<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Act of
1934 for the Quarterly Period ended March 26, 2000.
Commission File Number: 0-14968
----------------------------------------------- --------
EATERIES, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Oklahoma 73-1230348
- ------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1220 South Santa Fe
Edmond, Oklahoma 73003
- --------------------------------------- -------------------------------------
(Address of principal executive offices) (Zip Code)
(405) 705-5000
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(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 May 10, 2000, 3,003,906
common shares, $.002 par value, were outstanding.
<PAGE> 2
EATERIES, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 26, 2000 (undaudited) and
December 26, 1999............................................... 4
Condensed Consolidated Statements of
Income (unaudited)
Thirteen weeks ended March 26, 2000
and March 28, 1999............................................ 5
Condensed Consolidated Statements of
Cash Flows (unaudited)
Thirteen weeks ended March 26, 2000
and March 28, 1999............................................ 6
Notes to Condensed Consolidated Financial
Statements (unaudited).......................................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations......................................................... 10
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 20
2
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PART I
FINANCIAL INFORMATION
3
<PAGE> 4
Item 1. Financial Statements.
EATERIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 26, December 26,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,288,262 $ 2,243,332
Receivables 1,165,771 1,524,318
Deferred income taxes 226,000 226,000
Inventories 830,236 937,098
Other 733,983 685,024
------------ ------------
Total current assets 4,244,252 5,615,772
------------ ------------
PROPERTY AND EQUIPMENT 52,242,634 50,290,249
Less landlord finish-out allowances (16,507,480) (16,304,266)
Less accumulated depreciation and
amortization (14,029,077) (13,080,932)
------------ ------------
Net property and equipment 21,706,077 20,905,051
------------ ------------
DEFERRED INCOME TAXES 1,055,062 1,143,171
GOODWILL 2,701,654 2,707,062
OTHER ASSETS, net 728,429 718,339
------------ ------------
$ 30,435,474 $ 31,089,895
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,160,272 $ 7,035,152
Accrued liabilities $ 4,546,860 5,672,466
Current portion of long-term
obligations 1,228,571 1,228,571
------------ ------------
Total current liabilities 11,935,703 13,936,189
------------ ------------
OTHER NONCURRENT LIABILITIES 724,378 736,363
------------ ------------
LONG-TERM OBLIGATIONS, net of
current portion 10,114,988 9,092,131
------------ ------------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock, none issued -- --
Common stock 8,830 8,816
Additional paid-in capital 10,125,794 10,114,079
Retained earnings 4,422,502 4,099,038
------------ ------------
14,557,126 14,221,933
Treasury stock, at cost,
1,380,395 March 28, 2000
and December 26, 1999,
respectively (6,896,721) (6,896,721)
------------ ------------
Total stockholders'
equity 7,660,405 7,325,212
------------ ------------
$ 30,435,474 $ 31,089,895
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
EATERIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
March 26, March 28,
2000 1999
----------- -----------
<S> <C> <C>
REVENUES:
Food and beverage sales $24,946,514 $22,904,457
Franchise fees and royalties 39,248 67,838
Other income 122,417 101,525
----------- -----------
25,108,179 23,073,820
----------- -----------
COSTS AND EXPENSES:
Costs of sales 6,813,224 6,269,749
Operating expenses 15,139,469 13,924,863
Pre-opening costs 209,000 99,000
General and administrative 1,351,501 1,440,493
Depreciation and amortization 955,094 843,040
Interest expense 223,562 145,750
----------- -----------
24,691,850 22,722,895
----------- -----------
INCOME BEFORE INCOME TAXES 416,329 350,925
PROVISION FOR INCOME TAXES 92,809 104,000
----------- -----------
NET INCOME $ 323,520 $ 246,925
=========== ===========
BASIC EARNINGS PER SHARE $ 0.11 $ 0.07
=========== ===========
DILUTED EARNINGS PER SHARE $ 0.10 $ 0.07
=========== ===========
</TABLE>
See notes to condensed consolidated financialstatements.
