<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 June 25, 2000.
Commission File Number: 0-14968
--------------------------------------------------------
EATERIES, INC.
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(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 S. Santa Fe Ave.
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 August 5, 2000, 3,064,696
common shares, $.002 par value, were outstanding.
<PAGE> 2
EATERIES, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 25, 2000 (unaudited) and
December 26, 1999..................................... 4
Condensed Consolidated Statements of
Income (unaudited)
Thirteen weeks ended June 25, 2000
and June 27, 1999..................................... 5
Twenty-six weeks ended June 25, 2000
and June 27, 1999..................................... 6
Condensed Consolidated Statements of
Cash Flows (unaudited)
Twenty-six weeks ended June 25, 2000
and June 27, 1999..................................... 7
Notes to Condensed Consolidated Financial
Statements (unaudited)................................... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................................. 12
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 22
</TABLE>
2
<PAGE> 3
PART I
FINANCIAL INFORMATION
3
<PAGE> 4
ITEM 1. FINANCIAL STATEMENTS.
EATERIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 25, December 26,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................... $ 1,361,076 $ 2,243,332
Receivables ................................. 1,110,278 1,524,318
Deferred income taxes ....................... 226,000 226,000
Inventories ................................. 849,473 937,098
Other ....................................... 1,101,644 685,024
------------ ------------
Total current assets .................... 4,648,471 5,615,772
------------ ------------
PROPERTY AND EQUIPMENT ........................... 54,604,425 50,290,249
Less landlord finish-out allowances .............. (17,060,610) (16,304,266)
Less accumulated depreciation and
amortization ................................ (14,981,359) (13,080,932)
------------ ------------
Net property and equipment .............. 22,562,456 20,905,051
------------ ------------
DEFERRED INCOME TAXES ............................ 1,100,224 1,143,171
GOODWILL, net .................................... 2,689,601 2,707,062
OTHER ASSETS, net ................................ 790,385 718,339
------------ ------------
$ 31,791,137 $ 31,089,895
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................ $ 7,215,295 $ 7,035,152
Accrued liabilities ......................... 3,970,072 5,672,466
Current portion of long-term
obligations ............................. 1,228,571 1,228,571
------------ ------------
Total current liabilities ........... 12,413,938 13,936,189
------------ ------------
OTHER NONCURRENT LIABILITIES ..................... 721,079 736,363
------------ ------------
LONG-TERM OBLIGATIONS, net of
current portion ............................. 11,176,292 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 ........................... 4,241,925 4,099,038
------------ ------------
14,376,549 14,221,933
Treasury stock, at cost,
1,380,399 shares at June 25, 2000 and
December 26, 1999, respectively ......... (6,896,721) (6,896,721)
------------ ------------
Total stockholders' equity .......... 7,479,828 7,325,212
------------ ------------
$ 31,791,137 $ 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
June 25, June 27,
2000 1999
------------ ------------
<S> <C> <C>
REVENUES:
Food and beverage sales ................ $ 24,562,711 $ 22,714,590
Franchise fees and royalties ........... 84,575 68,369
Other income ........................... 149,606 104,363
------------ ------------
24,796,892 22,887,322
------------ ------------
COSTS AND EXPENSES:
Costs of sales ......................... 6,715,224 6,261,509
Operating expenses ..................... 15,370,576 14,338,364
Pre-opening costs ...................... 311,000 183,000
General and administrative ............. 1,381,565 1,473,952
Depreciation and amortization .......... 986,515 878,932
Interest expense ....................... 257,752 207,464
------------ ------------
25,022,632 23,343,221
------------ ------------
LOSS BEFORE INCOME TAXES .................... (225,740) (455,899)
PROVISION FOR INCOME TAXES .................. (45,162) (119,746)
------------ ------------
NET LOSS .................................... $ (180,578) $ (336,153)
============ ============
NET LOSS PER COMMON SHARE ................... $ (.06) $ (.11)
============ ============
NET INCOME PER COMMON SHARE
ASSUMING DILUTION ......................... $ N/A $ N/A
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
EATERIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
June 25, June 27,
2000 1999
------------ ------------
<S> <C> <C>
REVENUES:
Food and beverage sales ..................... $ 49,509,225 $ 45,619,047
Franchise fees and royalties ................ 123,823 136,207
