<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended September 24, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-29410
IL FORNAIO (AMERICA) CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-2766571
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
770 TAMALPAIS DRIVE, SUITE 400
CORTE MADERA, CALIFORNIA 94925
(Address of principal executive offices) (Zip Code)
(415) 945-0500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) 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.
As of November 8, 2000, there were 5,811,551 shares outstanding of the
Registrant's Common Stock ($.001 par value).
<PAGE> 2
IL FORNAIO (AMERICA) CORPORATION
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets - September 24, 2000 and December 26, 1999............................................. 3
Condensed Statements of Income - Three months and nine months ended September 24, 2000 and September 26, 1999... 4
Condensed Statements of Cash Flows - Nine months ended September 24, 2000 and September 26 , 1999............... 5
Notes to Condensed Financial Statements......................................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk................................................. 12
Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.................................................................. 12
Item 6. Exhibits and Reports on Form 8-K........................................................................... 12
</TABLE>
2
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Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IL FORNAIO (AMERICA) CORPORATION
CONDENSED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 24, DECEMBER 26,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 4,400 $ 5,118
Restricted cash...................................... 456 314
Accounts receivable, net............................. 2,048 1,785
Inventories.......................................... 2,811 2,559
Prepaid expenses and other assets.................... 734 1,184
Deferred tax assets, net............................. 245 218
---------- --------
Total current assets......................... 10,694 11,178
Property and equipment, net............................ 59,442 52,433
Deferred tax assets, net............................... 973 1,000
Other assets........................................... 760 547
---------- --------
Total assets................................. $ 71,869 $ 65,158
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 7,170 $ 6,982
Accrued expenses..................................... 9,573 7,587
---------- --------
Total current liabilities.................... 16,743 14,569
Reserve for store closures............................. 170 159
Deferred lease incentives.............................. 9,171 7,852
---------- --------
Total liabilities............................ 26,084 22,580
---------- --------
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares
authorized; no shares issued...................... -- --
Common stock, $.001 par value; 20,000,000 shares
authorized; 6,271,722 shares issued and
5,772,322 shares outstanding at September 24,
2000 and 6,193,119 shares issued and 5,693,719
shares outstanding at December 26, 1999........... 6 6
Additional paid-in-capital........................... 39,218 38,751
Retained earnings.................................... 9,578 6,838
---------- --------
48,802 45,595
Treasury stock, 499,400 shares, at cost.............. (3,017) (3,017)
---------- --------
Total stockholders' equity........................ 45,785 42,578
---------- --------
Total liabilities and stockholders' equity... $ 71,869 $ 65,158
========== ========
</TABLE>
See notes to condensed financial statements
3
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IL FORNAIO (AMERICA) CORPORATION
CONDENSED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------------- ---------------------------------
SEPTEMBER 24, SEPTEMBER 26, SEPTEMBER 24, SEPTEMBER 26,
2000 1999 2000 1999
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Restaurants......................... $ 27,113 $ 23,478 $82,119 $66,672
Wholesale bakeries.................. 2,700 1,941 7,481 5,985
-------- -------- -------- --------
Total revenues................ 29,813 25,419 89,600 72,657
-------- -------- -------- --------
Costs and expenses:
Cost of sales....................... 7,062 6,061 21,468 17,148
Operating expenses.................. 17,644 14,862 52,250 41,899
Depreciation and amortization....... 1,501 1,282 4,429 3,572
-------- -------- -------- --------
Total restaurant and bakery
costs............................. 26,207 22,205 78,147 62,619
-------- -------- -------- --------
Income from restaurant and bakery
operations........................ 3,606 3,214 11,453 10,038
Pre-opening expenses................ 274 191 519 499
General and administrative
expenses.......................... 2,176 2,444 6,713 6,111
-------- -------- -------- --------