5
<PAGE> 6
EATERIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
March 26, March 28,
2000 1999
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
Cash flows from operating activities:
Net income $ 323,520 $ 246,925
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation & amortization 955,094 843,040
Deferred income taxes 92,809 80,000
(Increase) decrease in:
Receivables 358,548 (104,439)
Inventories 106,862 98,408
Other (48,960) (803,326)
Increase (decrease) in:
Accounts payable (874,880) 242,897
Accrued liabilities (1,125,606) (46,927)
Other noncurrent liabilities (11,985) 27,835
----------- -----------
Total adjustments (548,118) 337,488
----------- -----------
Net cash provided by (used in) operating activities
(224,598) 584,413
Cash flows from investing activities:
Capital expenditures (1,952,422) (979,342)
Landlord allowances 203,214 125,000
Payments received on notes receivable -- 1,579
Increase (decrease) in other assets (11,152) (650)
----------- -----------
Net cash used in investing activities (1,760,360) (853,413)
----------- -----------
Cash flows from financing activities:
Borrowings under long-term obligations -- 5,463,333
Payments on long-term obligations (307,143) --
Net borrowings under revolving credit agreements 1,330,000 2,315,829
Increase (decrease) in bank overdraft included in accounts payable
-- (743,973)
Repurchase of treasury stock -- (5,634,318)
Proceeds from exercise of stock options 7,030 43,125
----------- -----------
Net cash provided by financing activities 1,029,887 1,443,996
----------- -----------
(Decrease) in cash & cash equivalents (955,071) 1,174,996
Cash and cash equivalents at beginning of period 2,243,333 1,297,638
----------- -----------
Cash and cash equivalents at end of period $ 1,288,262 $ 2,472,634
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
EATERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 - Basis of Preparation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the thirteen weeks ended March 26, 2000 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 26, 1999.
Note 2 - Balance Sheet Information
Receivables are comprised of the following:
<TABLE>
<CAPTION>
March 26, December 26,
2000 1999
---------- ----------
<S> <C> <C>
Franchisees $ 64,904 $ 157,238
Insurance refunds 365,181 309,213
Landlord finish-out allowances 10,000 10,000
Other 725,686 1,047,867
---------- ----------
$1,165,771 $1,524,318
========== ==========
</TABLE>
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
March 26, December 26,
2000 1999
---------- ----------
<S> <C> <C>
Compensation $1,849,296 $2,462,458
Taxes, other than income 1,047,196 1,063,360
Other 1,650,368 2,146,648
---------- ----------
$4,546,860 $5,672,466
========== ==========
</TABLE>
Note 3 - Supplemental Cash Flow Information
For the thirteen-week periods ended March 26, 2000 and March 28, 1999, the
Company had the following non-cash investing activity:
7
<PAGE> 8
<TABLE>
<CAPTION>
Thirteen Weeks Ended
March 26, March 28,
2000 1999
----------------------- -----------------------
<S> <C> <C> <C>
Increase in additional paid-in capital as a result of tax
benefits from the exercise of non-qualified stock
options 4,700 16,000
</TABLE>
Note 4 - Stock Repurchases
In April 1997, the Company's Board of Directors authorized the repurchase
of up to 200,000 shares of the Company's common stock. In July 1997, an
additional 200,000 shares were authorized for repurchase. As of March 26, 2000,
130,262 shares had been repurchased under this plan for a total purchase price
of approximately $556,000. No additional shares have been repurchased subsequent
to March 26, 2000.
In February 1999, the Company purchased 1,056,200 shares of its common
stock from Astoria Capital Partners, L.P., Montavilla Partners, L.P., and
MicroCap Partners L.P. ("Sellers") for a purchase price of $5.125 per share or
an aggregate purchase price of $5,413,025. The shares purchased from the Sellers
represented 26.7% of the outstanding common stock of the Company, prior to the
transaction. The purchase price was financed by the Company through a term loan
with a bank.
Note 5 - Restaurant Acquisitions and Dispositions
In May 1999, the Company acquired all of the outstanding common stock of
K & L Restaurants, Inc. for 36,101 shares of the Company's common stock and
$125,000 in cash. K & L Restaurants, Inc. owned and operated Bellini's, a
restaurant located on Waterford Boulevard in Oklahoma City, Oklahoma. The
acquisition was accounted for under the purchase method. Pro forma operating
results for the thirteen week period ended March 26, 2000 and March 28, 1999,
assuming that the acquisition had been made at the beginning of fiscal year
1999, would not be materially different than the results reported.
In May 1999, the Company acquired all of the outstanding common stock of
B & C Development Company for 36,101 shares of the Company's common stock and
$125,000 in cash. B & C Development Company owned and operated Tommy's
Italian-American Grill located at North Park Mall in Oklahoma City, Oklahoma.