Other income ................................ 272,023 205,888
------------ ------------
49,905,071 45,961,142
------------ ------------
COSTS AND EXPENSES:
Costs of sales .............................. 13,528,447 12,531,258
Operating expenses .......................... 30,510,045 28,263,226
Pre-opening costs ........................... 520,000 282,000
General and administrative .................. 2,733,066 2,914,445
Depreciation and amortization ............... 1,941,609 1,721,972
Interest expense ............................ 481,314 353,214
------------ ------------
49,714,481 46,066,115
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES ................ 190,590 (104,973)
PROVISION FOR INCOME TAXES ....................... 47,648 (15,746)
------------ ------------
NET INCOME (LOSS) ................................ $ 142,942 $ (89,227)
============ ============
NET INCOME (LOSS) PER COMMON SHARE ............... $ .05 $ (.03)
============ ============
NET INCOME PER COMMON SHARE
ASSUMING DILUTION............................... $ .05 $ N/A
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
EATERIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
June 25, June 27,
2000 1999
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
Cash flows from operating activities:
Net income (Loss) ........................................... $ 142,942 $ (89,227)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation & amortization ........................ 1,941,609 1,721,972
Deferred income taxes .............................. 22,818 (39,746)
(Increase) decrease in:
Receivables .................................. 414,040 (273,852)
Inventories .................................. 87,625 89,681
Other ........................................ (416,620) (18,786)
Increase (decrease) in:
Accounts payable ............................. 180,143 (756,928)
Accrued liabilities .......................... (1,702,394) 382,503
Other noncurrent liabilities ................. (15,284) 116,451
----------- -----------
Total adjustments ........................ 511,937 1,221,293
----------- -----------
Net cash provided by operating activities ....................... 654,879 1,132,066
----------- -----------
Cash flows from investing activities:
Capital expenditures ........................................ (4,314,177) (2,226,322)
Landlord allowances ......................................... 756,344 232,741
Net cash paid for restaurant acquisitions ................... -- (673,890)
Payments received on notes receivable ....................... -- 2,763
(Increase) in other assets .................................. (72,046) (81,063)
----------- -----------
Net cash (used in) investing activities ......................... (3,629,879) (2,745,771)
----------- -----------
Cash flows from financing activities:
Payments on long-term obligations ............................ (614,286) (307,462)
Net borrowing on long-term obligations ..................... -- 5,463,333
Borrowings under note payable .............................. -- 2,250,000
Net borrowings under revolving credit agreement ............ 2,700,000 384,702
Proceeds from sale of common stock ......................... --
Proceeds from exercise of stock options .................... 7,030 58,380
Acquisition of treasury stock .............................. -- (5,634,318)
----------- -----------
Net cash provided by financing activities ....................... 2,092,744 2,214,635
----------- -----------
Net increase (decrease) in cash & cash equivalents .............. (882,256) 600,930
Cash and cash equivalents at beginning of period ................ 2,243,332 1,297,638
----------- -----------
Cash and cash equivalents at end of period ...................... $ 1,361,076 $ 1,898,568
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
7
<PAGE> 8
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 and twenty-six week periods
ended June 25, 2000, are not necessarily indicative of the results that may be
expected for the year ending 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>
June 25, December 26,
2000 1999
---------- ----------
<S> <C> <C>
Franchisees ....................... $ 44,888 $ 157,238
Insurance refunds ................. 74,746 309,213
Landlord finish-out allowances .... 10,000 10,000
Other ............................. 980,644 1,047,867
---------- ----------
$1,110,278 $1,524,318
========== ==========
</TABLE>
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
June 25, December 26,
2000 1999
---------- ----------
<S> <C> <C>
Compensation ...................... $2,089,582 $2,462,458
Taxes, other than income .......... 1,120,074 1,063,360
Other ............................. 760,416 2,146,648
---------- ----------
$3,970,072 $5,672,466
========== ==========
</TABLE>
8
<PAGE> 9
Note 3 - Supplemental Cash Flow Information
Interest of $481,314 and $353,214 was paid for the twenty-six weeks ended
June 25, 2000 and June 27, 1999, respectively.
