<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED COMMISSION FILE NUMBER
September 27, 1998 0-19810
BACK BAY RESTAURANT GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2812651
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
284 NEWBURY STREET, BOSTON, MASSACHUSETTS 02115
(Address of principal executive offices)
(617) 536-2800
(Registrant's telephone number, including area code)
---------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
On November 4, 1998, there were 3,460,409 shares of the registrant's Common
Stock outstanding.
<PAGE> 2
BACK BAY RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (in thousands)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 27, 1998 DECEMBER 28, 1997
------------------ -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 326 $ 1,915
Accounts receivable 166 219
Inventories 701 783
Prepaid expenses and other current assets 1,114 874
Deferred income taxes 259 259
------- -------
Total current assets 2,566 4,050
------- -------
Buildings and improvements 4,303 4,303
Furniture, fixtures and equipment 19,384 18,119
Leasehold improvements 35,070 32,339
Lease rights 2,826 2,826
------- -------
61,583 57,587
Less: accumulated depreciation and amortization 28,980 27,182
------- -------
Net property, plant and equipment 32,603 30,405
------- -------
Other assets:
Goodwill, net of accumulated amortization 4,758 4,884
Trade names and trademarks, net of
accumulated amortization 1,219 1,252
Deferred income taxes 1,698 1,698
Other assets, net of accumulated amortization 828 783
------- -------
Total other assets 8,503 8,617
------- -------
Total assets $43,672 $43,072
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,854 $ 3,333
Accrued expenses 7,561 8,058
Income taxes payable 164 395
------- -------
Total current liabilities 10,579 11,786
------- -------
Deferred rent 198 216
Other long term liability 82 58
Long term debt 4,000 4,000
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; authorized
20,000 shares; 3,431 shares issued and
outstanding in 1997 and 3,458 in 1998 37 36
Additional paid-in capital 23,225 23,118
Retained earnings 7,350 5,657
------- -------
30,612 28,811
Less treasury stock, 208 shares at cost in 1997
and 1998 1,799 1,799
------- -------
Total stockholders' equity 28,813 27,012
------- -------
Total liabilities and stockholders' equity $43,672 $43,072
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE> 3
BACK BAY RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
13 WEEKS ENDED
--------------------------------------------
SEPTEMBER 27, 1998 SEPTEMBER 28, 1997
------------------- ------------------
<S> <C> <C>
Sales $24,593 $23,859
Costs and expenses:
Cost of sales 6,890 6,725
Payroll and related costs 7,796 7,678
Operating expenses 5,801 5,617
Depreciation and amortization 1,030 1,088
------- -------
Total restaurant operating expenses 21,517 21,108
------- -------
Income from restaurant operations 3,076 2,751
General and administrative expenses 2,132 2,038
------- -------
Operating income 944 713
Interest expense net 77 116
------- -------
Income before income taxes 867 597
Income taxes 321 221
------- -------
Net income $546 $376
==== ====
Net income per share
Basic $.16 $.11
==== ====
Diluted $.15 $.11
==== ====
Average common shares and equivalents
Basic 3,458 3,431
Diluted 3,674 3,485
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
BACK BAY RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
39 WEEKS ENDED
--------------------------------------------
SEPTEMBER 27, 1998 SEPTEMBER 28, 1997
------------------- ------------------
<S> <C> <C>
Sales $72,305 $69,877
Costs and expenses:
Cost of sales 19,976 19,505
Payroll and related costs 22,931 22,623
Operating expenses 17,120 16,330
Depreciation and amortization 3,024 3,082
------- -------
Total restaurant operating expenses 63,051 61,540
------- -------
Income from restaurant operations 9,254 8,337
General and administrative expenses 6,593 6,477
------- -------
Operating income 2,661 1,860
Interest expense net 223 447
------- -------
Income before income taxes 2,438 1413
Income taxes 745 523
------- -------
Net income $ 1,693 $ 890
======= =======
Net income per share
Basic $.49 $.26
==== ====
Diluted $.46 $.26
==== ====
Average common shares and equivalents
Basic 3,449 3,433
Diluted 3,650 3,452
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
BACK BAY RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK EQUITY
------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 36 $23,031 $3,459 $(1,799) $24,727
Net income -- -- 467 -- 467