The acquisition was accounted for under the purchase method. Pro forma operating
results for the thirteen week period ended March 26, 2000 and March 28, 1999,
assuming that the acquisition had been made at the beginning of fiscal year
1999, would not be materially different than the results reported.
8
<PAGE> 9
In May 1999, the Company acquired certain assets of Bellini's Ristorante
and Grill of Edmond, LLC for 27,076 shares of the Company's common stock.
Bellini's Ristorante and Grill of Edmond, LLC owned and operated Bellini's, a
restaurant located in Edmond, Oklahoma. Assuming the acquisition had been made
at the beginning of the fiscal year 1999, pro forma operating results for the
thirteen week period ended March 26, 2000 and March 28, 1999, would not be
materially different than the results reported.
No Company owned restaurants were closed during the thirteen weeks ended
March 26, 2000. However, the banquet center lease at the Terre Haute, Indiana
Garfield's was terminated in February, 2000. The Company terminated the lease on
one underperforming Garfield's Restaurant during 1999 located in Shreveport,
Louisiana. In addition, the Company did not renew leases and ceased operations
at two other Garfield's Restaurants during 1999.
The Company has signed a letter of intent with the Pinnacle Restaurant
Group LLC to acquire, among other things, ten Harrigan's Restaurants located in
Oklahoma, Texas and New Mexico. The Company anticipates this transaction to be
completed during the second quarter of 2000.
Note 6 - Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share ("EPS"):
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-------------------------
March 26, March 28,
2000 1999
---------- -------------
<S> <C> <C>
Numerator:
Net income ....................................... $ 323,520 $ 246,925
========== =============
Denominator:
Denominator for basic EPS-weighted average shares
outstanding..................................... 2,997,262 3,518,991
Dilutive effect of nonqualified stock options .... 96,903 206,390
---------- -------------
Denominator for diluted EPS .................... 3,094,165 3,725,381
========== =============
Basic EPS .............................................. $ 0.11 $ 0.07
========== =============
Diluted EPS ............................................ $ 0.10 $ 0.07
========== =============
</TABLE>
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
From time to time, the Company may publish forward-looking statements
relating to certain matters including anticipated financial performance,
business prospects, the future opening of Company-owned and franchised
restaurants, anticipated capital expenditures, and other matters. All statements
other than statements of historical fact contained in this Form 10-Q or in any
other report of the Company are forward-looking statements. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of that safe
harbor, the Company notes that a variety of factors, individually or in the
aggregate, could cause the Company's actual results and experience to differ
materially from the anticipated results or other expectations expressed in the
Company's forward-looking statements including, without limitation, the
following: consumer spending trends and habits; competition in the casual dining
restaurant segment; weather conditions in the Company's operating regions; laws
and government regulations; general business and economic conditions;
availability of capital; success of operating initiatives and marketing and
promotional efforts; and changes in accounting policies. In addition, the
Company disclaims any intent or obligation to update those forward-looking
statements.
INTRODUCTION
As of March 26, 2000, the Company owned and operated 70 (49 Garfield's, 16
Garcia's, two Pepperoni Grills, two Bellini's, one Tommy's Italian-American
Restaurant,) and seven franchised Garfield's and one licensed Garcia's
restaurants. The Company currently has one Garfield Restaurant under
construction located in Pennsylvania. In addition, the Company is working with a
franchisee on the development of a restaurant located in Indiana. The Company
currently has one additional new Garfield's and three additional new Garcia's in
development. As of the date of this report, the entire system includes 78
restaurants of which 70 are Company-owned. During the thirteen weeks ended March
26, 2000, the Company converted its sole Carlos Murphy Restaurant located in
Tucson, Arizona to a Garcia's. The initial results have been encouraging with
sales up substantially at that location. The Carlos Murphy Restaurant was
acquired as part of the Garcia's Casa Lupita purchase in 1997.
In 1999, the Company hired Mr. Larry Bader as Vice President of
Franchising. Mr. Bader formerly held a similar position at KFC and more recently
at Applebee's. The Company has prepared a new franchise program and an updated
franchise and development agreement for Garfield's Restaurant & Pub. The
development agreement is new to the Company and will allow a franchisee to have
an exclusive territory in which to build out the Garfield's brand over a
specified time period. During the thirteen weeks ended March 26, 2000, the
Company signed one new franchise agreement and anticipate at least one
additional new franchise
10
<PAGE> 11
restaurant to be completed during the year 2000. Also, the Company anticipates
signing a new franchise agreement for several new Garfield's.