Operating income...................... 1,156 579 4,221 3,428
Other income (expenses):
Interest income..................... 78 105 239 382
Interest expense.................... (39) (11) (71) (13)
--------- --------- -------- --------
Total other income (expenses), net.... 39 94 168 369
-------- -------- -------- --------
Income before income taxes............ 1,195 673 4,389 3,797
Provision for income taxes............ 448 259 1,649 1,461
-------- -------- -------- --------
Net income............................ $ 747 $ 414 $ 2,740 $ 2,336
======== ======== ======== ========
BASIC EARNINGS PER SHARE
Basic earnings per share.............. $ 0.13 $ 0.07 $ 0.48 $ 0.41
======== ======== ======== ========
Basic weighted average shares
outstanding........................ 5,772 5,744 5,742 5,703
======== ======== ======== ========
DILUTED EARNINGS PER SHARE
Diluted earnings per share............ $ 0.12 $ 0.07 $ 0.45 $ 0.38
======== ======== ======== ========
Diluted weighted average shares
outstanding......................... 6,052 6,233 6,026 6,127
======== ======== ======== ========
</TABLE>
See notes to condensed financial statements
4
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IL FORNAIO (AMERICA) CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 24, SEPTEMBER 26,
2000 1999
----------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,740 $ 2,336
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,665 3,817
Amortization of deferred lease incentives (381) (347)
Provision for store closures 11 (52)
Retirement of fixed assets (2) 290
Changes in:
Restricted cash (142) (137)
Accounts receivable (263) 105
Inventories (252) (385)
Prepaid expenses and other assets 450 107
Other assets (213) (40)
Accounts payable 188 1,431
Accrued expenses 1,986 168
----------------- ------------------
Net cash provided by operating activities 8,787 7,293
----------------- ------------------
Cash flows from investing activities:
Capital expenditures (11,672) (12,686)
Construction allowances received 1,700 175
Collection of note receivable -- 19
----------------- ------------------
Net cash used in investing activities (9,972) (12,492)
----------------- ------------------
Cash flows from financing activities:
Proceeds from the issuance of common stock, net 314 356
Exercise of stock options 153 189
----------------- ------------------
Net cash provided by financing activities 467 545
----------------- ------------------
Decrease in cash and cash equivalents (718) (4,654)
Cash and cash equivalents, beginning of period 5,118 12,296
================= ==================
Cash and cash equivalents, end of period $ 4,400 $ 7,642
================= ==================
</TABLE>
See notes to condensed financial statements
5
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IL FORNAIO (AMERICA) CORPORATION
Notes to Condensed Financial Statements
(Unaudited)
1. Organization and Basis of Presentation
Il Fornaio (America) Corporation (the "Company") is engaged in restaurant
operations and the production and sale of Italian bakery products for the
wholesale and retail market. As of September 24, 2000, the Company owned and
operated 23 Italian, white tablecloth restaurants and three bakeries located
primarily in California, as well as in Portland, Oregon; Las Vegas, Nevada;
Denver, Colorado; Seattle, Washington; Atlanta, Georgia and Scottsdale, Arizona.
The accompanying condensed unaudited financial statements of the Company for
the three and nine months ended September 24, 2000 and September 26, 1999, have
been prepared in accordance with accounting principles generally accepted in the
United States of America and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Certain information and footnote disclosures, normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America, have been
condensed or omitted pursuant to such rules and regulations. It is suggested
that these interim condensed financial statements be read in conjunction with
the Company's most recent audited financial statements and notes thereto
included in the Company's Form 10-K for the fiscal year ended December 26, 1999,
filed with the Securities and Exchange Commission. The balance sheet data
presented herein for December 26, 1999 was derived from the Company's audited
financial statements for the fiscal year then ended. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented have been made. The
interim financial information herein is not necessarily indicative of results
for any future interim periods or for the full fiscal year ending December 31,
2000.
Certain of the prior period amounts have been reclassified to conform to the
current period presentation.
2. Earnings Per Share
Basic EPS is computed as net income divided by the weighted average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur from common shares issuable through stock options,
warrants and other convertible securities.
