<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 September 27, 2000
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Commission File Number 333-62775
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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
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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
November 9, 2000.
<PAGE>
NE RESTAURANT COMPANY, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements:
1) Consolidated Balance Sheets
September 27, 2000 (unaudited) and December 29, 1999 3
2) Consolidated Statements of Operations
For the Three and Nine Months Ended
September 27, 2000 (unaudited) and September 29, 1999 (unaudited) 4
3) Consolidated Statement of Shareholders' Equity for the
Nine Months Ended September 27, 2000 (unaudited) 5
4) Consolidated Statements of Cash
Flows for the Nine Months Ended September 27, 2000 (unaudited)
and September 29, 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 2 of 16
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
NE RESTAURANT COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 27, DECEMBER 29,
2000 1999
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 5,554,165 $ 7,578,632
Credit card receivables 1,075,035 1,630,844
Inventories 1,925,111 1,804,346
Prepaid expenses and other current assets 208,917 668,698
Short-term assets held for sale 435,210 1,847,584
Prepaid and current deferred income taxes 8,647,600 8,647,600
-------------- --------------
Total current assets 17,846,038 22,177,704
-------------- --------------
Property and Equipment, at cost:
Land and land right 8,336,225 8,422,025
Buildings 12,525,732 12,199,895
Leasehold improvements 83,841,358 76,017,712
Furniture and equipment 49,846,258 44,732,345
-------------- --------------
154,549,573 141,371,977
Less - Accumulated depreciation (37,395,514) (27,662,046)
-------------- --------------
117,154,059 113,709,930
Construction work in process 1,414,095 4,300,112
-------------- --------------
Net property and equipment 118,568,154 118,010,042
Goodwill, net 28,973,837 30,682,037
Deferred finance costs, net 8,226,307 8,761,004
Liquor licenses 3,112,235 3,057,235
Restricted investments -- 1,177,685
Deferred taxes, noncurrent 4,294,982 4,294,982
Other assets, net 1,528,223 1,417,140
-------------- --------------
TOTAL ASSETS 182,549,776 189,577,830
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current portion of mortgage loan and bonds payable 1,301,260 1,255,406
Accounts payable 14,154,788 13,720,971
Accrued expenses 16,431,190 23,337,877
Capital lease obligation- current portion 60,526 72,647
-------------- --------------
Total current liabiliites 31,947,764 38,386,901
Capital lease obligation, net of current portion 0 57,861
Mortgage loan payable, net of current portion 40,782,252 38,017,489
Bonds payable, net of current portion 100,000,000 100,000,000
Deferred rent and other long-term liabilites 4,754,798 5,590,024
-------------- --------------
Total liabilities 177,484,814 182,052,274
-------------- --------------
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 (15,887,862) (13,498,055)
-------------- --------------
Total stockholders' equity 5,064,962 7,525,555
-------------- --------------
TOTAL LIABILITIES AND EQUITY 182,549,776 189,577,830
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
Page 3 of 16
<PAGE>
NE RESTAURANT COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended: Nine Months Ended:
September 27, September 29, September 27, September 29,
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Sales $ 71,801,621 $ 70,072,355 $ 210,181,261 $ 200,754,835
-------------- -------------- -------------- --------------
Cost of Sales and Expenses
Cost of sales 18,852,694 19,238,407 55,214,395 54,864,543
Operating expenses 41,197,853 40,363,073 120,769,815 116,579,628
General and administrative expenses 3,928,113 3,735,417 12,551,352 11,166,987
Deferred rent, depreciation and
amortization and preopening expenses 4,578,737 4,170,982 13,667,626 13,004,459
-------------- -------------- -------------- --------------
Total cost of sales and expenses 68,557,397 67,507,879 202,203,188 195,615,617
-------------- -------------- -------------- --------------
Income from operations 3,244,224 2,564,476 7,978,073 5,139,218
Interest Expense, net 3,740,663 3,625,661 11,120,380 10,420,052
-------------- -------------- -------------- --------------
Loss before benefit for income taxes and change
in accounting principle (496,439) (1,061,185) (3,142,307) (5,280,834)
Income Tax Benefit (29,900) (233,500) (752,500) (1,639,311)
-------------- -------------- -------------- --------------
Loss before change in accounting principle (466,539) (827,685) (2,389,807) (3,641,523)
Change in accounting principle (net of tax) -- -- -- (677,968)
-------------- -------------- -------------- --------------
Net Loss $ (466,539) $ (827,685) $ (2,389,807) $ (4,319,491)
