**FORM 10-Q**

 

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,DC  20549**

 

 

**ý****        Quarterly Report Pursuant to Section 13 or 15(d) of theSecurities and Exchange Act of 1934**

 

 

**For theQuarterly Period Ended    October 3,2001**

 

 

**CommissionFile Number    333-62775**

****

** **

** **

**BERTUCCI’S CORPORATION**

(Exact name of registrantas specified in its charter)

 

 

| **Delaware**                                      |   | **06-1311266**         |
|---------------------------------------------------|--------|------------------------|
| (State or other  jurisdiction of                  |   | (I.R.S. Employer       |
| incorporation or  organization)                   |   | Identification Number) |
|                                              |   |                   |
|                                              |   |                   |
| **155  Otis Street, Northborough, Massachusetts** |   | **01532-2414**         |
| (Address of principal  executive offices)         |   | (Zip Code)             |

 

 

 

Registrant’s telephonenumber, including area code:  (508)351-2500

 

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filled by Section 13 or 15(d) of the Securities Exchange Act ofthe 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to thefiling requirements for the past 90 days.

 

 

Yes ý    No o

 

 

2,978,955 shares of the registrant’s Common Stock were outstanding onNovember 16, 2001.

 

BERTUCCI’SCORPORATION

(formerly NE RestaurantCompany, Inc.)

 

FORM 10-Q

 

TABLE OFCONTENTS

 

 
| PART I:    | FINANCIAL INFORMATION                                                                       |                                                                                                                                       |   |
|------------|---------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------|--------|
|       |                                                                                        |                                                                                                                                       |   |
| Item 1.    | Financial Statements:                                                                       |                                                                                                                                       |   |
|       | 1)                                                                                          | Consolidated Balance Sheets  October 3, 2001 (Unaudited) and January 3, 2001                                                               |   |
|       |                                                                                        |                                                                                                                                       |   |
|       | 2)                                                                                          | Consolidated  Statements of Operations For the 13 Weeks and 39 Weeks Ended October 3, 2001  (Unaudited) and September 27, 2000 (Unaudited) |   |
|       |                                                                                        |                                                                                                                                       |   |
|       | 3)                                                                                          | Consolidated  Statement of changes in Stockholders’ Equity for the 39 Weeks Ended October  3, 2001 (Unaudited)                        |   |
|       |                                                                                        |                                                                                                                                       |   |
|       | 4)                                                                                          | Consolidated  Statements of Cash Flow for the 39 Weeks Ended October 3, 2001 (Unaudited)  and September 27, 2000 (Unaudited)               |   |
|       |                                                                                        |                                                                                                                                       |   |
|       | 5)                                                                                          | Notes to  Consolidated Financial Statements (Unaudited)                                                                                    |   |
|       |                                                                                        |                                                                                                                                       |   |
| Item  2.   | Management’s  Discussion and Analysis of Results of Operations and Financial Condition |                                                                                                                                       |   |
|       |                                                                                        |                                                                                                                                       |   |
| Item  3.   | Quantitative  and Qualitative Disclosures about Market Risk                                 |                                                                                                                                       |   |
|       |                                                                                        |                                                                                                                                       |   |
| PART II:   | OTHER INFORMATION                                                                           |                                                                                                                                       |   |
| Item 1.    |                                                                                        | Legal Proceedings                                                                                                                          |   |
| Item  2.   |                                                                                        | Changes  in Securities and Use of Proceeds                                                                                                 |   |
| Item 3.    |                                                                                        | Defaults upon  Senior Securities                                                                                                           |   |
| Item  4.   |                                                                                        | Submission  of Matters to a Vote of Security Holders                                                                                       |   |
| Item 5.    |                                                                                        | Other Information                                                                                                                          |   |
| Item 6.    |                                                                                        | Exhibits and  Reports on Form 8-K                                                                                                          |   |
|       |                                                                                        |                                                                                                                                       |   |
| SIGNATURES |                                                                                        |                                                                                                                                       |   |
|            |                                                                                             |                                                                                                                                            |        |  |

PART  I:  FINANCIAL INFORMATION

Item 1. Financial Statements 

**BERTUCCI'S CORPORATION**

**(formerly NE Restaurant Company, Inc.)**

**CONSOLIDATED BALANCE SHEETS**

(Inthousands, except share data)

 
|                                                                                                  |   | **(Unaudited)** |       |           |       |
|-------------------------------------------------------------------------------------------------------|--------|-----------------|------------|----------------|------------|
|                                                                                                  |   | **October 3,**  |       | **January 3,** |       |
|                                                                                                  |   | **2001**        |       | **2001**       |       |
| **ASSETS**                                                                                            |   |            | ** ** |           | ** ** |
|                                                                                                  |   |            |       |           |       |
| Current Assets:                                                                                       |   |            |       |           |       |
| Cash                                                                                                  |   | $               | 21,023     |           | $          | 7,602 |   |
| Restricted cash                                                                                       |   | 1,000           |       | -              |       |
| Credit card receivables                                                                               |   | 816             |       | 838            |       |
| Inventories                                                                                           |   | 956             |       | 1,885          |       |
| Prepaid expenses and  other current assets                                                            |   | 1,563           |       | 2,617          |       |
| Assets held for sale -  short term                                                                    |   | -               |       | 200            |       |
| Prepaid and current  deferred income taxes                                                            |   | -               |       | 5,433          |       |
| Total current assets                                                                                  |   | 25,358          |       | 18,575         |       |
|                                                                                                  |   |            |       |           |       |
| Property and equipment,  at cost:                                                                     |   |            |       |           |       |
| Land and land right                                                                                   |   | 2,647           |       | 7,858          |       |
| Buildings                                                                                             |   | 6,612           |       | 12,549         |       |
| Leasehold improvements                                                                                |   | 48,825          |       | 83,973         |       |
| Furniture and equipment                                                                               |   | 27,377          |       | 50,455         |       |
|                                                                                                  |   | 85,461          |       | 154,835        |       |
| Less - Accumulated  depreciation                                                                      |   | (21,608         | )          | (40,196        | )          |
|                                                                                                  |   | 63,853          |       | 114,639        |       |
| Construction work in  process                                                                         |   | -               |       | 2,917          |       |
| Net property and  equipment                                                                           |   | 63,853          |       | 117,556        |       |
|                                                                                                  |   |            |       |           |       |
| Goodwill, net                                                                                         |   | 26,696          |       | 28,404         |       |
| Deferred finance costs,  net                                                                          |   | 4,552           |       | 8,025          |       |
| Liquor licenses                                                                                       |   | 1,807           |       | 3,014          |       |
| Deferred taxes,  noncurrent                                                                           |   | 8,524           |       | 6,451          |       |
| Other assets, net                                                                                     |   | 102             |       | 1,570          |       |
| Total Assets                                                                                          |   | $               | 130,892    |           | $          | 183,595 |   |
|                                                                                                  |   |            |       |           |       |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                  |   |            |       |           |       |
|                                                                                                  |   |            |       |           |       |
| Current Liabilities:                                                                                  |   |            |       |           |       |
| Mortgage loans payable  - current portion                                                             |   | $               | -          |           | $          | 1,578 |   |
| Accounts payable                                                                                      |   | 6,437           |       | 14,510         |       |
| Accrued expenses                                                                                      |   | 16,668          |       | 18,817         |       |
| Total current  liabiliites                                                                            |   | 23,105          |       | 34,905         |       |
|                                                                                                  |   |            |       |           |       |
| Mortgage loan payable,  net of current portion                                                        |   | -               |       | 39,737         |       |
| Bonds payable                                                                                         |   | 85,310          |       | 100,000        |       |
| Deferred rent and other  long-term liabilites                                                         |   | 2,383           |       | 4,887          |       |
| Total liabilities                                                                                     |   | 110,798         |       | 179,529        |       |
| Commitments and  contingencies                                                                        |   |            |       |           |       |
| Stockholders' equity:                                                                                 |   |            |       |           |       |
| Common stock, $.01 par value Authorized - 4,000,000  shares Issued and outstanding - 3,666,370 shares |   | 37              |       | 37             |       |
| Less treasury  stock-687,415 shares at cost                                                           |   | (8,088          | )          | (8,088         | )          |
| Additional paid-in  capital                                                                           |   | 29,004          |       | 29,004         |       |
| Accumulated deficit                                                                                   |   | (859            | )          | (16,887        | )          |
| Total stockholders'  equity                                                                           |   | 20,094          |       | 4,066          |       |
| Total Liabilites and  Stockholders' Equity                                                            |   | $               | 130,892    |           | $          | 183,595 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