The uniform franchise offering circular (called the UFOC that contains the
franchise and development agreement) is registered nationally.
The Company has initiated a national advertising campaign seeking
prospective franchisees. The intention is to find candidates or organizations
who have a substantial net worth, a proven track record in multi-unit food
service, retail or hospitality, and interest in developing and operating
multiple casual dining restaurants.
In 1999, the Company hired Marc Buehler as Vice President of Marketing. Mr.
Buehler formerly held a similar position with Applebee's. His responsibilities
with the Company include a focus around one central theme-enhancing the guest
experience in all the Company concepts. Each program is designed with the guest
in mind, to develop concept marketing plans to improve guest satisfaction in the
areas of food, value, and service. The Company continues to offer a broad range
of products that guests' desire while striving to deliver the food in a fast and
friendly manner. Utilizing multiple mediums such as television, local cable,
radio, outdoor and print, the Company is able to deliver messages to the guest
in the most efficient way. The restaurant managers are also encouraged to be
involved in the community and to use proven local store marketing programs to
drive their business. Key priorities for the remainder of 2000 include enhancing
brand image along with developing menus that please the customer and improve the
company bottom line at the same time.
PERCENTAGE RESULTS OF OPERATIONS AND RESTAURANT DATA
The following table sets forth, for the periods indicated, (i) the
percentages that certain items of income and expense bear to total revenues,
unless otherwise indicated, and (ii) selected operating data:
<TABLE>
<CAPTION>
Thirteen Weeks Ended
March 26, March 28,
2000 1999
--------- ---------
<S> <C> <C>
Statements of Income Data:
Revenues:
Food and beverage sales ......................... 99.3% 99.3%
Franchise fees and royalties .................... 0.2% 0.3%
Other income .................................... 0.5% 0.4%
--------- ---------
100.0% 100.0%
Costs and Expenses:
Costs of sales (1) .............................. 27.3% 27.4%
Operating expenses (1) .......................... 60.7% 60.8%
Pre-opening costs (1) ........................... 0.8% 0.4%
General and administrative ...................... 5.4% 6.2%
Depreciation and amortization (1) ............... 3.8% 3.7%
Interest expense ................................ 0.9% 0.6%
--------- ---------
98.3% 98.5%
--------- ---------
Income before income taxes ........................... 1.7% 1.5%
Provision for income taxes ........................... 0.4% 0.4%
--------- ---------
Net income ........................................... 1.3% 1.1%
========= =========
Selected Operating Data:
(Dollars in thousands)
System-wide sales:
Company restaurants ............................. $ 24,947 $ 22,904
Franchise restaurants ........................... 2,103 2,217
--------- ---------
Total ...................................... $ 27,050 $ 25,121
========= =========
Number of restaurants (at end of period):
Company restaurants ............................. 70 65
Franchise restaurants ........................... 8 8
--------- ---------
Total ...................................... 78 73
========= =========
</TABLE>
(1) As a percentage of food and beverage sales
11
<PAGE> 12
RESULTS OF OPERATIONS
For the quarter ended March 26, 2000, the Company recorded net income of
$324,000 ($.11 per common share; $.10 per common share assuming dilution) on
revenues of $25,108,000. This compares to net income of $247,000 ($0.07 per
common share; $0.07 per common share assuming dilution) for the quarter ended
March 28, 1999 on revenues of $23,074,000.
REVENUES
Company revenues for the quarter ended March 26, 2000 increased 8.8% versus
the revenues reported for the same period in 1999. This increase is primarily
attributable to the increased sales in the Company's Garfield's Restaurants. The
number of Company restaurants operating at the end of each quarter and the
number of operating months during that quarter are as follows:
12
<PAGE> 13
<TABLE>
<CAPTION>
Period Number of Number of Average Monthly
Ended Units Open Operating Months Sales Per Unit
--------------- ------------------ -----------------------------
<S> <C> <C> <C>
Garfield's
March 26, 2000 49 147 $ 110,000
March 28, 1999 48 144 $ 107,000
Garcia's (1)
March 26, 2000 14 41 $ 145,300
March 28, 1999 14 41 $ 159,600
Roma Foods
March 26, 2000 5 15 $ 139,000
March 28, 1999 2 6 $ 147,600
</TABLE>
(1) Excludes the Garcia's concession operation at BankOne Ball Park in Phoenix,
Arizona.
