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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 27, 1997 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.)
in Company of organization)
14 AUDUBON ROAD 01880
WAKEFIELD, MASSACHUSETTS (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (781) 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 5, 1998 was $50,795,722.
The number of shares of Common Stock outstanding as of March 5, 1998 was
8,908,621 shares.
Documents Incorporated by Reference
NONE
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. /X/
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PART I
ITEM 1: BUSINESS
RECENT DEVELOPMENT
Pursuant to an Agreement and Plan of Merger entered into by Bertucci's,
Inc. ("Bertucci's" or the "Company") on February 13, 1998 (the "Merger
Agreement"), Ten Ideas, Inc. ("Ten Ideas"), a newly formed corporation owned
by Joseph Crugnale, the Company's founder, President and Chief Executive
Officer, will acquire all of the outstanding shares of the Company's common
stock (other than those owned by Mr. Crugnale and his family) in a reverse
triangular merger of a wholly owned subsidiary of Ten Ideas with and into the
Company (the "Merger"). Upon the effective date of the Merger, the
shareholders of the Company (excluding Mr. Crugnale) will receive $8 in cash
per share of common stock held. Holders of stock options vested on the
closing date (including those vesting upon a change of control) will receive
in cash the excess, if any, of $8 per share over the applicable option
exercise price, multiplied by the number of vested shares subject to the
option.
It is anticipated that the transaction will be consummated as soon as is
practicable (but no later than July 31, 1998) subject to, among other things:
(i) the execution, satisfaction, delivery or receipt (as the case may be) of all
agreements, conditions, authorizations, consents, assignments, approvals,
waivers and other instruments required to be executed, satisfied or delivered in
connection with the transaction; and (ii) the vote in favor of the Merger of at
least two-thirds in interest of the outstanding common stock of the Company
(with no more than 10% of interest of the common stock having exercised
dissenters' rights).
GENERAL
As of fiscal year end December 27, 1997, the Company operated a chain of 84
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. In addition, the company also operates Sal and
Vinnie's Sicilian Steakhouse, which was opened in the first quarter of 1997 in
Norwood, Massachusetts.
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 1997, accounted for only
8.7% of net sales.
The Bertucci's concept features lower-cost food items and a restaurant
design with a lower capital investment (averaging $1.2 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 27, 1997, operated 84
Bertucci's restaurants, of which 31 were located in Massachusetts, two each were
located in Rhode Island and Washington, DC, three were located in New Jersey and
New Hampshire, four each were located in New York and Pennsylvania, six each
were located in Georgia and Maryland, nine were located in Connecticut and seven
were located in Illinois and Virginia. In addition, the Company operates one Sal
and Vinnie's Restaurant in Massachusetts. During the 1996 fiscal year, two
locations in Florida and one location in New Jersey were closed. Four Bertucci's
and one Sal and Vinnie's restaurants were opened in 1997 and the Company expects
to open five to six restaurants in 1998. 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 $1,673,000,
$1,671,000 and $1,712,000 in 1995, 1996 and 1997, respectively.
2
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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 1997, 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 1997, accounted for approximately 27% 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.
For the year ended, December 27, 1997, the average check per customer at the
Company's restaurants, including beverages, was approximately $7.40 for lunch
and approximately $9.95 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 and outdoor patios
have been included at selected sites, further enhancing the distinctive decor.
The interior-decor theme is artistically adapted to each site, therefore 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.
3
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RESTAURANT LOCATIONS AND EXPANSION PLANS
As of December 27, 1997, the Company operated 85 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 27, 1997.
RESTAURANTS CURRENTLY OPERATING
<TABLE>
<S> <C> <C>
Connecticut (9)
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Avon Darien Glastonbury
Newington Orange West Hartford
Waterbury Westport Shelton
Georgia (6)
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Atlanta Buckhead East Cobb
Lawrenceville Roswell Sandy Springs
Illinois (7)
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Bloomingdale Chicago Glenview
Naperville (2) Schaumburg Woodridge
Maryland (6)
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Annapolis Bel Air Columbia
Owings Mills Timonium White Marsh
Massachusetts (32)
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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 (2)
Peabody Somerville Swampscott
Taunton Waltham Wellesley
West Peabody West Roxbury West Springfield
Woburn
New Hampshire (3)
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Nashua Manchester Salem
New Jersey (3)
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Hazlet Mt. Laurel Woodbridge
New York (4)
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Hauppauge Melville Syosset
Westbury
Pennsylvania (4)
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Huntingdon Valley Langhorne Philadelphia
Wayne
Rhode Island (2)
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East Providence Warwick
Virginia (7)
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Alexandria Centreville Herndon
Manassas Springfield Tysons Corner
Fair Lakes
Washington, DC (2)
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Dupont Circle Pennsylvania Avenue, NW
</TABLE>
4
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RESTAURANTS UNDER DEVELOPMENT
Location
<TABLE>
<S> <C>
Marlboro, MA Mansfield, MA
Marlton, NJ Beverly, MA
Bryn Mawr, PA Plymouth Meeting, PA
Waltham, MA (Sal and Vinnie's Sicilian Steakhouse)
</TABLE>
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 during 1997 was approximately $1.2 million, of
which $650,000 is attributable to leasehold improvements, $450,000 is
attributable to furniture, fixtures and equipment and $100,000 is attributable
to preopening expenses.
The Company intends to continue its strategy of adding restaurants through
controlled growth in contiguous areas that can support multiple locations, with
an emphasis on future expansion into selected Massachusetts and Pennsylvania
markets. During fiscal year 1998, the Company anticipates opening five to six
restaurants. So far in 1998, the Company has six Bertucci's restaurants and one
Sal and Vinnie's restaurant under development.
Expansion during fiscal year 1999 is expected to be at the level of four to
five 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 1997, the Company's expenditures for advertising and
marketing were approximately 3.3% of its revenues. The Company plans to increase
its advertising expenditures in 1998 by utilizing a combination of local media
vehicles such as television, radio, outdoor billboards and direct mail in most
of its major 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.
5
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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 eleven region
managers, each of whom is responsible for supervising the operations of six to
twelve 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 OPERATIONS
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
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, harassment and immigration. The Company
6
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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," "Bertucci's Brick Oven
Pizzeria" and "Sal and Vinnie's Sicilian Steakhouse" 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 February 13, 1998, the Company employed 4,685 persons, 58 of whom were
corporate personnel, 307 of whom were region, restaurant, or trainee managers
and 4,320 of whom were restaurant personnel.
