FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 18, 1998
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
incorporation or organization) Identification Number)
14 Audubon Road, Wakefield, Massachusetts, 01880
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 246-6700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filled by section 13 or 15(d) of the Securities Exchange Act of the 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days.
Yes X No_____
On May 28, 1998, 8,912,821 shares of the registrant's Common Stock were
outstanding.
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BERTUCCI'S, INC.
FORM 10-Q
TABLE OF CONTENTS
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PAGE
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements:
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1) Consolidated Condensed Balance Sheets
April 18, 1998, and December 27, 1997 4
2) Consolidated Condensed Statements of Operations
For Sixteen Weeks Ended April 18, 1998,
and April 19, 1997 5
3) Consolidated Condensed Statements of Shareholders'
Equity For Sixteen Weeks Ended April 18, 1998 6
4) Consolidated Condensed Statements of Cash
Flows For Sixteen Weeks Ended April 18, 1998,
and April 19, 1997 7
5) Notes to Consolidated Condensed Financial
Statements 8
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 9-11
PART II: OTHER INFORMATION 12-13
Item 1. Legal Proceedings
Item 2. Changes In Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission Of Matters To A Vote Of Security
Holders
Item 5. Other Information
Item 6. Exhibits And Reports On Form 8-K
SIGNATURES 14
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PART I: FINANCIAL INFORMATION
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BERTUCCI'S, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
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<CAPTION>
April 18, December 27,
1998 1997
----------------------------------
(in thousands)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,395 $ 5,755
Inventories 1,110 1,222
Accounts receivable 308 242
Note receivables 4 4
Other receivables 832 832
Prepaid expenses 900 678
Deferred preopening costs 343 434
Prepaid taxes 1,104 1,104
-------------- --------------
Total current assets 9,996 10,271
-------------- --------------
PROPERTY AND EQUIPMENT, at cost:
Land 2,902 2,902
Buildings 10,477 10,474
Leasehold improvements 76,497 76,045
Machinery and equipment 40,613 39,972
Construction in progress 1,319 222
-------------- --------------
131,808 129,615
Less - Accumulated depreciation 40,733 38,090
-------------- --------------
Net property and equipment 91,075 91,525
PREPAID TAXES 1,865 1,865
OTHER ASSETS 1,907 1,855
-------------- --------------
$ 104,843 $ 105,516
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable-current $ 25 $ 25
Accounts payable 5,427 5,983
Accrued expenses 1,455 2,384
Accrued payroll and employee benefits 3,368 3,738
Accrued taxes 2,024 1,880
-------------- --------------
Total current liabilities 12,299 14,010
DEFERRED RENT 6,764 6,610
NOTES PAYABLE - 25
LONG-TERM DEBT 13,500 13,500
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 -
8,896,016 shares at December 27, 1997, and
8,908,621 shares at April 18, 1998 45 45
Additional paid-in capital 45,238 45,165
Retained earnings 26,997 26,161
-------------- --------------
Total shareholders' equity 72,280 71,371
-------------- --------------
$ 104,843 $ 105,516
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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BERTUCCI'S, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
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<CAPTION>
Sixteen Weeks Ended
-------------------------------------------
April 18, April 19,
1998 1997
-------------- ----------------
(in thousands, except share data)
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NET SALES $ 43,956 $ 40,337
-------------- --------------
COSTS AND EXPENSES:
Cost of sales 10,925 10,118
Operating expenses 23,165 20,945
General and administrative expenses 3,097 2,432
Depreciation and amortization 2,789 2,719
Taxes other than income 2,370 2,181
-------------- --------------
Total costs and expenses 42,346 38,395
-------------- --------------
Operating income 1,610 1,942
INTEREST EXPENSE, net 299 367
INTEREST INCOME 1 4
-------------- --------------
Income before income tax expense 1,312 1,579
INCOME TAX EXPENSE 476 576
-------------- --------------
Net income $ 836 $ 1,003
============== ==============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING AND DILUTIVE POTENTIAL
COMMON SHARES 9,003,406 8,883,801
============== ==============
EARNINGS PER SHARE
BASIC AND DILUTED INCOME
PER COMMON SHARE $ 0.09 $ 0.11
============== ==============
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The accompanying notes are an integral part of these consolidated condensed
financial statements.
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BERTUCCI'S, INC.