Average monthly sales per unit for Garfield's increased by $3,000 or 2.8%
during the first quarter of 2000 versus 1999. This increase is primarily
attributable to successful specials being advertised in more markets on both
local and cable television. In addition, the Company believes additional
management training programs at the store level have increased store
efficiencies.
Average monthly sales per unit for Garcia's decreased by $14,300 or 8.9%.
This decrease is primarily due to sales decreases in the Phoenix, Arizona market
resulting from a vendor contaminated food product problem and the related
negative publicity. However, it should be noted the 1999 sales levels reflect
deep discounted, heavily advertised promotions. The 2000 sales utilized full
priced promotions without benefit of deep discount advertising support which had
a more favorable affect on unit level profits.
Average monthly sales per unit for ROMA decreased by $8,600 or 5.8%. This
increase is primarily due to the addition of two Bellini's and one Tommy's
Restaurants in May of 1999.
Franchise fees and continuing royalties decreased to $39,000 during the
quarter ended March 26, 2000, versus $68,000 during the quarter ended March 28,
1999. This decrease is primarily due to the closing of one licensed Garcia's
Restaurant in the quarter. One new franchised restaurant was opened during the
quarter ended March 26, 2000.
Other income for the quarter ended March 26, 2000 was $122,000 as compared
to the previous year's amount of $102,000. During the first quarter of 1999.
13
<PAGE> 14
COSTS AND EXPENSES
The following is a comparison of costs of sales and labor costs (excluding
payroll taxes and fringe benefits) as a percentage of food and beverage sales at
Company-owned restaurants:
<TABLE>
<CAPTION>
Thirteen Weeks Ended
---------------------------
March 26, March 28,
2000 1999
---------- ----------
<S> <C> <C>
Garfield's:
Costs of sales ............................. 27.8% 27.8%
Labor costs ................................ 28.4% 28.3%
---------- ----------
Total .................................... 56.2% 56.1%
========== ==========
Garcia's (1):
Costs of sales ............................. 25.0% 26.0%
Labor costs ................................ 30.4% 28.3%
---------- ----------
Total .................................... 55.4% 54.3%
========== ==========
Roma Foods:
Costs of sales ............................. 30.5% 29.9%
Labor costs ................................ 30.1% 29.3%
---------- ----------
Total .................................... 60.6% 59.2%
========== ==========
Total Company:
Costs of sales ............................. 27.3% 27.4%
Labor costs ................................ 29.0% 28.3%
---------- ----------
Total .................................... 56.3% 55.7%
========== ==========
</TABLE>
(1) Includes Carlos Murphy's for the period ended March 28, 1999 converted to a
Garcia's during the period ended March 26, 2000.
Costs of sales as a percentage of food and beverage sales for Garfield's in
the quarters ended March 28, 1999 and March 26, 2000 was 27.8%.
Garcia's costs of sales as a percentage of food and beverage sales
decreased to 25.0% in the quarter ended March 26, 2000 versus 26.0% in the
quarter ended March 28, 1999. This decrease primarily relates to completion of
recent menu development.
14
<PAGE> 15
Labor costs for Garfield's increased to 28.4% of food and beverage sales
during the quarter ended March 26, 2000, versus 28.3% during the 1999 comparable
period.
Garcia's labor costs increased to 30.4% of food and beverage sales during
the quarter ended March 26, 2000, versus 28.3% in the quarter ended March 28,
1999. This increase is due primarily to lower unemployment rates and regional
labor shortages.
Labor cost in ROMA Foods increased to 30.1% during the quarter ended March
26, 2000 versus 29.3% during the 1999 comparable period. This increase was due
to the acquisition of the two Bellini's and Tommy's Restaurants in the second
quarter of 1999. These restaurants are more labor intensive than the other ROMA
restaurants.
For the quarter ended March 26, 2000, operating expenses as a percentage of
food and beverage sales decreased to 60.7% from 60.8% in the quarter ended March
28, 1999. This decrease principally relates to decreased advertising, marketing
and occupancy costs during the quarter ended March 26, 2000, partially offset by
increased labor costs in Garfield's and Garcia's.
Restaurant pre-opening costs, which are expensed as incurred, were $209,000
in the quarter ended March 26, 2000 (.8% of food and beverage sales) versus
$99,000 (0.4% of food and beverage sales) in the comparable period in 1999. One
restaurant was opened in the first quarter of both 1999 and 2000. In addition,
one Carlos Murphy Restaurant was converted to a Garcia's and opened in this
quarter.