The Company considers its employee relations to be good. None of the
Company's employees are covered by a collective-bargaining agreement.
ITEM 2: PROPERTIES
At the end of fiscal year 1997, 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. The Sal
and Vinnie's restaurant located in Norwood, Massachusetts, is leased from the
Company's President. 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.
In September 1993, the Company moved into its 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 27, 1997.
7
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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
- --------- ------------------------------------- --------- ---------
<C> <S> <C> <C>
1996..... April 20, 1996 6.000 4.500
July 13, 1996 7.250 4.875
October 5, 1996 5.375 4.250
December 28, 1996 6.125 4.500
1997..... April 19, 1997 6.625 5.000
July 12, 1997 7.063 5.125
October 4, 1997 7.000 5.375
December 27, 1997 6.813 5.750
1998..... Through March 5, 1998 7.750 6.000
</TABLE>
As of March 5, 1998, there were approximately 3,800 beneficial owners and
693 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.
8
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ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
The data for fiscal years ended 1993 through 1997 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
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DECEMBER 25, DECEMBER 31, DECEMBER 30, DECEMBER 28, DECEMBER 27,
1993 1994 1995 1996 1997
(52 WEEKS) (53 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
NET SALES $ 74,625 $ 102,797 $ 120,260 $ 128,044 $ 136,720
COST AND EXPENSES:
Cost of sales 19,368 26,039 31,060 32,484 34,102
Operating expenses 33,778 48,804 60,673 65,986 71,652
General and administrative expenses 4,918 6,566 8,239 7,720 8,828
Depreciation and amortization 4,840 7,327 9,083 8,781 8,626
Taxes other than income 3,530 5,106 6,268 6,633 6,990
Restaurant closing expense -- -- 5,336 -- --
------------ ------------ ------------ ------------ ------------
Total costs and expenses 66,434 93,842 120,659 121,604 130,198
------------ ------------ ------------ ------------ ------------
Operating income (loss) 8,191 8,955 (399) 6,440 6,522
INTEREST EXPENSE, net 82 155 1,253 1,297 1,037
INTEREST INCOME 657 33 21 15 32
------------ ------------ ------------ ------------ ------------
Income (loss) before income tax
expense (benefit) 8,766 8,833 (1,631) 5,158 5,517
INCOME TAX EXPENSE (BENEFIT) 3,127 3,223 (745) 1,933 2,009
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 5,639 $ 5,610 $ (886) $ 3,225 $ 3,508
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
EARNINGS (LOSS) PER COMMON
SHARE--BASIC $ 0.66 $ 0.64 $ (0.10) $ 0.37 $ 0.40
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
EARNINGS (LOSS) PER COMMON
SHARE--DILUTED $ 0.63 $ 0.63 $ (0.10) $ 0.36 $ 0.39
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
BALANCE SHEET DATA:
WORKING CAPITAL (DEFICIT) $ (3,973) $ (5,738) $ (5,258) $ (2,857) $ (3,740)
TOTAL ASSETS 70,181 93,114 98,938 102,528 105,516
LONG-TERM DEBT, INCLUDING CURRENT
PORTION -- 14,000 19,438 18,438 13,500
SHAREHOLDERS' EQUITY 58,804 64,846 64,092 67,538 71,371
</TABLE>
9
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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 30, DECEMBER 28, DECEMBER 27,
1995 1996 1997
(52 WEEKS) (52 WEEKS) (52 WEEKS)
--------------- --------------- ---------------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
NET SALES 100.0% 100.0% 100.0%
----- ----- -----
COST AND EXPENSES:
Cost of sales 25.8 25.4 24.9
Operating expenses 50.4 51.5 52.4
General and administrative expenses 6.9 6.0 6.5
Depreciation and amortization 7.6 6.9 6.3
Taxes other than income 5.2 5.2 5.1
Restaurant closing expense 4.4 -- --
----- ----- -----
Total costs and expenses 100.3 95.0 95.2
----- ----- -----
Operating income (loss) (0.3) 5.0 4.8
INTEREST EXPENSE, net 1.0 1.0 0.8
INTEREST INCOME -- -- --
----- ----- -----
Income (loss) before income tax expense (benefit) (1.3) 4.0 4.0
INCOME TAX EXPENSE (BENEFIT) (0.6) 1.5 1.5
----- ----- -----
Net income (loss) (0.7)% 2.5% 2.5%
----- ----- -----
----- ----- -----
RESTAURANT OPERATING DATA:
Average sales per restaurant open for full period $ 1,673 $ 1,671 $ 1,712
Percentage change in average sales per restaurant open for full
period (8.4)% (0.1)% 2.5%
Percentage change in comparable restaurant sales (2.0)% 1.0% 2.5%
Number of restaurants:
Restaurants open at beginning of period 67 76 80
Restaurants opened 9 7 5
Restaurants closed -- (3) --
----- ----- -----
Total restaurants open at end of period 76 80 85
----- ----- -----
----- ----- -----
</TABLE>
FISCAL YEAR 1997 VERSUS FISCAL YEAR 1996
Net sales increased $8.7 million, or 6.8%, to $136.7 million in fiscal
year 1997, from $128.0 million in fiscal year 1996. Most of the increase was
attributed to five new restaurants that opened in fiscal year 1997 and seven
new restaurants that were opened in fiscal year 1996. Comparable restaurant
sales for locations opened prior to 1996 increased 2.5% from fiscal 1996 to
fiscal 1997. Menu price increases averaged about 1.9% during the periods
under comparison. Average sales per restaurant open for both periods
increased 2.5% to $1.71 million, from $1.67 million the previous year.
Cost of sales, primarily food and beverages, increased from $32.5 million
in fiscal year 1996 to $34.1 million in fiscal year 1997 and decreased as a
percentage of revenues from 25.4% in fiscal year 1996 to 24.9% in fiscal year
1997. The decrease was the result of lower costs paid for cheese, chicken and
flour.
Operating expenses increased from $66.0 million in fiscal year 1996 to
$71.7 million in fiscal year 1997 and increased as a percentage of sales from
51.5% in fiscal year 1996 to 52.4% in fiscal year 1997. The increase was
attributable to increases in payroll and advertising costs over the 1996
fiscal year.
General and administrative expenses increased from $7.7 million in fiscal
year 1996 to $8.8 million in fiscal year 1997 and increased as a percentage
of sales from 6.0% in fiscal year 1996 to 6.5% in 1997. The increase
primarily came from higher payroll, training and recruitment costs.
