<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
MARCH 29, 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 April 27, 1998, there were 3,436,442 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 MARCH 29, 1998 DECEMBER 28, 1997
-------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,600 $ 1,915
Accounts receivable 159 219
Inventories 663 783
Prepaid expenses and other current assets 797 874
Deferred income taxes 259 259
------- -------
Total current assets 3,478 4,050
------- -------
Buildings and improvements 4,303 4,303
Furniture, fixtures and equipment 18,130 18,119
Leasehold improvements 32,874 32,339
Lease rights 2,826 2,826
------- -------
58,133 57,587
Less: accumulated depreciation and amortization 27,706 27,182
------- -------
Net property, plant and equipment 30,427 30,405
------- -------
Other assets:
Goodwill, net of accumulated amortization 4,842 4,884
Tradenames and trademarks, net of
accumulated amortization 1,241 1,252
Deferred income taxes 1,698 1,698
Other assets, net of accumulated amortization 792 783
--- ---
Total other assets 8,573 8,617
------- -------
Total assets $42,478 $43,072
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,748 $3,333
Accrued expenses 7,984 8,058
Income taxes payable 78 395
------- -------
Total current liabilities 10,810 11,786
------- -------
Deferred rent 210 216
Other long term liability 77 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 3,436 in 1998 36 36
Additional paid-in capital 23,131 23,118
Retained earnings 6,013 5,657
------- -------
29,180 28,811
Less treasury stock, 208 shares at cost in 1997
and 1998 1,799 1,799
------- -------
Total stockholders' equity 27,381 27,012
------- -------
Total liabilities and stockholders' equity $42,478 $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
MARCH 29, 1998 MARCH 30, 1997
-------------- --------------
<S> <C> <C>
Sales $23,126 $21,896
Costs and expenses:
Cost of sales 6,344 6,095
Payroll and related costs 7,545 7,376
Operating expenses 5,614 5,283
Depreciation and amortization 1,005 952
------- -------
Total restaurant operating expenses 20,508 19,706
------- -------
Income from restaurant operations 2,618 2,190
General and administrative expenses 2,223 2,166
------- -------
Operating income 395 24
Interest expense net 79 165
------- -------
Income/(loss) before income taxes 316 (141)
Income tax benefit (40) (52)
------- -------
Net income/(loss) $ 356 ($89)
======= =======
Net income/(loss) per share Basic/Diluted $ .10 ($.03)
======= =======
Average common shares and equivalents
Basic 3,436 3,434
Diluted 3,603 3,434
</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 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 - - 356 - 356
Exercise of stock option - 12 - - 12
Restricted stock compensation - 1 - - 1
--- ------- ------ ------- -------
Balance, March 29, 1998 $36 $23,131 $6,013 ($1,799) $27,381
=== ======= ====== ======= =======
</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 CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
13 WEEKS ENDED
MARCH 29, 1998 MARCH 30, 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ 356 ($89)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,028 974
Loss on disposal of fixed assets 41 -
Changes in operating assets and liabilities:
Decrease in accounts receivable 60 -
Decrease in inventories 120 30
(Increase)/decrease in prepaid expenses and
other current assets 22 (80)
Increase in other assets (19) (66)
Decrease in accounts payable and
accrued expenses (659) (321)
Decrease in income taxes payable (317) (187)
Decrease in deferred rent (6) (11)
Increase in other long term liability 19 41
------ ------
Net cash provided by operating activities 645 291
------ ------
Cash flows from investing activities:
Capital expenditures (980) (668)
Proceeds from disposal of property plant & equipment 7 -
------ ------
Net cash used for investing activities (973) (668)
------ ------
Cash flows from financing activities:
Restricted stock compensation 1 -
Exercise of stock option 12 -
------ ------
Net cash provided by financing activities 13 -
------ ------
Net decrease in cash and cash equivalents (315) (377)
Cash and cash equivalents at beginning of period 1,915 1,344
------ ------
Cash and cash equivalents at end of period $1,600 $ 967
====== ======
Supplemental disclosures of cash flow information:
Interest paid $ 83 $ 175
====== ======
Income taxes paid $ 434 $ 170
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
BACK BAY RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED
MARCH 29, 1998 AND MARCH 30, 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 thirteen weeks ended March 29, 1998
and March 30, 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 (the "Loan
Agreement") with BankBoston, N.A. (the "Bank"). At December 28, 1997,
the Company had an outstanding balance of $4,000,000 under the Loan
Agreement. On March 24, 1998, the Company executed a commitment
letter with the Bank to amend and restate its Loan Agreement. Under
the amended and restated Loan Agreement, the Company could borrow up
to $20,000,000 on a three year revolver that converts to a 4 year
term note. The pricing of the loan would be on a sliding scale based
on a ratio of senior debt to EBITDA. The Company's obligation under
the amended and restated Loan Agreement would be collateralized by
certain property, plant and equipment and intangible assets. The
amended and restated Loan Agreement would contain 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 amended and restated Loan Agreement would also
require 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.
6
<PAGE> 7
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 establishes
standards for the way public enterprises report information about
operating segments in annual financial statements 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 about which separate financial
information is available that 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
is evaluating this Statement to determine what information will be
required to be disclosed.