For the twenty-six week periods ended June 25, 2000 and June 27, 1999, the
Company had the following non-cash investing and financing activities:
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
June 25, June 27,
2000 1999
--------- ---------
<S> <C> <C>
Increase in additional paid-in
capital as a result of tax
benefits from the exercise of
non-qualified stock options ......................... 4,700 30,000
Asset write-offs related to
restaurant closures .................................. -- 42,352
Issuance of treasury stock for
acquisitions ......................................... -- 384,702
</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 June 25, 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
June 25, 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 of 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. owns and operates Bellini's, a restaurant
located on Waterford Boulevard in Oklahoma City, Oklahoma. The acquisition has
been accounted for under the purchase method. Pro forma operating results for
the thirteen and twenty-six week period ended June 27, 1999, assuming that the
acquisition had been made at the beginning of fiscal year 1999, would not be
materially different than the results reported.
9
<PAGE> 10
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 owns and operates Tommy's Italian-American
Grill located at North Park Mall in Oklahoma City, Oklahoma. The acquisition has
been accounted for under the purchase method. Pro forma operating results for
the thirteen and twenty-six week period ended June 27, 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 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 owns and operates 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
and twenty-six week period ended June 27, 1999 would not be materially different
than the results reported.
No Company owned restaurants were closed during the thirteen weeks ended
June 25, 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 which was located in
Shreveport, Louisiana. In addition, the Company did not renew leases and ceased
operations at two other Garfield's Restaurants during 1999.
10
<PAGE> 11
Note 6 - Earnings Per Share
The following tables set forth the computation of basic and diluted EPS for the
thirteen week and twenty-six week periods ended June 25, 2000, and June 27,
1999. Diluted ESP is not calculated for periods where the company had a net loss
as the results would be antidilutive:
<TABLE>
<CAPTION>
Thirteen Weeks Ended
June 25, June 27,
2000 1999
----------- -----------
<S> <C> <C>
Numerator:
Net income (Loss) .................................... $ (180,578) $ (336,153)
=========== ===========
Denominator:
Denominator for basic EPS-weighted average shares
outstanding ........................................ 3,003,906 2,937,969
Dilutive effect of nonqualified stock options ....... -- --
----------- -----------
Denominator for diluted EPS ........................ 3,003,906 2,937,969
=========== ===========
Basic EPS .................................................. $ (.06) $ (.11)
=========== ===========
Diluted EPS ................................................ $ N/A $ N/A
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
June 25, June 27,
2000 1999
----------- -----------
<S> <C> <C>
Numerator:
Net income (Loss) .................................... $ 142,942 $ (89,227)
=========== ===========
Denominator:
Denominator for basic EPS-weighted average shares
outstanding ........................................ 3,000,584 3,228,480
Dilutive effect of nonqualified stock options ........ 76,202 --
----------- -----------
Denominator for diluted EPS ........................ 3,076,786 3,228,480
=========== ===========
Basic EPS .................................................. $ .05 $ (.03)
=========== ===========
Diluted EPS ................................................ $ .05 $ N/A
=========== ===========
</TABLE>
11
<PAGE> 12
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 June 25, 2000, the Company owned and operated 71 (50 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 three additional new Garcia's under
development. As of the date of this report, the entire system includes 79
restaurants of which 71 are Company-owned.
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 twenty-six weeks ended June 25, 2000, the Company signed two new multi-unit
franchise agreements for 15 Garfield's Restaurants in Indiana and Nebraska. In
addition, management anticipates at least one additional new franchise
restaurant will be completed during the calendar 2000.
The uniform franchise offering circular ("UFOC"), containing the franchise and
development agreement, is registered nationally. The Company has initiated a
national advertising campaign seeking prospective franchisees. The intention is
to
12
<PAGE> 13
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. The Company introduced a new menu in the 4th quarter of
1999 which has led to increases in average check and same-store sales for the
Garfield concept. Key priorities for the remainder of 2000 include the continued
brand image strategies for all concepts, while developing marketing programs
that deliver enhanced guest satisfaction and bottom line results.