**BERTUCCI'S CORPORATION**

**(formerly NE Restaurant Company, Inc.)**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

(Inthousands, except share and per share data)

 
|                                                                |   | **(Unaudited)**          |       | **(Unaudited)**             |       |
|---------------------------------------------------------------------|--------|--------------------------|------------|-----------------------------|------------|
|                                                                |   | **Thirteen weeks ended** |       | **Thirty nine weeks ended** |       |
|                                                                |   | **October 3,**           |       | **September 27,**           |       | **October 3,** |   | **September 27,** |   |
|                                                                |   | **2001**                 |       | **2000**                    |       | **2001** |   | **2000** |   |
|                                                                |   |                     | ** ** |                        | ** ** |   | ** ** |   | ** ** |
| Net  sales                                                          |   | $                        | 37,806     |                        | $          | 71,802 |   | $ | 148,633 |   | $ | 210,181 |   |
|                                                                |   |                     |       |                        |       |   |   |   |   |
| Cost  of sales and expenses:                                        |   |                     |       |                        |       |   |   |   |   |
| Cost  of sales                                                      |   | 8,381                    |       | 18,853                      |       | 36,252 |   | 55,214 |   |
| Operating  expenses                                                 |   | 23,032                   |       | 41,197                      |       | 88,724 |   | 120,771 |   |
| General  and administrative expenses                                |   | 2,717                    |       | 3,928                       |       | 9,357 |   | 12,551 |   |
| Closed  restaurant charge                                           |   | 3,950                    |       | -                           |       | 4,200 |   | - |   |
| Asset  impairment charge                                            |   | 1,800                    |       | -                           |       | 1,800 |   | - |   |
| Deferred rent, depreciation,  amortization, and preopening expenses |   | 3,258                    |       | 4,579                       |       | 11,114 |   | 13,668 |   |
| Total  cost of sales and expenses                                   |   | 43,138                   |       | 68,557                      |       | 151,447 |   | 202,204 |   |
| Income  (loss) from operations                                      |   | (5,332                   | )          | 3,245                       |       | (2,814 | ) | 7,977 |   |
|                                                                |   |                     |       |                        |       |   |   |   |   |
| Interest  expense, net                                              |   | 2,486                    |       | 3,741                       |       | 8,779 |   | 11,120 |   |
|                                                                |   |                     |       |                        |       |   |   |   |   |
| Loss  before income tax benefit                                     |   | (7,818                   | )          | (496                        | )          | (11,593 | ) | (3,143 | ) |
|                                                                |   |                     |       |                        |       |   |   |   |   |
| Income  tax benefit                                                 |   | (3,087                   | )          | (29                         | )          | (4,133 | ) | (753 | ) |
|                                                                |   |                     |       |                        |       |   |   |   |   |
| Net  loss before extraordinary and unusual items                    |   | (4,731                   | )          | (467                        | )          | (7,460 | ) | (2,390 | ) |
|                                                                |   |                     |       |                        |       |   |   |   |   |
| Gain  on Brinker Sale, net of tax                                   |   | (300                     | )          | -                           |       | 22,150 |   | - |   |
| Gain  on Senior Notes retirement, net of tax                        |   | 1,340                    |       | -                           |       | 1,338 |   | - |   |
|                                                                |   |                     |       |                        |       |   |   |   |   |
| Net  income (loss)                                                  |   | $                        | (3,691     | )                           | $          | (467 | ) | $ | 16,028 |   | $ | (2,390 | ) |
|                                                                |   |                     |       |                        |       |   |   |   |   |
| Basic  income (loss) per share:                                     |   |                     |       |                        |       |   |   |   |   |
| Net  loss before extraordinary and unusual items                    |   | $                        | (1.59      | )                           | $          | (0.16 | ) | $ | (2.50 | ) | $ | (0.80 | ) |
| Gain  on Brinker Sale, net of tax                                   |   | (0.10                    | )          | -                           |       | 7.44 |   | - |   |
| Gain  on Senior Notes retirement, net of tax                        |   | 0.45                     |       | -                           |       | 0.45 |   | - |   |
| Basic  income (loss) per share                                      |   | $                        | (1.24      | )                           | $          | (0.16 | ) | $ | 5.39 |   | $ | (0.80 | ) |
|                                                                |   |                     |       |                        |       |   |   |   |   |
| Weighted  average shares outstanding                                |   | 2,978,955                |       | 2,978,955                   |       | 2,978,955 |   | 2,981,960 |   |
|                                                                |   |                     |       |                        |       |   |   |   |   |
| Diluted  income (loss) per share:                                   |   |                     |       |                        |       |   |   |   |   |
| Net  loss before extraordinary and unusual items                    |   | $                        | (1.59      | )                           | $          | (0.16 | ) | $ | (2.50 | ) | $ | (0.80 | ) |
| Gain  on Brinker Sale, net of tax                                   |   | (0.10                    | )          | -                           |       | 6.84 |   | - |   |
| Gain  on Senior Notes retirement, net of tax                        |   | 0.41                     |       | -                           |       | 0.41 |   | - |   |
| Diluted  income (loss) per share                                    |   | $                        | (1.28      | )                           | $          | (0.16 | ) | $ | 4.75 |   | $ | (0.80 | ) |
|                                                                |   |                     |       |                        |       |   |   |   |   |
| Weighted  average shares outstanding                                |   | 3,240,126                |       | 2,978,955                   |       | 3,240,126 |   | 2,981,960 |   |

 

The accompanying notes are an integralpart of these consolidated financial statements.

 

**BERTUCCI'S CORPORATION**

**(formerly NE Restaurant Company, Inc.)**

**CONSOLIDATED STATEMENT OF CHANGES INSTOCKHOLDERS' EQUITY**

(In thousands, except share data)

 

 
|                                |   | **Common Stock** |   | **Treasury Stock** |   |          |     |       |   | **Total**             |   |
|-------------------------------------|--------|------------------|--------|--------------------|--------|---------------|----------|------------|--------|-----------------------|--------|
|                                |   | **Number of**    |   | **$.01 per**       |   | **Number of** |     |       |   | **Additional Paid -** |   | **Accumulated** |   | **Stockholders'** |   |
|                                |   | **Shares**       |   | **Share**          |   | **Shares**    |     | **Amount** |   | **In Capital**        |   | **Deficit** |   | **Equity** |   |
|                                |   |             |   |               |   |          |     |       |   |                  |   |   |   |   |   |
| Balance January 3, 2001             |   | 3,666,370        |   | $                  | 37     |          | (687,415 | )          | $      | (8,088                | )      | $ | 29,004 |   | $ | (16,887 | ) | $ | 4,066 |   |
| Net income                          |   |             |   |               |   |          |     |       |   |                  |   | 16,028 |   | 16,028 |   |
| Balance October 3, 2001 (Unaudited) |   | 3,666,370        |   | $                  | 37     |          | (687,415 | )          | $      | (8,088                | )      | $ | 29,004 |   | $ | (859 | ) | $ | 20,094 |   |

 

The accompanying notes are an integralpart of these consolidated financial statements.