Restricted stock compensation -- 8 -- -- 8
----- ------- ------ ------- -------
Balance, December 29, 1996 36 23,039 3,926 (1,799) 25,202
Net income -- -- 1,731 -- 1,731
Exercise of stock option -- 7 -- -- 7
Restricted stock compensation -- (8) -- -- (8)
Deferred stock compensation -- 80 -- -- 80
----- ------- ------ ------- -------
Balance, December 28, 1997 36 23,118 5,657 (1,799) 27,012
Net income -- -- 1,693 -- 1,693
Exercise of stock option 1 103 -- -- 104
Restricted stock compensation -- 4 -- -- 4
----- ------- ------ ------- -------
Balance, September 27, 1998 $ 37 $23,225 $7,350 $(1,799) $28,813
===== ======= ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
BACK BAY RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
39 WEEKS ENDED
--------------------------------------------
SEPTEMBER 27, 1998 SEPTEMBER 28, 1997
------------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,693 $ 890
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,082 3,153
Loss on disposal of fixed assets 43 --
Changes in operating assets and liabilities:
Decrease in accounts receivable 53 39
Decrease in inventories 82 43
Increase in prepaid expenses and
other current assets (337) (278)
Increase in other assets (72) (87)
Increase/(decrease) in accounts payable and
accrued expenses (807) 111
Increase/(decrease) in income taxes payable (232) 7
Decrease in deferred rent (18) (219)
Increase in other long term liability 24 60
------ ------
Net cash provided by operating activities 3,511 3,719
------ ------
Cash flows from investing activities:
Capital expenditures (5,215) (2,596)
Proceeds from disposal of property plant & equipment 7 1,382
------ ------
Net cash used for investing activities (5,208) (1,214)
------ ------
Cash flows from financing activities:
Principal payments of debt -- (2,525)
Restricted stock compensation 4 --
Cancellation of stock option -- 12
Exercise of stock option 104 6
------ ------
Net cash provided by (used for) financing
activities 108 (2,507)
------ ------
Net Decrease in cash and cash equivalents (1,589) (2)
Cash and cash equivalents at beginning of period 1,915 1,344
------ ------
Cash and cash equivalents at end of period $ 326 $1,342
====== ======
Supplemental disclosures of cash flow information:
Interest paid $ 232 $ 474
====== ======
Income taxes paid $1,167 $ 552
====== ======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE> 7
BACK BAY RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTY-NINE WEEKS ENDED
SEPTEMBER 27, 1998 AND SEPTEMBER 28, 1997
NOTE 1 -- BASIS OF PRESENTATION
The preceding data is unaudited but, in the opinion of
management, includes all adjustments (consisting of normal
recurring accruals and deferrals) that management considers
necessary for a fair presentation of the financial position and
results of operations for the interim periods presented in
accordance with generally accepted accounting principles and
practices consistently applied.
The results of operations for the thirty-nine weeks ended
September 27, 1998 and September 28, 1997 are not necessarily
indicative of the results that may be expected for the entire
year, because the Company's business is subject to seasonal
influences.
NOTE 2 -- LONG TERM DEBT
The Company has a revolving credit and term loan agreement
which was amended and restated on May 7, 1998 (as amended and
restated, the "Loan Agreement") with BankBoston, N.A. (the
"Bank"). On September 27, 1998, the Company had an outstanding
balance of $4,000,000 under the Loan Agreement. Under the Loan
Agreement, the Company may borrow up to $20,000,000 on a three
year revolver that converts to a four year term note. The pricing
of the loan is on a sliding scale based on a ratio of senior debt
to EBITDA. The Company's obligation under the Loan Agreement is
collateralized by certain property, plant and equipment and
intangible assets. The Loan Agreement contains restrictions
relating to future indebtedness, contingent liabilities,
encumbrances, the merger, acquisition or sale of assets,
additional stock issuance, equity distributions, cash dividends,
and redemptions, capital expenditures, ERISA and transactions
with affiliates. The Loan Agreement also requires the maintenance
of certain financial ratios and covenants, of which the most
restrictive covenant is the total debt service coverage. Under
this arrangement, the Company and its subsidiaries are required,
for each period of four consecutive fiscal quarters, commencing
with the period ending March 29, 1998, to maintain a ratio of
consolidated cash available to pay fixed charges of not less than
1.50 to 1.
