SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 28, 1996 Commission file number
0-19315
Bertucci's, Inc.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2947209
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
14 AUDUBON ROAD 01880
WAKEFIELD, MASSACHUSETTS (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (617) 246-6700
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.005 per share
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. Yes X No
The aggregate market value of the voting stock held by non-affiliates of
the registrants as of March 15, 1997 was $42,501,960.
The number of shares outstanding as of March 15, 1997 was 8,806,650
shares.
Documents Incorporated by Reference
Part III incorporates information by reference from the definitive proxy
statement for the Annual Meeting of Stockholders to be held on May 13, 1997.
Indicate by check mark if disclosure of delinquent files pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
<PAGE>
PART I
ITEM 1: BUSINESS
General
As of fiscal year end December 28, 1996, the Company operated a chain of
80 full-service, Italian restaurants under the "Bertucci's Brick Oven Pizzeria"
name in the Northeastern and Mid-Atlantic regions, and the Chicago, Illinois,
and Atlanta, Georgia, metropolitan areas. The restaurants' menu features
original-recipe gourmet pizza, prepared in brick ovens, and other high-quality,
moderately-priced Italian food. The average check per customer for dinner,
including beverages, is approximately $9.80.
Bertucci's seeks to distinguish itself from its competitors in the family
and adult casual-dining market segments through offering:
a distinctive, yet moderately-priced menu that features fresh, natural
ingredients and includes brick-oven baked gourmet pizzas and bread, a
wide variety of pasta items, appetizers, and desserts;
a contemporary European-style design, centered around a large-display
cooking area with brick ovens, customized for each particular
restaurant's location, with no two restaurants looking alike; and
a relaxed, family atmosphere, as evidenced by moderate sales of
alcoholic beverages which, during fiscal year 1996, accounted for only
9.2% of net sales.
The Bertucci's concept features lower-cost food items and a restaurant
design with a lower capital investment (averaging $1.40 million) than many
competitors that offer a broader menu. Accordingly, the restaurants are able to
offer customers excellent value while permitting the Company to maintain
relatively high restaurant-unit operating margins.
The first Bertucci's Brick Oven Pizzeria was opened in Somerville,
Massachusetts, in 1981 by the Company's founder and president, Joseph Crugnale.
In 1985, the Company began expanding and as of December 28, 1996, operated 80
restaurants, of which 31 were located in Massachusetts, two each were located in
Rhode Island, New Hampshire, and Washington, DC, three were located in New
Jersey, four each were located in New York and Pennsylvania, six each were
located in Georgia, Maryland, and Virginia, and seven each were located in
Connecticut and Illinois. During the 1996 fiscal year, two locations in Florida
and one location in New Jersey were closed. Seven restaurants were opened in
1996, and the Company expects to open six to seven restaurants in 1997. The
Company's strategy is to pursue controlled expansion in contiguous areas that
can support multiple locations, with an emphasis on future expansion into
existing markets.
Average sales per restaurant open for the full period were $1,826,000,
$1,673,000, and $1,671,000 in 1994, 1995, and 1996, respectively.
Concept and Menu
The Company's restaurants are full-service, casual-dining restaurants that
feature gourmet Italian food with an emphasis on brick-oven baked pizzas and
creative pasta dishes. During fiscal year 1996, sales of pizza accounted for
approximately 40% of net sales. Through development of a distinctive menu and a
contemporary European-style design, the Company strives to offer a unique dining
experience with excellent value for the price. The Company's restaurants appeal
to a diverse target market. In addition to adult-dining, family-dining is
encouraged, and a special menu is provided for children. All of the Company's
restaurants are open for lunch and dinner, seven days a week. Most items on the
menu may be purchased for take-out service or delivery, which, during fiscal
year 1996, accounted for approximately 26% of net sales.
The Company's signature product, gourmet pizza, is offered with a wide
variety of cheese, vegetable, and meat toppings, and is prepared in brick ovens.
By baking its pizzas in brick ovens at an unusually high temperature, but for a
relatively short period of time, the Company is able to produce a light crust
while preserving the flavor and moisture of the toppings. Management believes
that the Company's original recipes and brick-oven baking techniques combine to
produce a superior pizza that is difficult to duplicate. In addition to pizzas,
the Company's menu features a variety of pasta items, appetizers, soups, salads,
calzones, and desserts that are prepared fresh daily according to Bertucci's
special recipes. Natural, fresh ingredients are a cornerstone of the Bertucci's
concept. In order to ensure the uniform high-quality and freshness of its menu
offerings, the Company makes all of its own dough, sauces, mixes, and desserts.
<PAGE>
As of December 28, 1996, the average check per customer at the Company's
restaurants, including beverages, was approximately $7.35 for lunch and
approximately $9.80 for dinner. Full bar-service is available at most of the
Company's restaurants, and beer and wine are available at all locations. In
keeping with its emphasis on offering distinctive menu selections, the Company
offers Bertucci's Lite beer, a private-label beer brewed according to the
Company's proprietary specifications. Limited seating is available in the bar
areas to accommodate those waiting to be seated. The Company does not believe
that changes in public attitude toward alcoholic-beverage consumption and
stricter governmental regulation of establishments serving alcoholic beverages
will have a material adverse effect on its business.
Management believes that the unique interior decor of the Company's
restaurants contributes to the distinctive dining experience enjoyed by its
customers. Each of the Company's restaurants features a contemporary,
European-style, open-kitchen design centered around brick ovens. Ingredients are
displayed and food is prepared on polished granite counters located in front of
the brick ovens, in plain view of diners. Bocce-ball courts have been included
at selected sites, further enhancing the distinctive decor. The interior-decor
theme is artistically adapted to each site so that no two restaurants are alike.
The floor plan of the Company's restaurants is flexible, permitting tables to be
easily rearranged to accommodate large groups or parties.
<PAGE>
Restaurant Locations and Expansion Plans
As of December 28, 1996, the Company operated 80 restaurants in
Connecticut, Georgia, Illinois, Maryland, Massachusetts, New Hampshire, New
Jersey, New York, Pennsylvania, Rhode Island, Virginia, and Washington, DC. The
following tables provide information with respect to those restaurants that were
open, and those that were under development as of December 28, 1996.
Restaurants Currently Operating
Connecticut (7)
----------------------------------------------------------
Avon Darien Glastonbury
Newington Orange West Hartford
Westport
Georgia (6)
----------------------------------------------------------
Atlanta Buckhead East Cobb
Lawrenceville Roswell Sandy Springs
Illinois (7)
----------------------------------------------------------
Bloomingdale Chicago Glenview
Naperville (2) Schaumburg Woodridge
Maryland (6)
----------------------------------------------------------
Annapolis Bel Air Columbia
Owings Mills Timonium White Marsh
Massachusetts (31)
----------------------------------------------------------
Amherst Andover Boston (Copley Sq)
Boston (Faneuil Hall) Braintree Brockton
Brookline Cambridge (Alewife) Cambridge (Harvard Sq)
Cambridge (Kendall Sq) Chelmsford Framingham
Hingham Holliston Lexington
Longmeadow Marlboro Medford
Newton North Andover Norwood
Peabody Somerville Swampscott
Taunton Waltham Wellesley
West Peabody West Roxbury West Springfield
Woburn
New Hampshire (2)
----------------------------------------------------------
Nashua Salem
New Jersey (3)
----------------------------------------------------------
Hazlet Mt. Laurel Woodbridge
New York (4)
----------------------------------------------------------
Hauppauge Melville Syosset
Westbury
Pennsylvania (4)
----------------------------------------------------------
Huntingdon Valley Langhorne Philadelphia
Wayne
Rhode Island (2)
----------------------------------------------------------
East Providence Warwick
Virginia (6)
----------------------------------------------------------
Alexandria Centreville Herndon
Manassas Springfield Tysons Corner
Washington, DC (2)
----------------------------------------------------------
Dupont Circle Pennsylvania Avenue, NW
<PAGE>
Restaurants Under Development
Location
Waterbury, CT Boston, MA
Marlboro,MA Manchester, NH
Bryn Mawr, PA Fair Lakes, VA
Norwood, MA (Sal and Vinnie's Sicilian Steakhouse)
The decor and interior-design of the Company's restaurants are flexible
and can be readily adapted to accommodate different types of locations.