 

**BERTUCCI'S CORPORATION**

**(formerly NE Restaurant Company, Inc.)**

**CONSOLIDATED STATEMENTS OF CASH FLOW**

(Inthousands)

 
|                                                                                  |   | **(Unaudited)**             |   |
|---------------------------------------------------------------------------------------|--------|-----------------------------|--------|
|                                                                                  |   | **Thirty nine weeks ended** |   |
|                                                                                  |   | **October 3, 2001**         |   | **September 27, 2000** |   |
|                                                                                  |   |                        |   |   |   |
| Cash flows from  operating activities                                                 |   |                        |   |   |   |
| Net income (loss)                                                                     |   | $                           | 16,028 |   | $ | (2,390 | ) |
| Less gain on Brinker  sale, net of tax                                                |   | (22,150                     | )      | - |   |
| Less gain on Senior  Notes retirement, net of tax                                     |   | (1,338                      | )      | - |   |
|                                                                                  |   |                        |   |   |   |
| Adjustments to reconcile net income (loss) to net  cash used in operating activities: |   |                        |   |   |   |
| Deferred rent,  depreciation, and amortization                                        |   | 10,385                      |   | 12,911 |   |
| Closed restaurant  charge                                                             |   | 4,200                       |   | - |   |
| Asset impairment charge                                                               |   | 1,800                       |   | - |   |
| Change in deferred  taxes                                                             |   | (2,211                      | )      | - |   |
| Changes in operating  assets and liabilities                                          |   |                        |   |   |   |
| Inventories                                                                           |   | 72                          |   | (121 | ) |
| Prepaid expenses,  receivables and other                                              |   | 1,419                       |   | 1,016 |   |
| Accrued expenses                                                                      |   | (3,904                      | )      | (6,907 | ) |
| Income taxes payable                                                                  |   | (4,872                      | )      | (1,313 | ) |
| Accounts payable                                                                      |   | (4,147                      | )      | 1,747 |   |
| Other operating assets  and liabilities                                               |   | (2,613                      | )      | (451 | ) |
| Total adjustments                                                                     |   | 129                         |   | 6,882 |   |
| Net cash (used in)  provided by operating activities                                  |   | (7,331                      | )      | 4,492 |   |
|                                                                                  |   |                        |   |   |   |
| Cash flows used for  investing activities                                             |   |                        |   |   |   |
| Additions to property  and equipment                                                  |   | (9,280                      | )      | (10,401 | ) |
| Proceeds from sale of  restaurant properties                                          |   | 200                         |   | 1,390 |   |
| Licenses and fees paid                                                                |   | -                           |   | (176 | ) |
| Cash proceeds from  Brinker Sale                                                      |   | 42,775                      |   | - |   |
| Net cash (used in)  provided by investing activities                                  |   | 33,695                      |   | (9,187 | ) |
|                                                                                  |   |                        |   |   |   |
| Cash flows used for  financing activities                                             |   |                        |   |   |   |
| Borrowings of mortgage loans                                                          |   | -                           |   | 3,825 |   |
| Establish cash  collateral for letter of LOC facility                                 |   | (1,000                      | )      | - |   |
| Payments of mortgage  loans and capital lease obligations                             |   | (421                        | )      | (1,014 | ) |
| Repurchase of common  stock to treasury                                               |   | -                           |   | (71 | ) |
| Principal payments  under capital lease obligations                                   |   | -                           |   | (70 | ) |
| Senior Notes retirement                                                               |   | (11,522                     | )      | - |   |
| Net cash (used in)  provided by financing activities                                  |   | (12,943                     | )      | 2,670 |   |
|                                                                                  |   |                        |   |   |   |
| Net increase (decrease)  in cash                                                      |   | 13,421                      |   | (2,025 | ) |
| Cash, beginning of  period                                                            |   | 7,602                       |   | 7,579 |   |
| Cash, end of period                                                                   |   | $                           | 21,023 |   | $ | 5,554 |   |
|                                                                                  |   |                        |   |   |   |
|                                                                                  |   |                        |   |   |   |
| Supplemental Disclosure  of Cash Flow Information:                                    |   |                        |   |   |   |
| Cash paid for interest,  net of amounts capitalized                                   |   | $                           | 11,737 |   | $ | 13,856 |   |
| Cash paid for income  taxes                                                           |   | $                           | 4,841  |   | $ | 115 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

**BERTUCCI’S CORPORATION**

**(formerly NE Restaurant Company,Inc.)**

**NotesTo Consolidated  Financial Statements**

October3, 2001

(Unaudited)

 

1.       OnAugust 16, 2001, NE Restaurant Company, Inc. formally changed its name toBertucci’s Corporation.  The unauditedconsolidated financial statements (the "Unaudited FinancialStatements") presented herein have been prepared by Bertucci’s Corporationand include all of its subsidiaries (collectively, the "Company") afterelimination of intercompany accounts and transactions, without audit, and, inthe opinion of management, reflect all adjustments of a normal recurring naturenecessary for a fair statement of the interim periods presented.  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance with generallyaccepted accounting principles ("GAAP") have been omitted, althoughthe Company believes that the disclosures included are adequate to make the informationpresented not misleading.  It issuggested that the Unaudited Financial Statements be read in conjunction withthe consolidated financial statements and notes included in the Company's Form10-K.

 

2.       In June1998, the FASB issued SFAS No. 133, *Accountingfor Derivative Instruments and Hedging Activities*. This statementestablished accounting and reporting standards requiring that every derivativeinstrument (including certain derivative instruments embedded in othercontracts and for hedging activities) be recorded in the balance sheet aseither an asset or liability measured at its fair value. SFAS No. 133 requiresthat changes in the derivative's fair value be recognized currently in earningsunless specific hedging accounting criteria are met. Special accounting forqualifying hedges allows a derivative's gains and losses to offset relatedresults on the hedged item in the income statement, and requires that a companymust formally document, designate and assess the effectiveness of transactionsthat receive hedge accounting. SFAS No. 133 is effective for fiscal yearsbeginning after June 15, 2000.

 

          In June 2000, the FASB issued SFAS No.138, *Accounting for Derivative Instrumentsand Hedging Activities – An Amendment of FASB Statement No. 133*,which amended SFAS no. 133 and added guidance for certain derivativeinstruments and hedging activities.  Thenew standard, SFAS No. 133 as amended by SFAS No. 138, requires recognition ofall derivatives as either assets or liabilities at fair value.  One of the primary amendments to SFAS No.133 that is covered by SFAS No. 138 establishes an exemption for normalpurchases and normal sales that will be delivered in quantities expected to beused or sold over a reasonable period in the normal course of business.  The adoption of this standard effectiveJanuary 4, 2000 did not have a material impact on the Company’s financialposition or results of operations.