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Depreciation and amortization expense decreased from $8.8 million in
fiscal year 1996 to $8.6 million in fiscal year 1997, a decrease, as a
percentage of sales, from 6.9% in 1996 to 6.3% in 1997. This decrease was
attributable to a reduction in amortization costs on new restaurant openings.
Taxes, other than income taxes, increased from $6.6 million in fiscal
year 1996 to 7.0 million in fiscal year 1997 and decreased as a percentage of
net sales from 5.2% to 5.1% in the 1997 fiscal year.
Interest expense decreased from $1.3 million in fiscal year 1996 to $1.0
million in fiscal year 1997. The decrease came from the lower amount of bank
borrowings during the 1997 fiscal year.
The effective income tax rate decreased from 37.5% for the 1996 fiscal
year to 36.4% for the 1997 fiscal year.
The Company is currently assessing the potential impact of the year 2000
on the processing of date-sensitive information by the Company's computerized
information systems and on product purchases as well as products sold by the
Company. While there can be no assurance that all problems arising from the
year 2000 will be identified and resolved satisfactorily prior to the end of
1999, the Company presently believes that the year 2000 problem will not pose
significant operational problems for the Company or have a material effect on
future results of operations.
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 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 remained. This
reserve was 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%.
11
<PAGE>
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, refinanced in November 1997, in
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 December 28, 1996 and
December 27, 1997, the amounts outstanding under this line of credit were
$18.4 million and $13.5 million, respectively.
During fiscal years 1995, 1996 and 1997, the Company's investment in
property and equipment was $14.3 million, $9.5 million and $8.0 million,
respectively. The investments were funded with cash provided by operations
and with the proceeds of financing activities. During the fiscal years 1995,
1996 and 1997, the Company generated net cash, from continuing operations, of
$10.7 million, $14.1 million and $14.7 million, respectively. During fiscal
years 1995, 1996 and 1997, the Company received cash from financing
activities of $5.5 million, $(0.8) million and $(4.6) million, respectively.
The Company expects to open five to six restaurants in fiscal year 1998
and four to five restaurants in fiscal year 1999. The Company expects to
expend approximately $9.0 million to $9.5 million in fiscal year 1998 and
approximately $7.5 million in fiscal year 1999 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 1999.
RECENT DEVELOPMENT
As described in Part I, Item 1, under "Business--Recent Development," the
Company has agreed to be acquired in the Merger. The Merger will be financed
by a combination of new senior and subordinated credit facilities obtained by
Ten Ideas and secured by the Company's assets.
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 1997. Food costs have been essentially stable during fiscal 1997.
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 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 the 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 Form 10-K 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 anticipated, believed,
estimated, expected, or intended.
12
<PAGE>
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<S> <C>
Report of Independent Public Accountants 14
Consolidated Balance Sheets as of December 28, 1996, and
December 27, 1997 15
Consolidated Statements of Operations for the years
ended December 30, 1995, December 28, 1996, and
December 27, 1997 16
Consolidated Statements of Shareholders' Equity for the
years ended December 30, 1995, December 28, 1996, and
December 27, 1997 17
Consolidated Statements of Cash Flows for the years
ended December 30, 1995, December 28, 1996, and
December 27, 1997 18
Notes to Consolidated Financial Statements 19
</TABLE>
13
<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 28, 1996 and December 27, 1997 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 27, 1997. 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 28, 1996 and December 27, 1997 and the
results of its operations and its cash flows for each of the three years in
the period ended December 27, 1997, in accordance with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 12, 1998
14
<PAGE>
BERTUCCI'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------
DECEMBER 28, DECEMBER 27,
1996 1997
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,265,596 $ 5,755,306
Inventories 1,048,361 1,221,698
Accounts receivable 179,280 241,547
Note receivable 76,455 4,057
Other receivables -- 831,756
Prepaid expenses and other current assets 474,641 678,799
Deferred preopening costs 510,082 433,706
Prepaid taxes 1,026,685 1,103,661
-------------- --------------
Total current assets 7,581,100 10,270,530
-------------- --------------
PROPERTY AND EQUIPMENT, at cost:
Land 2,902,012 2,902,012
Buildings and improvements 10,359,565 10,474,081
Leasehold improvements 72,416,258 76,044,989
Machinery and equipment 35,673,484 39,971,654
Construction in progress 250,238 222,555
-------------- --------------
121,601,557 129,615,291
Less--Accumulated depreciation 29,704,655 38,089,819
-------------- --------------
Net property and equipment 91,896,902 91,525,472
PREPAID TAXES 1,274,686 1,865,003
OTHER ASSETS 1,775,741 1,855,188
-------------- --------------
$ 102,528,429 $ 105,516,193
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable-current $ 25,000 $ 25,000
Accounts payable 4,179,347 5,982,594
Accrued expenses 1,077,565 2,384,181
Accrued payroll and employee benefits 3,297,703 3,738,477
Accrued taxes 1,858,788 1,880,364
-------------- --------------
Total current liabilities 10,438,403 14,010,616
DEFERRED RENT 6,064,085 6,609,921
NOTES PAYABLE 50,000 25,000
LONG-TERM DEBT 18,437,500 13,500,000
COMMITMENTS AND CONTINGENCIES (Note 6)
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--8,790,428 shares at December 28, 1996 and 8,896,016
shares at December 27, 1997 43,952 44,480
Additional paid-in capital 44,841,296 45,165,440
Retained earnings 22,653,193 26,160,736
-------------- --------------
Total shareholders' equity 67,538,441 71,370,656
-------------- --------------
$ 102,528,429 $ 105,516,193
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
15
<PAGE>
BERTUCCI'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------------
DECEMBER 30, DECEMBER 28, DECEMBER 27,
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
NET SALES $ 120,259,850 $ 128,044,405 $ 136,719,498
-------------- -------------- --------------
COST AND EXPENSES:
Cost of sales 31,059,985 32,484,063 34,100,501
Operating expenses 60,672,341 65,986,007 71,652,188
General and administrative expenses 8,239,250 7,719,582 8,828,601
Depreciation and amortization 9,083,381 8,781,155 8,625,607
Taxes other than income 6,267,958 6,632,779 6,990,344
Restaurant closing expense 5,336,000 -- --
-------------- -------------- --------------
Total costs and expenses 120,658,915 121,603,586 130,197,241
-------------- -------------- --------------
Operating income (loss) (399,065) 6,440,819 6,522,257
INTEREST EXPENSE, net 1,253,241 1,297,700 1,037,273
INTEREST INCOME 21,464 14,809 32,059