NOTE 3 -- INCOME TAXES
The income tax at March 29, 1998 includes a state tax refund
of approximately $157,000 from the Commonwealth of Massachusetts
for amended tax returns that were filed for 1994 and 1995 as a
result of a change in the way the Commonwealth of Massachusetts
treats the taxation of investments in subsidiaries.
7
<PAGE> 8
NOTE 4 -- NEWLY ISSUED ACCOUNTING STANDARD
In June 1997 the FASB issued Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which
established standards for the reporting of information about
operating segments in annual financial statements by public
enterprises and requires that those enterprises report selected
information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and
major customers. This Statement requires that a public business
enterprise report financial and descriptive information about its
reportable operating segments, which are components of an
enterprise for which separate financial information is available
and is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and in assessing
performance. This Statement is effective for financial statements
for periods beginning after December 15, 1997. Management does
not believe the implementation of this Statement will have any
significant effect on the Company's financial reporting.
In April 1998, AcSec issued Statement of Position No. 98-5
(SOP 98-5) which requires start-up activities to be expensed
instead of capitalized. The Statement is effective for financial
statements for periods beginning after December 15, 1998. Initial
application of the SOP should be as of the beginning of the
fiscal year in which the SOP is first adopted. Management does
not believe the implementation of this Statement will have any
significant effect on the Company's financial statements.
As of the beginning of fiscal 1998, management adopted
Statement of Position No. 98-1 (SOP 98-1) which requires certain
costs incurred in developing or obtaining internal-use computer
software to be capitalized. The SOP is effective for fiscal years
beginning after December 15, 1998. However, earlier application
is encouraged in fiscal years for which financial statements have
not been issued. The Company has made the early adoption election
and has capitalized approximately $41,000 as of September 27,
1998.
8
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Thirteen Weeks Ended September 27, 1998 Compared to Thirteen Weeks Ended
September 28, 1997
The following table sets forth the percentage of net sales represented by
certain items included in the Company's income statements for the periods
indicated:
<TABLE>
<CAPTION>
13 Weeks Ended
----------------------------------------------
September 27, 1998 September 28, 1997
------------------ ------------------
<S> <C> <C>
Sales 100.0% 100.0%
Costs and expenses:
Cost of sales 28.0 28.2
Payroll and related costs 31.7 32.2
Operating expenses 23.6 23.5
Depreciation and amortization 4.2 4.6
Total restaurant operating expenses 87.5 88.5
Income from restaurant operations 12.5 11.5
General and administrative expenses 8.7 8.5
Operating income 3.8 3.0
Interest expense net 0.3 0.5
Income before income taxes 3.5 2.5
Income taxes 1.3 0.9
Net income 2.2% 1.6%
Number of restaurants:
Restaurants open at beginning
of period 33 (1) 34
Restaurants open at end of period 34 (1) 34
</TABLE>
(1) Includes one restaurant that was renovated and re-opened in the fourth
quarter of 1998.
9
<PAGE> 10
SALES
Sales increased by $734,000, or 3.1%, to $24,593,000 in the thirteen week
period ended September 27, 1998, from $23,859,000 in the same period in 1997.
Same store sales increased $920,000, or 4.0%, in the thirteen week period ended
September 27, 1998, compared to the same period in 1997.
The Company closed one location during the first quarter of 1998 and
renovated another location which re-opened in October of 1998. The lost revenues
from these locations in the third quarter of 1998 were partially offset by one
new location which opened in August, 1998.
The Company operated 34 restaurants at September 27, 1998, and 34
restaurants at September 28, 1997. Total restaurant customer count for
comparable stores for the thirteen weeks ended September 27, 1998 increased 0.6%
to 1,314,000 from 1,306,000 in the comparable period in 1997.