 

In July 2001, theFinancial Accounting Standards Board issued SFAS No. 142, *Goodwill And Other Intangible Assets*.  SFAS No.142 addresses the method ofidentifying and measuring goodwill and other intangible assets acquired in abusiness combination, eliminates further amortization of goodwill, and requiresperiodic evaluations of impairment of goodwill balances. SFAS No. 142 iseffective for fiscal years beginning after December 15, 2001.  In all cases, the provisions of thisStatement shall be initially applied at the beginning of a fiscal year.Retroactive application is not permitted. The Company is currently assessing the impacts of adoption of SFAS No.142. The Company expects that its annualized goodwill amortization of $2.3million will be eliminated beginning in 2002.

 

3.       The Company had operated one Sal & Vinnie’s SicilianSteakhouse as a result of its 1998 acquisition of Bertucci’s, Inc. In December2000, the Company abandoned the restaurant in exchange for termination of itslease obligation and recorded a $2.0 million loss on abandonment.

 

On April 12, 2001, the Company completed its sale of40 Chili’s and seven On The Border restaurants to the chains’ franchisorBrinker International, Inc. of Dallas, Texas (“Brinker”) (the “BrinkerSale”).  Total consideration, subject toclosing adjustments, was $93.5 million. Brinker acquired the inventory,facilities, equipment, management teams associated with these restaurants, aswell as the four Chili’s restaurants that were under development by theCompany. Further, Brinker assumed the mortgage debt on the Company’s Chili’sand On The Border restaurants.  The netcash proceeds from the sales were approximately $43 million.  The gain recorded in the second quarter dueto the Brinker Sale was adjusted in the third quarter for final expensesrelated to the transaction.

 

The pro forma Consolidated Statements of Operationsreflect (a) the recognition of the Brinker Sale; and (b) the abandonment of Sal& Vinnie’s as if the dispositions occurred on December 30, 1999.Accordingly, operating results of the Brinker restaurants are removed for bothperiods presented.  Sal & Vinnie’soperating results are removed for the prior year period presented only as itwas abandoned in December 2000.

 

4.       Restaurant closing reserves wereestablished as part of the Acquisition of Bertucci’s. These reserves wererelated to estimated future lease commitments and exit costs to close 18Bertucci’s locations.  Duringthe third quarter, the Company made additional accruals of  approximately $4.0 million related toexiting certain locations, consisting of estimated lease commitments andcertain exit costs. It was originally expected the Company would be able toexit these locations and the related leases, but due to market conditions, theCompany has been unable to sell or sublease these locations or exit the relatedleases. This accrual was charged to earnings and included in the accompanyingstatements of operations.  The accruedcosts are included in accrued expenses in each of the consolidated balancesheets presented above.

 

5.       In 1996, the Financial Accounting Standards Boardissued SFAS No. 121, *Accounting for the Impairment of Long-Lived Assetsand for Long-Lived Assets to be Disposed of*. The Company’slong-lived assets consist primarily of goodwill, real estate and leaseholdimprovements related to its restaurant operations. SFAS No. 121 requiresmanagement to consider whether long-lived assets have been impaired bycomparing undiscounted future cash flows expected to be generated fromutilizing these assets to their carrying amounts. If cash flows are notsufficient to recover the carrying amount of the assets, impairment hasoccurred 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 orderto test for impairment under this standard. For long-lived assets to bedisposed of, SFAS No. 121 requires that long-lived assets be reported at thelower of carrying amount or fair value less cost to sell.  During the third quarter, the Company recordedapproximately $1.8 million of impairment charges related to four restaurantlocations. This impairment was charged to earnings and included in theaccompanying statements of operations.

 

**BERTUCCI'S CORPORATION**

**(formerly NE Restaurant Company, Inc.)**

**PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS**

(Unaudited)

(Inthousands, except share and per share data)

39 WeeksEnded October 3, 2001

 
|                                                                |   | **As**       |    |             |   |          |   |
|---------------------------------------------------------------------|--------|--------------|---------|------------------|--------|---------------|--------|
|                                                                |   | **Reported** |    | **Brinker Sale** |   | **Pro Forma** |   |
|                                                                |   |         |    |             |   |          |   |
| Net  sales                                                          |   | $            | 148,633 |             | $      | (36,527       | )      | $ | 112,106 |   |
|                                                                |   |         |    |             |   |          |   |
| Cost  of sales and expenses                                         |   |         |    |             |   |          |   |
| Cost  of sales                                                      |   | 36,252       |    | (10,330          | )      | 25,922        |   |
| Operating  expenses                                                 |   | 88,724       |    | (21,639          | )      | 67,085        |   |
| General  and administrative expenses                                |   | 9,357        |    | (1,300           | )      | 8,057         |   |
| Closed  restaurant charge                                           |   | 4,200        |    | -                |   | 4,200         |   |
| Asset  impairment charge                                            |   | 1,800        |    | -                |   | 1,800         |   |
| Deferred rent, depreciation,  amortization, and preopening expenses |   | 11,114       |    | (1,393           | )      | 9,721         |   |
| Total  cost of sales and expenses                                   |   | 151,447      |    | (34,662          | )      | 116,785       |   |
| Loss  from operations                                               |   | (2,814       | )       | (1,865           | )      | (4,679        | )      |
|                                                                |   |         |    |             |   |          |   |
| Interest  expense, net                                              |   | 8,779        |    | (1,871           | )      | 6,908         |   |
|                                                                |   |         |    |             |   |          |   |
| Loss  before income tax benefit                                     |   | (11,593      | )       | 6                |   | (11,587       | )      |
|                                                                |   |         |    |             |   |          |   |
| Income  tax benefit                                                 |   | (4,133       | )       | 2                |   | (4,131        | )      |
|                                                                |   |         |    |             |   |          |   |
| Net  loss before extraordinary and unusual items                    |   | (7,460       | )       | 4                |   | (7,456        | )      |
| Gain  on Brinker Sale, net of tax                                   |   | 22,150       |    | (22,150          | )      | -             |   |
| Gain  on Senior Notes retirement, net of tax                        |   | 1,338        |    | (1,338           | )      | -             |   |
|                                                                |   |         |    |             |   |          |   |
| Net  income (loss)                                                  |   | $            | 16,028  |             | $      | (23,484       | )      | $ | (7,456 | ) |
|                                                                |   |         |    |             |   |          |   |
| Basic  income (loss) per share:                                     |   |         |    |             |   |          |   |
| Net  loss before extraordinary and unusual items                    |   | $            | (2.50   | )                | $      | -             |   | $ | (2.50 | ) |
| Gain  on Brinker Sale, net of tax                                   |   | 7.44         |    | (7.44            | )      | -             |   |
| Gain  on Senior Notes retirement, net of tax                        |   | 0.45         |    | (0.45            | )      | -             |   |
| Basic  income (loss) per share                                      |   | $            | 5.39    |             | $      | (7.89         | )      | $ | (2.50 | ) |
|                                                                |   |         |    |             |   |          |   |
| Weighted  average shares outstanding                                |   | 2,978,955    |    | 2,978,955        |   | 2,978,955     |   |
|                                                                |   |         |    |             |   |          |   |
| Diluted  income (loss) per share:                                   |   |         |    |             |   |          |   |
| Net  loss before extraordinary and unusual items                    |   | $            | (2.50   | )                | $      | -             |   | $ | (2.50 | ) |
| Gain  on Brinker Sale, net of tax                                   |   | 6.84         |    | (6.84            | )      | -             |   |
| Gain  on Senior Notes retirement, net of tax                        |   | 0.41         |    | (0.41            | )      | -             |   |
| Diluted  income (loss) per share                                    |   | $            | 4.75    |             | $      | (7.25         | )      | $ | (2.50 | ) |
|                                                                |   |         |    |             |   |          |   |
| Weighted  average shares outstanding                                |   | 3,240,126    |    | 3,240,126        |   | 3,240,126     |   |