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 the first quarter, 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 $20,000 as of March 29, 1998.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED MARCH 29, 1998 COMPARED TO THIRTEEN WEEKS ENDED MARCH 30,
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
MARCH 29, 1998 MARCH 30, 1997
-------------- --------------
<S> <C> <C>
Sales 100.0% 100.0%
Costs and expenses:
Cost of sales 27.4 27.8
Payroll and related costs 32.6 33.7
Operating expenses 24.3 24.1
Depreciation and amortization 4.4 4.4
Total restaurant operating expenses 88.7 90.0
Income from restaurant operations 11.3 10.0
General and administrative expenses 9.6 9.9
Operating income 1.7 0.1
Interest expense net 0.3 0.7
Income/(loss) before income taxes 1.4 (0.6)
Income tax benefit (0.2) (0.2)
Net income/(loss) 1.6% (0.4%)
Number of restaurants:
Restaurants open at beginning
of period 34 34
Restaurants open at end of period 33(1) 34
</TABLE>
(1) Includes one restaurant that is currently being renovated and
expected to re-open sometime in the third quarter of 1998.
8
<PAGE> 9
SALES
Sales increased by $1,230,000, or 5.6%, to $23,126,000 in the thirteen week
period ended March 29, 1998, from $21,896,000 in the same period in 1997. Same
store sales increased $1,235,000, or 6.0%, in the thirteen week period ended
March 29, 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 is in the process of renovating
another location which is expected to re-open sometime in the third quarter of
1998. The lost revenues from these locations in the first quarter of 1998 were
offset by one new location which opened in May, 1997.
The Company operated 33 restaurants at March 29, 1998, as compared to 34
restaurants at March 30, 1997. Total restaurant customer count for the thirteen
weeks ended March 29, 1998 increased 0.9% to 1,240,000 from 1,229,000 in the
comparable period in 1997.
COST OF SALES
Cost of sales as a percentage of sales decreased to 27.4% in the thirteen week
period ended March 29, 1998, from 27.8% in the same period in 1997. This
decrease was attributable to a 0.2% decrease in food cost as a percentage of
food revenue (29.3% in the 1998 period versus 29.5% in the 1997 period), and a
1.0% decrease in beverage cost as a percentage of beverage revenue (22.5% in the
1998 period versus 23.5% in the 1997 period). The beverage cost decreases were
due principally to modest sales price increases in selected wines.
PAYROLL AND RELATED COSTS
Payroll and related costs as a percentage of sales decreased to 32.6% in the
thirteen weeks ended March 29, 1998, from 33.7% in the same period in 1997.
Payroll and related costs increased by $169,000 in the thirteen weeks ended
March 29, 1998, to $7,545,000 from $7,376,000 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 March 29, 1998 as compared to the same period in 1997.
OPERATING EXPENSES
Operating expenses as a percentage of sales increased to 24.3% in the thirteen
weeks ended March 29, 1998, from 24.1% in the same period in 1997. Operating
expenses increased by $331,000 in the thirteen weeks ended March 29, 1998 to
$5,614,000 from $5,283,000 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.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased by $53,000 in the thirteen weeks ended
March 29, 1998 to $1,005,000 from $952,000 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.
9
<PAGE> 10
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by $57,000 in the thirteen
weeks ended March 29, 1998 to $2,223,000 from $2,166,000 in the same period in
1997. The increase is primarily attributable to an increase in salaries and
wages.
INTEREST EXPENSE
Interest expense decreased by $86,000 in the thirteen weeks ended
March 29, 1998 to $79,000 from $165,000 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 tax benefit decreased by $12,000 in the thirteen weeks ended
March 29, 1998 to a benefit of $40,000 from a benefit of $52,000 in the same
period in 1997. The decreased benefit in the thirteen weeks ended 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. 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 March 29, 1998, the Company's cash position was $1,600,000 and the
Company had a net working capital deficit of $7,332,000.
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 March 24, 1998, the Company executed a commitment letter with
BankBoston, NA to amend and restate its loan agreement. Under the amended and
restated loan agreement, the Company could borrow up to $20,000,000 on a three
year revolver that thereafter converts to a 4 year term note.
YEAR 2000 DISCLOSURE
Certain of the Company's internal computer systems are not Year 2000
ready (i.e., such systems use only two digits to represent the year in date data
fields and, consequently, may not accurately distinguish between the 20th and
21st centuries or may not function properly at the turn of the century). The
Company has been taking actions intended to either correct such systems or
replace them with Year 2000 ready systems. The Company expects to implement
successfully the systems and programming changes necessary to address Year 2000
issues and does not believe that the cost of such actions will have a material
effect on the Company's results of operations or financial condition.
10
<PAGE> 11
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains various "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements
represent the Company's expectations or belief concerning future events,
including the following: any statements regarding future sales and gross profit
percentages, 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 foregoing, 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
dependent upon various factors, such as 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.
<PAGE> 12
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
11
<PAGE> 13
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.
May 1, 1998 /s/ Francis P. Bissaillon
------------------------------------------
Francis P. Bissaillon
Executive Vice President and
Chief Financial Officer
May 1, 1998 /s/ Robert J. Ciampa
------------------------------------------
Robert J. Ciampa
Vice President, Chief Accounting
Officer and Treasurer
12
<PAGE> 14
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BACK BAY RESTAURANT GROUP, INC. FOR THE QUARTER ENDED
MARCH 29, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> MAR-29-1998
<CASH> 1,600,000
<SECURITIES> 0
<RECEIVABLES> 159,000
<ALLOWANCES> 0
<INVENTORY> 663,000
<CURRENT-ASSETS> 3,478,000
<PP&E> 58,133,000
<DEPRECIATION> 27,706,000
<TOTAL-ASSETS> 42,478,000
<CURRENT-LIABILITIES> 10,810,000
<BONDS> 4,287,000
0
0
<COMMON> 3,436,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 42,478,000
<SALES> 23,126,000
<TOTAL-REVENUES> 23,126,000
<CGS> 6,344,000
<TOTAL-COSTS> 20,508,000
<OTHER-EXPENSES> 2,223,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79,000
<INCOME-PRETAX> 316,000
<INCOME-TAX> (40,000)
<INCOME-CONTINUING> 356,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 356,000
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