COST OF SALES
Cost of sales as a percentage of sales decreased to 28.0% in the thirteen
week period ended September 27, 1998, from 28.2% in the same period in 1997.
This decrease was attributable to a 0.7% decrease in beverage cost as a
percentage of beverage revenue (22.4% in the 1998 period versus 23.1% in the
1997 period). The beverage cost decreases were due principally to modest sales
price increases in selected beverages for certain locations. The food cost as a
percentage of food revenue was 30.1% for both the 1998 and 1997 periods.
PAYROLL AND RELATED COSTS
Payroll and related costs as a percentage of sales decreased to 31.7% in
the thirteen weeks ended September 27, 1998, from 32.2% in the same period in
1997. The decrease in payroll and related costs as a percentage of sales is
primarily attributable to the Company having increased sales from same stores
during the thirteen weeks ended September 27, 1998 as compared to the same
period in 1997.
OPERATING EXPENSES
Operating expenses as a percentage of sales increased to 23.6% in the
thirteen weeks ended September 27, 1998, from 23.5% in the same period in 1997.
Operating expenses increased by $184,000 in the thirteen weeks ended September
27, 1998 to $5,801,000 from $5,617,000 in the same period in 1997. The increase
in operating expenses both in dollars and as a percentage of sales is primarily
attributable to non material individual increases in several expense categories.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased by $58,000 in the thirteen weeks
ended September 27, 1998 to $1,030,000 from $1,088,000 in the same period in
1997. Included in the 1998 and 1997 amortization is the amortization of
pre-opening costs of new restaurants opened during the prior 12-month period.
The Company amortizes such pre-opening costs over the 12-month period
immediately following an opening or conversion. The decrease in depreciation and
amortization expense is primarily attributable to the decrease in pre-opening
amortization.
10
<PAGE> 11
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by $94,000 in the thirteen
weeks ended September 27, 1998 to $2,132,000 from $2,038,000 in the same period
in 1997. The increase is primarily attributable to increases in salaries and
wages and legal expenses which were partially offset by decreases in insurance
expenses.
INTEREST EXPENSE
Interest expense decreased by $39,000 in the thirteen weeks ended September
27, 1998 to $77,000 from $116,000 in the same period in 1997. This decrease was
attributable to decreased borrowings as well as a decrease in the Company's
effective borrowing rate.
INCOME TAXES
Income taxes increased by $100,000 in the thirteen weeks ended September
27, 1998 to $321,000 from $221,000 in the same period in 1997. The increased
expense in the thirteen weeks ended September 27, 1998 reflects the pre-tax
income of $867,000 as compared to $597,000 for the same period in 1997. The
estimated effective tax rate was 37% for both periods.
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Thirty-nine Weeks Ended September 27, 1998 Compared to Thirty-nine Weeks Ended
September 28, 1997
The following table sets forth the percentage of net sales represented by
certain items included in the Company's income statements for the periods
indicated:
<TABLE>
<CAPTION>
13 Weeks Ended
----------------------------------------------
September 27, 1998 September 28, 1997
------------------ ------------------
<S> <C> <C>
Sales 100% 100%
Costs and expenses:
Cost of sales 27.6 27.9
Payroll and related costs 31.7 32.4
Operating expenses 23.7 23.4
Depreciation and amortization 4.2 4.4
Total restaurant operating expenses 87.2 88.1
Income from restaurant operations 12.8 11.9
General and administrative expenses 9.1 9.3
Operating income 3.7 2.6
Interest expense net 0.3 0.6
Income before income taxes 3.4 2.0
Income taxes 1.0 0.7
--
Net income 2.4% 1.3%
Number of restaurants:
Restaurants open at beginning of period 34 34
Restaurants open at end of period 34(1) 34
</TABLE>
(1) Includes one restaurant that was renovated and re-opened in the fourth
quarter of 1998.