 

**BERTUCCI'S CORPORATION**

**(formerly NE Restaurant Company, Inc.)**

**PRO FORMA CONSOLIDATEDSTATEMENT OF OPERATIONS**

(Unaudited)

(Inthousands, except share and per share data)

13 WeeksEnded September 27 , 2000

 
|                                                                |   | **As**       |   |             |   | **Sal & Vinnie's** |   |          |   |
|---------------------------------------------------------------------|--------|--------------|--------|------------------|--------|------------------------|--------|---------------|--------|
|                                                                |   | **Reported** |   | **Brinker Sale** |   | **Abandonment**        |   | **Pro Forma** |   |
|                                                                |   |         |   |             |   |                   |   |          |   |
| Net  sales                                                          |   | $            | 71,802 |             | $      | (35,048                | )      | $             | (704   | ) | $ | 36,050 |   |
|                                                                |   |         |   |             |   |                   |   |          |   |
| Cost  of sales and expenses                                         |   |         |   |             |   |                   |   |          |   |
| Cost  of sales                                                      |   | 18,853       |   | (9,657           | )      | (241                   | )      | 8,955         |   |
| Operating  expenses                                                 |   | 41,197       |   | (19,181          | )      | (437                   | )      | 21,579        |   |
| General  and administrative expenses                                |   | 3,928        |   | (1,221           | )      | (20                    | )      | 2,687         |   |
| Deferred rent, depreciation,  amortization, and preopening expenses |   | 4,579        |   | (1,724           | )      | -                      |   | 2,855         |   |
| Total  cost of sales and expenses                                   |   | 68,557       |   | (31,783          | )      | (698                   | )      | 36,076        |   |
| Income  (loss) from operations                                      |   | 3,245        |   | (3,265           | )      | (6                     | )      | (26           | )      |
|                                                                |   |         |   |             |   |                   |   |          |   |
| Interest  expense, net                                              |   | 3,741        |   | (1,613           | )      | -                      |   | 2,128         |   |
|                                                                |   |         |   |             |   |                   |   |          |   |
| Loss  before income tax benefit                                     |   | (496         | )      | (1,652           | )      | (6                     | )      | (2,154        | )      |
|                                                                |   |         |   |             |   |                   |   |          |   |
| Income  tax benefit                                                 |   | (29          | )      | (644             | )      | (2                     | )      | (675          | )      |
|                                                                |   |         |   |             |   |                   |   |          |   |
|                                                                |   |         |   |             |   |                   |   |          |   |
| Net  loss                                                           |   | $            | (467   | )                | $      | (1,007                 | )      | $             | (4     | ) | $ | (1,479 | ) |
|                                                                |   |         |   |             |   |                   |   |          |   |
| Basic  loss per share                                               |   | $            | (0.16  | )                | $      | (0.34                  | )      | $             | -      |   | $ | (0.50 | ) |
|                                                                |   |         |   |             |   |                   |   |          |   |
| Weighted  Average Shares Outstanding                                |   | 2,978,855    |   | 2,978,855        |   | 2,978,855              |   | 2,978,855     |   |

 

**BERTUCCI'SCORPORATION**

**(formerlyNE Restaurant Company, Inc.)**

**PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS**

(Unaudited)

(In thousands, except share and per sharedata)

39 Weeks Ended September 27, 2000

 
|                                                                |   | **As**       |    |             |   | **Sal & Vinnie's** |   |          |   |
|---------------------------------------------------------------------|--------|--------------|---------|------------------|--------|------------------------|--------|---------------|--------|
|                                                                |   | **Reported** |    | **Brinker Sale** |   | **Abandonment**        |   | **Pro Forma** |   |
|                                                                |   |         |    |             |   |                   |   |          |   |
| Net  sales                                                          |   | $            | 210,181 |             | $      | (102,414               | )      | $             | (2,096 | ) | $ | 105,671 |   |
|                                                                |   |         |    |             |   |                   |   |          |   |
| Cost  of sales and expenses                                         |   |         |    |             |   |                   |   |          |   |
| Cost  of sales                                                      |   | 55,214       |    | (28,438          | )      | (731                   | )      | 26,045        |   |
| Operating  expenses                                                 |   | 120,771      |    | (56,326          | )      | (1,284                 | )      | 63,161        |   |
| General  and administrative expenses                                |   | 12,551       |    | (3,621           | )      | -                      |   | 8,930         |   |
| Deferred rent, depreciation,  amortization, and preopening expenses |   | 13,668       |    | 0 (5,102         | )      | (132                   | )      | 8,434         |   |
| Total  cost of sales and expenses                                   |   | 202,204      |    | (93,487          | )      | (2,147                 | )      | 106,570       |   |
| Income  (loss) from operations                                      |   | 7,977        |    | (8,927           | )      | 51                     |   | (899          | )      |
|                                                                |   |         |    |             |   |                   |   |          |   |
| Interest  expense, net                                              |   | 11,120       |    | (4,716           | )      | -                      |   | 6,404         |   |
|                                                                |   |         |    |             |   |                   |   |          |   |
| Loss  before income tax benefit                                     |   | (3,143       | )       | (4,211           | )      | 51                     |   | (7,303        | )      |
|                                                                |   |         |    |             |   |                   |   |          |   |
| Income  tax benefit                                                 |   | (753         | )       | (1,642           | )      | 20                     |   | (2,375        | )      |
| Net  income (loss) before Brinker Sale                              |   | (2,390       | )       | (2,568           | )      | 31                     |   | (4,928        | )      |
| Gain  on Brinker Sale, net of tax                                   |   | -            |    | 22,150           |   | -                      |   | 22,150        |   |
|                                                                |   |         |    |             |   |                   |   |          |   |
| Net  income (loss)                                                  |   | $            | (2,390  | )                | $      | 19,582                 |   | $             | 31     |   | $ | 17,222 |   |
|                                                                |   |         |    |             |   |                   |   |          |   |
| Basic  income (loss) per share:                                     |   |         |    |             |   |                   |   |          |   |
| Net  income (loss) per share before Brinker Sale                    |   | $            | (0.80   | )                | $      | (0.86                  | )      | $             | 0.01   |   | $ | (1.65 | ) |
| Gain  on Brinker Sale, net of tax                                   |   | -            |    | 7.43             |   | -                      |   | 7.43          |   |
| Basic  income (loss) per share                                      |   | $            | (0.80   | )                | $      | 6.57                   |   | $             | 0.01   |   | $ | 5.78 |   |
|                                                                |   |         |    |             |   |                   |   |          |   |
| Weighted  Average Shares Outstanding                                |   | 2,981,960    |    | 2,981,960        |   | 2,981,960              |   | 2,981,960     |   |
|                                                                |   |         |    |             |   |                   |   |          |   |
| Diluted  income (loss) per share:                                   |   |         |    |             |   |                   |   |          |   |
| Net  income (loss) per share before Brinker Sale                    |   | $            | (0.80   | )                | $      | (0.86                  | )      | $             | 0.01   |   | $ | (1.65 | ) |
| Gain  on Brinker Sale, net of tax                                   |   | -            |    | 6.89             |   | -                      |   | 6.89          |   |
| Diluted  income (loss) per share                                    |   | $            | (0.80   | )                | $      | 6.03                   |   | $             | 0.01   |   | $ | 5.24 |   |
|                                                                |   |         |    |             |   |                   |   |          |   |
| Weighted  Average Shares Outstanding                                |   | 3,216,944    |    | 3,216,944        |   | 3,216,944              |   | 3,216,944     |   |

**Item2.  Management’s Discussion and Analysisof Results of Operations and Financial Condition**

 

                Thefollowing discussion should be read in conjunction with the consolidatedfinancial statements of Bertucci’s Corporation. (the “Company”) and the notesthereto included herein.