Restaurants have been opened both as freestanding structures and within existing
buildings, and are located in both urban and suburban areas.
Through the course of the Company's expansion, management has determined
that the optimal size for the Company's restaurants is approximately 5,700
square feet, with seating for approximately 160 customers. The average cost of
opening a typical restaurant has been approximately $1.40 million, of which
$875,000 is attributable to leasehold improvements, $375,000 is attributable to
furniture, fixtures, and equipment, and $150,000 is attributable to preopening
expenses.
The Company intends to continue its strategy of adding restaurants through
controlled growth into contiguous areas that can support multiple locations,
with an emphasis on future expansion into selected Connecticut, Massachusetts,
and New Hampshire markets. During fiscal year 1997, the Company anticipates
opening six to seven restaurants. So far in 1997, the Company opened one
restaurant, and has six restaurants under development.
Expansion during fiscal year 1998 is expected to be at the level of 8 to
10 restaurants. The Company's expansion plans are based primarily on
management's evaluation of market potential. The Company has not commissioned
any independent, third-party evaluation of its expansion plans.
All of the Bertucci's restaurants are operated by the Company, and the
Company currently has no plans to develop a franchise program.
Marketing
The Company focuses on the family and adult casual-dining market segments.
To reach these segments, it targets its restaurant locations for areas with a
median to high family income. Management believes that the Company's commitment
to customer service and price value is the most effective approach to attracting
customers. Accordingly, the Company historically has focused its resources on
providing its customers with superior service and value, and has relied
primarily on word-of-mouth to attract new and repeat customers. Management
believes that its strategy of locating multiple restaurants within a defined
geographic area will enable newer restaurants to benefit from the
name-recognition and reputation for quality developed by existing restaurants.
The Company employs print and direct mail advertising, and conducts local
restaurant promotions. During fiscal year 1996, the Company's expenditures for
advertising and marketing were approximately 3.2% of its revenues. The Company
plans to increase its advertising expenditures in 1997 by utilizing a
combination of local media vehicles such as television, radio, outdoor
billboards, and direct mail in most of its markets.
Restaurant Operations and Management
The Company strives to maintain quality and consistency in its restaurants
through the careful training and supervision of personnel and the establishment
of standards relating to food and beverage preparation, maintenance of
facilities, and conduct of personnel. The Company maintains financial and
accounting controls for each of its restaurants through use of centralized
accounting and management information systems. Sales information is collected
daily from each restaurant, and restaurant managers are provided with weekly
operating statements for their locations. Cash is controlled through daily
deposits of sales proceeds in local operating accounts, the balances of which
are wire-transferred daily to the Company's principal operating account.
Each new restaurant employee of the Company participates in a ten-day
training program during which he or she works under the close supervision of a
restaurant manager. Management strives to instill enthusiasm and dedication in
its employees. Management regularly solicits employee suggestions concerning
restaurant operations, and strives to be responsive to employee concerns. A
toll-free number is available for use by any employee who has a suggestion,
comment, or complaint, and management meets regularly with employees at each of
the restaurants.
<PAGE>
Restaurant managers, many of whom are drawn from the Company's restaurant
personnel, complete an eight-to-ten-week training program during which they are
instructed in areas including food quality and preparation, customer service,
alcoholic beverage service, liquor liability avoidance, and employee relations.
Restaurant managers are provided with operations manuals relating to food and
beverage preparation, and operation of restaurants.
Management has made a conscious commitment to ensure customer service of
the highest standards. Employees work toward the goal of 100% customer
satisfaction, and are empowered to address customers' needs with immediate
attention and action. A toll-free Customer Comment Line is available to all
customers, with a guaranteed response in 24 hours.
Operations at the Company's restaurants are managed by twelve region
managers, each of whom is responsible for supervising the operations of four to
nine restaurants. The region managers report directly to the Vice
President-Operations. Region managers meet at least once a week with restaurant
management to review operations and to resolve issues. Working with region and
restaurant managers, the Company's executive management defines operations and
performance objectives for each restaurant. An incentive plan has been
established in which region and restaurant managers participate. Awards under
the incentive plan are tied to achievement of specified operating targets.
The staff for a typical Bertucci's restaurant consists of one general
manager, two managers, and approximately 40 to 60 hourly employees, most of whom
are part-time personnel. The Company holds regular meetings of its restaurant
managers that cover new products, continuing training, and aspects of business
management.
Purchasing and Commissary Operations
Effective January 1994, the Company closed commissary operations and
distributed, to outside vendors, production of those items previously produced
at the commissary. Company representatives periodically perform
quality-assurance inspections. Management believes in maintaining as much
on-site preparation of food products at the restaurants as possible in order to
ensure freshness and quality, and to enhance the dining experience through the
visual display of fresh ingredients. The Company negotiates directly with
manufacturers, importers, brokers, and wholesale suppliers of primary food
ingredients and beverage products to ensure consistent quality and freshness of
products in its restaurants, and to obtain competitive pricing. Management
believes that all essential food and beverage products are available from
alternative, qualified suppliers.
Competition
The restaurant business is highly competitive and is affected by many
factors, including general economic conditions, changes in consumer taste and
spending habits, and population and traffic patterns. The Company competes with
a number of restaurants within its markets, both locally owned and units of
regional or national chains. Many of the Company's competitors have greater
financial resources and longer operating histories than the Company. The Company
believes that its ability to compete effectively will continue to depend upon
its ability to offer high-quality, moderately-priced food in a full-service,
distinctive dining environment.
Government Regulation
The Company's restaurants are subject to numerous federal, state, and
local laws affecting health, sanitation, and safety standards, as well as to
state and local licensing regulation of the sale of alcoholic beverages. Each
restaurant has appropriate licenses from regulatory authorities allowing it to
sell liquor, and/or beer and wine, and each restaurant has food service licenses
from local health authorities. The Company's licenses to sell alcoholic
beverages must be renewed annually and may be suspended or revoked at any time
for cause, including violation by the Company or its employees of any law or
regulation pertaining to alcoholic beverage control, such as those regulating
the minimum age of patrons or employees, advertising, wholesale purchasing,
inventory control, handling, and storage. The failure of a restaurant to obtain
or retain liquor or food service licenses could adversely affect operations.
However, each restaurant is operated in accordance with standardized procedures
designed to ensure compliance with all applicable codes and regulations.
In some states, the Company is subject to "dram-shop" statutes which
generally provide that a person who is injured by an intoxicated person may
attempt to recover damages from an establishment that served alcoholic beverages
to the person who caused injury. While the Company carries liquor-liability
coverage as part of its existing comprehensive general liability insurance, a
judgment against the Company under a dram-shop statute in excess of the
Company's liability coverage could have a material adverse effect on the
<PAGE>
Company.
The development and construction of additional restaurants will be subject
to compliance with applicable zoning, land use, and environmental regulations.
The Company is also subject to federal and state employment laws concerning such
items as minimum wages, working conditions, overtime, tip credits,
discrimination and harassment, and immigration. The Company believes that it is
in material compliance with each such law and that continued compliance will not
significantly affect its restaurant operating costs.
Service Marks
The Company has registered the names "Bertucci's" and "Bertucci's Brick
Oven Pizzeria" as service marks, and trademarks with the United States Patent
and Trademark Office. The Company is aware of names similar to that of the
Company used by third parties in certain limited geographical areas. Such
third-party use may prevent the Company from licensing the use of its mark for
restaurants in such areas. Except for these areas, the Company is not aware of
any infringing uses that could materially affect its business. The Company has
filed applications with the United States Patent and Trademark Office to
register "Food Does Not Lie" as a service mark, and its olive design as a
trademark and service mark. The Company intends to protect its service marks and
trademarks by appropriate legal action whenever necessary.