The following is a summary of the calculation of the number of shares used
in calculating basic and diluted EPS:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 24, SEPTEMBER 26, SEPTEMBER 24, SEPTEMBER 26,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares used to compute basic EPS 5,771,643 5,744,074 5,741,771 5,702,502
Add: effect of dilutive securities 279,904 488,888 283,945 424,087
--------- --------- --------- ---------
Shares used to compute diluted EPS 6,051,547 6,232,962 6,025,716 6,126,589
========= ========= ========= =========
</TABLE>
3. Segment Information
The Company classifies its business interests into two reportable segments:
restaurants and wholesale bakeries. The accounting policies of the segments are
the same as those described in the summary of significant accounting policies in
Note 1 of the Company's audited financial statements included within the
Company's Form 10-K for the fiscal year ended December 26, 1999. The Company
evaluates performance and allocates resources based on revenues and operating
contribution (income before income taxes), which excludes unallocated corporate
general and administrative costs and income tax expense or benefit. Unallocated
assets include corporate cash and equivalents, the net book value of corporate
facilities and related information systems, deferred tax amounts and other
corporate long-lived assets.
6
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Financial information for the Company's business segments are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- -------------------------------
SEPTEMBER 24, SEPTEMBER 26, SEPTEMBER 24, SEPTEMBER 26,
2000 1999 2000 1999
--------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Restaurants.................. $ 27,113 $ 23,478 $ 82,119 $ 66,672
Wholesale bakeries........... 3,225 2,522 9,108 7,770
Intersegment revenues....... (525) (581) (1,627) (1,785)
-------- -------- -------- --------
Total revenues............ $ 29,813 $ 25,419 $ 89,600 $ 72,657
======== ======== ======== ========
Operating contribution:
Restaurants.................. $ 3,173 $ 3,179 $ 10,150 $ 9,453
Wholesale bakeries........... 433 35 1,302 585
Unallocated.................. (2,411) (2,541) (7,063) (6,241)
-------- -------- -------- --------
Total operating
contribution........... $ 1,195 $ 673 $ 4,389 $ 3,797
======== ======== ======== ========
Depreciation and amortization:
Restaurants.................. $ 1,366 $ 1,162 $ 4,022 $ 3,191
Wholesale bakeries........... 135 120 407 381
Corporate.................... 76 81 236 245
-------- -------- -------- --------
Total depreciation &
amortization........... $ 1,577 $ 1,363 $ 4,665 $ 3,817
======== ======== ======== ========
Capital expenditures:
Restaurants.................. $ 5,553 $ 4,754 $ 11,096 $ 11,637
Wholesale bakeries........... 46 419 502 821
Corporate.................... 18 167 74 228
-------- -------- -------- --------
Total capital expenditures $ 5,617 $ 5,340 $ 11,672 $ 12,686
======== ======== ======== ========
Property and equipment, net:
Restaurants.................. $ 55,486 $ 43,652 $ 55,486 $ 43,652
Wholesale bakeries........... 3,420 2,806 3,420 2,806
Corporate.................... 536 741 536 741
-------- -------- -------- --------
Total property and
equipment, net......... $ 59,442 $ 47,199 $ 59,442 $ 47,199
======== ======== ======== ========
</TABLE>
4. Line of Credit
The Company has a $5,000,000 revolving line of credit with a letter of
credit sub-facility, which expires on May 31, 2001 and bears interest at the
bank's reference rate. There were no amounts outstanding under the credit line
at September 24, 2000. The credit agreement requires compliance with certain
financial covenants. As of September 24, 2000, the Company was not in compliance
with one of these covenants. The bank has waived non-compliance with this
covenant.
5. Employee Plans
On May 3, 2000, the stockholders of the Company approved an amendment to the
1997 Equity Incentive Plan to increase the number of shares authorized for
issuance under such plan by 500,000 shares. The stockholders also approved an
amendment to the Company's 1997 Employee Stock Purchase Plan to increase the
number of shares authorized under such plan by 200,000 shares.
6. Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 has been amended by SFAS Nos. 137
and 138, and is interpreted by the FASB and the Derivatives Implementation Group
through "Statement 133 Implementation Issues." SFAS No. 133, as amended, defines
derivatives, requires that derivatives be carried at fair value, and provides
for hedge accounting when certain conditions are met. The Company will adopt the
provisions of SFAS No. 133 effective January 1, 2001. The Company has assessed
7
<PAGE> 8
the implications of SFAS No. 133 and does not believe the adoption of this
statement will have a material impact on its financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve risks
and uncertainties. Such forward-looking statements may be deemed to include
information that is not historical, including without limitation, the timing of
and plans for anticipated restaurant openings, the projected investment and
costs required for future restaurants and the adequacy of anticipated sources of
cash to fund the Company's future capital requirements through 2000. Words such
as "believes," "anticipates," "expects," "intends" and similar expressions are
intended to identify forward-looking statements, but are not the exclusive means
of identifying such statements. Readers are cautioned that the forward-looking
statements reflect management's analysis only as of the date hereof, and the
Company assumes no obligation to update these statements. Actual events or
results may differ materially from the results discussed in or implied by the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those risks and uncertainties discussed below under
"Factors Affecting Operating Results" and elsewhere in this Quarterly Report on
Form 10-Q, as well as other risks set forth under the caption "Risk Factors" in
the Company's Annual Report on Form 10-K for the fiscal year ended December 26,
1999. The following discussion should be read in conjunction with the Financial
Statements and the Notes thereto included in Item 1 of this Quarterly Report on
Form 10-Q and in the Company's Annual Report on Form 10-K for the fiscal year
ended December 26, 1999.
OVERVIEW
The Company's revenues consist of restaurant sales and bakery sales.
Comparable restaurant sales are calculated to include a new restaurant only
after its first full month following the eighteenth month of its operation.
Comparable restaurant revenues may fluctuate significantly as a result of a
variety of factors. See "Factors Affecting Operating Results" below.
Cost of sales is composed primarily of the cost of food and beverages.
Operating expenses include payroll and fringe benefit costs, occupancy costs,
marketing costs and other store-level costs. The majority of these costs are
variable and are expected to increase with sales volume. Occupancy costs include
both a fixed and percentage portion of rent.
Pre-opening costs consist of direct costs related to hiring and training the
initial workforce and certain other direct costs related to opening new
restaurants. Pre-opening costs in 1999 and 2000 reflect costs that were expensed
as incurred. This expense-as-incurred standard may continue to result in
increased variability in the amount of pre-opening costs recognized, depending
on the number and timing of restaurant openings. As a result, the Company's
operating results may fluctuate from quarter to quarter.
General and administrative expenses are composed of expenses associated with
all corporate and administrative functions that support existing operations and
provide an infrastructure to support future growth, including management and
staff salaries, employee benefits, travel, information systems and training and
market research. Certain expenses of recruiting and training unit management
personnel are also included as general and administrative expenses.
8
<PAGE> 9
The following table sets forth unaudited operating results for the
three-month and nine-month periods ended September 24, 2000 and September 26,
1999, as a percentage of sales in each of these periods. This data has been
derived from the unaudited financial statements.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------- --------------------------------
SEPTEMBER 24, SEPTEMBER 26, SEPTEMBER 24, SEPTEMBER 26,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Restaurants 90.9% 92.4% 91.7% 91.8%
Wholesale bakeries 9.1% 7.6% 8.3% 8.2%
----- ----- ----- -----
Total revenues 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Costs and expenses:
Costs of sales 23.7% 23.8% 24.0% 23.6%
Operating expenses 59.2% 58.6% 58.3% 57.7%
Depreciation and amortization 5.0% 5.0% 4.9% 4.9%
----- ----- ----- -----
Total restaurant and bakery costs 87.9% 87.4% 87.2% 86.2%
----- ----- ----- -----
Income from restaurant and bakery
operations 12.1% 12.6% 12.8% 13.8%
Pre-opening expenses 0.9% 0.8% 0.6% 0.7%
General and administrative expenses 7.3% 9.5% 7.5% 8.4%
----- ----- ----- ------
Income from operations 3.9% 2.3% 4.7% 4.7%
Interest income (expense), net 0.1% 0.3% 0.2% 0.5%
----- ----- ----- ----
Income before income taxes 4.0% 2.6% 4.9% 5.2%
Provision for income taxes 1.5% 1.0% 1.8% 2.0%
----- ----- ----- -----
Net income 2.5% 1.6% 3.1% 3.2%
===== ===== ===== =====
</TABLE>
Total restaurant revenues increased by 15.5% to $27.1 million for the third
quarter of 2000 from $23.5 million for the third quarter of 1999 and by 23.2% to
$82.1 million for the first nine months of 2000 from $66.7 million for the first
nine months of 1999. The increases were primarily attributable to (i) the
opening of two new restaurant in 2000 as well as two new restaurants opened in
the fourth quarter of 1999 and (ii) a 0.9% increase in comparable restaurant
sales for the third quarter of 2000 and a 2.6% increase in comparable restaurant
sales for the first nine months of 2000. The increase in restaurant revenues
also reflects the benefit of a moderate menu price increase implemented in the
second quarter of 1999. Total wholesale bakery revenues increased by 39.1% to
$2.7 million for the third quarter of 2000 from $1.9 million for the third
quarter of 1999 and by 25.0% to $7.5 million for the first nine months of 2000
from $6.0 million for the first nine months of 1999. The increase was
attributable to the continued addition of new wholesale accounts as well as
increased sales to existing accounts.