During the quarters ended March 26, 2000 general and administrative costs
decreased to 5.4% from 6.2% in the quarter ended March 28, 1999. This decrease
in costs is primarily due to increased sales and the Company's continued program
of cost reduction and continued policy of rewarding employees for finding and
implementing cost savings in all G & A areas.
Depreciation and amortization expense increased during the first quarter of
2000 to $955,000 (3.8% of food and beverage sales) compared to $843,000 (3.7% of
food and beverage sales) in 1999. The increase primarily relates to the increase
in net assets subject to depreciation and amortization in 2000 versus 1999
because of the opening or acquisition of new restaurants, the remodel of
existing restaurants, and the installation of new point-of-sale register systems
in most Garcia's locations and certain Garfield's locations since March 28,
1999.
Interest expense during the first quarter of 2000 was $224,000 (.9% of
total revenues) versus $146,000 (0.6% of total revenues) in the first quarter of
1999.
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<PAGE> 16
INCOME TAXES
The Company's provision for income taxes was $93,000 during the first
quarter of 2000 versus $104,000 during 1999. The effective tax rate for the
Company during the first quarter of 2000 was 22% versus 29.6% during the
previous year's first quarter.
EARNINGS PER SHARE AMOUNTS
Basic earnings per share ("EPS") includes no dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. The weighted-average common shares
outstanding for the basic EPS calculation were 2,997,262 and 3,518,991 in the
quarters ended March 26, 2000 and March 28, 1999, respectively. Diluted EPS is
computed by dividing net income available to common stockholders by the sum of
the weighted-average number of common shares outstanding for the period plus
dilutive common stock equivalents. The sum of the weighted-average common shares
and common share equivalents for the diluted EPS calculation were 3,094,165 and
3,725,381 for the quarters ended March 26, 2000 and March 28, 1999,
respectively.
IMPACT OF INFLATION
The impact of inflation on the costs of food and beverage products, labor
and real estate can affect the Company's operations. Over the past few years,
inflation has had a lesser impact on the Company's operations due to the lower
rates of inflation in the nation's economy and the economic conditions in the
Company's market areas.
Management believes the Company has historically been able to pass on
increased costs through certain selected menu price increases and increased
productivity and purchasing efficiencies, but there can be no assurance that the
Company will be able to do so in the future. Management anticipates that the
average cost of restaurant real estate leases and construction costs could
increase in the future which could affect the Company's ability to expand. In
addition, mandated health care and an increase in the Federal or state minimum
wages could significantly increase the Company's costs of doing business. Under
the Company's policy of expensing pre-opening costs as incurred, income from
operations, on an annual and quarterly basis, could be adversely affected during
periods of restaurant development; however, the Company believes that its
initial investment in the restaurant pre-opening costs yields a long-term
benefit of increased operating income in subsequent periods.
LIQUIDITY AND CAPITAL RESOURCES
At March 26, 2000, the Company's current ratio was .35 to 1 compared to
0.40 to 1 at December 26, 1999. The Company's
16
<PAGE> 17
working capital was $(7,691,000) at March 26, 2000 versus $(8,320,000) at
December 26, 1999. As is customary in the restaurant industry, the Company has
operated with negative working capital and has not required large amounts of
working capital. Historically, the Company has leased the majority of its
restaurant locations and through a strategy of controlled growth financed its
expansion from operating cash flow, proceeds from the sale of common stock and
utilizing the Company's revolving line of credit.
During the quarter ended March 26, 2000, the Company had net cash used in
operating activities of $(225,000) as compared to net cash provided by operating
activities of $584,000 during the comparable 1999 period.
The Company plans to open up to six units during 2000 in restaurant
locations leased in regional malls and in free-standing sites. In addition, the
Company has entered into a letter of intent to acquire ten Harrigan's
Restaurants and anticipates the transaction to be completed in the second
quarter of 2000. The Company believes the cash generated from its operations and
borrowing availability under a new credit facility (described below), will be
sufficient to satisfy the Company's net capital expenditures and working capital
requirements during 2000.