Employees
As of March 17, 1997, the Company employed 4,700 persons, 57 of whom were
corporate personnel, 258 of whom were region, restaurant, or trainee managers,
and 4,385 of whom were restaurant personnel.
The Company considers its employee-relations to be good. None of the
Company's employees is covered by a collective-bargaining agreement.
ITEM 2: PROPERTIES
At the end of fiscal year 1996, all of the Company's restaurants, except
its locations in Westport, Connecticut, Columbia, Maryland, Peabody and
Marlboro, Massachusetts, and Wayne, Pennsylvania, were established in leased
space, none of which was leased from an affiliated party. Initial
restaurant-lease terms range from 2 years to 40 years. The majority of the
leases provide for an option to renew for additional terms ranging from 5 years
to 20 years. All of the Company's leases provide for a specified annual rental,
and most leases call for additional rents based on sales volumes exceeding
specified levels. Generally, the leases are net leases that require the Company
to pay all taxes, insurance, and maintenance costs.
Prior to September 1993, the Company's executive offices were located in
5,000 square feet of leased office space in Woburn, Massachusetts, adjacent to
the Company's commissary. The Company also leased an additional 21,590 square
feet for use by its commissary operations. In January 1994, the Company closed
its commissary operations. The lease for the Company's office and commissary
space expired on June 30, 1994.
In September 1993, the Company moved into its new corporate headquarters
in Wakefield, Massachusetts. The Company acquired a 60,000-square-foot office
building in December 1992, and after renovations were completed, approximately
20,000 square feet of office and administrative space were created. Another
40,000 square feet of storage space is available and can be utilized as
additional office space when needed.
ITEM 3: LEGAL PROCEEDINGS
From time to time, lawsuits are filed against the Company in the ordinary
course of business. The Company is not a party to any litigation that, in the
judgment of management after consultation with counsel, is likely to have a
material adverse effect on the Company or its business, and the Company is not
aware that any such litigation is threatened.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of shareholders of the Company during
the fourth quarter of the fiscal year ended December 28, 1996.
<PAGE>
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Common Stock of the Company has been traded on the National Market
System of NASDAQ under the symbol BERT since the Company's initial public
offering on June 28, 1991. Prior to that time, there was no public market for
the Common Stock. The following table sets forth the high and low last-reported
sale prices for the Company's Common Stock for the period indicated, as reported
by NASDAQ.
<TABLE>
<CAPTION>
Year Fiscal Quarter Ended High Low
------- ------------------------ ------- -------
<S> <C> <C> <C>
1995 April 22, 1995 12.875 7.00
July 15, 1995 8.875 6.50
October 7, 1995 7.875 5.875
December 30, 1995 7.00 4.50
1996 April 20, 1996 6.00 4.50
July 13, 1996 7.25 4.875
October 5. 1996 5.375 4.25
December 28, 1996 6.125 4.50
1997 April (through March 15, 1997) 6.625 5.00
</TABLE>
As of March 15, 1997, there were approximately 4,800 beneficial owners and
715 holders of record of the Company's Common Stock.
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain all earnings for use in the operation and expansion
of its business. The payment of any future dividends will be determined in light
of the then-current conditions, including the Company's earnings, financial
condition and requirements, restrictions in financing agreements, and other
factors.
<PAGE>
ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
The data for fiscal years ended 1992 through 1996 are derived from audited
financial statements of the Company. Selected consolidated financial data should
be read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations, and the Consolidated Financial Statements
and the Notes thereto included elsewhere in this Form 10-K. Historical results
are not necessarily indicative of results to be expected in the future.
<TABLE>
<CAPTION>
Fiscal Years Ended
----------------------------------------------------
12/26/92 12/25/93 12/31/94 12/30/95 12/28/96
(52 wks) (52 wks) (53 wks) (52 wks) (52 wks)
-------- -------- -------- -------- --------
Income Statement Data:
<S> <C> <C> <C> <C> <C>
NET SALES $ 51,472 $ 74,625 $ 102,797 $ 120,260 $ 128,044
COST AND EXPENSES:
Cost of sales 12,847 19,368 26,039 31,060 32,484
Operating expenses 23,294 33,778 48,804 60,673 65,986
General and
administrative
expenses 3,472 4,918 6,566 8,239 7,720
Depreciation and
amortization 3,095 4,840 7,327 9,083 8,781
Taxes other than
income 2,307 3,530 5,106 6,268 6,633
Restaurant closing
expense - - - 5,336 -
-------- --------- ---------- ---------- ----------
Total costs and
expenses 45,015 66,434 93,842 120,659 121,604
-------- --------- ---------- ---------- ----------
Operating
income (loss) 6,457 8,191 8,955 (399) 6,440
INTEREST EXPENSE, net 17 82 155 1,253 1,297
INTEREST INCOME 922 657 33 21 15
-------- --------- ---------- ---------- ----------
Income (loss) before
income tax expense
(benefit) 7,362 8,766 8,833 (1,631) 5,158
INCOME TAX EXPENSE
(BENEFIT) 2,598 3,127 3,223 (745) 1,933
-------- --------- ---------- ---------- ----------
Net income (loss) $ 4,764 $ 5,639 $ 5,610 $ (886) $ 3,225
======== ========= ========== ========== ==========
EARNINGS (LOSS) PER
COMMON SHARE $ 0.55 $ 0.63 $ 0.63 $ (0.10) $ 0.36
======== ========= ========== ========== ==========
Balance Sheet Data:
WORKING CAPITAL
(DEFICIT) $ 18,232 $ (3,973) $ (5,738) $ (5,258) $ (2,857)
TOTAL ASSETS 61,812 70,181 93,114 98,938 102,528
LONG-TERM DEBT,
INCLUDING CURRENT
PORTION - - 14,000 19,438 18,438
SHAREHOLDERS' EQUITY 52,490 58,804 64,846 64,092 67,538
</TABLE>
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth the percentage-relationship to net sales,
unless otherwise indicated, of certain items included in the Company's income
statement, as well as certain operating data, for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------------
December 31, December 30, December 28,
1994 1995 1996
(53 wks) (52 wks) (52 wks)
-------------- ------------ -------------
Income Statement Data:
NET SALES 100.0% 100.0% 100.0%
-------------- ------------ -------------
<S> <C> <C> <C>
COST AND EXPENSES:
Cost of sales 25.3 25.8 25.4
Operating expenses 47.5 50.4 51.5
General and administrative expenses 6.4 6.9 6.0
Depreciation and amortization 7.1 7.6 6.9
Taxes other than income 5.0 5.2 5.2
Restaurant closing expense - 4.4 -
----------- ----------- ------------
Total costs and expenses 91.3 100.3 95.0
----------- ----------- ------------
Operating income (loss) 8.7 (0.3) 5.0
INTEREST EXPENSE, net - 1.0 1.0
INTEREST INCOME - - -
----------- ----------- ------------
Income (loss) before income tax
expense (benefit) 8.7 (1.3) 4.0
INCOME TAX EXPENSE (BENEFIT) 3.2 (0.6) 1.5
----------- ----------- ------------
Net income (loss) 5.5% (0.7)% 2.5%
=========== ============ ============
Restaurant Operating Data:
Average sales per restaurant open for
full period $ 1,826 $ 1,673 $ 1,671
Percentage change in average sales per
restaurant open for full period 0.3% (8.4)% (0.1)%
Percentage change in comparable
restaurant sales 0.2% (2.0)% 1.0%
Number of restaurants:
Restaurants open at beginning of
period 50 67 76
Restaurants opened 17 9 7
Restaurants closed - - (3)
---------- ------------ ----------
Total restaurants open at end of
period 67 76 80
========== ============ ==========
</TABLE>
Fiscal Year 1996 Versus Fiscal Year 1995
Net sales increased $7.8 million, or 6.5%, to $128.0 million in fiscal year
1996, from $120.3 million in fiscal year 1995. Most of the increase was
attributed to seven new restaurants that were opened in fiscal year 1996, and
nine new restaurants that were opened in fiscal year 1995. Comparable restaurant
sales increased 1.0% for the fifty-two week period. Menu price increases
averaged about 2.2% during the periods under comparison. Average sales per
restaurant open for the full period remained at $1.67 million for the 1996
fiscal year.