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
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Common Stock Additional
------------------- Paid-In Retained Shareholders'
Shares Par Capital Earnings Equity
--------- --------- --------- --------- -------------
(in thousands)
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BALANCE, December 27, 1997 8,896 $ 45 $ 45,165 $ 26,161 $ 71,371
Issuance of stock 9 - 49 - 49
Exercise of options 4 - 24 - 24
Net income - - - 836 836
--------- --------- --------- --------- -------------
BALANCE, April 18, 1998 8,909 $ 45 $ 45,238 $ 26,997 $ 72,280
========= ========= ========= ========= =============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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BERTUCCI'S, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
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Sixteen Weeks Ended
----------------------------------
April 18, April 19,
1998 1997
-------------- ---------------
(in thousands)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 836 $ 1,003
Adjustments to reconcile net income
to net cash provided by
operating activities
Depreciation and amortization 2,906 2,822
(Increase) decrease in inventories 112 (7)
Increase in prepaid expenses,
accounts receivable, notes
receivable and other assets (298) (368)
Decrease in accounts payable (556) (374)
Increase in accrued expenses and
deferred rent (1,145) 500
Increase in accrued, deferred and
prepaid taxes 144 198
-------------- --------------
Net cash provided by operations 1,999 3,774
-------------- --------------
CASH FLOWS USED FROM INVESTING ACTIVITIES:
Additions to preopening costs (63) (90)
Additions to property and equipment (2,299) (2,179)
Purchases of liquor licenses (45) (110)
-------------- --------------
Net cash used by investing
activities (2,407) (2,379)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 73 69
Paydown of debt - (2,000)
Decrease in notes payable (25) (25)
-------------- --------------
Net cash provided by (used by)
financing activities 48 (1,956)
-------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (360) (561)
CASH AND CASH EQUIVALENTS, beginning of period 5,755 4,266
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 5,395 $ 3,705
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for ---
Interest, net of amount
capitalized $ 354 $ 370
============== ==============
Income taxes $ 312 $ 547
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
finanical statements.
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BERTUCCI'S, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
April 18, 1998
1. Basis of Presentation
In the opinion of management, the accompanying consolidated condensed
financial statements contain all normal recurring adjustments necessary for
a fair presentation. The results of operations for the sixteen-week period
ended April 18, 1998 are not necessarily indicative of the results to be
expected for the full year.
The significant accounting policies followed by the Company are set forth
in the notes to Consolidated Financial Statements in the Company's 1997
Form 10-K filed with the Securities and Exchange Commission. These
financial statements should be read in conjunction with the financial
statements included in the 1997 Form 10-K.
2. Earnings Per Share
During 1997, the Company adapted the provisions of SFAS No. 128, Earnings
Per Share, which was effective for financial statements for periods ending
after December 15, 1997. SFAS No. 128 requires replacement of primary
earnings per share (EPS) with basic EPS, which is computed by dividing
income available to common shareholders by the weighted average number of
common shares outstanding. Diluted EPS, which gives effect to all dilutive
potential common shares outstanding, is also required. For the sixteen-week
periods ended April 18, 1998, and April 19, 1997, basis and diluted
earnings are the same amount at $0.09 and $0.11, respectively.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following table sets forth the percentage relationship to net sales of
certain items included in the Company's income statements for the periods
indicated.
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Sixteen Weeks Ended
-------------------------------------
April 18, April 19,
1998 1997
------------- ------------
NET SALES 100.0% 100.0%
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COSTS AND EXPENSES:
Cost of sales 24.9 25.1
Operating expenses 52.7 51.9
General and administrative expenses 7.0 6.0
Depreciation and amortization 6.3 6.8
Taxes other than income 5.4 5.4
------------- ------------
Total costs and expenses 96.3 95.2
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Operating income 3.7 4.8
INTEREST EXPENSE, net 0.7 0.9
INTEREST INCOME - -
------------- ------------
Income before income tax expense 3.0 3.9
INCOME TAX EXPENSE 1.1 1.4
------------- ------------
Net income 1.9% 2.5%
============= ============
RESTAURANT OPERATING DATA:
Average sales per restaurant
open for full period $ 1,685 $ 1,680
Percentage change in average sales
per restaurant open for full
period 0.3% (1.2)%
Percentage change in comparable
restaurant sales 3.2% 1.0 %
NUMBER OF RESTAURANTS:
Restaurants open at beginning of period 85 80
Restaurants opened during period - 1
Restaurants closed during period - -
------------- ------------
Restaurants open at end of period 85 81
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<PAGE>
Sixteen Weeks Ended April 18, 1998, Compared to Sixteen Weeks Ended
April 19, 1997
Net sales increased $3.6 million, or 9.0%, to $44.0 million in the first
quarter of fiscal year 1998, from $40.3 million in the first quarter of fiscal
year 1997. The increase in net sales primarily came from the five new
restaurants opened in fiscal year 1997. Comparative restaurant sales during the
first quarter were positive by 3.2%. This modest increase was attributable to
the milder than normal winter in the Northeast and increased customer counts in
the Chicago area due to better awareness of the concept.