============== ============== ============== ==============
Basic and diluted loss per share before change
in accounting principle $ (0.16) $ (0.28) $ (0.80) $ (1.22)
Change in accounting principle per share $ -- $ -- $ -- $ (0.23)
-------------- -------------- -------------- --------------
Basic and diluted loss per share $ (0.16) $ (0.28) $ (0.80) $ (1.45)
============== ============== ============== ==============
Weighted Average Shares Outstanding, primary
and diluted 2,978,955 2,977,026 2,982,293 2,977,026
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4 of 16
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NE RESTAURANT COMPANY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
For the nine months ended September 27, 2000
<TABLE>
<CAPTION>
Common Stock Treasury Stock
-----------------------------------------------------------------------
Number of $.01 per Number of
Shares Share Shares Amount
-------------- -------------- -------------- --------------
<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 per share to
treasury (7,667) (70,786)
Net (Loss)
-------------- -------------- -------------- --------------
Balance September 27, 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 per share to
treasury (70,786)
Net (Loss) (2,389,807) (2,389,807)
-------------- -------------- --------------
Balance September 27, 2000 $ 29,003,920 $ (15,887,862) $ 5,064,962
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5 of 16
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NE RESTAURANT COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 27, 2000 September 29, 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (2,389,807) (4,319,491)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Total Depreciation, amortization and deferred rent 12,910,982 11,240,104
Change in deferred taxes -- (5,868)
Cumulative effect of change in accounting principle -- 1,135,055
Changes in operating assets and liabilities
Inventories (120,765) 80,418
Prepaid expenses, receivables and other 1,015,590 81,466
Accrued expenses (6,906,687) (5,297,161)
Accounts payable 433,817 (324,320)
Other operating assets and liabilities (451,020) 281,866
--------------- ---------------
Total adjustments 6,881,917 7,191,560
--------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,492,110 2,872,069
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (10,401,294) (12,328,548)
Proceeds from sale, net of fees 1,390,167 400,000
Land sale/refund of land bond/sale of liquor license 119,716 --
Franchise/development fees paid (230,000) --
Acquisition of liquor licenses (65,000) (127,393)
--------------- ---------------
NET CASH USED FOR INVESTING ACTIVITIES (9,186,411) (12,055,941)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings of mortgage loans 3,825,000 6,120,034
Repayments of mortgage loans (1,014,384) (703,561)
Return of capital -- (50,000)
Repurchase of common stock to treasury (70,800) --
Principal payments under capital lease obligations (69,982) (61,448)
--------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,669,834 5,305,025
--------------- ---------------
Net Decrease in Cash (2,024,467) (3,878,847)
Cash, beginning of period 7,578,632 5,456,110
--------------- ---------------
Cash, end of period 5,554,165 1,577,263
=============== ===============
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest, net of amounts capitalized $ 13,856,540 $ 12,719,659
=============== ===============
Cash paid for income taxes, net of tax refunds $ 114,634 $ 15,296
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 6 of 16
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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 all fiscal quarters of
all fiscal years beginning after June15, 2000. 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 7 of 16
<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 September 27, 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 September 27, 2000, the Company operated 40 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 8 of 16
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended: Nine Months Ended:
September 27, September 29, September 27, September 29,
2000 1999 2000 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
-------------- -------------- -------------- --------------
Cost of sales and expenses
Cost of sales 26.3 27.5 26.3 27.3
Operating expenses 57.4 57.6 57.5 58.1
General and administrative expenses 5.5 5.3 6.0 5.6
Deferred rent, depreciation, amortization and preopening
expenses 6.4 6.0 6.4 6.4
-------------- -------------- -------------- --------------
Total cost of sales and expenses 95.6 96.4 96.2 97.4
-------------- -------------- -------------- --------------
Income from operations 4.4 3.6 3.8 2.6
Interest expense, net 5.2 5.2 5.3 5.2
-------------- -------------- -------------- --------------
Loss before income tax benefit (0.8) (1.6) (1.5) (2.6)