 

### **General**

 

                The Company is an operator of full-service, casual diningrestaurants in the northeastern United States. The Company’s wholly owned subsidiary, Bertucci’s Restaurant Corp.(“Bertucci’s”) owns and operates a restaurant concept under the name Bertucci’sBrick Oven Pizzeria® (“Bertucci’s restaurants”).  The Company was formed to acquire 15 Chili's restaurants from aprior franchisee.  The Company had grownthrough the addition of 25 new Chili's and seven On The Border restaurants inNew England.  The Company developed andoperated these restaurant franchises under franchise agreements with BrinkerInternational, Inc., a publicly-owned company (“Brinker” or the“Franchisor”).  On April 11, 2001, theCompany operated 40 Chili's and seven On The Border restaurants in five NewEngland states (collectively, the “Brinker Concepts Restaurants”).  See Note 3 of Notes to ConsolidatedFinancial Statements for discussion of the sale of the Brinker ConceptRestaurants.

 

                In July 1998, the Companycompleted its acquisition of Bertucci's parent entity, Bertucci’s, Inc., a publicly-ownedrestaurant company for a purchase price, net of cash received, of approximately$89.4 million (the “Acquisition”).   TheCompany financed the Acquisition primarily through the issuance of $100 millionof 10 3/4% senior notes due 2008 (the “Senior Notes”).  The Acquisition included 90 Bertucci’srestaurants and one Sal & Vinnie’s restaurant.  Since 1999, the Company closed the Bertucci’s test kitchenrestaurant in Wakefield, Massachusetts and closed seventeen under performingBertucci’s restaurants.  In December of2000, the Company also closed the one Sal and Vinnie's Sicilian SteakhouseTM(“Sal and Vinnie’s”) located in Massachusetts.

On April 12,2001, the Company completed the sale of 40 Chili’s and seven On The Borderrestaurants to Brinker (the “Brinker Sale”).  Total consideration, subjectto closing adjustments, was $93.5 million. Brinker acquired the inventory, facilities, equipment and managementteams associated with these restaurants, as well as the four Chili’srestaurants that were under development by the Company. Further, Brinkerassumed the mortgage debt on the Company’s Chili’s and On The Borderrestaurants.  As of October 3, 2001, the Company owned and operated 75full-service, casual dining, Italian-style restaurants under the nameBertucci's Brick Oven Pizzeria® located primarily in New England andMid-Atlantic United States.

### **Results of Operations**

 

                Thefollowing table sets forth the percentage relationship to net sales, unlessotherwise indicated, of certain items included in the Company's statement ofoperations, as well as certain operating data, for the periods indicated:

** **

**BERTUCCI'S CORPORATION**

**(formerly NERestaurant Company, Inc.)**

**CONSOLIDATED STATEMENTS OF INCOME**

**(Dollars in Thousands)**

(Unaudited)

 
|                                                               |   | **Thirteen Weeks Ended:** |   | **Thirty Nine Weeks  Ended:** |   |
|--------------------------------------------------------------------|--------|---------------------------|--------|-------------------------------|--------|
|                                                               |   | **Oct 03,**               |   | **Sep 27,**                   |   | **Oct 03,** |   | **Sep 27,** |   |
|                                                               |   | **2001**                  |   | **2000**                      |   | **2001** |   | **2000** |   |
| Net  Sales                                                         |   | 100.0                     | %      | 100.0                         | %      | 100.0 | % | 100.0 | % |
|                                                               |   |                      |   |                          |   |   |   |   |   |
| Cost  of sales and expenses                                        |   |                      |   |                          |   |   |   |   |   |
| Cost  of sales                                                     |   | 22.2                      | %      | 26.3                          | %      | 24.4 | % | 26.3 | % |
| Operating  expenses                                                |   | 60.9                      | %      | 57.3                          | %      | 59.7 | % | 57.4 | % |
| General  and administrative expenses                               |   | 7.2                       | %      | 5.5                           | %      | 6.3 | % | 6.0 | % |
| Closed  restaurant charge                                          |   | 10.4                      | %      | -                             |   | 2.8 | % | - |   |
| Asset  impairment charge                                           |   | 4.8                       | %      | -                             |   | 1.2 | % | - |   |
| Deferred  rent, depreciation, amortization and preopening expenses |   | 8.6                       | %      | 6.4                           | %      | 7.5 | % | 6.5 | % |
| Total  cost of sales and expenses                                  |   | 114.1                     | %      | 95.5                          | %      | 101.9 | % | 96.2 | % |
|                                                               |   |                      |   |                          |   |   |   |   |   |
| Income  (loss) from operations                                     |   | (14.1                     | )%     | 4.5                           | %      | (1.9 | )% | 3.8 | % |
|                                                               |   |                      |   |                          |   |   |   |   |   |
| Interest  expense, net                                             |   | 6.6                       | %      | 5.2                           | %      | 5.9 | % | 5.3 | % |
| Loss  before income tax benefit                                    |   | (20.7                     | )%     | (0.7                          | )%     | (7.8 | )% | (1.5 | )% |
|                                                               |   |                      |   |                          |   |   |   |   |   |
| Income  tax benefit                                                |   | (8.2                      | )%     | (0.1                          | )%     | (2.8 | )% | (0.4 | )% |
|                                                               |   |                      |   |                          |   |   |   |   |   |
| Net  loss before extraordinary and unusual items                   |   | (12.5                     | )%     | (0.6                          | )%     | (5.0 | )% | (1.1 | )% |
|                                                               |   |                      |   |                          |   |   |   |   |   |
| Gain  on Brinker Sale, net of tax                                  |   | (0.8                      | )%     | -                             |   | 14.9 | % | - |   |
| Gain  on Senior Notes retirement, net of tax                       |   | 3.5                       | %      | -                             |   | 0.9 | % | - |   |
|                                                               |   |                      |   |                          |   |   |   |   |   |
| Net  income (loss)                                                 |   | (9.8                      | )%     | (0.6                          | )%     | 10.8 | % | (1.1 | )% |
|                                                               |   |                      |   |                          |   |   |   |   |   |
| **Restaurant Operating  Data (Dollars in Thousands):**             |   |
| EBITDA (a)                                                         |   | $                         | 3,675  |                          | $      | 7,823 |   | $ | 14,300 |   | $ | 21,646 |   |
| Comparable restaurant sales                                        |   | -1.6                      | %      | 4.7                           | %      | 2.3 | % | 6.7 | % |
| Number of restaurants - Bertucci's restaurants: (b)                |   |                      |   |                          |   |   |   |   |   |
| Restaurants open at beginning of period                            |   | 75                        |   | 72                            |   | 72 |   | 72 |   |
| Restaurants opened                                                 |   | 1                         |   | -                             |   | 4 |   | - |   |
| Restaurants closed                                                 |   | (1                        | )      | -                             |   | (1 | ) | - |   |
| Total restaurants open at end of period                            |   | 75                        |   | 72                            |   | 75 |   | 72 |   |
|                                                                    |        |                           |        |                               |        |  |  |  |  |  |  |  |  |

 

----

**(a)       ''EBITDA''is defined as income from operations before deferred rent, depreciation,amortization and preopening costs, closed restaurant, and asset impairmentcharges.  EBITDA is not a measure ofperformance defined by Generally Accepted Accounting Principles (“GAAP”).EBITDA should not be considered in isolation or as a substitute for net incomeor the statement of cash flows, which have been prepared in accordance withGAAP. The Company believes EBITDA provides useful information regarding theCompany's ability to service its debt and the Company understands that suchinformation is considered by certain investors to be an additional basis forevaluating a company's ability to pay.**

**Thirteen Weeks EndedOctober 3, 2001 Compared to Thirteen Weeks Ended September 27, 2000**

 

*NetSales*.  Total companynet sales decreased by $34.0 million, or –47.3%, to $37.8 million during thethird quarter 2001 from $71.8 million during the third quarter 2000.  The decrease was primarily due to theBrinker Sale.  Net Sales for Bertucci’sfor the quarter increased by 5.3% or $1.93 million due to four new restaurantsoperating in the quarter offset by a 1.6% decrease in comp sales.