-------------- -------------- --------------
Income (loss) before income tax expense (benefit) (1,630,842) 5,157,928 5,517,043
INCOME TAX EXPENSE (BENEFIT) (744,893) 1,933,101 2,009,500
-------------- -------------- --------------
Net income (loss) $ (885,949) $ 3,224,827 $ 3,507,543
-------------- -------------- --------------
-------------- -------------- --------------
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 8,728,442 8,790,428 8,807,940
-------------- -------------- --------------
-------------- -------------- --------------
DILUTED 8,728,442 8,853,745 8,899,944
-------------- -------------- --------------
-------------- -------------- --------------
EARNINGS (LOSS) PER COMMON SHARE
BASIC $ (0.10) $ 0.37 $ 0.40
-------------- -------------- --------------
-------------- -------------- --------------
DILUTED $ (0.10) $ 0.36 $ 0.39
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<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, December 31, 1994 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, December 30, 1995 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, December 28, 1996 8,790,428 43,952 44,841,296 22,653,193 67,538,441
Exercise of options 76,750 384 193,993 -- 194,377
Issuance of stock 28,838 144 130,151 -- 130,295
Net income -- -- -- 3,507,543 3,507,543
------------- ------------- ------------- ------------- -------------
BALANCE, December 27, 1997 8,896,016 $44,480 $45,165,440 $26,160,736 $71,370,656
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE>
BERTUCCI'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------------
DECEMBER 30, DECEMBER 28, DECEMBER 27,
1995 1996 1997
------------- ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (885,949) $ 3,224,827 $3,507,543
Adjustments to reconcile net income (loss) to net cash provided by
operating activities--
Depreciation and amortization 9,277,795 9,073,727 8,950,291
Loss on restaurant closing 5,336,000 -- --
Increase in inventories (172,197) (97,796) (173,337)
Decrease (increase) in prepaid expenses and other current assets,
accounts receivable, notes receivable, and other assets 125,622 (2,798) (989,252)
Increase (decrease) in accounts payable (1,427,603) (63,976) 1,803,247
Increase in accrued expenses and deferred rent 2,134,647 229,624 2,293,226
Increase (decrease) in accrued, deferred and prepaid taxes (3,649,742) 1,701,681 (645,717)
------------- ------------- ------------
Net cash provided by operating activities 10,738,573 14,065,289 14,746,001
------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to preopening costs (1,332,814) (918,553) (488,751)
Additions to property and equipment (14,308,842) (9,461,931) (8,013,734)
Purchases of liquor licenses (7,000) -- (115,978)
------------- ------------- ------------
Net cash used in investing activities (15,648,656) (10,380,484) (8,618,463)
------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 121,051 122,595 130,295
Exercise of stock options 10,553 99,079 194,377
Proceeds from debt 5,437,500 -- --
Paydown of debt -- (1,000,000) (4,937,500)
Decrease in notes payable (25,000) (25,000) (25,000)
------------- ------------- ------------
Net cash provided by (used in) financing activities 5,544,104 (803,326) (4,637,828)
------------- ------------- ------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 634,021 2,881,479 1,489,710
CASH AND CASH EQUIVALENTS, beginning of year 750,096 1,384,117 4,265,596
------------- ------------- ------------
CASH AND CASH EQUIVALENTS, end of year $ 1,384,117 $ 4,265,596 $5,755,306
------------- ------------- ------------
------------- ------------- ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for---
Interest, net of amount capitalized $ 1,154,376 $ 1,357,786 $1,140,994
------------- ------------- ------------
------------- ------------- ------------
Income taxes $ 2,329,311 $ 340,104 $2,943,547
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE>
BERTUCCI'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 1997
(1) ORGANIZATION AND OPERATION
Bertucci's, Inc. is a holding company for four wholly owned subsidiaries,
Bertucci's Restaurant Corp. (Bertucci's), Bertucci's Securities Corp., Berestco,
Inc. and Sal and Vinnie's Sicilian Steakhouse, 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 Corp. 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 84 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. In addition, the Company also operates Sal & Vinnie's Sicilian
Steakhouse, which was opened in the first quarter of 1997, in Norwood, MA.
(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 AND 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 30, DECEMBER 28, DECEMBER 27,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Total interest costs $1,389,142 $1,365,545 $1,098,301
Interest capitalized (135,901) (67,845) (61,028)
------------ ------------ ------------
Interest expense, net $1,253,241 $1,297,700 $1,037,273
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
19
<PAGE>
BERTUCCI'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
DECEMBER 27, 1997
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, 1996 and 1997, are for the 52-week
periods ended December 30, 1995, December 28, 1996 and December 27, 1997,
respectively.
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
During 1997, the Company adopted the provisions of SFAS No. 128, EARNINGS
PER SHARE, which is 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.
RECLASSIFICATIONS
Certain prior-year amounts have been reclassified to confirm with the
current year's presentation.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued two new statements in
June 1997. SFAS No. 130, REPORTING COMPREHENSIVE INCOME, establishes standards
for reporting and display of comprehensive income and its components. SFAS No.
131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION,
establishes standards for the way that public business enterprises report
information and operating segments in annual financial statements and requires
reporting of selected information in interim financial reports. Both statements
are effective for fiscal years beginning after December 15, 1997.
20
<PAGE>
BERTUCCI'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
DECEMBER 27, 1997
(3) STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN
Under the 1987 Incentive Stock Option 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 the grant. The plan provides for options to be exercisable in four annual
installments. All options must be exercised within 10 years of the date of
grant. At December 27, 1997, 478,050 of these options were outstanding.
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 the grant. At December 27, 1997, 43,000 of these
options were outstanding.
On March 25, 1992, the Board of Directors approved an Employee Stock
Purchase Plan permitting eligible employees to purchase common stock semi
annually 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. At December 27, 1997,
14,000 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 the grant. Each director is entitled to receive options to purchase 3,000
shares of Common Stock of the Company per year. At December 27, 1997, 32,000 of
these options were outstanding.
In 1997, the Company amended the 1993 Stock Option Plan for Non-Employee
Directors pursuant to which the number of shares reserved for issuance will be
increased from 75,000 shares of Common Stock to 155,000 shares of Common Stock.