12
<PAGE> 13
SALES
Sales increased by $2,428,000 or 3.5%, to $72,305,000 in the thirty-nine
week period ended September 27, 1998, from $69,877,000 in the same period in
1997. Same store sales increased $3,508,000, or 5.4%, in the thirty-nine week
period ended September 27, 1998, compared to the same period in 1997.
The Company closed one location in June, 1997 and closed an additional
location during the first quarter of 1998. The Company renovated another
location which re-opened in October of 1998. The lost revenues from these
locations in the first nine months of 1998 were partially offset by two new
locations of which one opened in May, 1997 and the other in August, 1998.
The Company operated 34 restaurants at September 27, 1998, and 34
restaurants at September 28, 1997. Total restaurant customer count for
comparable stores for the thirty-nine weeks ended September 27, 1998 increased
2.0% to 3,681,000 from 3,609,000 in the comparable period in 1997.
COST OF SALES
Cost of sales as a percentage of sales decreased to 27.6% in the
thirty-nine week period ended September 27, 1998, from 27.9% in the same period
in 1997. This decrease was attributable to a 0.1% decrease in food cost as a
percentage of food revenue (29.6% in the 1998 period versus 29.7% in the 1997
period), and a 0.7% decrease in beverage cost as a percentage of beverage
revenue (22.4% in the 1998 period versus 23.1% in the 1997 period). The beverage
cost decreases were due principally to modest sales price increases in selected
beverages for certain locations.
PAYROLL AND RELATED COSTS
Payroll and related costs as a percentage of sales decreased to 31.7% in
the thirty-nine weeks ended September 27, 1998, from 32.4% in the same period in
1997. The decrease in payroll and related costs as a percentage of sales is
primarily attributable to the Company having increased sales from same stores
during the thirty-nine weeks ended September 27, 1998 as compared to the same
period in 1997.
OPERATING EXPENSES
Operating expenses as a percentage of sales increased to 23.7% in the
thirty-nine weeks ended September 27, 1998, from 23.4% in the same period in
1997. Operating expenses increased by $790,000 in the thirty-nine weeks ended
September 27, 1998 to $17,120,000 from $16,330,000 in the same period in 1997.
The increase in operating expenses both in dollars and as a percentage of sales
is primarily attributable to increased occupancy costs and increases in other
various operating expenses.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased by $58,000 in the thirty-nine weeks
ended September 27, 1998 to $3,024,000 from $3,082,000 in the same period in
1997. Included in the 1998 and 1997 amortization is the amortization of
pre-opening costs of new restaurants opened during the prior 12-month period.
The Company amortizes such pre-opening costs over the 12-month period
immediately following an opening or conversion. The decrease in depreciation and
amortization expense is primarily attributable to the decrease in pre-opening
amortization.
13
<PAGE> 14
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by $116,000 in the
thirty-nine weeks ended September 27, 1998 to $6,593,000 from $6,477,000 in the
same period in 1997. The increase is primarily attributable to increases in
salaries and wages, and legal expenses, which were partially offset by decreases
in advertising and insurance expenses.
INTEREST EXPENSE
Interest expense decreased by $224,000 in the thirty-nine weeks ended
September 27, 1998 to $223,000 from $447,000 in the same period in 1997. This
decrease was attributable to decreased borrowings as well as a decrease in the
Company's effective borrowing rate.
INCOME TAXES
Income taxes increased by $222,000 in the thirty-nine weeks ended September
27, 1998 to $745,000 from $523,000 in the same period in 1997. The increased
expense in the thirty-nine weeks ended September 27, 1998 reflects the pre-tax
income of $2,438,000 as compared to $1,413,000 for the same period in 1997. The
income tax expense at September 27, 1998 includes a state tax refund of
approximately $157,000 from the Commonwealth of Massachusetts for amended tax
returns that were filed for 1994 and 1995 as a result of a change in the way the
Commonwealth of Massachusetts treats the taxation of investments in
subsidiaries. The estimated effective tax rate was 37% for both periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company, similar to many restaurant businesses, requires little or no
working capital because it does not have significant inventory or trade
receivables and receives several weeks of trade credit in purchasing food and
supplies. At September 27, 1998, the Company's cash position was $326,000 and
the Company had a net working capital deficit of $8,013,000.