Cost of sales, primarily food and beverages, increased from $10.1 million
in the sixteen weeks ended April 19, 1997, to $10.9 million in the corresponding
1998 period. As a percentage of net sales, these costs were 25.1% in the 1997
fiscal period, and 24.9% in the 1998 fiscal period. The percentage decrease came
from better buying opportunities and better efficiency at the operations level.
Restaurant operating expenses for the sixteen-week period increased from
$20.9 million in fiscal year 1997, to $23.2 million in fiscal year 1998. As a
percentage of net sales, operating expenses increased from 51.9% in 1997, to
52.7% in the 1998 fiscal period. The percentage increase was attributable to
increased labor costs, driven by an increase in the average wage rate and a
tight labor market as a result of low unemployment and increased industry
competition.
General and administrative expenses increased from $2.4 million in the
sixteen weeks ended April 19, 1997, to $3.1 million in the corresponding 1998
period. As a percentage of net sales, general and administrative costs increased
from 6.0% in 1997, to 7.0% in the 1998 fiscal period. Approximately $300,000 of
the increase in 1998 is attributable to earlier advertising production costs
than in the prior year. Advertising expense for the remainder of the year is
expected to be approximately $800,000 to $1 million less than the comparable
prior period. The remainder of the increase was the result of increased costs
associated with a bonus plan implemented in 1997, and payroll costs associated
with training and development of the managers for the new restaurant openings
scheduled for 1998.
Depreciation and amortization expense decreased, as a percentage of net
sales, from 6.8% in the 1997 period, to 6.3% in the 1998 sixteen-week period.
This decrease was attributable to the amortization expense on fewer new
restaurants.
Taxes other than income increased from $2.2 million during the sixteen
weeks ended April 19, 1997, to $2.4 million in the corresponding 1998 period,
due to increases in real property taxes and payroll taxes.
Interest expense decreased from $367,000 to $299,000 for the sixteen weeks
of 1997 and 1998, respectively. This decrease was attributable to the lower
amount of bank borrowings and lower interest rate charged during the 1998
sixteen-week period.
The effective income tax rate decreased from 36.5% for the sixteen weeks
ended April 19, 1997, to 36.3% for the corresponding period ending April 18,
1998.
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Liquidity and Sources of Capital
To date, the Company has financed its expansion from operations, bank
borrowings, and the private placements and public offerings 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, refinanced in November 1997, effect
until November 30, 2002, under which it may borrow up to $22.5 million. The
Company pays a commitment fee to the bank and interest is calculated using LIBOR
plus an applicable LIBOR margin. The applicable LIBOR margin and the applicable
commitment fee rate for any fiscal quarter shall be determined at the end of the
previous fiscal quarter based on the ratio of Consolidated Total Funded Debt to
Consolidated EBITDA. Based on the determination of the aforementioned ratio, the
Company will pay between .50% and 1.25% as a LIBOR margin and between .125% and
.250% as an applicable commitment fee rate. There are no compensating-balance
arrangements or legal restrictions as to the withdrawal of these funds. At April
19, 1997, and April 18, 1998, the amounts outstanding under this line-of-credit
were $16.4 million and $13.5 million, respectively.
During the sixteen weeks ended April 19, 1997, and April 18, 1998, the
Company's investment in property and equipment was $2.2 million and $2.3
million, respectively. The investments were funded with cash provided by
operations and with the proceeds of financing activities. During the sixteen
weeks ended April 19, 1997, and April 18, 1998, the Company generated net cash,
from continuing operations, of $3.8 million and $2.0 million, respectively.
The Company expects to open six restaurants in fiscal year 1998 and five to
six restaurants in fiscal year 1999. The Company expects to expend approximately
$9.0 million in fiscal year 1998, and approximately $7.5 million in fiscal year
1999 to finance its planned expansion. The Company believes that it will have
sufficient working capital and bank borrowing to finance its expansion plan
through the end of fiscal year 1999.
New Accounting Pronouncements
In April 1998, the AICPA issued its Statement of Position 98-5 ("SOP
98-5"), Reporting on the Costs of Start-Up Activities. SOP 98-5 requires that
costs incurred during start-up activities, including organization costs, be
expensed as incurred. SOP 98-5 is effective for financial statements for fiscal
years beginning after December 15, 1998, although early application is
encouraged. Initial application of SOP 98-5 should be as of the beginning of the
fiscal year in which it is first adopted and should be reported as a cumulative
effect of a change in accounting principle.
The Company currently intends to early adopt SOP 98-5 on January 1, 1999.