13
<PAGE> 14
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 TWENTY-SIX WEEKS
ENDED ENDED
June 25, June 27, June 25, June 27,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Statements of Income Data:
Revenues:
Food and beverage sales ................. 99.1% 99.2% 99.2% 99.3%
Franchise fees and royalties ............ 0.3% 0.3% 0.3% 0.3%
Other income ............................ 0.6% 0.5% 0.5% 0.4%
--------- --------- --------- ---------
100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Costs of sales (1) ...................... 27.3% 27.6% 27.3% 27.5%
Operating expenses(1) ................... 62.6% 63.1% 61.6% 62.0%
Pre-opening costs (1) ................... 1.3% 0.8% 1.1% 0.6%
General and administrative .............. 5.6% 6.4% 5.5% 6.3%
Depreciation and amortization (1) ....... 4.0% 3.9% 3.9% 3.8%
Interest expense ........................ 1.0% 0.9% 1.0% 0.8%
Income (loss) before income taxes ............ (0.9)% (2.0)% 0.4% (0.2)%
Provision for income taxes ................... (0.2)% (0.5)% 0.1% 0.0%
--------- --------- --------- ---------
Net income (loss) ............................ (0.7)% (1.5)% 0.3% (0.2)%
========= ========= ========= =========
Selected Operating Data:
(Dollars in thousands)
System-wide sales:
Company restaurants ..................... $ 24,563 $ 22,715 $ 49,509 $ 45,619
Franchise restaurants ................... 2,018 2,207 4,121 4,424
--------- --------- --------- ---------
Total ............................... $ 26,581 $ 24,922 $ 53,630 $ 50,043
========= ========= ========= =========
Number of restaurants (at end of period):
Company restaurants ..................... 71 66
Franchise restaurants ................... 8 8
--------- ---------
Total ............................... 79 74
========= =========
</TABLE>
(1) As a percentage of food and beverage sales
RESULTS OF OPERATIONS
For the quarter ended June 25, 2000, the Company recorded a net loss of
$(180,578)($.06) per common share; on revenues of $24,796,892. This compares to
a net loss of $(336,153) ($0.11) per common share; for the quarter ended June
27, 1999, on revenues of $22,887,322. For the twenty-six weeks ended June 25,
2000, the Company reported net income of $142,942 $.05 per common share;
compared to a net loss of $(89,227) ($0.03) per common share; for the twenty-six
weeks ended June 27, 1999.
14
<PAGE> 15
REVENUES
Company revenues for the thirteen and twenty-six week periods ended June 25,
2000, increased 8.3% and 8.6%, respectively, over the revenues reported for the
same periods in 1999. The revenue increase relates primarily to increased food
and beverage sales during the thirteen and twenty-six week periods in 2000. The
number of Company restaurants operating at the end of each respective period and
the number of operating months during each period were as follows:
<TABLE>
<CAPTION>
Number of Average Monthly
Operating Months Sales Per Unit
------------------------------ ----------------------------------
Period Number of Thirteen Twenty-six Thirteen Twenty-six
Ended Units Open Weeks Weeks Weeks Weeks
------------- ---------- -------- ---------------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Garfield's:
June 25, 2000 50 148 295 $108,636 $111,302
June 27, 1999 46 141 285 $104,572 $105,995
Garcia's (1):
June 25, 2000 16 46 89 $134,210 $137,833
June 27, 1999 15 45 86 $133,765 $146,076
ROMA:
June 25, 2000 5 15 30 $136,027 $137,400
June 27, 1999 5 12 18 $144,913 $145,827
</TABLE>
(1) Includes Carlos Murphy's for the period ended June 27, 1999 converted to a
Garcia's in 2000.
For the thirteen weeks ended June 25, 2000, average monthly sales per unit for
Garfield's increased $4,064 or 3.9% versus the quarter ended June 27, 1999.