Cost of sales, primarily food and beverages, increased from $31.1 million
in fiscal year 1995 to $32.5 million in fiscal year 1996, and decreased as a
percentage of revenues from 25.8% in fiscal year 1995 to 25.4% in fiscal year
1996. Through more efficient operations and pricing, the Company was able to
control the higher costs of flour, cheese, and chicken during the 1996 fiscal
year.
Operating expenses increased from $60.7 million in fiscal year 1995 to
$66.0 million fiscal year 1996, and increased as a percentage of sales from
50.4% in fiscal year 1995 to 51.5% in fiscal year 1996. The increase was the
result of a $1.2 million increase in advertising costs during fiscal 1996. Labor
<PAGE>
costs increased slightly, but were offset by lower costs for insurance.
General and administrative expenses decreased from $8.2 million in fiscal
year 1995 to $7.7 million in fiscal year 1996, and decreased as a percentage of
sales from 6.9% in fiscal year 1995 to 6.0% in 1996. This decrease was the
result of attrition at the corporate level, reduction in training costs
associated with new restaurant openings, and a reduction of in-house marketing
costs.
Depreciation and amortization expense was $9.1 million in fiscal year 1995
and $8.8 million in fiscal year 1996, a decrease, as a percentage of net sales,
from 7.6% in fiscal year 1995 to 6.9% in fiscal year 1996. This decrease was
attributable to a reduction in amortization costs on new restaurant openings.
Taxes, other than income taxes, increased from $6.3 million in fiscal year
1995 to $6.6 million in fiscal year 1996, and was 5.2% of net sales for both the
1995 and 1996 periods.
Restaurant-closing expenses of $5.3 million in fiscal year 1995 were
associated with the closing of three restaurants, which occurred at the close of
business on February 22, 1996. The expense consisted of $3.8 million for the
disposal of fixed assets, $1.0 million for the liabilities associated with the
termination of leases, and $500,000 for legal and other related closing costs.
At December 28, 1996, $45,000 of this reserve remains. The Company believes this
reserve is adequate to cover any remaining costs associated with the three
restaurant closings.
Interest expense remained constant at $1.3 million for both the 1995
and 1996 fiscal years.
For fiscal year 1995, the Company incurred a tax benefit of $745,000 due
to the closing of the three restaurants. The effective income tax rate for 1996
was 37.5%
Fiscal Year 1995 Versus Fiscal Year 1994
Net sales increased $17.5 million, or 17%, to $120.3 million in fiscal
year 1995, from $102.8 million in fiscal year 1994. All of the increase was
attributed to 9 new restaurants opened in fiscal year 1995 and 17 new
restaurants opened in fiscal year 1994, while comparable restaurant sales
declined $1.8 million, or 2.0%, for the comparable 52-week period. Menu
price-increases averaged about 1.2% during the periods under comparison. Average
sales per restaurant open for the full period declined 8.4% to $1.67 million,
from $1.83 million the previous year, due primarily to the extra week in fiscal
1994, and with the lower volumes of the new restaurants added in 1994.
Cost of sales, primarily food and beverages, increased from $26.0 million
in fiscal year 1994 to $31.1 million in fiscal year 1995, and increased as a
percentage of revenues from 25.3% in fiscal 1994 to 25.8% in fiscal year 1995.
This increase was the result of higher food prices (mainly cheese, chicken,
flour, olive oil, and produce).
Operating expenses increased from $48.8 million in fiscal year 1994 to
$60.7 million in fiscal year 1995, and increased as a percentage of sales from
47.5% in fiscal year 1994 to 50.4% in fiscal year 1995. The increase was the
result of advertising costs of $1.7 million that were not incurred in fiscal
year 1994, along with higher utility costs and labor costs associated with new
restaurants opened in 1994 and 1995.
General and administrative expenses increased from $6.6 million in fiscal
year 1994 to $8.2 million in fiscal year 1995, and increased, as a percentage of
sales, from 6.4% in fiscal year 1994 to 6.9% in 1995. The increase primarily
came from in-house marketing costs, training and recruitment costs, and
data-processing costs.
Depreciation and amortization expenses increased from $7.3 million in
fiscal year 1994 to $9.1 million in fiscal year 1995, an increase, as a
percentage of net sales, from 7.1% in fiscal year 1994 to 7.6% in fiscal year
1995. The increase was due to higher depreciation costs, as a percent to
revenues, associated with new restaurants built in 1994 and 1995.
Taxes, other than income taxes, increased from $5.1 million in fiscal year
1994 to $6.3 million in fiscal year 1995, primarily due to increases in state
unemployment tax rates and increases in real property taxes on rented property.
Restaurant-closing expenses of $5.3 million in fiscal year 1995 are
associated with the closing of three underperforming restaurants subsequent to
fiscal year 1995. The expense consisted of $3.8 million for the disposal of
fixed assets, $1.0 million for liabilities associated with the termination of
leases, and $500,000 for legal and other related closing costs. The Company
<PAGE>
anticipated that the disposition of assets and termination of leases would be
fully completed by the end of fiscal year 1996. The pretax operating loss
attributed to these three restaurants was approximately $550,000 for the fiscal
year 1995.
Interest expense increased from $155,000 in fiscal year 1994 to $1.3
million in fiscal year 1995. The increase was attributable to the higher amount
of bank borrowings in fiscal year 1995.
The effective income tax rate for 1994 was 36.5%. In fiscal year 1995, the
Company incurred a tax benefit of $745,000 due to the closing of three
restaurants.
Liquidity and Sources of Capital
To date, the Company has financed its expansion from operations, bank
borrowings, and the private placement and public offering of equity securities.
The Company does not have significant receivables or inventory. The Company
receives trade credit based upon negotiated terms for purchasing food and
supplies.
The Company has a bank line-of-credit in effect until November 30, 1997,
under which it may borrow up to $30.0 million. On November 30, 1997, the Company
will be able to convert the balance, if any, to a term-loan maturing on November
30, 2000. The Company pays a fee of 1/4 of 1% on the unused balance, and
interest is calculated using LIBOR plus 1.25%. There are no compensating-balance
arrangements or legal restrictions as to the withdrawal of these funds. At
December 30, 1995 and December 28, 1996, the amounts outstanding under this line
of credit were $19.4 million and $18.4 million, respectively.
During fiscal years 1994, 1995, and 1996, the Company's investment in
property and equipment was $27.6 million, $14.3 million, and $9.5 million,
respectively. The investments were funded with cash provided by operations and
with the proceeds of financing activities. During the fiscal years 1994, 1995,
and 1996, the Company generated net cash, from continuing operations, of $15.9
million, $10.7 million, and $14.1 million, respectively. During fiscal years
1994, 1995, and 1996, the Company received cash from financing activities of
$14.4 million, $5.5 million, and $(0.8) million, respectively.
The Company expects to open six to seven restaurants in fiscal year 1997,
and between 8 to 10 restaurants in fiscal year 1998. The Company expects to
expend approximately $8.5 million in fiscal year 1997, and approximately $11.0
million to $13.0 million in fiscal year 1998, to finance planned expansion. The
Company believes that it will have sufficient working capital and bank
borrowings to finance its expansion plans through the end of fiscal year 1998.
Impact of Inflation
The impact of inflation on food, labor, and occupancy costs can affect the
Company's operations significantly. Many of the Company's employees are paid
hourly rates related to the federal minimum wage, which was increased in fiscal
year 1996. Food costs have been essentially stable during the period. Building
costs, taxes, maintenance, and insurance costs all have an impact on the
Company's occupancy costs, which continued to increase during the period.
Management believes that the current practice of maintaining adequate operating
margins through a combination of menu price-increases and cost-controls, careful
evaluation of property and equipment needs, and efficient purchasing practices
is its most effective tool for coping with inflation.