 

*Cost ofSales*.  Cost of salesdecreased by approximately $10.5 million, or –55.5%, to $8.4 million during thethird quarter 2001 from $18.9 million during the third quarter 2000. Thedecrease was primarily due to the Brinker Sale.  Expressed as a percentage of net sales, overall cost of salesdecreased to 22.2% during the third quarter 2001 from 26.3% during the thirdquarter 2000.   The change was primarilydue to the Brinker Sale as Brinker Concept Restaurants ran a higher cost ofsales than Bertucci’s Concept Restaurants. Cost of sales for the Bertucci’s restaurants decreased by $580 thousand,or 2.7%, to $8.38 million during the third quarter 2001 from $8.96 millionduring the third quarter 2000. Expressed as a percentage of net sales, overall cost of sales decreasedto 22.2% during the third quarter 2001 from 24.8% during the third quarter2000.

 

*OperatingExpenses.*  Operatingexpenses decreased by $18.2 million, or –44.1%, to $23.0 million during thethird quarter 2001 from $41.2 million during the third quarter 2000.  Expressed as a percentage of net sales,operating expenses increased to 60.9% in the third quarter 2001 from 57.4%during the third quarter 2000.  Thedecrease was primarily due to the Brinker Sale.  For the Bertucci’s Restaurants, operating expenses increased by$1.4 million, or 6.8%, to $23.0 million during the third quarter 2001 from$21.6 million during the third quarter 2000. Expressed as a percentage of net sales, operating expenses increased to60.9% in the third quarter 2001 from 59.9% during the third quarter 2000.  The increase is primarily due to higherlabor and utility costs.

 

*Generaland Administrative Expenses.* General and administrativeexpenses decreased by approximately $1.2 million, or –30.8% to $2.7 millionduring the third quarter 2001 from $3.9 million during the third quarter 2000.  Expressed as a percentage of net sales,general and administrative expenses increased to 7.2% in the third quarter 2001from 5.5% during the third quarter 2000. The dollar decrease was due to the Brinker Sale, favorable labor costmovement due to executives leaving the company and staff reduction, anddecreased recruiting and training expenses for Bertucci’s.  The percentage increase resulted from theunfavorable leverage of the sales reduction due to the Brinker Sale.

 

*ClosedRestaurant Charge:* As discussed in Note 4 of Notes toConsolidated Financial Statements, the Company recorded a charge ofapproximately $4.0 million in the third quarter 2001 to provide for estimatedlease commitments and certain exit costs on closed restaurants.

 

*AssetImpairment Charge:* As discussed in Note 5 of Notes toConsolidated Financial Statements, the company recorded a charge ofapproximately $1.8 million in the third quarter 2001 to recognize the estimatedimpaired value of assets at four restaurant locations.

*DeferredRent,**Depreciation, Amortization and Preopening Expenses*.  Deferred rent, depreciation, amortizationand preopening expenses decreased by approximately $1.3 million or 28.3%, to$3.3 million during the third quarter 2001 from $4.6 million during the third 2000.  Expressed as a percentage of net sales, deferred rent, depreciation, amortization andpreopening expenses increased to 8.6% in the third quarter 2001 from6.4% during the third quarter 2000. The dollar decrease was primarily due tothe Brinker Sale.  The percentageincrease resulted from the unfavorable leverage of the sales reduction due tothe Brinker Sale.

 

 

*InterestExpense.*  Interestexpense decreased by approximately $1.2 million to $2.5 million during thethird 2001 from $3.7 million during the third quarter 2000.  The decrease was due to:  a) The Brinker Sale as $40.8 million ofmortgage indebtedness was assumed by Brinker; and b) $14.7 million of SeniorNotes were retired in July 2001.

 

*IncomeTaxes.*  The effectiveincome tax benefit rate increased to 39.5% during the third quarter 2001 from6.0% during the third quarter 2000.  Thedifference in rate was mainly due to the impact of non-deductible expenses,primarily Goodwill amortization, and certain tax credits on quarterly results.

** **

**Thirty Nine Weeks EndedOctober 3, 2001 Compared to Thirty Nine Weeks Ended September 27, 2000**

 

*NetSales*.  Year to date2001 net sales decreased by $61.6 million or –29.3% from $148.6 million from$210.2 million over the same time period in FY 2000.  The decrease was primarily due to the Brinker Sale.  Year to date Net Sales for Bertucci’s by6.3% or $6.67 million due to a 2.3% increase in comp sales and four newrestaurants, one in late January, two late in the second quarter, and one inthe third quarter.

 

*Cost ofSales*.  Year to datecost of sales decreased by $18.9 million or –34.3% to $36.3 million from $55.2million.   Expressed as a percentage ofnet sales, cost of sales decreased to 24.4% from 26.3%.  The dollar change was primarily due to theBrinker Sale as Brinker Concept Restaurants ran a higher cost of sales thanBertucci’s Concept Restaurants.  Cost ofsales for the Bertucci’s restaurants decreased by $100,000, or .5%, to $25.9million from $26.0 million.  Expressedas a percentage of net sales, overall cost of sales decreased to 23.1% from24.6%.

 

*OperatingExpenses.*  Year todate operating expenses decreased by $32.1 million, or  –26.5%, to $88.7 million from $120.8million.  The decrease was primarily dueto the Brinker Sale.  Expressed as apercentage of net sales, operating expenses increased to 59.7% from 57.5%.  Year to date operating expenses for theBertucci’s Restaurants increased by $3.9 million, or 6.2%, to $67.1 millionfrom $63.2 million.  The increase isprimarily due to higher labor and utility costs.  Expressed as a percentage of net sales, operating expenses wereflat at 59.8%.

 

*Generaland Administrative Expenses.* Year to date expenses decreased by $3.2 million to $9.4 million from$12.6 million.  The decrease was due tothe Brinker Sale, favorable labor cost movement due to executives leaving thecompany and staff reduction, and decreased recruiting and training expenses forBertucci’s.  Expressed as a percentageof net sales, general and administrative expenses increased to 6.3% from 6.0%.  The percentage increase resulted from theunfavorable leverage of the sales reduction due to the Brinker Sale.

 

*ClosedRestaurant Charge:* As discussed in Note 4 of Notes toConsolidated Financial Statements, the Company recorded a charge of approximately$4.2 million through the third quarter 2001 to provide for estimated leasecommitments and certain exit costs on closed restaurants.