Cost of sales decreased slightly as a percentage of revenues to 23.7% for
the third quarter of 2000 but increased to 24.0% for the first nine months of
2000 compared to 23.8% and 23.6% for the respective comparable periods in 1999.
The increase was primarily the result of higher initial cost of sales for the
two new restaurants opened during the fourth quarter of 1999 and the two new
restaurants opened during the first and third quarters of 2000 along with a
general shift in menu mix.
Operating expenses as a percentage of revenues increased to 59.2% for the
third quarter of 2000 and to 58.3% for the first nine months of 2000 compared to
58.6% and 57.7% for the respective comparable periods in 1999. These increases
were primarily attributable to an increase in the minimum wage in Washington and
the corresponding indirect pressure on other wages, as well as increased payment
of overtime in California due to the labor law change that took effect January
1, 2000. Additionally, in the third quarter of fiscal year 1999, there was a
non-recurring charge of approximately $154,000 related to the disposition of
equipment from two wholesale bakeries as a result of the consolidation of
certain bakery operations. In addition, there were general increases in employee
related insurance programs and store operating supplies. Depreciation and
amortization remained unchanged as a percentage of revenues at 5.0% for the
third quarter of 2000 and at 4.9% for the first nine months of 2000 compared to
the same respective periods in 1999.
Pre-opening costs in 1999 and 2000 were expensed as incurred. Pre-opening
costs expensed in the third quarter of 2000 were $274,000 compared to $191,000
in the third quarter of 1999. Total pre-opening costs for the first nine months
of 2000 were $519,000 compared to $499,000 for the same period in 1999.
Pre-opening costs in 2000 were primarily incurred in connection with the opening
of the Scottsdale, Arizona restaurant on February 7, 2000 and the Roseville,
California restaurant on August 25, 2000. The
9
<PAGE> 10
pre-opening costs for the first nine months of 1999 were incurred primarily in
connection with the opening of the Company's Canaletto restaurant in Las Vegas,
Nevada on June 28, 1999 and the Coronado, California restaurant on
September 3, 1999.
General and administrative expenses as a percentage of revenues decreased to
7.3% for the third quarter of 2000 compared to 9.5% for the third quarter of
1999 and to 7.5% for the first nine months of 2000 versus 8.4% for the same
period in 1999. These decreases primarily reflect non-recurring charges of
approximately $400,000 incurred in the third quarter of 1999 that were
associated with the Company's review of financial and strategic alternatives to
enhance stockholder value. Additionally, preliminary costs of $84,000 were
incurred in the third quarter of 1999 with respect to the evaluation and
negotiation of leases for two potential sites, which the Company subsequently
decided not to pursue.
Interest income decreased to $78,000 in the third quarter of 2000 from
$105,000 in the third quarter of 1999 and to $239,000 for the first nine months
of 2000 from $382,000 for the same period. These decreases reflect interest
earned on lower average cash balances as a result of the use of cash to expand
the Company's operations. Interest expense increased to $39,000 in the third
quarter of 2000 from $11,000 in the third quarter of 1999 and to $71,000 for the
first nine months of 2000 from $13,000 for the same period. These increases are
a result of the increased utilization of the Company's line of credit in
connection with the expansion of operations.