Seasonality
The Company's results of operations have not been materially affected by
seasonality.
Forward-Looking Information
Information in the Annual Report and Form 10-K contains certain
forward-looking statements and information relating to the Company that are
based on the beliefs of the Company's management, as well as assumptions made
by, and information currently available to, the Company's management. When used
in this Annual Report and Form 10-K, words such as "anticipate," "believe,"
"estimate," "expect," "intend," and similar expressions, as they relate to the
Company or the Company's management, identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events, and are subject to certain risks, uncertainties, and assumptions
relating to the operations and results of operations of the Company, competitive
factors and pricing pressures, shifts in consumer demand, the costs of products
and services, general economic conditions, and the acts of third parties, as
well as other factors described in the Annual Report and Form 10-K, and, from
time to time, in the Company's periodic earnings releases and reports filed with
<PAGE>
the Securities and Exchange Commission. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results or outcomes may vary materially from those described herein as
anticipated, believed, estimated, expected, or intended.
<PAGE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Public Accountants 14
Consolidated Balance Sheets as of December 30, 1995, and
December 28, 1996 15
Consolidated Statements of Operations for the years ended
December 31, 1994 December 30, 1995, and December 28, 1996 16
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1994, December 30, 1995,
and December 28, 1996 17
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, December 30, 1995, and December 28, 1996 18
Notes to Consolidated Financial Statements 19
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Bertucci's, Inc.:
We have audited the accompanying consolidated balance sheets of
Bertucci's, Inc. (a Massachusetts corporation) and subsidiaries as of December
30, 1995 and December 28, 1996, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 28, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bertucci's, Inc. and
subsidiaries as of December 30, 1995 and December 28, 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 28, 1996, in accordance with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 25, 1997
<PAGE>
BERTUCCI'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
Fiscal Years Ended
---------------------------
December 30, December 28,
1995 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,384,117 $ 4,265,596
Inventories 950,565 1,048,361
Accounts receivable 153,486 179,280
Note receivable 70,442 76,455
Prepaid expenses 366,656 474,641
Deferred preopening costs 817,789 510,082
Prepaid taxes 757,831 1,026,685
------------ ------------
Total current assets 4,500,886 7,581,100
------------ ------------
PROPERTY AND EQUIPMENT, at cost:
Land 2,902,012 2,902,012
Buildings and improvements 10,323,766 10,359,565
Leasehold improvements 69,027,741 72,416,258
Machinery and equipment 32,438,263 35,673,484
Construction in progress 1,215,678 250,238
------------ ------------
115,907,460 121,601,557
Less--Accumulated depreciation 26,047,667 29,704,655
------------ ------------
Net property and equipment 89,859,793 91,896,902
PREPAID TAXES 2,405,169 1,274,686
OTHER ASSETS 2,171,832 1,775,741
------------ ------------
$ 98,937,680 $102,528,429
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable-current $ 25,000 $ 25,000
Accounts payable 4,243,323 4,179,347
Accrued expenses 513,206 1,032,565
Accrued restaurant closing expense 1,539,000 45,000
Accrued payroll and employee benefits 2,419,402 3,297,703
Accrued taxes 1,018,736 1,858,788
------------ ------------
Total current liabilities 9,758,667 10,438,403
DEFERRED RENT 5,574,573 6,064,085
NOTES PAYABLE 75,000 50,000
LONG-TERM DEBT 19,437,500 18,437,500
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value -- Authorized - -
-- 200,000 shares, none issued
Common stock, $.005 par value -- Authorized
-- 15,000,000 shares
Issued and outstanding -- 8,728,442 shares at
December 30, 1995 and 8,790,429 at
December 28, 1996 43,642 43,952
Additional paid-in capital 44,619,932 44,841,296
Retained earnings 19,428,366 22,653,193
------------ ------------
Total shareholders' equity 64,091,940 67,538,441
------------ ------------
$ 98,937,680 $102,528,429
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
BERTUCCI'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Years Ended
---------------------------------------
12/31/94 12/30/95 12/28/96
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $102,796,965 $120,259,850 $128,044,405
------------ ------------ ------------
COST AND EXPENSES:
Cost of sales 26,039,125 31,059,985 32,484,063
Operating expenses 48,804,004 60,672,341 65,986,007
General and administrative
expenses 6,565,741 8,239,250 7,719,582
Depreciation and amortization 7,326,557 9,083,381 8,781,155
Taxes other than income 5,106,078 6,267,958 6,632,779
Restaurant closing expense - 5,336,000 -
------------ ------------ ------------
Total costs and expenses 93,841,505 120,658,915 121,603,586
------------ ------------ ------------
Operating income (loss) 8,955,460 (399,065) 6,440,819
INTEREST EXPENSE, net 155,524 1,253,241 1,297,700
INTEREST INCOME 32,855 21,464 14,809
------------ ------------- ------------
Income (loss) before income
tax expense (benefit) 8,832,791 (1,630,842) 5,157,928
INCOME TAX EXPENSE (BENEFIT) 3,222,900 (744,893) 1,933,101
------------ ------------- ------------
Net income (loss) $ 5,609,891 $ (885,949) $ 3,224,827
============ ============= ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 8,936,569 8,728,442 8,853,745
============ ============= ============
EARNINGS (LOSS) PER COMMON SHARE $ 0.63 $ (0.10) $ 0.36
============ ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
BERTUCCI'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
-------------------- Additional Total
Number of $0.005 Paid-In Retained Shareholders'
Shares Par Value Capital Earnings Equity
--------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, 12/25/93 8,601,869 $ 43,009 $ 44,056,534 $14,704,424 $58,803,967
Exercise of options 101,288 506 306,276 - 306,782
Issuance of stock 7,786 40 125,605 - 125,645
Net income - - - 5,609,891 5,609,891
--------- --------- ---------- ----------- ------------
BALANCE, 12/31/94 8,710,943 43,555 44,488,415 20,314,315 64,846,285
Exercise of options 3,000 15 10,538 - 10,553
Issuance of stock 14,499 72 120,979 - 121,051
Net loss - - - (885,949) (885,949)
--------- --------- ---------- ------------ ------------
BALANCE, 12/30/95 8,728,442 43,642 44,619,932 19,428,366 64,091,940
Exercise of options 37,500 187 98,892 - 99,079 -
Issuance of stock 24,486 123 122,472 - 122,595
Net income - - - 3,224,827 3,224,827
--------- ---------- ---------- ----------- ------------
BALANCE, 12/28/96 8,790,428 $ 43,952 $44,841,296 $22,653,193 $67,538,441
========= ========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
BERTUCCI'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Years Ended
----------------------------------------
12/31/94 12/30/95 12/28/96
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,609,891 $ (885,949) $ 3,224,827
Adjustments to reconcile net
income to net cash provided by
operating activities--
Depreciation and amortization 7,678,875 9,277,795 9,073,727
Loss on disposal of property
and equipment 39,614 - -
Loss on restaurant closing - 5,336,000 -
Increase in inventories (37,111) (172,197) (97,796)
Decrease (increase) in prepaid
expenses, accounts receivable,
notes receivable,
and other assets 8,563 125,622 (2,798)
Increase (decrease) in accounts
payable 328,218 (1,427,603) (63,976)
Increase in accrued expenses
and deferred rent 1,527,789 2,134,647 229,624
Increase (decrease) in accrued,
deferred and prepaid taxes 752,305 (3,649,742) 1,701,681
------------ ------------- -------------
Net cash provided in
operating activities 15,908,144 10,738,573 14,065,289
------------ ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to preopening costs (2,383,662) (1,332,814) (918,553)
Additions to property and
equipment (27,633,618) (14,308,842) (9,461,931)
Proceeds from sale of equipment 109,841 - -
Purchases of liquor licenses (505,283) (7,000) -
Purchase of trademark (208,105) - -
------------ ------------- -------------
Net cash used in
investing activities (30,620,827) (15,648,656) (10,380,484)
------------ ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of common stock 125,645 121,051 122,595
Exercise of stock options 306,782 10,553 99,079
Proceeds from debt 14,000,000 5,437,500 -
Paydown of debt - - (1,000,000)
Decrease in notes payable (25,000) (25,000) 25,000)
------------ ------------- -------------
Net cash provided by
(used in) financing
activities 14,407,427 5,544,104 (803,326)
------------ ------------- -------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (305,256) 634,021 2,881,479
CASH AND CASH EQUIVALENTS,
beginning of year 1,055,352 750,096 1,384,117
------------ ------------- -------------
CASH AND CASH EQUIVALENTS,
end of year $ 750,096 $ 1,384,117 $ 4,265,596
============ ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for ---
Interest, net of amount
capitalized $ 34,902 $ 1,154,376 $ 1,357,786
============ ============= =============
Income taxes $ 3,031,074 $ 2,329,311 $ 340,104
============ ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
BERTUCCI'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 28, 1996
(1) Organization and Operation
Bertucci's, Inc. is a holding company for three wholly owned
subsidiaries, Bertucci's Restaurant Corp. (Bertucci's), Bertucci's
Securities Corporation, and Berestco, Inc. (collectively, the Company).