Income tax benefit (0.1) (0.3) (0.4) (0.8)
============== ============== ============== ==============
Loss before cumulative effect of change in accounting
principle (0.7) (1.3) (1.1) (1.8)
============== ============== ============== ==============
Cumulative effect of change in accounting principle (net of tax) -- -- -- (0.4)
============== ============== ============== ==============
Net Loss (0.7) (1.3) (1.1) (2.2)
============== ============== ============== ==============
RESTAURANT OPERATING DATA (DOLLARS IN THOUSANDS):
-----------------------------------------------------------------------------------------------------------------------------------
EBITDA (a) $ 7,823 $ 6,735 $ 21,646 $ 18,144
EBITDA Margin 10.9% 9.6% 10.3% 9.0%
Comparable restaurant sales (b) 3.1% 5.6% 5.4% 1.1%
Number of restaurants - Chili's and On The Border restaurants:
Restaurants open at beginning of period 46 42 43 37
Restaurants opened 1 -- 4 5
-------------- -------------- -------------- --------------
Total restaurants open at end of period 47 42 47 42
Number of restaurants - Bertucci's restaurants: (c)
Restaurants open at beginning of period 72 89 79 90
Restaurants opened -- -- -- --
Restaurants closed -- 5 7 6
-------------- -------------- -------------- --------------
Total restaurants open at end of period 72 84 72 84
</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 9 of 16
<PAGE>
THREE MONTHS ENDED SEPTEMBER 27, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 29,1999
NET SALES. Net sales increased $1.7 million, or 2.5%, to $71.8 million
during the third quarter 2000 from $70.1 million during the third quarter 1999.
The increase in net sales primarily was due to increased comparable restaurant
sales and the addition of three new Chili's and two 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 4.7% in the third quarter 2000 as compared to the same period in
1999 while comparable restaurant sales increased by 0.9% for the Chili's and On
The Border Restaurants ("Brinker concept restaurants") for the same period. The
Company raised menu prices early in fiscal year 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.
COST OF SALES. Cost of sales decreased by approximately $385,700, or 2.0%,
to $18.9 million during the third quarter 2000 from $19.2 million during the
third quarter 1999. The dollar decrease in cost of sales primarily was due to
cost control measures of management, lower ingredient costs as a result of
favorable purchasing practices and the beneficial impact of the aforementioned
restaurant closings. These positive changes were partially offset by dollar
increases resulting from higher sales volumes generated by both comparable and
new restaurants. Expressed as a percentage of net sales, overall cost of sales
decreased to 26.3% during the third quarter 2000 from 27.5% during the third
quarter 1999. This percentage decrease was due to the same factors mentioned
above.
OPERATING EXPENSES. Operating expenses increased by $834,800 or 2.1%, to
$41.2 million during the third quarter 2000 from $40.4 million during the third
quarter 1999. Expressed as a percentage of net sales, operating expenses
decreased to 57.4% in the third quarter 2000 from 57.6% during the third 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 payroll expenses, employee
benefits expenses and payroll taxes. 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 $192,700, or 5.2%, to $3.9 million during the
third quarter 2000 from $3.7 million during the third quarter 1999. The
dollar increase in general and administrative expenses was mainly due to
higher rent, recruiting costs, increased training costs associated with
restaurant management and severance expense. Expressed as a percentage of net
sales, general and administrative costs increased to 5.5% during the third
quarter 2000 from 5.3% during the third 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 increased by $407,800
or 9.8% to $4.6 million in the third quarter 2000 from $4.2 million during the
third quarter 1999. Depreciation, amortization and deferred rent increased by
approximately $288,300 and preopening costs increased by approximately $119,500.
Preopening costs totaled approximately $142,500 in the third quarter 2000 versus
$23,000 of preopening in the third quarter 1999.
INTEREST EXPENSE. Interest expense increased by approximately $115,000 to
$3.7 million during
Page 10 of 16
<PAGE>
the third quarter 2000 from $3.6 million during the third 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, $1.0 million on the mortgage loans and $60,000 on the Company's
revolving credit facility.
INCOME TAXES. The effective income tax benefit rate decreased to 6.0%
during the third quarter 2000 from a 9.5% tax benefit during the third quarter
1999. The 6.0% rate during the third quarter 2000 resulted from a minimal tax
loss during the quarter resulting from non-deductible goodwill.