Also, in 1997, the Company amended and restated the 1992 Stock Purchase Plan
pursuant to which the number of shares reserved for issuance will be increased
from 100,000 of Common Stock to 200,000 shares of Common Stock and the term of
the plan will be extended indefinitely.
In 1997, the Company adopted the 1997 Stock Option Plan that provides for
the grant of incentive options and non- qualified options for the purchase of an
aggregate of 250,000 shares of the Company's Common Stock by the employees of
the Company. The exercise price for options granted under the 1997 Plan shall be
the mean between the high and low sales prices of the Company's common stock on
the NASDAQ exchange on the date of the grant for the immediately preceding
business day. Options granted under the 1997 Plan shall not be exercisable
before the first anniversary of the date of grant. At December 27, 1997, 14,000
of these options were outstanding. No option shall be exercisable after ten
years from the date on which it was granted.
21
<PAGE>
BERTUCCI'S INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 27, 1997
(3) STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
The following table summarizes the Company's option transactions for the
three years ended December 27, 1997:
<TABLE>
<CAPTION>
EXERCISABLE
----------------------
WEIGHTED- WEIGHTED-
SHARES SUBJECT AVERAGE AVERAGE
TO OPTIONS PRICE SHARES PRICE
-------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
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
Granted 195,500 5.49
Exercised (76,750) (2.07)
Forfeited (69,100) (9.26)
-------------- -----------
Outstanding at December 27, 1997 567,050 $ 5.30 294,350 $ 5.30
-------------- -----------
-------------- -----------
</TABLE>
The following table summarizes information as of December 27, 1997,
concerning outstanding and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------- ------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- -------------- ----------- ------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$1.00-2.00 43,000 1.30 $ 1.33 43,000 $ 1.33
$4.00-6.00 394,550 8.60 $ 5.16 121,850 $ 4.87
$6.00-8.00 127,000 3.90 $ 6.79 127,000 $ 6.79
$15.00-19.00 2,500 4.90 $ 18.50 2,500 $ 18.50
----------- ----------- -----------
567,050 294,350 $ 5.30
</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, December 28, 1996 and December
27, 1997 would have been as follows:
22
<PAGE>
BERTUCCI'S INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 27, 1997
(3) STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------ ------------
<S> <C> <C> <C>
Net income (loss)
As reported $ (885,949) $ 3,224,827 $ 3,507,543
Pro forma $ (1,096,693) $ 2,953,734 $ 3,442,776
Earnings (loss) per share
As Reported
Basic $ (.10) $ 0.37 $ 0.40
Diluted $ (.10) $ 0.36 $ 0.39
Pro.forma
Basic $ (.13) $ 0.34 $ 0.39
Diluted $ (.13) $ 0.33 $ 0.39
</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 1996 and 1997 were $4.53 and $5.49
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, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Expected volatility 68% 68% 53%
Risk-free interest rate 6.35% 6.36% 6.36%
Expected life 9 years 10 years 10 years
Expected dividend yield 0% 0% 0%
</TABLE>
(4) LINE OF CREDIT
The Company has a bank line of credit, refinanced in November 1997, in
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 as of
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 December 28, 1996 and December 27, 1997 the
amounts outstanding under this line of credit were $18.4 million and $13.5
million, respectively, and the interest rates were 6.75% and 6.79%.
23
<PAGE>
BERTUCCI'S INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 27, 1997
(5) INCOME TAXES
The components of the provision (benefit) for income taxes were as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------
DECEMBER 30, DECEMBER 28, DECEMBER 27,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal $1,635,906 $ 507,107 $1,888,928
State 731,922 325,210 793,380
------------ ------------ ------------
2,367,828 832,317 2,682,308
------------ ------------ ------------
Deferred:
Federal (2,346,138) 829,655 (507,092)
State (766,583) 271,129 (165,716)
------------ ------------ ------------
(3,112,721) 1,100,784 (672,808)
------------ ------------ ------------
Total provision (benefit) for income taxes $ (744,893) $1,933,101 $2,009,500
------------ ------------ ------------
------------ ------------ ------------
</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 30, DECEMBER 28, DECEMBER 27,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Income tax expense (benefit) computed at federal statutory rate $ (554,486) $1,753,695 $1,875,795
State taxes, net of federal benefit (22,876) 393,584 364,125
FICA tax credit (333,792) (353,760) (297,000)
Other 166,261 139,582 66,580
------------ ------------ ------------
Income tax provision (benefit) $ (744,893) $1,933,101 $2,009,500
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
24
<PAGE>
BERTUCCI'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 27, 1997
Significant items giving rise to deferred tax assets and deferred tax
liabilities at December 28, 1996 and December 27, 1997 are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
<S> <C> <C>
Deferred Tax Assets:
Deferred rent $2,462,019 $2,683,628
Accrued workers' compensation 705,331 705,331
Accrued vacation 202,793 230,481
Accrued restaurant closing costs 18,270 --
Other 311,307 346,686
------------ ------------
$3,699,720 $3,966,126
------------ ------------
------------ ------------
Deferred Tax Liabilities:
Deferred state taxes $ -- $ 56,349
Preopening costs 206,280 178,837
Property and equipment 1,082,806 632,871
Other 109,263 138,565
------------ ------------
$1,398,349 $ 950,273
------------ ------------
------------ ------------
</TABLE>
(6) 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 27, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
--------------- --------------
<S> <C>
1998 $ 10,889,170
1999 10,602,282
2000 10,179,670
2001 10,278,866
2002 9,679,007
Thereafter 56,372,316
-------------
Total $ 108,001,311
-------------
-------------
</TABLE>
25
<PAGE>
BERTUCCI'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 27, 1997
Deferred rent liability, including current portion, was approximately
$6,161,000 and $6,732,000 at December 28, 1996 and December 27, 1997,
respectively. Restaurant rental expense included in the accompanying
consolidated statements of operations consists of the following:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------------
DECEMBER 30, DECEMBER 28, DECEMBER 27,
1995 1996 1997
------------ ------------- -------------
<S> <C> <C> <C>
Base rent expense $8,704,028 $ 9,685,370 $ 10,337,978
Percentage rent expense 200,930 209,026 226,120
Straight-line expense 1,032,645 489,512 545,835
------------ ------------- -------------
Total rent expense $9,937,603 $ 10,383,908 $ 11,109,933
------------ ------------- -------------
------------ ------------- -------------
</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.
(7) 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 1995, 1996 and 1997, related to this
agreement.
In March 1997, the Company leased a building and real property for the first
Sal and 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 loaned to its president approximately $637,500, which was repaid during
1997.