Bertucci's, Inc. provides managerial, financial, and other services to
Bertucci's, and assists in its daily operations. Bertucci's Securities
Corporation holds all of the Company's short-term investments. Berestco,
Inc. is a real estate holding company for the corporate headquarters in
Wakefield, Massachusetts.
Bertucci's operates 80 restaurants that feature original recipe gourmet
pizza prepared in brick ovens and other Italian-style foods. The restaurants are
located in Connecticut, Georgia, Illinois, Maryland, Massachusetts, New
Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Virginia, and
Washington, DC.
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Bertucci's, Inc. and its subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents are highly liquid securities with an original maturity of
not more than 90 days.
Inventories
Inventories consist of supplies and food and are carried at the lower of
first-in, first-out cost or market value.
Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, accounts receivable, accounts payable, and long-term debt. The
carrying amounts of the Company's cash and cash equivalents, accounts
receivable, and accounts payable approximate fair value due to the short-term
nature of these instruments. Long-term debt bears interest at a variable market
rate; therefore, the carrying amount approximates fair value.
Property and Equipment
Property and equipment are recorded at cost. The Company provides for
depreciation using the straight-line method for financial reporting purposes
over the expected useful lives of the assets. The useful lives are five to ten
years for machinery and equipment and three years for equipment under capital
lease. Buildings and leasehold improvements are amortized over the remaining
period of the lease or 20 years, whichever is shorter.
Capitalized Interest
Interest was capitalized on major capital expenditures on funds borrowed
during the period of construction. Total interest costs incurred and amounts
capitalized were as follows:
<TABLE>
<CAPTION>
Fiscal Years Ended
----------------------------------------
December 31, December 30, December 28,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Total interest costs $ 425,249 $1,389,142 $1,365,545
Interest capitalized (269,725) (135,901) (67,845)
----------- ----------- -----------
Interest expense, net $ 155,524 $1,253,241 $1,297,700
=========== =========== ===========
</TABLE>
<PAGE>
BERTUCCI'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 28, 1996
Stock-Based Compensation
Effective December 31, 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation. The Company has elected to continue to account for
stock options at intrinsic value with disclosure of the effects of fair value
accounting on net income and earnings per share on a pro forma basis.
Long-Lived Assets
In 1996, the Company adopted SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. The Company's
long-lived assets consist primarily of real estate and leasehold improvements
related to its restaurant operations. SFAS No. 121 requires management to
consider whether long-lived assets have been impaired by comparing gross future
cash flows expected to be generated from utilizing these assets to their
carrying amounts. If cash flows are not sufficient to recover the carrying
amount of the assets, an impairment has occurred and the assets should be
written down to their fair market value. Significant estimates and assumptions
regarding future sales, cost trends, productivity, and market maturity are
required to be made by management in order to test for impairment under this
standard. Based on current facts, estimates and assumptions, management believes
that no assets are impaired under this standard. There is no assurance that
management's estimates and assumptions will prove correct.
Fiscal Year
The Company's fiscal year is the 52- or 53-week period ended on the
Saturday closest to December 31. References to 1995 and 1996, are for the
52-week periods ended December 30, 1995 and December 28, 1996, and references to
1994 are for the 53-week period ended December 31, 1994. The Company's quarterly
periods usually consist of one 16-week period and three 12-week periods, with
the exception of fiscal 1994, which consists of one 16-week period, two 12-week
periods, and one 13-week period.
Deferred Preopening Costs
Costs related to the opening of new restaurants, such as preopening
payroll and various training expenses, are deferred until the restaurants open
and are amortized over the subsequent 12 months.
Income Taxes
The Company follows the liability method of accounting for income taxes as
set forth in SFAS No. 109, Accounting for Income Taxes. Under SFAS No.109,
deferred tax assets and liabilities are recognized for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. The amount of deferred tax asset or liability is based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Earnings per Common Share
The computation of primary earnings per share is based on the weighted
average number of outstanding common shares plus common stock equivalents. Fully
diluted earnings per share were not materially different from primary earnings
per share. The weighted average shares outstanding used in determining earnings
per common share include common stock equivalents of 225,626, and 63,317 related
to stock options for the periods ended December 31, 1994, and December 28, 1996,
respectively. No common stock equivalents are included in the 1995 calculation
of earnings per common share as they would be antidilutive.
Reclassifications
Certain prior-year amounts have been reclassified to conform with the
current year's presentation.
(3) Restaurant Closing Expenses
In 1995, the Company accrued estimated expenses of $5,336,000 associated
with the closing of three restaurants, which occurred at the close of business
on February 22, 1996. The estimated expenses consisted of $3,797,000 in
estimated net losses associated with the disposal of the fixed assets of these
three restaurants which was recorded as accumulated depreciation on the
consolidated balance sheet, $1,039,000 in estimated liabilities associated with
termination of leases, and $500,000 in estimated legal and other related costs.
At December 28, 1996, $45,000 of this reserve remains. The Company believes this
reserve is adequate to cover any remaining costs associated with the store
closings.
<PAGE>
BERTUCCI'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 28, 1996
(4) Stock Options and Employee Stock Purchase Plan
On March 25, 1992, the Board of Directors approved an Employee Stock
Purchase Plan (the Plan) permitting eligible employees to purchase common stock,
semiannually on June 30 and December 31, through payroll deductions of up to 8%
of each participating employee's compensation, at 85% of the average trading
price during the six-month period, but not less than specified minimums. At
December 26, 1992, 100,000 shares were reserved for the Plan. During 1994, 1995,
and 1996 shares issued under the Plan were 7,786, 14,499, and 24,486,
respectively.
Under the 1987 incentive stock option plan (the 1987 Plan), the Company may
grant stock options for the purchase of up to 775,000 shares of common stock at
an exercise price equal to the fair market value of the common stock on the date
of grant. The 1987 Plan provides for options to be exercisable in four annual
installments. All options must be exercised within 10 years of the date of
grant.
In 1989, the Board of Directors of the Company approved the issuance of
150,000 shares of time-accelerated restricted stock options to members of senior
management. These options are fully vested and exercisable through November
1999. Options are exercisable at a price equal to the fair market value of the
common stock on the date of grant. At December 28, 1996, 43,000 of these options
were outstanding.
In July 1993, the Board of Directors of the Company established the 1993
Stock Option Plan for Non-Employee Directors. Under this plan, the Company may
grant stock options for the purchase of up to 75,000 shares of common stock at
an exercise price equal to the fair market value of the common stock on the date
of grant. At December 28, 1996, 30,000 of these options were outstanding. All
options must be exercised within 10 years of the date of grant.