The Company requires capital primarily for the development and construction
of new restaurants and the conversion of existing restaurants. In recent years,
the Company's primary sources of capital have been cash flow from its
operations, borrowings and landlord contributions to restaurant construction
costs. The Company intends to be very selective in its approval of sites for new
units and will be limiting the number of restaurant openings in 1998. The
Company expects to fund any capital expenditures for 1998 from internally
generated cash. The Company believes that cash flow from operations and credit
available under the revolving loan agreement will be sufficient to meet future
needs.
On May 7, 1998, the Company executed an Amended and Restated Loan Agreement
with BankBoston, NA. Under the Amended Loan Agreement, the Company can borrow up
to $20,000,000 on a three year revolver that thereafter converts to a four year
term note.
14
<PAGE> 15
YEAR 2000 DISCLOSURE
The Company is aware of the potential for industry wide business disruption
which could occur due to problems related to the "Year 2000 issue." It is the
belief of the Company that the Company has a prudent plan in place to address
these issues. The components of our plan include: an assessment of internal
systems for modification and/or replacement; communication with external vendors
to determine their state of readiness to maintain an uninterrupted supply of
goods and services to the Company; an evaluation of our equipment as to its
ability to function properly after the turn of the century; an evaluation of
facility related issues; and the development of a contingency plan.
STATE OF READINESS
The Company has developed a comprehensive plan to reduce the probability of
operational difficulties due to Year 2000 related failures. While there is still
a significant amount of work to do the Company believes that it is on track
towards a timely completion. Overall, the Company estimates the organization to
be approximately 85% complete in regard to the identification and remediation of
Year 2000 issues.
INTERNAL SYSTEMS
The process the Company is following to achieve Year 2000 compliance for
internal systems is as follows: The Company expects to have all of its financial
accounting software to be year 2000 compliant by the end of 1998. The Company
expects to have the hardware components of its financial accounting system to be
Year 2000 compliant by the end of the first quarter of 1999. The Company has
point of sales cash register systems at all of its locations. At this time the
Company is not aware of any cash register systems that will be affected by the
Year 2000 issue.
SUPPLIERS
The Company is in the process of communicating with its external vendors to
gain an understanding of their state of readiness to maintain an uninterrupted
supply of goods and services to the Company. The Company has contacted many of
its suppliers regarding the Year 2000 issue. The Company has been assured by its
major suppliers that there will be no interruption of the delivery of goods and
services.
EQUIPMENT
The Company is in the process of completing an inventory of currently used
equipment at the Company. The Company will determine the Year 2000 readiness
through communication with the equipment manufacturers and testing where
appropriate. At this time the Company is not aware of any equipment which is
affected by the Year 2000 issue and will not be repaired or replaced prior to
operating problems. The Company, as in most companies, remains aware of the
potential for imbedded logic within microchips to cause equipment failure. The
Company believes that our action plan provides a prudent approach towards
evaluating equipment, however, some equipment may prove not feasible or
impossible to test.
FACILITY RELATED ISSUES
The Company is in the process of completing an inventory and evaluating
facilities related equipment with the potential for Year 2000 related failures.
The Company will determine the Year 2000
15
<PAGE> 16
readiness through communication with the equipment manufactures and testing
where appropriate. At this time the Company is not aware of any facilities
related equipment which is affected by the Year 2000 issue and will not be
repaired or replaced prior to operating problems. The Company, as in most
companies, remains aware of the potential for imbedded logic within microchips
to cause equipment failure. The Company believes that our action plan provides a
prudent approach towards evaluating production equipment, however, some
equipment may prove not feasible or impossible to test.
COSTS
The Company is evaluating the total cost of Year 2000 compliance. At this
time the Company estimates the total cost of Year 2000 related activities to be
less than $100,000.
CONTINGENCY PLAN
At this time the Company is not aware of any internal systems or external
vendors issues related to the Year 2000 which would prevent, or seriously impact
the Company from continuing operations before, during, or after the turn of the
century.