(8) 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
$597,000, $647,000 and $909,000 in 1995, 1996 and 1997, respectively.
In March of 1997, the Company implemented a 401(k) plan for management and
office employees. Currently there are 183 participants in the plan and the
Company made matching contributions of approximately $62,000 to the plan in
1997.
26
<PAGE>
BERTUCCI'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 27, 1997
(9) OTHER RECEIVABLES
The Company has recorded as "Other receivables" amounts due from landlords
relating to construction allowances for locations opened during 1997. The
Company is awaiting reimbursement of these amounts.
(10) EPS CALCULATIONS
Basic and diluted earnings per share were calculated as follows:
<TABLE>
<CAPTION>
BASIC 1995 1996 1997
- ------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
Net income $ (885,949) $ 3,224,827 $ 3,507,543
Weighted average shares 8,728,442 8,790,428 8,807,940
------------ ------------ ------------
Basic earnings per share $(0.10) $ 0.37 $ 0.40
------------ ------------ ------------
------------ ------------ ------------
DILUTED 1995 1996 1997
- ------------------------------------ ------------ ------------ ------------
Net income $ (885,949) $ 3,224,827 $ 3,507,543
Weighted average shares 8,728,442 8,790,428 8,807,940
Effect of stock options -- 63,317 92,004
------------ ------------ ------------
Weighted average shares as adjusted 8,728,442 8,853,745 8,899,944
------------ ------------ ------------
------------ ------------ ------------
Basic earnings per share $ (0.10) $ 0.36 $ 0.39
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Options to purchase 129,500 shares of common stock at prices ranging from
$6.69 to $18.50 per share were outstanding during 1997, but were not included in
the computation of diluted EPS because the options' exercise price was greater
than the average market price of the common shares. These options, which expire
June 2001 through May 2006 were still outstanding at the end of 1997.
(11) MERGER AGREEMENT
Subsequent to year-end, the Company has entered into a definitive merger
agreement with a group led by Bertucci's president. Pursuant to the
transaction, the group will acquire all of the outstanding shares of
Bertucci's common stock (other than stock currently owned by the president)
for a purchase price of approximately $54 million, or $8.00 per share in
cash. The closing of the merger is subject to approval by the stockholders of
Bertucci's and other necessary regulatory authorities and customary closing
conditions.
27
<PAGE>
BERTUCCI'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
DECEMBER 27, 1997
(12) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
---------------------------------------------------
16 WEEKS TWELVE WEEKS ENDED
ENDED ------------------------------------
1995 APRIL 22, JULY 15, OCTOBER 7, DECEMBER 30,
---------- --------- ----------- ------------
<S> <C> <C> <C> <C>
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)
</TABLE>
<TABLE>
<CAPTION>
16 WEEKS TWELVE WEEKS ENDED
ENDED ------------------------------------
1996 APRIL 20, JULY 13, OCTOBER 5, DECEMBER 28,
--------- --------- ----------- ------------
<S> <C> <C> <C> <C>
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>
<TABLE>
<CAPTION>
16 WEEKS TWELVE WEEKS ENDED
ENDED ------------------------------------
1997 APRIL 19, JULY 12, OCTOBER 4, DECEMBER 27,
--------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales $ 40,337 $ 31,643 $ 32,663 $ 32,076
Operating income 1,942 1,453 1,723 1,403
Net income 1,003 764 973 768
Earnings per share $ 0.11 $ 0.09 $ 0.11 $ 0.09
</TABLE>
28
<PAGE>
ITEM 9: CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
BOARD OF DIRECTORS OF THE COMPANY
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED A POSITION WITH THE COMPANY OR PRINCIPAL
NAME OF DIRECTOR AGE DIRECTOR OCCUPATION DURING THE PAST FIVE YEARS
- ---------------- --- ----------- -----------------------------------------------
<S> <C> <C> <C>
TERM ENDING IN 2000:
Robert L. Lestina, Jr. 56 1987 Retired since December 1994. Previously, for
more than five years, employed in the Venture
Capital Division of Allstate Insurance Company.
Director of Portage Industries Company (a
thermoplastic processor).
James Westra 46 1993 Attorney, shareholder in the law firm of Hutchins,
Wheeler & Dittmar, A Professional Corporation.
TERM ENDING IN 1999:
E. Bulkeley Griswold 59 1990 General Partner of MarketCorp Ventures, Limited
Partnership, the general partner of MarketCorp
Ventures Associates, Limited Partnership, a
venture capital fund, since September 1983.
Director of Scan Optics (which is in the
optical character business) and Investor
Preference Fund (a fixed income mutual fund
service). Public Board member, New York
Mercantile Exchange.
Allan J. Steinmetz 46 1996 Senior Vice President, Director of Marketing of
Arthur D. Little, a worldwide
management/technology consulting firm, since
1993. Member of the United States Postal
Service Marketing Advisory Council. Former
Associate Partner of Marketing of Andersen
Consulting (1991-1993).
TERM ENDING IN 1998:
Joseph Crugnale 47 1984 Chairman of the Board since May 1991. President
of the Company since 1984.
</TABLE>
During fiscal 1997, there were four meetings of the Board of Directors of
the Company. All of the Directors attended at least 75% of the aggregate of (i)
the total number of meetings of the Board of Directors and (ii) the total number
of meetings held by committees of the Board of Directors on which they served.
The Board of Directors appointed a compensation committee on January 19, 1997,
which consists of Joseph Crugnale, E. Bulkeley Griswold and James Westra. The
compensation committee met once in 1997.
The Audit Committee of the Board of Directors reviews, with the Company's
independent auditors, the scope of the audit for the year, the results of the
audit when completed and the independent auditors' fees for services performed.
The Audit Committee also recommends independent auditors to the Board of
Directors and reviews, with management, various matters related to its internal
accounting controls. The present members of the Audit Committee are Robert L.
Lestina, Jr. and E. Bulkeley Griswold, both of whom became members of the Audit
Committee in May 1991. The Audit Committee was formed in 1991 in anticipation of
the Company's initial public offering. The Audit Committee met on one occasion
in 1997 to review the audit for the Company's 1996 fiscal year.
29
<PAGE>
The Company also has an Employee Option Committee, whose purpose is to
administer the Company's 1987 Amended and Restated Stock Option Plan, the
Company's Amended and Restated Time Accelerated Restricted Stock Option Plan and
the Company's 1997 Stock Option Plan. The members of such Committee are Messrs.