*AssetImpairment Charge:* As discussed in Note 5 of Notes toConsolidated Financial Statements, the company recorded a charge ofapproximately $1.8 million through the third quarter 2001 to recognize theestimated impaired value of assets at four restaurant locations.

 

*DeferredRent,**Depreciation, Amortization and Preopening Expenses*.  Year to date deferred rent, depreciation,amortization and preopening expenses decreased by approximately $2.5 million or18.7%, to $11.1 million from $13.7. Expressed as a percentage of net sales, deferred rent, depreciation, amortization and preopening expensesincreased to 7.5% through the third quarter 2001 from 6.5% through the thirdquarter 2000. The dollar decrease was primarily due to the Brinker Sale.  The percentage increase resulted from theunfavorable leverage of the sales reduction due to the Brinker Sale.

 

*InterestExpense.*  Year to dateinterest expense decreased by approximately $2.3 million to $8.8 million from$11.1 million.  The decrease wasprimarily due to the Brinker Sale.

 

*IncomeTaxes.*  Year to datethe effective income tax benefit rate increased to 35.6% from 23.9%.  The difference in rate was mainly due to theimpact of non-deductible expenses, primarily Goodwill amortization, and certaintax credits on quarterly results.

 

# **Liquidity AndCapital Resources**

 

Net cash flows used by operatingactivities were $7.3 million for the three quarters 2001 an $11.8 millionchange from than the $4.5 million generated during the three quarters of2000.   A primary reason for the change was an increase in workingcapital needs, payments of accrued severance and bonuses and the reduction ofaccrued expenses and accounts payable related to the Brinker ConceptRestaurants.  As of October 3, 2001, the cash and cash equivalents of $21million consisted of $20.4 million of short-term investments and the remainderin operating cash accounts.

The Company’s capital expenditures were$9.3 million through October 3, 2001 compared to $10.4 million for thecomparable prior year period.  The capital expenditures for 2001 wereprimarily due to $63,000for the Brinker Concept Restaurants, $5.0 million for development of four newBertucci’s Restaurants and $4.2 million for Bertucci’s maintenance capital.

The Brinker Sale was consummated onApril 12, 2001 and was valued at $93.5 million.  This amount was adjustedby closing costs of $1.3 million, transferred mortgage loans of $40.8 million,a reduction of debt of $0.3 million and Brinker Concept Restaurants workingcapital needs of $9.1 million to arrive at net cash generated of approximately$42.8 million.  From the gain, the Company incurred a tax liability ofapproximately $14.8 million, which will be partially offset by net operatingloss carry forwards.

The Senior Bank Facility provided theCompany with available borrowing up to an aggregate amount of $20.0million.  Concurrent with the completion of the Brinker Sale, the Companyrepaid the $300,000 balance outstanding at which time the availability of theSenior Bank Facility was restricted.  On July 21, 2001, the Senior BankFacility expired and was not replaced; the Company is currently operatingwithout a line of credit and is funding all of its growth, debt reductions andoperating needs out of cash on hand.

The Indenture governing the SeniorNotes defines the net proceeds from an asset sale (the Brinker Sale) and thetypes of uses of proceeds, namely, repurchase of debt or investments inassets.  The Indenture requires use of the proceeds within one year of theasset sale (April 12, 2002 for the Brinker Sale).  The Company believes itwill meet the terms of the indenture for use of Brinker Sale proceeds. Furthermore, the Company believes that the cash flow generated from itsoperations with the current cash on hand should be sufficient to fund its debtservice requirements, lease obligations, current expected capital expendituresand other operating expenses until April 2002.  Beyond April 2002, theCompany expects to be able to service its debt but the lack of short termborrowing availability may impede growth.As of October 3, 2001, the Company had $85.3 million in consolidatedindebtedness, all pursuant to the Senior Notes.  During July 2001, theCompany successfully purchased $14.7 million of Senior Notes for $11.5 millionin cash and accrued a $1.3 million tax liability on the $3.2 million gain.

During July 2001, the Companyestablished a $2.0 million (maximum) Letter of Credit Facility.  As ofOctober 3, 2001, this facility is collateralized with $1.0 million of cashrestricted from general use.

The Company’s future operatingperformance and ability to service or refinance the Senior Notes will besubject to future economic conditions and to financial, business and otherfactors, many of which are beyond the Company’s control.  Significantliquidity demands will arise from debt service on the Senior Notes.

 

**Seasonality**

 

The Company’s quarterly results of operations have fluctuated and areexpected to continue to fluctuate depending on a variety of factors, includingthe timing of new restaurant openings and related pre-opening and other startupexpenses, net sales contributed by new restaurants, increases or decreases incomparable restaurant sales, competition and overall economic conditions.  The Company’s business is also subject toseasonal influences of consumer spending, dining out patterns and weather.  As is the case with many restaurantcompanies, the Company typically experiences lower net sales and net incomeduring the first and fourth quarters. Because of these fluctuations in net sales and net loss, the results ofoperations of any quarter are not necessarily indicative of the results thatmay be achieved for a full year or any future quarter.

 

**Forward-Looking Statements**

 

All statements other thanstatements of historical facts included in this Quarterly Report on Form 10-Q,including, without limitation, statements set forth under "Management’sDiscussion and Analysis of Financial Condition and Results of Operations"regarding the Company’s future financial position, business strategy, budgets,projected costs and plans and objectives of management for future operations,are forward-looking statements.  Inaddition, forward-looking statements generally can be identified by the use offorward-looking terminology such as "may,"  "will," "expect," "intend,""estimate," "anticipate" or "believe" or thenegative thereof or variations thereon or similar terminology.  Although the Company believes that theexpectations reflected in such forward-looking statements will prove to havebeen correct, it can give no assurance that such expectations will prove tohave been correct. Factors including those set forth herein, as well as thoseset forth in the Company’s Form 10-K filed with the Securities and ExchangeCommission (“SEC”) on March 30, 2001 and other filings with the SEC may affectsuch expectations.  Investors arecautioned not to place undue reliance on these forward-looking statements,which speak only as of the date hereof. The Company undertakes no obligation to publicly release any revisionsto these forward-looking statements to reflect events or circumstances afterthe date hereof or to reflect the occurrence of unanticipated events.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

 

         TheCompany has market risk associated with interest rate risk.  The Company manages its exposure through itsregular financing activities.  Interestrate changes would result in a change in the fair value of the Company’s debtfacilities due to the difference between the market interest rate and the rateat the date of issuance of the debt facilities.  Furthermore, the Company has no exposure to specific risksrelated to derivatives or other “hedging” types of financial instruments.

 

PART II:    OTHER INFORMATION

 

Item 1.  LEGAL PROCEEDINGS

                TheCompany is involved in various legal proceedings from time to time incidentalto the conduct of its business. In the opinion of management, any ultimateliability arising out of such proceedings will not have a material adverseeffect on the financial condition or results of operations of the Company.

 

                Managementis not aware of any litigation to which the Company is a party that is likelyto have a material adverse effect on the Company.

 

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

                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

None

SIGNATURES

 

 

                Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|   | BERTUCCI’S CORPORATION |  
 

(Registrant)

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
Date: November 16, 2001

By:

/s/ Benjamin R. Jacobson

 

 

Chairman of the Board of Directors,

 
 

 

President and Chief Executive Officer,

 
 

 

Treasurer (Principal Executive Officer)

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
Date: November 16, 2001

By:

/s/ Kurt J. Schnaubelt

 
 

 

Vice President  (Principal Financial

 
 

 

Officer and Principal  Accounting Officer)

 
 

 

 

 
 

 

 

 
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