The following table summarizes the Company's option transactions for the
three years ended December 28, 1996:
<TABLE>
<CAPTION>
Exercisable
------------------------
Shares Weighted- Weighted-
Subject Average Average
to Options Price Shares Price
---------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Outstanding at December 25, 1993 475,188 $ 5.73
Granted 166,500 11.77
Exercised (101,288) (2.88)
Forfeited (23,000) (15.73)
--------- ---------
Outstanding at December 31, 1994 517,400 7.79 294,150 $ 5.76
Granted 237,000 4.88
Exercised (3,000) (1.17)
Forfeited (197,000) (12.70)
--------- ---------
Outstanding at December 30, 1995 554,400 4.97 356,475 $ 5.48
Granted 24,000 5.66
Exercised (37,500) (1.33)
Forfeited (23,500) (4.88)
--------- ---------
Outstanding at December 28, 1996 517,400 $ 5.27 378,200 $ 5.43
========= =========
</TABLE>
<PAGE>
BERTUCCI'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 28, 1996
The following table summarizes information as of December 28, 1996,
concerning outstanding and exercisable options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------- -----------------------------
Weighted-
Average Weighted-
Range of Remaining Average
Exercise Number Contractual Exercise Number Weighted-Average
Prices Outstanding Life Price Exercisable Exercise Price
- ----------- ----------- ----------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$1.00-2.00 103,000 1.93 $ 1.24 103,000 $ 1.24
$4.00-6.00 225,500 9.00 $ 4.86 86,300 $ 4.88
$6.00-8.00 168,400 5.34 $ 6.79 168,400 $ 6.79
$15.00-19.00 16,000 6.57 $ 16.68 16,000 $ 16.65
$19.50-22.00 4,500 6.64 $ 21.25 4,500 $ 21.25
---------- ----------- -------------
517,400 378,200 $ 5.43
</TABLE>
The Company accounts for stock option and stock purchase plans under Accounting
Principles Board Opinion No. 25, under which no compensation cost has been
recognized since options are granted with exercise prices equal to the fair
market value of the common stock at the date of grant. Had compensation cost for
these plans been determined consistent with SFAS No. 123, the Company's pro
forma net income (loss) and earnings (loss) per common share for the years ended
December 30, 1995 and December 28, 1996 would have been as follows:
<TABLE>
<CAPTION>
1995 1996
------------- ------------
<S> <C> <C>
Net income (loss)
As reported $ (885,949) $ 3,224,827
Pro forma (1,096,693) 2,953,734
Earnings (loss) per share
As reported $ (0.10) $ 0.36
Pro forma (0.13) 0.33
</TABLE>
Because the method prescribed by SFAS No. 123 has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation expense
may be greater as additional options are granted. The weighted-average fair
value of the options granted in 1995 and 1996 were $3.78 and $4.53,
respectively. The fair value of each option grant is estimated on the date of
the grant using the Black-Scholes option pricing model with the following
assumptions used for grants in 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Expected volatility 68% 68%
Risk-free interest rate 6.35% 6.36%
Expected life 9 years 10 years
Expected dividend yield 0% 0%
</TABLE>
(5) Line of Credit
The Company has a bank line of credit in effect until November 30, 1997,
under which it may borrow up to $30,000,000. On November 30, 1997, the Company
will be able to convert the balance, if any, to a term loan, payable in 12
quarterly installments through November 30, 2000. The Company pays a fee of 1/4
<PAGE>
BERTUCCI'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 28, 1996
of 1% on the unused balance, and interest is calculated using LIBOR plus 1.25%.
There are no compensating balance arrangements or legal restrictions as to the
withdrawal of these funds. At December 30, 1995 and December 28, 1996, amounts
outstanding under this line of credit were $19,437,500 and $18,437,500,
respectively. The Company's average interest rate on outstanding borrowings at
December 30, 1995 and December 28, 1996, were 6.87% and 6.75%, respectively. The
debt agreement contains a covenant, among others, that places restrictions on
capital expenditures. In addition, equity distributions are prohibited under the
agreement. As of December 28, 1996, the Company was in compliance with these
covenants.
(6) Income Taxes
The components of the provision (benefit) for income taxes were as
follows:
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------------
December 31, December 30, December 28,
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Current:
Federal $2,651,633 $1,635,906 $ 507,107
State 867,717 731,922 325,210
---------- ---------- ----------
3,519,350 2,367,828 832,317
---------- ---------- ----------
Deferred:
Federal (223,433) (2,346,138) 829,655
State (73,017) (766,583) 271,129
----------- ---------- ----------
(296,450) (3,112,721) 1,100,784
----------- ----------- ----------
Total provision
(benefit) for income
taxes $3,222,900 $ (744,893) $1,933,101
=========== =========== ==========
</TABLE>
A reconciliation of the amount computed by applying the statutory federal
income tax rate of 34% to income before income taxes is as follows:
<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------------
December 31, December 30, December 28,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income tax expense (benefit)
computed at federal
statutory rate $3,003,149 $ (554,486) $1,753,695
State taxes, net of federal
benefit 524,502 (22,876) 393,584
Targeted jobs tax credit (137,145) - -
FICA tax credit (276,417) (333,792) (353,760)
Other 108,811 166,261 139,582
----------- ----------- -----------
Income tax provision
(benefit) $3,222,900 $ (744,893) $1,933,101
=========== =========== ===========
</TABLE>
<PAGE>
BERTUCCI'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 28, 1996
Significant items giving rise to deferred tax assets and deferred tax
liabilities at December 30, 1995 and December 28, 1996 are as follows:
<TABLE>
<CAPTION>
Fiscal Years Ended
----------------------------
December 30, December 28,
1995 1996
------------ ------------
<S> <C> <C>
Deferred Tax Assets:
Deferred rent $ 2,112,629 $ 2,462,019
Accrued workers' compensation 498,974 705,331
Accrued vacation 170,166 202,793
Accrued restaurant closing costs 624,834 18,270
Property and equipment 326,228 -
Other 11,076 311,307
----------- -----------
$ 3,743,907 $ 3,699,720
=========== ===========
Deferred Tax Liabilities:
Preopening costs $ 292,482 $ 206,280
Property and equipment - 1,082,806
Other 288,425 109,263
----------- -----------
$ 580,907 $ 1,398,349
=========== ===========
</TABLE>
(7) Commitments and Contingencies
Operating Leases
The Company has entered into numerous operating lease arrangements,
primarily for its restaurants, with initial terms ranging from 2 to 40 years.
Many of these leases contain renewal options ranging from 5 to 20 years.
The minimum rental commitments under all noncancelable operating leases as
of December 28, 1996 are as follows:
<TABLE>
<CAPTION>
Year Amount
--------- ---------
<S> <C>
1997 $ 9,861,119
1998 10,133,012
1999 9,835,512
2000 9,401,712
2001 9,477,259
Thereafter 58,009,324
------------
Total $106,717,938
============
</TABLE>
Certain of the leases require the payment of additional amounts based on
percentages of annual sales that exceed annual minimum rentals or annual base
sales. The percentage rental factors generally range from 3% to 7% of annual
sales. Some leases contain rent escalation clauses whereby the rent payments
increase over the term of the lease. Rental expense includes minimum base rent
amounts payable monthly, percentage rent payable annually, and rent expense
accrued to recognize lease escalation provisions on a straight-line basis over
the minimum lease term.
<PAGE>
BERTUCCI'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 28, 1996
Deferred rent liability, including current portion, was approximately
$5,649,000 and $6,161,000 at December 30, 1995 and December 28, 1996,
respectively. Restaurant rental expense included in the accompanying
consolidated statements of operations consists of the following:
<TABLE>
<CAPTION>
Fiscal Years Ended
----------------------------------------
December 31, December 30, December 28,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Base rent expense $6,468,820 $ 8,704,028 $ 9,685,370
Percentage rent expense 399,516 200,930 209,026
Straight-line expense 1,140,036 1,032,645 489,512
---------- ----------- -----------
Total rent expense $8,008,372 $ 9,937,603 $ 10,383,908
========== =========== ============
</TABLE>
Government Regulation
The Company is subject in certain states to "dram-shop" statutes, which
generally provide a person injured by an intoxicated person the right to recover
damages from an establishment that wrongfully served alcoholic beverages to such
person. While the Company carries liquor liability coverage as part of its
existing comprehensive general liability insurance, a judgment against the
Company under a dram-shop statute in excess of the Company's liability coverage
could have a material adverse effect on the Company.