The provision for income taxes for the quarter ended September 24, 2000
reflected expected income taxes due at federal statutory rates and state income
tax rates, net of tax benefits. The effective income tax rate was 37.5% for the
third quarter of 2000 compared to 38.5% for the comparable period in 1999. This
decrease in the effective income tax rate was due to the planned use of various
deductible tax assets and other tax credits available to the Company.
Net income for the third quarter of 2000 increased by $333,000, or 80.4%, to
$747,000 from $414,000 for the third quarter of 1999 and by $404,000, or 17.3%,
to $2,740,000 for the first nine months of 2000 from $2,336,000 for the same
period in 1999. The increases were primarily the result of increased sales
performance as well as the non-recurring charges incurred in the third quarter
of 1999 as discussed above. Net income per share (diluted) for the third quarter
of 2000 was $0.12 versus $0.07 reported for the third quarter of 1999 and $0.45
for the first nine months of 2000 compared to $0.38 for the same period in 1999.
FACTORS AFFECTING OPERATING RESULTS
The Company's business is subject to a number of challenges and risks
including, among other things, the risks associated with the Company's pursuit
of its growth strategy, risks related to the Company's relatively small
operations base and the geographic concentration of the Company's restaurants,
uncertainties associated with possible increases in food and labor costs,
potentially adverse weather conditions, the impact of potential governmental
regulation, risks related to the Company's dependence on its key personnel,
uncertainties related to the intensely competitive nature of the restaurant
business, as well as potential liabilities associated with long-term leases. The
Company's plans for new restaurant locations and timing of openings depend upon,
among other things, successful completion of lease negotiations, timely project
development and restaurant construction, obtaining appropriate regulatory
approvals, management of costs and recruitment of qualified operating personnel.
The Company's quarterly operating results may fluctuate significantly as a
result of a variety of factors, including general economic conditions, consumer
confidence in the economy, changes in consumer preferences, competitive factors,
weather conditions, the timing of new restaurant openings and related costs and
expenses, net sales contributed by new restaurants, the Company's ability to
execute its business strategy, fluctuations in inventory and general and
administrative expenses, and increases or decreases in comparable restaurant
revenues. Due to the foregoing factors, results for any one quarter are not
necessarily indicative of results to be expected for any other quarter or for
any year and, from time to time in the future, the Company's results of
operations may be below the expectations of public market analysts and
investors. Comparable restaurant sales results may also vary from period to
period as a result of similar factors. These and other risk factors are
discussed in more detail in the Company's Form 10-K for the fiscal year ended
December 26, 1999 under the caption "Risk Factors."
10
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LIQUIDITY AND CAPITAL RESOURCES
At September 24, 2000, the Company had $4.4 million in cash and cash
equivalents compared to $5.1 million at December 26, 1999.
Cash flow from operations increased by $1.5 million to $8.8 million for the
first nine months of 2000 from $7.3 million during the same period in 1999,
primarily due to the increase in net income recognized and the net effect of
timing differences in the collection and disbursement of working capital
components.
Net cash provided by financing activities was $467,000 for the first nine
months of 2000 as compared to $545,000 for the same period in 1999. The
difference is due to the receipt of $314,000 in cash from the issuance of common
stock under the Company's employee stock purchase plan during the first nine
months of 2000 compared to $356,000 received under that plan for the same period
in 1999. In addition, the Company received $153,000 in cash from the issuance of
common stock upon the exercise of stock options during the first nine months of
2000 compared to $189,000 received from the issuance of common stock upon the
exercise of stock options during the same period in 1999.
The Company has a credit agreement, which provides for a $5.0 million
revolving line of credit. At September 24, 2000, there were no amounts
outstanding under the credit line. The existing credit line was recently
extended and is scheduled to expire May 31, 2001. The credit agreement requires
compliance with certain financial covenants. As of September 24, 2000, the
Company was not in compliance with one of these covenants. The bank waived
non-compliance with this covenant.
Capital expenditures were $11.7 million for the first nine months of 2000 as
compared to $12.7 million for the first nine months of 1999. Construction
allowances received during the first nine months of 2000 were $1.7 million as
compared to $175,000 for the same period in 1999. The expenses incurred during
the first nine months of 2000 were due to the construction costs for the
Company's Scottsdale, Arizona and Roseville, California restaurants opened
during the first and third quarters of 2000, respectively, and the additional
two restaurants currently under construction. The Company also anticipates
incurring additional expenditures to enhance some of its existing restaurants.