Lestina and Griswold. The Employee Option Committee met on one occasion in 1997.
The Company also has a Director Option Committee to administer the
Bertucci's, Inc. 1993 Stock Option Plan for Non-Employee Directors (the "1993
Director Plan"). The members of such Committee are Messrs. Crugnale and Lestina.
The Director Option Committee met on one occasion in 1997.
Each Director is entitled to receive from the Company a payment of $1,500
for each meeting of the Board of Directors that such Director attends and is
entitled to receive options to purchase 3,000 shares of Common Stock of the
Company per year. In addition, the Company has agreed to reimburse the Directors
for expenses incurred in connection with attending meetings of the Board of
Directors.
The 1993 Director Plan provides for the granting of non qualified options in
such amounts, on such terms and to such non-employee directors of the Company as
the administrators of the 1993 Director Plan, in accordance with the terms of
the 1993 Director Plan, may select. A total of 155,000 shares of Common Stock
are reserved for issuance pursuant to the 1993 Director Plan.
EXECUTIVE OFFICERS OF THE COMPANY
Information with respect to executive officers of the Company is set forth
below. The executive officers of the Company are elected annually by the Board
of Directors and hold office until their successors are elected and qualified,
or until their earlier removal or resignation.
JOSEPH CRUGNALE, 47, has been the President of the Company since its
founding in 1984. Mr. Crugnale is the former owner of Steve's Ice Cream, which,
at the time he acquired it in 1977, was a one-store ice cream shop and which,
when Mr. Crugnale sold it in 1983, had grown to a 26-store operation.
THEODORE R. BARBER, 45, has been the Senior Vice President and Chief
Operating Officer of the Company since January 1996. Mr. Barber began his
employment with the Company in May 1994 as Vice President of Purchasing and
Contract Administration. Previously, Mr. Barber had been the President and Chief
Consultant for Theodore Barber & Co., a food facility consulting company, since
1992. Between 1990 and 1992, Mr. Barber was the Chief Consultant and Project
Manager of Euro Disneyland in Paris, France.
ANTHONY BALLETTA, 43, has been the Vice President of Operations of the
Company since August 1995 and has served in different management capacities with
the Company since 1991. Prior to joining the Company in 1991, Mr. Balletta had
over 15 years of restaurant experience.
EDWARD BUICE, 52, joined the Company as Vice President and General Counsel
on March 20, 1995. Prior to joining the Company, Mr. Buice had been in private
practice in Massachusetts since 1993. Mr. Buice served as Vice President,
Secretary and General Counsel of Uno Restaurant Company from 1989 to 1993. Mr.
Buice was an in-house attorney for Church's Fried Chicken, Inc., from 1986 to
1987 and served as its Vice President and Corporate Counsel from 1987 to 1989.
NORMAN S. MALLETT, 52, has been the Vice President-Finance, the Treasurer
and the Chief Financial Officer of the Company since 1991 and served as the
Director of Finance of the Company from 1987 to 1991. Prior to joining the
Company, Mr. Mallett was employed for fifteen years by Shoney's South, Inc., a
company in the restaurant business operating throughout the southeastern United
States.
ITEM 11: EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and each of the Company's
executive officers (other than the Chief Executive Officer) whose total annual
salary and bonus exceeded $100,000 for all services rendered in all capacities
to the Company and its subsidiaries for the Company's three fiscal years ended
December 27, 1997.
30
<PAGE>
<TABLE>
<CAPTION> ANNUAL
COMPENSATION LONG-TERM COMPENSATION
NAME AND ------------------------------------ ----------------------------
PRINCIPAL POSITION YEAR SALARY(1) BONUS(1) OPTIONS GRANTED ALL OTHER
- ------------------------------------------------- --------- ------------- ---------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Joseph Crugnale 1997 $271,376.18 N/A N/A N/A
President 1996 $220,388.70 N/A N/A N/A
1995 $220,388.70 N/A N/A N/A
Norman S. Mallett 1997 $126,662.98 N/A N/A N/A
Vice President-Finance 1996 $109,491.20 N/A N/A N/A
1995 $109,491.20 N/A 10,000 N/A
Theodore R. Barber, 1997 $146,820.24 N/A N/A N/A
Senior Vice President and 1996 $126,683.77 N/A N/A N/A
Chief Operating Officer 1995 $ 91,200.51 N/A 16,000 N/A
Anthony Balletta 1997 $103,261.36 N/A N/A N/A
Vice President-Operations 1996 $ 93,515.35 N/A N/A N/A
1995 $ 80,955.35 $9,389.79 20,000 N/A
</TABLE>
(1) Salary and bonus amounts are presented in the year earned, however,
the payment of such amounts may have occurred in other years.
OPTION GRANTS IN LAST FISCAL YEAR
There were no option grants in fiscal 1997 to the named executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table provides information on the value of the named executive
officers' unexercised options as of December 27, 1997.
<TABLE>
<CAPTION>
VALUE OF
IN-THE-MONEY
NUMBERS OF UNEXERCISED OPTIONS AT
SHARES OPTIONS AT 12/27/97 12/27/97(1)
ACQUIRED VALUE -------------------------- -------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ----------------- ------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph Crugnale, 0 $0 0 0 $0 $0
President
Norman S. Mallett,
Vice-President -
Finance 0 $0 27,500 5,000 ($343.75) $ 7,812.50
Theodore R. Barber,
Senior Vice President
and Chief Operating
Officer 0 $0 9,600 6,400 $15,000.00 $ 10,000.00
Anthony Balletta,
Vice-President -
Operations 0 $0 12,500 10,000 ($14,531.25) $ 15,625.00
</TABLE>
- ------------------------
(1) Value of unexercised stock options represents the difference between the
exercise prices of the stock options and the stock closing price of the
Company's Common Stock on NASDAQ National Market System on December 27,
1997.