In February 1999, the Company entered into a credit facility with a bank in
the aggregate amount of $14,600,000, of which a maximum of $6,000,000 is
available to the Company under a revolving line of credit and $8,600,000 was
available to the Company under a term loan. Certain proceeds of the term loan
(approximately $5.4 million) were used to repurchase 1,056,200 shares of the
Company's common stock (transaction described below). The balance of the
proceeds under the term loan (approximately $3.2 million) and the initial
proceeds under the revolving line of credit were used to retire indebtedness
under the Company's existing loan agreement. As of March 26, 2000, the Company
had outstanding borrowings of approximately $4,130,000 of outstanding borrowings
under the revolving line of credit. Outstanding borrowings under both the
revolving line of credit and term loan bear interest at three-month LIBOR plus
1.75% (7.86% as of March 26, 2000). The interest rate is reset quarterly. There
is no non-use fee related to either facility. The revolving line of credit has a
two-year term with maturity in February 2001. In addition, the Company has
received a commitment from its lender to extend the final maturity date to
April, 2002. Accordingly the debt has been classified as long-term on the
accompanying consolidated condensed balance sheet. Under the term loan,
outstanding principal and interest are payable quarterly in the amount necessary
to fully amortize the outstanding principal balance over a seven-year period,
with a final maturity in February 2004. The term loan converts to a five-year
amortization schedule if the Company's debt coverage ratio, as defined in the
loan agreement, exceeds a certain level.
17
<PAGE> 18
Also, the floating interest rate on both facilities is subject to changes in the
Company's ratio of total loans and capital leases to net worth. Under the terms
of these notes, the Company's maximum floating rate is three-month LIBOR plus
1.75%. Borrowings under this loan agreement are unsecured. The loan agreement
contains certain financial covenants and restrictions. As of the date of this
report, the Company is in compliance with these covenants and restrictions. The
revolving credit facility included in this loan agreement provides the Company
adequate borrowing capacity to continue its expansion plans for Garfield's and
Garcia's for the next two years.
In November 1997, the Company entered into an interest rate swap agreement
with a bank to hedge its risk exposure to potential increases in LIBOR. This
agreement has a term of five years and an initial notional amount of $9,500,000.
The notional amount declines quarterly over the life of the agreement on a
seven-year amortization schedule assuming a fixed interest rate of 7.68%. Under
the terms of the interest rate swap agreement, the Company pays interest
quarterly on the notional amount at a fixed rate of 7.68%, and receives interest
quarterly on the notional amount at a floating rate of three-month LIBOR plus
1.25%.
In April 1997, the Company's Board of Directors authorized the repurchase
of up to 200,000 shares of the Company's common stock. In July 1997, an
additional 200,000 shares were authorized for repurchase. As of March 26, 2000,
130,262 shares had been repurchased under this plan for a total purchase price
of approximately $556,000. No additional shares have been repurchased subsequent
to March 26, 2000.
In February 1999, the Company purchased 1,056,200 shares of its common
stock from Astoria Capital Partners, L.P., Montavilla Partners, L.P., and
MicroCap Partners L.P. ("Sellers") for a purchase price of $5.125 per share or
an aggregate purchase price of $5,413,025. The shares purchased from the Sellers
represented 26.7% of the outstanding common stock of the Company, prior to the
transaction. The purchase price of these shares were financed through a term
loan with a bank (described above).
18
<PAGE> 19
PART II
OTHER INFORMATION
19
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 27.1 - Financial Data Schedule.
20
<PAGE> 21
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.
EATERIES, INC.
Registrant
Date: May 1, 2000 By: /s/ BRADLEY L. GROW
------------------------------------
Bradley L. Grow
Vice President
Chief Financial Officer
21
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> DEC-27-1999
<PERIOD-END> MAR-26-2000
<CASH> 1,288
<SECURITIES> 0
<RECEIVABLES> 1,166
<ALLOWANCES> 0
<INVENTORY> 830
<CURRENT-ASSETS> 4,244
<PP&E> 35,736
<DEPRECIATION> 14,029
<TOTAL-ASSETS> 30,436
<CURRENT-LIABILITIES> 11,936
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 7,652
<TOTAL-LIABILITY-AND-EQUITY> 30,436
<SALES> 24,947
<TOTAL-REVENUES> 25,108
<CGS> 6,813
<TOTAL-COSTS> 22,907
<OTHER-EXPENSES> 1,784
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 224
<INCOME-PRETAX> 417
<INCOME-TAX> 93
<INCOME-CONTINUING> 324
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 324
<EPS-BASIC> .11
<EPS-DILUTED> .10
</TABLE>