NINE MONTHS ENDED SEPTEMBER 27, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER
29,1999
NET SALES. Net sales increased $9.4 million, or 4.7%, to $210.2 million
during the first nine months of 2000 from $200.8 million over the first nine
months of 1999. The increase in net sales primarily was due to increased
comparable restaurant sales and the addition of seven 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 6.7% in
the first nine months of 2000 as compared to the same period in 1999. Comparable
restaurant sales increased by 3.8% for the Brinker concept restaurants operated
by the Company in the first nine months of 2000 as compared to the first nine
months of 1999. The Company believes that the majority of the sales increases
were the result of increased guest satisfaction resulting in repeat visits.
COST OF SALES. Cost of sales increased by approximately $349,700, or 0.6%,
to $55.2 million during the first nine months of 2000 from $54.9 million during
the first nine months of 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 nine months of 2000 from 27.3% during the first nine months of 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 $4.2 million, or 3.6%,
to $120.8 million during the first nine months of 2000 from $116.6 million
during the first nine months of 1999. Expressed as a percentage of net sales,
operating expenses decreased to 57.5% in the first nine months of 2000 from
58.1% during the first nine months of 1999. The dollar increase in operating
expenses primarily was due to an increase in advertising expense, increased
labor and benefits costs and from new restaurant openings. 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 $1.4 million, or 12.4%, to $12.6 million during the
first nine months of 2000 from $11.2 million during the first nine months of
1999. The dollar increase in general and administrative expenses was due to
rent, higher recruiting costs, increased training costs associated with
restaurant management and severance expense. Expressed as a percentage of net
sales, general and administrative costs increased to 6.0% during the first nine
months of 2000 from 5.6% during the first nine months of 1999. The increase was
attributable to the aforementioned dollar increases.
Page 11 of 16
<PAGE>
DEFERRED RENT, DEPRECIATION, AMORTIZATION AND PREOPENING EXPENSES. Deferred
rent, depreciation, amortization and preopening expenses increased by
approximately $663,200 or 5.1%, to $13.7 million during the first nine months of
2000 from $13.0 million during the first nine months of 1999. The increase was
primarily due to additional depreciation expense offset by a favorable variance
in preopening costs. Preopening costs of approximately $756,600 in the first
nine months of 2000 were $313,400 favorable to the approximate $1.1 million
expensed in first nine months of 1999.
INTEREST EXPENSE. Interest expense increased by approximately $700,300 to
$11.1 million during the first nine months of 2000 from $10.4 million during the
first nine months of 1999. This increase was primarily attributable to
additional mortgage loan financing for new restaurant development. Interest was
approximately $8.0 million on the Senior Notes, $2.9 million on the mortgage
loans and $224,700 on the Company's revolving credit facility.
INCOME TAXES. The effective income tax benefit rate decreased to 23.9%
during the first nine months of 2000 from 31.9% during the first nine months of
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 $4.5 million for
the first nine months of 2000 or $1.6 million more than the $2.9 million
generated during the first nine months of 1999. Net income plus the add back
for non-cash expenses was $10.5 million or $2.4 million favorable to the $8.1
million generated for the same period 1999. Accounts payable increased by
approximately $433,800 during the first nine months of this year, while
accrued expenses decreased by $6.9 million during the same period mostly due
to reductions in accrued interest, accrued bonus and deferred compensation,
gift certificates and closing reserves.
The Company's capital expenditures decreased by $1.9 million to $10.4
million for the first nine months of 2000 compared to $12.3 million of capital
expenditures for the first nine months of 1999. The decrease in capital
expenditures was primarily due to reduced new restaurant construction. The
Company received almost $1.5 million of proceeds in fiscal 2000 from the sale of
five previously closed Bertucci's restaurants, sale of land adjacent to
restaurant properties and the sale of a liquor license.
As of September 27, 2000, the Company had approximately $142.1 million in
consolidated indebtedness, including $100.0 million of indebtedness pursuant to
the Senior Notes, $42.0 million of mortgage loan financing and $60,500 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.
The Company believes that the cash flow generated from its operations,
together with available
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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. The Senior Bank Facility provides the Company with
available borrowing up to an aggregate amount of $20.0 million. As of
September 27, 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 preopening 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.
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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
None
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.
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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.
------------------------------------------
(Registrant)
Date: November 9, 2000 BY: /s/ Benjamin R. Jacobson
------------------------------------------
Benjamin R. Jacobson
Chairman of the Board of Directors
Date: November 9, 2000 BY: /s/ David J. Nace
------------------------------------------
David J. Nace
Chief Financial Officer and
Executive Vice President
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Exhibit Index
27.1 Financial Data Schedule
Page 16 of 16
