ability to service its debt and the
Company understands that such information is considered by certain
investors to be an additional basis for evaluating a company's ability to
pay interest and repay debt. The EBITDA measures presented herein may not
be comparable to similarly titled measures of other companies.
(b) The Company defines comparable restaurant sales as net sales from
restaurants that have been open for at least one full fiscal year.
(c) Does not include Sal & Vinnie's.
<PAGE>
THREE MONTHS ENDED JUNE 28, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
NET SALES. Net sales increased $3.7 million, or 5.5%, to $71.3 million
during the second quarter 2000 from $67.7 million during the second quarter
1999. The increase in net sales primarily was due to increased comparable
restaurant sales and the addition of six new Chili's and three new On The
Border restaurants partially offset by closing 18 under performing Bertucci's
restaurants. Comparable restaurant sales for the Bertucci's restaurants
increased by 10.2% in the second quarter 2000 as compared to the same period
in 1999 while comparable restaurant sales increased by 4.8% for the Chili's
and On The Border Restaurants ("Brinker concept restaurants") for the same
period. The Company raised menu prices early in the first quarter 2000 to
offset rising wage costs. The Company believes that the majority of the sales
increases were the result of increased guest satisfaction resulting in repeat
visits combined with the aforementioned menu price increases.
COST OF SALES. Cost of sales increased by approximately $526,000, or 2.9%,
to $18.8 million during the second quarter 2000 from $18.3 million during the
second quarter 1999. The dollar increase in cost of sales primarily was due to
increased sales volume. Expressed as a percentage of net sales, overall cost of
sales decreased to 26.3% during the second quarter 2000 from 27.0% during the
second quarter 1999. This percentage decrease was due to several factors,
namely, cost control measures at Bertucci's, lower ingredient costs as a result
of favorable purchasing practices, the beneficial impact of closing the under
performing Bertucci's restaurants and menu price increases.
OPERATING EXPENSES. Operating expenses increased by $1.4 million, or 3.5%,
to $40.6 million during the second quarter 2000 from $39.2 million during the
second quarter 1999. Expressed as a percentage of net sales, operating expenses
decreased to 56.9% in the second quarter 2000 from 58.0% during the second
quarter 1999. The dollar increase in operating expenses primarily was due to an
increase in advertising expense and from new restaurant openings but partially
offset by the closing of the aforementioned Bertucci's restaurants. Furthermore,
the dollar increase was partially due to increased hourly labor costs driven by
a tight labor market that was a result of low unemployment and mandated state
minimum wage increases. The percentage decrease primarily was attributable to
increased efficiency at the restaurants, leverage on increased sales and the
favorable impact of closing the under performing Bertucci's restaurants.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by approximately $392,000, or 10.5%, to $4.1 million during the second
quarter 2000 from $3.7 million during the second quarter 1999. The dollar
increase in general and administrative expenses was due to rent, higher
recruiting and staffing costs and higher incentive payout accruals based on
improved performance. Expressed as a percentage of net sales, general and
administrative costs increased to 5.8% during the second quarter 2000 from 5.5%
during the second quarter 1999. The increase was attributable to the
aforementioned dollar increases.
DEFERRED RENT, DEPRECIATION, AMORTIZATION AND PREOPENING EXPENSES. Deferred
rent, depreciation, amortization and preopening expenses decreased by $41,000 or
0.9%, remaining at approximately $4.6 million during both the second
quarter 2000 and the second quarter 1999. Depreciation, amortization and
deferred rent increased by approximately $296,000 but was offset by a decrease
in preopening costs of approximately $337,000. Preopening costs totaled
approximately $220,000 in the second quarter 2000 versus $557,000 of preopening
in the second quarter 1999.
<PAGE>
INTEREST EXPENSE. Interest expense increased by approximately $275,000 to
$3.7 million during the second quarter 2000 from $3.4 million during the second
quarter 1999. This increase was primarily attributable to additional mortgage
loan financing for new restaurant development. Interest was approximately $2.7
million on the Senior Notes, $943,000 on the mortgage loans and $83,000 on the
Company's revolving credit facility.
INCOME TAXES. The effective income tax benefit rate decreased to 3.7%
during the second quarter 2000 from 28.4% during the second quarter 1999. The
3.7% rate during the second quarter 2000 resulted from a minimal tax loss during
the quarter resulting from non-deductible goodwill.