Although the Company believes that we are taking prudent action related to
the identification and resolution of issues related to the Year 2000 our
assessment is still in progress. The Company may never be able to know with
certainty whether certain key vendors are compliant, especially those outside
the United States. There are also technical vagaries to logic imbedded within
microchips which may prove not feasible or impossible to test.
The Company continues to evaluate the risks associated with potential Year
2000 related failures. As the Company better understands the risks within our
unique set of business partners, production processes, and internal systems, the
Company will develop a formal contingency plan to alleviate the impact of high
potential or serious failures. The Company anticipates having this contingency
plan outlined by the end of the first quarter of 1999.
RISKS
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Company's results of operations, liquidity or
financial condition. The Year 2000 Project is expected to significantly reduce
the Company's level of uncertainty about the Year 2000 problem and, in
particular, about the Year 2000 compliance and readiness of its material
external agents. The Company believes that, with the implementation of new
business systems and completion of the Project as scheduled, the possibility of
significant interruptions of normal operations should be reduced. Readers are
cautioned that forward-looking statements contained in the Year 2000 Update
should be read in conjunction with the Company's disclosures under the heading;
"CAUTIONARY STATEMENT."
16
<PAGE> 17
CAUTIONARY STATEMENT
The foregoing Form 10Q contains various "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1993, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements represent the Company's expectation or belief concerning future
events, including the following: any statements regarding future sales and gross
profit percentages, any statements regarding the continuation of historical
trends, and any statements regarding the sufficiency of the Company's cash
balances and cash generated from operating and financing activities for the
Company's future liquidity and capital resource needs. Without limiting the
forgoing, the words "believes," "anticipates," "plans," "expects," and similar
expressions are intended to identify forward-looking statements. The Company
cautions that these statements are further qualified by important economic and
competitive factors that could cause actual results to differ materially from
those in the forward-looking statements, including, without limitation, risks of
the restaurant industry, including a highly competitive industry with many
well-established competitors with greater financial and other resources than the
Company, and the impact of changes in consumer tastes, local, regional and
national economic conditions, demographic trends, traffic patterns, employee
availability and cost increases. In addition, the Company's ability to expand is
dependant upon various factors, such as the availability of attractive sites for
new restaurants, the ability to negotiate suitable lease terms, the ability to
generate or borrow funds to develop new restaurants and obtain various
government permits and licenses and the recruitment and training of skilled
management and restaurant employees. Accordingly, such forward-looking
statements do not purport to be predictions of future events or circumstances
and may not be realized.
17
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BACK BAY RESTAURANT GROUP, INC.
November 4, 1998 /s/ Francis P. Bissaillon
------------------------------------
Francis P. Bissaillon
Executive Vice President and Chief
Financial Officer
November 4, 1998 /s/ Robert J. Ciampa
------------------------------------
Robert J. Ciampa
Vice President, Chief Accounting
Officer and Treasurer
19
<PAGE> 20
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
FINANCIAL STATEMENTS OF BACK BAY RESTAURANT GROUP, INC. FOR THE QUARTER ENDED
SEPTEMBER 27, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> SEP-27-1998
<EXCHANGE-RATE> 1
<CASH> 326,000
<SECURITIES> 0
<RECEIVABLES> 166,000
<ALLOWANCES> 0
<INVENTORY> 701,000
<CURRENT-ASSETS> 2,566,000
<PP&E> 61,583,000
<DEPRECIATION> 28,980,000
<TOTAL-ASSETS> 43,672,000
<CURRENT-LIABILITIES> 10,579,000
<BONDS> 4,280,000
0
0
<COMMON> 3,458,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 43,672,000
<SALES> 24,593,000
<TOTAL-REVENUES> 24,593,000
<CGS> 6,890,000
<TOTAL-COSTS> 21,517,000
<OTHER-EXPENSES> 2,132,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,000
<INCOME-PRETAX> 867,000
<INCOME-TAX> 321,000
<INCOME-CONTINUING> 546,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 546,000
<EPS-PRIMARY> .16
<EPS-DILUTED> .15
</TABLE>