Average monthly sales per unit for Garfield's increased by $5,307 or 5.0% for
the twenty-six weeks ended June 25, 2000 versus the previous year's results.
For the thirteen weeks ended June 25, 2000, average monthly sales per unit for
Garcia's increased $445 or 0.3% versus the quarter ended June 27, 1999. Average
monthly sales per unit for Garcia's decreased by $8,243 or 5.6% for the
twenty-six weeks ended June 25, 2000 versus the previous year. 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 utilize full priced promotions
without benefit of deep discount advertising support which had a more favorable
affect on unit level profits.
For the thirteen weeks ended June 25, 2000, average monthly sales per unit for
ROMA decreased $8,886 or 6.1% versus the same period in 1999. Average monthly
sales per unit for the twenty-six weeks ended June 25, 2000 for ROMA decreased
by $8,427 or 5.8% versus the twenty-six weeks ended June 27, 1999.
15
<PAGE> 16
Franchise fees and continuing royalties decreased to $123,823 during the
twenty-six weeks ended June 25, 2000 versus $136,207 during the twenty-six weeks
ended June 27, 1999.
Other income for the twenty-six weeks ended June 25, 2000 was $272,023 as
compared to the previous year's amount of $205,888.
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 Twenty-Six Weeks Ended
-------------------- ----------------------
June 25, June 27, June 25, June 27,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Garfield's:
Costs of sales ... 27.5% 28.0% 27.6% 27.9%
Labor costs ...... 28.7% 29.5% 28.6% 28.9%
---- ---- ---- ----
Total .......... 56.2% 57.5% 56.2% 56.8%
==== ==== ==== ====
Garcia's:
Cost of sales .... 26.1% 25.9% 25.6% 26.0%
Labor costs ...... 30.8% 30.1% 30.6% 29.1%
---- ---- ---- ----
Total .......... 56.9% 56.0% 56.2% 55.1%
==== ==== ==== ====
ROMA Foods:
Cost of sales .... 29.8% 30.3% 30.2% 30.2%
Labor costs ...... 29.7% 30.2% 29.9% 29.9%
---- ---- ---- ----
Total .......... 59.5% 60.5% 60.1% 60.1%
==== ==== ==== ====
Total Company:
Cost of sales .... 27.3% 27.6% 27.3% 27.5%
Labor costs ...... 28.8% 29.6% 28.7% 29.0%
---- ---- ---- ----
Total .......... 56.1% 57.2% 56.0% 56.5%
==== ==== ==== ====
</TABLE>
(1) Includes Carlos Murphy's for the period ended June 27, 1999 converted
to a Garcia's in 2000.
Restaurant pre-opening costs, which are expensed as incurred, were $311,000 and
$183,000 for the quarters ended June 25, 2000 and June 27, 1999, respectively,
and $520,000 and $282,000 for the twenty-six week periods ended June 25, 2000
and June 27, 1999, respectively. The Company plans to open three additional
restaurants during the second half of 2000. The increase is due in large part to
the new Garcia's Restaurant opened in Oklahoma City. The Company is testing a
new prototype and expects subsequent pre-opening expenses to decrease.
For the thirteen weeks ended June 25, 2000 depreciation and amortization expense
increased to $986,515 (4.0% of food and beverage sales) compared to $878,932
(3.9% of food and beverage sales) in the thirteen weeks ended June 27, 1999. For
the twenty-six weeks ended June 25, 2000 depreciation and amortization expense
increased to $1,941,609 (3.9% of food and beverage sales) compared to $1,721,972
(3.8% of food and beverage sales) in the twenty-six weeks ended June 27, 1999.
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<PAGE> 17
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 1999.
For the thirteen weeks ended June 25, 2000 interest expense was $257,752 (1.0%
of total revenues) versus $207,464 (0.9% of total revenues) for the thirteen
weeks ended June 27, 1999. For the twenty-six week period ended June 25, 2000,
interest expense increased to $481,314 (1.0% of total revenues) from $353,214
(.8% of total revenues) in the comparable 1999 period. The increase primarily
related to the Company's accelerated construction schedule for the first half of
2000 on both new stores and remodels, which required borrowings on the line of
credit.