SIX MONTHS ENDED JUNE 28, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
NET SALES. Net sales increased $7.7 million, or 5.9%, to $138.4 million
during the first half 2000 from $130.7 million during the first half 1999. The
increase in net sales primarily was due to increased comparable restaurant sales
and the addition of six new Chili's and three new On The Border restaurants
partially offset by the closed Bertucci's restaurants. Comparable restaurant
sales for the Bertucci's restaurants increased by 7.7% in the first half 2000 as
compared to the same period in 1999. Comparable restaurant sales increased by
5.3% for the Brinker concept restaurants operated by the Company in the first
half 2000 as compared to the first half 1999. The Company believes that the
majority of the sales increases were the result of increased guest satisfaction
resulting in repeat visits and the result of menu price increases.
COST OF SALES. Cost of sales increased by approximately $736,000, or 2.1%,
to $36.4 million during the first half 2000 from $35.6 million during the first
half 1999. The dollar increase in cost of sales primarily was due to increased
sales volume partially offset by the closing of the Bertucci's restaurants, most
of which closed during 1999. Expressed as a percentage of net sales, overall
cost of sales decreased to 26.3% during the first half 2000 from 27.3% during
the first half 1999. This percentage decrease was due to cost control measures
at Bertucci's, the favorable impact of closing the under performing Bertucci's
restaurants and menu price increases.
OPERATING EXPENSES. Operating expenses increased by $3.4 million, or 4.4%,
to $79.6 million during the first half 2000 from $76.2 million during the first
half 1999. Expressed as a percentage of net sales, operating expenses decreased
to 57.5% in the first half 2000 from 58.3% during the first half 1999. The
dollar increase in operating expenses primarily was due to an increase in
advertising expense and from new restaurant openings. Furthermore, the dollar
increase was partially due to increased hourly labor costs driven by a tight
labor market that was a result of low unemployment and mandated state minimum
wage increases. The percentage decrease primarily was attributable to increased
efficiency at the restaurants and increased sales volume leverage on fixed
costs.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by approximately $1.2 million, or 16.0%, to $8.6 million during the
first half 2000 from $7.4 million during the first half 1999. The dollar
increase in general and administrative expenses was due to rent, higher
recruiting and staffing costs, higher incentive payout accruals, higher
professional fees and one-time start-up costs of a new point of sale system for
Bertucci's. Expressed as a percentage of net sales, general and
<PAGE>
administrative costs increased to 6.2% during the first half 2000 from 5.7%
during the first half 1999. The increase was attributable to the aforementioned
dollar increases.
DEFERRED RENT, DEPRECIATION, AMORTIZATION AND PREOPENING EXPENSES.
Deferred rent, depreciation, amortization and preopening expenses increased
by approximately $255,000 or 2.9%, to $9.1 million during the first half 2000
from $8.8 million during the first half 1999. The increase was primarily due
to additional depreciation expense offset by a favorable variance in
preopening costs. Preopening costs of approximately $614,000 in the first
half 2000 were $433,000 favorable to the approximate $1.0 Million expensed in
the first half 1999.
INTEREST EXPENSE. Interest expense increased by approximately $585,000 to
$7.4 million during the first half 2000 from $6.8 million during the first half
1999. This increase was primarily attributable to additional mortgage loan
financing for new restaurant development. Interest was approximately $5.4
million on the Senior Notes, $1.9 million on the mortgage loans and $165,000 on
the Company's revolving credit facility.
INCOME TAXES. The effective income tax benefit rate decreased to 27.3%
during the first half 2000 from 33.3% during the first half 1999. The difference
in rate was mainly due to a decrease in taxable income after non-deductible
goodwill.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its capital expenditures and working
capital needs through a combination of operating cash flow, mortgage loan
financing and borrowing under the Company's revolving credit facility, which
provides for borrowings of up to $20.0 million.
Net cash flows generated by operating activities were $2.6 million for the
first half 2000 or $631,000 less than the $3.2 million generated during the
first half 1999. Net income plus the add back for non cash expenses was $6.5
million or $1.4 million favorable to the $5.1 million generated for the same
period 1999. However, accounts payable decreased by approximately $1.1 million
during the first half this year, $1.3 million unfavorable to last year's
increase of approximately $286,000. Accrued expenses decreased by $2.9 million
during the first two quarters of 2000 mostly due to reductions in accrued bonus
and deferred compensation, gift certificates and closing reserves. The change in
accrued expenses was approximately $200,000 unfavorable to the same period 1999.