Litigation
From time to time, lawsuits are filed against the Company in the ordinary
course of business. After consulting with legal counsel, management does not
believe that the result of any pending litigation would have a material adverse
effect on the Company's financial statements or its business.
(8) Transactions with Related Parties
During 1992, the Company purchased property for a restaurant site in
Westport, Connecticut, for approximately $1.2 million from an affiliate of a
partnership whose general partner is a director of the Company. The director was
not involved in the purchase negotiation of that particular property, and
management believes that the price paid represented fair market value.
The Company has entered into an agreement with its president pursuant to
which, upon the death of the president, his estate will have the right, but not
the obligation, to cause the Company to purchase shares of the Company's common
stock held by the estate at their fair market value. The purchase price will be
payable out of, and to the extent of, the proceeds of a $3.0 million life
insurance policy on the president's life held by the Company. If the estate
chooses to sell such shares to a third party within a specified time after the
president's death, the Company shall have the right of first refusal with
respect to the purchase of such shares.
During 1992, the president of the Company made a personal loan amounting to
$837,175, to the Orange, Connecticut landlord, with whom the Company has an
operating lease. The repayment terms require the Company to make the rental
payments directly to the president through the year 2002. The Company paid
approximately $150,000 per year in 1994, 1995, and 1996, related to this
agreement.
Subsequent to year end, the Company leased a building and real property for
the first Sal & Vinnie's Sicilian Steakhouse location from the Company's
president, and purchased all furniture, fixtures, and equipment currently at the
facility for their appraised value of $650,000. In conjunction with this
transaction, the Company has loaned to its president approximately $637,500,
which was repaid subsequent to year end.
(9) Benefit Plans
In 1990, an incentive plan was established in which general, district, and
restaurant managers participate. Awards under the plan are tied to achievement
of specific operating targets. Expenses under the plan were approximately
$560,000, $597,000, and $647,000 in 1994, 1995, and 1996, respectively.
<PAGE>
BERTUCCI'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 28, 1996
<TABLE>
<CAPTION>
(10) Quarterly Financial Data (Unaudited)
Quarter Ended
---------------------------------------------------------
(in thousands of dollars, except per share data)
---------------------------------------------------------
16 Weeks Twelve weeks ended 13 Weeks
Ended ------------------------ Ended
1994 April 16, July 9, October 1, December 31,
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net sales $ 27,796 $ 22,191 $ 24,596 $ 28,214
Operating income 2,510 1,880 2,327 2,238
Net income 1,583 1,186 1,482 1,358
Earnings per share $ 0.18 $ 0.13 $ 0.17 $ 0.15
16 Weeks Twelve weeks ended
Ended -----------------------------------------
1995 April 22, July 15, October 7, December 30,
---------- ----------- ---------- ------------
Net sales $ 35,446 $ 28,521 $ 28,211 $ 28,082
Operating income (loss) 1,734 1,105 1,300 (4,538)
Net income (loss) 902 525 610 (2,923)
Earnings (loss) per share $ 0.10 $ 0.06 $ 0.07 $ (0.33)
16 Weeks Twelve weeks ended
Ended -----------------------------------------
1996 April 20, July 13, October 5, December 28,
---------- ----------- ---------- ------------
Net sales $ 38,259 $ 30,235 $ 29,549 $ 30,001
Operating income 1,290 1,414 1,543 2,193
Net income 549 685 792 1,199
Earnings per share $ 0.06 $ 0.08 $ 0.09 $ 0.14
</TABLE>
<PAGE>
ITEM 9: CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
PART III
ITEMS 10, 11, 12, AND 13:
The information required by Items 10, 11, 12, and 13 is hereby
incorporated by reference from the Registrant's definitive proxy statement for
the Annual Meeting of Stockholders to be held on May 13, 1997.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements are listed in the index to Financial
Statements on page 14 of this report.
2. Exhibits
(b) Reports on Form 8-K
The Company did not file any report on Form 8-K during the last
quarter of the period covered by this report.
* 3.1 - Restated Articles of Organization of the Company.
** 3.2 - Amendment to the Company's Restated Articles of Organization.
* 3.3 - By-Laws of the Company.
* 10.1- Convertible Preferred Stock Purchase Agreement dated
September 1, 1987.
** 10.2- Amended and Restated 1987 Stock Option Plan, as amended
and restated on June 4, 1991.
* 10.3- Form of Incentive Stock Option Agreement under Amended and
Restated 1987 Stock Option Plan.
* 10.4- Amended and Restated Time Accelerated Restricted Stock Option
Plan.
* 10.5- Form of Stock Option Agreement under Amended and Restated Time
Accelerated Restricted Stock Option Plan.
* 10.6- Amended and Restated Series B Convertible Redeemable Preferred
Stock Purchase Agreement dated March 31, 1989.
* 10.7- Crugnale Noncompetition, Nondisclosure and Inventions Agreement
dated September 1, 1987.
** 10.8- Stock Agreement dated as of July 5, 1991,between the Company
and Joseph Crugnale.
* 10.9- Commercial Lease between Cummings Properties Management, Inc
and Bertucci's, Inc. dated as of April 14, 1989, relating to
the premises located at 58, 60 and 62 Cummings Park,
Woburn, Massachusetts.
22. - List of Subsidiaries
24.2- Consent of Arthur Andersen LLP
27. - Financial Data Schedule
----
* Incorporated by reference to the exhibits to the Registration
Statement No. 33-40677 on Form S-1 filed by the Company with the
Securities and Exchange Commission.
** Incorporated by reference to the exhibits to the Registration
Statement No. 33-46201 on Form S-1 filed by the Company with the
Securities and Exchange Commission.
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) 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.
Date: March 15, 1997
By: /s/ JOSEPH CRUGNALE
-----------------------------------------------
Joseph Crugnale
President, Chief Executive Officer and Director
Date: March 15, 1997
By: /s/ NORMAN S. MALLETT
-----------------------------------------------
Norman S. Mallett
Vice President-Finance; Treasurer
(Principal Financial and Accounting Officer)
Pursuant to requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 15, 1997
By: /s/ E. BULKELEY GRISWOLD
-----------------------------------------------
E. Bulkeley Griswold, Director
Date: March 15, 1997
By: /s/ ROBERT L. LESTINA, JR.
-----------------------------------------------
Robert L. Lestina, Jr., Director
Date: March 15, 1997
By: /s/ ALLAN J. STEINMETZ
-----------------------------------------------
Allan J. Steinmetz, Director
Date: March 15, 1997
By: /s/ JAMES WESTRA
-----------------------------------------------
James Westra, Director
<PAGE>
EXHIBIT 22
LIST OF SUBSIDIARIES
Bertucci's Restaurant Corp., a Massachusetts corporation, which does business
under the name of "Bertucci's Brick Oven Pizzeria".
Berestco, Inc., a Massachusetts corporation.
<PAGE>
EXHIBIT 24.2
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K into the Company's previously filed
Registration Statement File Nos. 33-43490 and 33-43439.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 25, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000874971
<NAME> BERTUCCI'S, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 4,266
<SECURITIES> 0
<RECEIVABLES> 256
<ALLOWANCES> 0
<INVENTORY> 1,048
<CURRENT-ASSETS> 7,581
<PP&E> 121,602
<DEPRECIATION> 29,705
<TOTAL-ASSETS> 102,528
<CURRENT-LIABILITIES> 10,438
<BONDS> 0
0
0
<COMMON> 44
<OTHER-SE> 67,495
<TOTAL-LIABILITY-AND-EQUITY> 102,528
<SALES> 128,044
<TOTAL-REVENUES> 128,044
<CGS> 32,484
<TOTAL-COSTS> 32,484
<OTHER-EXPENSES> 81,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,283
<INCOME-PRETAX> 5,158
<INCOME-TAX> 1,933
<INCOME-CONTINUING> 3,225
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,225
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