The Company expects that its planned future restaurants will require, on
average, a total investment by the Company per restaurant, net of anticipated
landlord contributions, of approximately $2.2 million, with additional average
pre-opening costs per restaurant of approximately $250,000. The Company intends
to finance these capital expenditures through a combination of cash and cash
equivalents on hand, cash provided by operations, and landlord construction
contributions (when available).
The Company's future capital requirements and the adequacy of its available
funds will depend on many factors, including the pace of expansion, the size of
restaurants developed and the nature of the arrangements negotiated with
landlords. Although no assurance can be given, the Company believes that
anticipated cash flow from operations, existing cash balances and borrowings
under the credit agreement will be sufficient to fund its capital requirements,
including planned expansion and ongoing maintenance and renovation of existing
restaurants, at least through 2000. In the event that additional capital is
required, the Company may seek to raise that capital through public or private
equity or debt financing. There can be no assurance that such capital will be
available on favorable terms, if at all.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 has been amended by SFAS Nos. 137
and 138, and is interpreted by the FASB and the Derivatives Implementation Group
through "Statement 133 Implementation Issues." SFAS No. 133, as amended, defines
derivatives, requires that derivatives be carried at fair value, and provides
for hedge accounting when certain conditions are met. The Company will adopt the
provisions of SFAS No. 133 effective January 1, 2001. The Company has assessed
the implications of SFAS No. 133 and does not believe the adoption of this
statement will have a material impact on its financial statements.
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INFLATION
The primary inflationary factors affecting the Company's operations are
food and labor costs. From time to time, the Company has experienced significant
volatility in the cost of certain food-related commodities, such as butter and
manufacturing cream. Many of the Company's restaurant personnel are paid at
rates based on the applicable minimum wage, and increases in the minimum wage
directly affect the Company's labor costs. In addition, increases in the minimum
wage have resulted in indirect pressure on other wage levels. To date, inflation
(except for the impact of minimum wage increases and labor law changes) has not
had a material impact on the Company's operations. The minimum wage increased in
Oregon to $6.50 an hour in January 1999. In January 2000, the minimum wage
increased to $6.50 an hour in Washington. Effective January 1, 2000, California
law requires that overtime be paid to California hourly personnel who work
longer than eight hours per day. Prior to this change, the labor law in effect
mandated overtime pay to hourly personnel only to the extent they worked longer
than an average of 40 hours per calendar week. Beginning January 1, 2001, the
minimum wage will increase to $6.25 an hour in California and will increase
again to $6.75 an hour effective January 1, 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's cash and cash equivalents are subject to interest rate risk.
The Company invests primarily on a short-term basis. The financial instrument
holdings at quarter-end were analyzed to determine their sensitivity to interest
rate changes. The fair values of these instruments were determined by net
present values. In our sensitivity analysis, the same change in interest rate
was used for all maturities. All other factors were held constant. If interest
rates increased by 10%, the expected effect on net income related to the
Company's financial instruments would be immaterial.
Part II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) From December 26, 1999 to September 24, 2000, the Registrant has sold
and issued the following unregistered securities:
1. During the period, the Company granted incentive and non-qualified
stock options to key employees, officers and directors under its
1997 Equity Incentive Plan (the "Plan") covering an aggregate of
236,575 shares of the Company's Common Stock, at exercise prices
ranging from $7.88 to $8.67 per share. These options vest over a
period of time following their respective dates of grant. The
Company claimed exemption from registration under the Securities
Act for these grants in that the Company believes such grants were
not "sales" within the meaning of the Securities Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedules
(b) Reports on Form 8-K. None.
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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.
Il Fornaio (America) Corporation
Date: November 22, 2000 By: /s/ Michael J. Hislop
--------------------------------------------
Michael J. Hislop
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 22, 2000 By: /s/ Peter P. Hausback
--------------------------------------------
Peter P. Hausback
Chief Financial Officer
(Principal Financial and Accounting Officer)
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