The Company's capital expenditures decreased by $2.8 million to $6.3
million for the first half 2000 compared to $9.1 million of capital expenditures
for the first half 1999. The decrease in capital expenditures was primarily due
to less new construction of restaurants. The Company received almost $1.5
million of proceeds in the first half 2000 from the sale of five previously
closed Bertucci's restaurants.
As of June 28, 2000, the Company had approximately $139.8 million in
consolidated indebtedness, including $100.0 million of indebtedness pursuant to
the Senior Notes, $39.7 million of mortgage loan financing and $84,000 of
capital lease obligations. Significant liquidity demands will arise from debt
service on the Senior Notes, the mortgage loans and borrowings under the Senior
Bank Facility.
<PAGE>
The Company believes that the cash flow generated from its operations,
together with available borrowings under the Senior Bank Facility and mortgage
loan financing and similar secured indebtedness, should be sufficient to fund
its debt service requirements, lease obligations, current expected capital
expenditures and other operating expenses for the next twelve months. The Senior
Bank Facility provides the Company with available borrowing up to an aggregate
amount of $20.0 million. As of June 28, 2000, there were no borrowings under the
Senior Bank Facility. The Company's future operating performance and ability to
service or refinance the Senior Notes, mortgage loan financing, and the Senior
Bank Facility will be subject to future economic conditions and to financial,
business and other factors, many of which are beyond the Company's control.
SEASONALITY
The Company's results of operations have fluctuated and are expected to
continue to fluctuate depending on a variety of factors, including the timing of
new restaurant openings and related pre opening and other startup expenses, net
sales contributed by new restaurants, increases or decreases in comparable
restaurant sales, competition and overall economic conditions. The Company's
business is also subject to seasonal influences of consumer spending, dining out
patterns and weather. As is the case with many restaurant companies, the Company
typically experiences lower net sales and net income during the first and fourth
quarters. Because of these fluctuations in net sales and net income (loss), the
results of operations of any half are not necessarily indicative of the results
that may be achieved for a full year or any future half.
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts included in this
report on Form 10-Q, including, without limitation, statements set forth under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's future financial position, business
strategy, budgets, projected costs and plans and objectives of management for
future operations, are forward-looking statements. In addition, forward-looking
statements generally can be identified by the use of forward-looking terminology
such as "may," "will," "expect," "intend," "estimate," "anticipate" or "believe"
or the negative thereof or variations thereon or similar terminology. Although
the Company believes that the expectations reflected in such forward-looking
statements will prove to have been correct, it can give no assurance that such
expectations will prove to have been correct. Factors including those set forth
herein, as well as those set forth in the Company's Form 10K filed with the
Securities and Exchange Commission ("SEC") on March 28, 2000 and other filings
with the SEC may affect such expectations. Investors are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. The Company undertakes no obligation to publicly release any
revisions to these forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
The Company has market risk associated with interest rate risk. The Company
manages its exposure through its regular financing activities. Interest rate
changes would result in a change in the fair value of the Company's debt
facilities due to the difference between the market interest rate and the rate
at the date of issuance of the debt facilities. Furthermore, the Company has no
exposure to specific risks related to derivatives or other "hedging" types of
financial instruments.
PART II: OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings from time to time
incidental to the conduct of its business. In the opinion of management, any
ultimate liability arising out of such proceedings will not have a material
adverse effect on the financial condition or results of operations of the
Company.
Management is not aware of any litigation to which the Company is a party
that is likely to have a material adverse effect on the Company.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
On August 10, 2000, Paul Hoagland tendered his resignation as Executive
Vice President, Chief Administrative Officer and Director of NE Restaurant
Company, Inc. Mr. Hoagland's resignation will be effective August 31, 2000.
Mr. Hoagland continues to be a significant shareholder of the Company.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule
(b) The Company did not file a Current Report on Form 8-K during the
second half 2000.
<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.
NE RESTAURANT COMPANY, INC.
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(Registrant)
Date: August 11, 2000 By: /s/ BENJAMIN R. JACOBSON
------------------------------------
Benjamin R. Jacobson
Chairman of the Board of Directors
Date: August 11, 2000 By: /s/ DAVID J. NACE
------------------------------------
David J. Nace
Chief Financial Officer and
Executive Vice President
<PAGE>
Exhibit Index
27.1 Financial Data Schedule