Upon adoption, the Company estimates it will incur a cumulative effect of a
change in accounting principle that will range from $300,000 to $400,000. This
estimate primarily includes unamortized preopening costs which were previously
amortized over the 12-month period subsequent to a restaurant opening.
Forward-Looking Information
Information and statements in this Form 10-Q 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
the Form 10-Q, words such as "believe", "expect" 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 acts of third parties,
as well as other factors described in the Form 10-Q and, from time to time, in
the Company's periodic earnings releases and reports filed with 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 believed or
expected.
<PAGE>
PART II: OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
After the announcement of the agreement among the Company, Ten Ideas,
Inc. and Ten Ideas Acquisition Corp., pursuant to which the Company
would be merged with Ten Ideas Acquisition Corp. (the "Ten Ideas
Merger"), the following three (3) purported class action lawsuits were
filed in February 1998 in Massachusetts Superior Court against the
Company and its Board of Directors in connection with the Ten Ideas
Merger (the "Stockholder Actions"): (i) Marietta Brewster, v. Joseph
Crugnale, et al., Civil Action No. 98-793; (ii) Sandra Weiss, on
behalf of herself and all others similarly situated v. Bertucci's,
Inc., et al. Civil Action No. 98-811; and (iii) Keith Jamison, on
behalf of himself and all others similarly situated v. Joseph
Crugnale, et al., Civil Action No. 98-877. The Stockholder Action were
consolidated into one action on May 21, 1998. The plaintiffs claim
that the Ten Ideas Merger is, or consummation thereof will be,
wrongful, unfair, and in breach of the individual defendants'
fiduciary duties. The plaintiffs alleged that the price per share in
the Ten Ideas Merger is grossly inadequate, that consummation of the
Ten Ideas Merger would be without an auction of the Company or other
market check, and that the defendants possessed non-public information
concerning the condition and prospects of the Company. The plaintiffs
in the Stockholder Action seek preliminary and permanent injunctive
relief against the Ten Ideas Merger, unspecified monetary damages and
other relief. To date, the plaintiffs have not filed a motion for
preliminary injunction or other preliminary relief.
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
On Wednesday, May 13, 1998, the Company terminated the Agreement and
Plan of Merger, dated as of February 13, 1998, by and among the
Company Ten Ideas, Inc. and Ten Ideas Acquisition Corp. Later that
same day, the Company entered into an Agreement and Plan of Merger
with NE Restaurant Company, Inc., a Delaware corporation ("NERC"), and
NERC Acquisition Corp., a Massachusetts corporation ("NERC
Acquisition") (the "Merger Agreement"). Pursuant to the terms of the
Merger Agreement, on May 20, 1998, NERC Acquisition commenced a tender
offer to purchase all of the outstanding shares of the Company's
common stock for $10.50 per share. In the merger to occur following
consummation of the tender offer, each share of the Company's common
stock which is outstanding and not purchased pursuant to the tender
offer will be converted into the right to receive $10.50 per share in
cash.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27: Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on February 26,
1998, to report the execution of the Merger Agreement with Ten
Ideas, Inc., pursuant to Item 5 of Form 8-K.
The Company filed a Current Report on Form 8-K on May 15, 1998 to
report the execution of the Merger Agreement with NE Restaurant
Company, Inc. pursuant to Item 5 of Form 8-K.
<PAGE>
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.
BERTUCCI'S, INC.
(Registrant)
Date: May 28, 1998 By: /s/ Joseph Crugnale
------------------------------
Joseph Crugnale
President and Chief
Executive Officer
Date: May 28, 1998 By: /s/ Norman S. Mallett
-------------------------------
Norman S. Mallett
Vice President-Finance
Chief Financial Officer and
Treasurer
<PAGE>
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<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000874971
<NAME> BERTUCCI'S, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-END> APR-18-1998
<CASH> 5,395
<SECURITIES> 0
<RECEIVABLES> 1,144
<ALLOWANCES> 0
<INVENTORY> 1,110
<CURRENT-ASSETS> 9,996
<PP&E> 131,808
<DEPRECIATION> 40,733
<TOTAL-ASSETS> 104,843
<CURRENT-LIABILITIES> 12,299
<BONDS> 0
0
0
<COMMON> 45
<OTHER-SE> 72,280
<TOTAL-LIABILITY-AND-EQUITY> 104,843
<SALES> 43,956
<TOTAL-REVENUES> 43,956
<CGS> 10,925
<TOTAL-COSTS> 10,925
<OTHER-EXPENSES> 28,324
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 298
<INCOME-PRETAX> 1,312
<INCOME-TAX> 476
<INCOME-CONTINUING> 836
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 836
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