31
<PAGE>
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information is furnished as of March 5, 1998, with respect
to Common Stock of the Company beneficially owned, within the meaning of Rule
13d-3, by any person who is known by the Company to be the beneficial owner
of more than five percent of any class of voting securities of the Company,
all Directors of the Company and by all Directors and executive officers of
the Company as a group. Unless otherwise indicated, the named individuals
held sole voting and investment power over the shares listed below.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER** AMOUNT AND NATURE OF PERCENT
AND NAME OF DIRECTOR TITLE OF CLASS BENEFICIAL OWNERSHIP OF CLASS
- ---------------------------------------- ----------------- -------------------- -----------
<S> <C> <C> <C>
Joseph Crugnale Common Stock 2,177,710(1) 24.4%
E. Bulkeley Griswold Common Stock 10,000(2) *
Robert L. Lestina, Jr. Common Stock 6,000(3) *
James Westra Common Stock 7,499(4) *
Allan J. Steinmetz Common Stock 3,000(5) *
Theodore R. Barber Common Stock 10,600(6) *
Norman S. Mallett Common Stock 80,500(7) *
All Directors and officers as a group Common Stock 2,311,987(8) 26.0%
(9 persons)
</TABLE>
- ------------------------
* Less than 1.0%
** Unless otherwise specified, the beneficial owner's address is c/o
Bertucci's.
(1) Of such shares, 2,938 shares are held in trusts for the benefit of Mr.
Crugnale's minor children.
(2) Of such shares, 3,000 are purchasable by Mr. Griswold under options
presently exercisable or exercisable within 60 days of March 5, 1998 and
7,000 are held by Mr. Griswold's 401(k) plan.
(3) Of such shares, 3,000 are purchasable by Mr. Lestina under options presently
exercisable or exercisable within 60 days of March 5, 1998. In addition, Mr.
Lestina holds 3,000 of such shares jointly with his wife.
(4) Of such shares, 2,600 shares are held in the Hutchins, Wheeler & Dittmar
Profit Sharing Trust, in which Mr. Westra has a beneficial interest, 3,000
are purchasable by Mr. Westra under options presently exercisable or
exercisable within 60 days of March 5, 1998 and 1,899 shares are held by Mr.
Westra's wife. Mr. Westra disclaims beneficial ownership of the shares held
by his wife.
(5) All of these shares are purchasable under options presently exercisable or
exercisable within 60 days of March 5, 1998.
(6) Of such shares, 9,600 are purchasable under options presently exercisable or
exercisable within 60 days of March 5, 1998.
(7) Of such shares, 27,500 shares are purchasable by Mr. Mallett under options
presently exercisable.
(8) Included in this figure are 65,100 shares purchasable by certain officers
and Directors under options presently exercisable or exercisable with 60
days of March 5, 1998.
32
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons owning more than 10% of the outstanding
Common Stock of the Company, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, Directors
and greater than 10% holders of Common Stock are required, by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on copies of such forms furnished, as provided above, the
Company believes that during fiscal 1997, there was compliance with all Section
16(a) filing requirements applicable to its officers,directors and owners of
greater than 10% of its Common Stock.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Messrs. Crugnale, Griswold, Lestina, Steinmetz and Westra served as members
of the Board of Directors during all of fiscal 1997 and participated in Board of
Directors' deliberations on executive compensation. Mr. Crugnale served as
President and Chairman of the Board of the Company during fiscal 1997. Mr.
Westra served as Clerk of the Company during fiscal 1997, but was not an
employee of the Company or any of its subsidiaries during fiscal 1997. Mr.
Griswold, Mr. Steinmetz and Mr. Lestina were not officers or employees of the
Company or any of its subsidiaries during fiscal 1997. During 1997, Mr. Crugnale
was involved in the transactions with the Company specified in Note 7 of the
Notes to Consolidated Financial Statements included in this report.
33
<PAGE>
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 13 of this report.
2. Exhibits are listed in subsection (c) below.
(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 pursuant to Item 5 of
Form 8-K.
(c) Exhibits
<TABLE>
<S> <C>
* 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 Amended and Restated 1987 Stock Option Plan, as amended and restated on June 4,
1991.
* 10.2 Form of Incentive Stock Option Agreement under Amended and Restated 1987 Stock
Option Plan.
* 10.3 Amended and Restated Time Accelerated Restricted Stock Option Plan
* 10.4 Form of Stock Option Agreement under Amended and Restated Time Accelerated
Restricted Stock Option Plan.
* 10.5 Crugnale Noncompetition, Nondisclosure and Inventions Agreement dated September
1, 1987.
** 10.6 Stock Agreement dated as of July 5, 1991, between the Company and Joseph
Crugnale.
*** 10.7 Agreement and Plan of Merger dated as of February 13, 1998 among Bertucci's,
Inc., Ten Ideas, Inc. and Ten Ideas Acquisition Corporation.
21 List of Subsidiaries.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
</TABLE>
* 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.
*** Incorporated by reference to the exhibits to the Company's Current Report on
Form 8-K filed February 26, 1998.
34
<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 6, 1998 By: /s/ JOSEPH CRUGNALE
------------------------------------------
Joseph Crugnale
President, Chief Executive Officer and
Director
Date: March 6, 1998 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 6, 1998 By: /s/ E. BULKELEY GRISWOLD
------------------------------------------
E. Bulkeley Griswold,
Director
Date: March 6, 1998 By: /s/ ROBERT L. LESTINA, JR.
------------------------------------------
Robert L. Lestina, Jr.,
Director
Date: March 6, 1998 By: /s/ ALLAN J. STEINMETZ
------------------------------------------
Allan J. Steinmetz,
Director
Date: March 6, 1998 By: /s/ JAMES WESTRA
------------------------------------------
James Westra,
Director
35
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
Bertucci's Restaurant Corp., a Massachusetts Company, which does business
under the name of "Bertucci's Brick Oven Pizzeria".
Berestco, Inc., a Massachusetts Company.
Bertucci's Securities Corp, a Massachusetts Company.
Sal & Vinnie's Sicilian Steakhouse, Inc.
36
<PAGE>
EXHIBIT 23
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 13, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> DEC-27-1997
<CASH> 5,755
<SECURITIES> 0
<RECEIVABLES> 1,077
<ALLOWANCES> 0
<INVENTORY> 1,222
<CURRENT-ASSETS> 10,271
<PP&E> 129,615
<DEPRECIATION> 38,090
<TOTAL-ASSETS> 105,516
<CURRENT-LIABILITIES> 14,011
<BONDS> 0
0
0
<COMMON> 44
<OTHER-SE> 71,326
<TOTAL-LIABILITY-AND-EQUITY> 105,516
<SALES> 136,720
<TOTAL-REVENUES> 136,720
<CGS> 34,101
<TOTAL-COSTS> 34,101
<OTHER-EXPENSES> 87,268
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,005
<INCOME-PRETAX> 5,517
<INCOME-TAX> 2,010
<INCOME-CONTINUING> 3,507
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,507
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.39
</TABLE>