The slight decrease in cost of sales percentages for Garfield's during the
thirteen and twenty-six week periods ended June 25, 2000 versus the 1999
comparable periods relates to continued consolidation of purchasing and further
training of store level managers to reduce costs.
Labor costs for Garfield's decreased to 28.7% from 29.5% for the thirteen weeks
in the period this year versus the same period last year and to 28.6% of food
and beverage sales during the twenty-six weeks ended June 25, 2000, versus 28.9%
during the 1999 comparable period. This decrease is primarily due to new more
efficient restaurant designs as well as a concerted effort to train store
managers to more efficiently use labor.
For the thirteen weeks ended June 25, 2000, operating expenses as a percentage
of food and beverage sales decreased to 62.6% from 63.1% in the thirteen weeks
ended June 27, 1999. For the twenty-six weeks ended June 25, 2000, operating
expenses decreased to 61.6% of food and beverage sales versus 62.0% in the 1999
period. These decreases primarily relate to the addition of training to effect
more operating efficiencies.
During the thirteen and twenty-six week periods ended June 25, 2000 and June 27,
1999, general and administrative costs as a
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<PAGE> 18
percentage of total revenues decreased to 5.6% and 5.5% from 6.4% and 6.3%,
respectively. The decrease primarily relates 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 general and
administrative expense.
INCOME TAXES
The Company's provision for income taxes was $47,648 during the first half of
2000 versus a benefit of $15,746 for the 1999 comparable period. The effective
tax rates for the periods ended June 25, 2000 and June 27, 1999, are as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Twenty-Six
Weeks
-------------- ----------
June 25, June 27, June 25, June 28,
-------- ------- -------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Effective income tax rates ... 20.0% 26.3% 25.0% 15.0%
</TABLE>
EARNINGS PER SHARE
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 3,003,906 and 2,937,969 in the
quarters ended June 25, 2000 and June 27, 1999, respectively, and 3,000,584 and
3,228,480 in the twenty-six weeks ended June 25, 2000 and June 27, 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 was 3,076,786 for the quarter ended June 25, 1999, and 4,233,017
for the twenty-six weeks ended June 27, 1999. Diluted EPS is not calculated for
periods where the company had a net loss as the result would be antidilutive.
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 economic conditions in the
Company's market area.
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<PAGE> 19
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 June 25, 2000, the Company's current ratio was .37 to 1 compared to 0.40 to 1
at December 26, 1999. The Company's working capital was ($7,765,467) at June 25,
2000 versus ($8,320,417) 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 twenty-six weeks ended June 25, 2000, the Company had net cash
provided by operating activities of $654,879 as compared to net cash provided by
operating activities of $1,132,066 during the comparable 1999 period.
The Company plans to open five units (two of which have already been opened as
of June 25, 2000) during 2000 in restaurant locations leased in regional malls
and in free-standing sites. The Company believes the cash generated from its
operations and borrowing availability under its 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 senior 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 June 25, 2000, the
19
<PAGE> 20
Company had outstanding borrowings of approximately $5,500,000 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% (8.625% as of June 25, 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.
In June 2000, the Company entered into an additional credit facility with a bank
in the amount of $1,000,000 which is available to the Company under a revolving
line of credit. As of June 25, 2000 the Company had no outstanding borrowings
under the revolving line of credit. The credit facility bears interest at the
prime rate of interest, which is set monthly. There is a one-quarter of a
percent (.25%) non-use fee relate to this facility. The term of this loan is
December 31, 2000.
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 June 25, 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
June 25, 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).
20
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PART II
OTHER INFORMATION
21
<PAGE> 22
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27.1 - Financial Data Schedule.
(b) No reports on Form 8-K were filed during the twenty-six weeks ended
June 25, 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.
EATERIES, INC.
Registrant
Date: August 9, 2000 By: /s/ BRADLEY L. GROW
-------------------
Bradley L. Grow
Vice President
Chief Financial Officer
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
27.1 - Financial Data Schedule.
</TABLE>
