**FORM 10-Q**

 

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC  20549**

 

**ý****Quarterly ReportVoluntarily Filed Pursuant to Section 13 or 15(d) of the Securities andExchange Act of 1934**

 

**For the Quarterly Period Ended    April 2, 2003**

 

**Commission File Number   333-62775**

 

**BERTUCCI’S CORPORATION**

(Exactname of registrant as specified in its charter)

 

| **Delaware**                                                                       |   | **06-1311266**                            |
|------------------------------------------------------------------------------------|--------|-------------------------------------------|
| (State  or other jurisdiction of  incorporation or organization)                   |   | (I.R.S.  Employer  Identification Number) |
|                                                                               |   |                                      |
| **155 Otis Street, Northborough, Massachusetts**                                   |   | **01532-2414**                            |
| (Address  of principal executive offices)                                          |   | (Zip  Code)                               |
|                                                                               |   |                                      |
| Registrant’s telephone  number, including area code:  **(508) 351-2500** |

 

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

 

Yes                            ý                                                                                    No                                o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act).

 

Yes                            o                                                                                    No                                ý

 

2,978,955 shares of the registrant’s CommonStock were outstanding on May 13, 2003.

 

 

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BERTUCCI’SCORPORATION

 

FORM10-Q

 

TABLEOF CONTENTS

 
| PART I:        | FINANCIAL INFORMATION |
|----------------|-----------------------|
|           |                  |
|           | Item 1.               | Financial Statements: |
|           |                  | 1) | Consolidated Balance Sheets  April 2, 2003 (Unaudited) and January 1, 2003 |
|           |                  |   |   |
|           |                  | 2) | Consolidated  Statements of Operations For the 13 Weeks Ended April 2, 2003 (Unaudited) and  April 3, 2002 (Unaudited) |
|           |                  |   |   |
|           |                  | 3) | Consolidated  Statement of Changes in Stockholders’ Equity for the 13 Weeks Ended April 2,  2003 (Unaudited) |
|           |                  |   |   |
|           |                  | 4) | Consolidated  Statements of Cash Flow for the 13 Weeks Ended April 2, 2003 (Unaudited) and  April 3, 2002 (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 |
|           |                  |   |   |
|           | Item 4.               | Controls and Procedures |
|           |                  |   |   |
| 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     |
|           |
| CERTIFICATIONS |
|           |
| EXHIBITS       |
|                |                       |  |  |  |

 

2

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PART  I:                          FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

 

**BERTUCCI’SCORPORATIONCONSOLIDATED BALANCE SHEETS**(In thousands, exceptshare data)(Unaudited)

 
|                                                                                    |   | **April 2,  2003** |    | **January 1,  2003** |   |
|-----------------------------------------------------------------------------------------|--------|--------------------|---------|----------------------|--------|
| **ASSETS**                                                                              |   |               |    |                 |   |
| Current Assets:                                                                         |   |               |    |                 |   |
| Cash and cash equivalents                                                               |   | $                  | 13,099  |                 | $      | 13,133 |   |
| Restricted cash                                                                         |   | 2,216              |    | 2,468                |   |
| Accounts receivable                                                                     |   | 732                |    | 1,733                |   |
| Inventories                                                                             |   | 1,202              |    | 900                  |   |
| Prepaid expenses and other  current assets                                              |   | 2,206              |    | 1,995                |   |
| Total current assets                                                                    |   | 19,455             |    | 20,229               |   |
| Property and equipment, at  cost:                                                       |   |               |    |                 |   |
| Land                                                                                    |   | 767                |    | 2,468                |   |
| Buildings                                                                               |   | 1,386              |    | 6,671                |   |
| Capital lease - buildings                                                               |   | 3,831              |    | —               |   |
| Leasehold improvements                                                                  |   | 59,288             |    | 57,130               |   |
| Furniture and equipment                                                                 |   | 38,751             |    | 36,660               |   |
|                                                                                    |   | 104,023            |    | 102,929              |   |
| Less - accumulated  depreciation                                                        |   | (31,895            | )       | (31,555              | )      |
|                                                                                    |   | 72,128             |    | 71,374               |   |
| Construction work in  process                                                           |   | 2,320              |    | 1,830                |   |
| Net property and equipment                                                              |   | 74,448             |    | 73,204               |   |
|                                                                                    |   |               |    |                 |   |
| Goodwill                                                                                |   | 26,127             |    | 26,127               |   |
| Deferred finance costs, net                                                             |   | 3,861              |    | 3,714                |   |
| Liquor licenses                                                                         |   | 1,828              |    | 1,763                |   |
| Other assets                                                                            |   | 444                |    | 385                  |   |
| Total Assets                                                                            |   | $                  | 126,163 |                 | $      | 125,422 |   |
|                                                                                    |   |               |    |                 |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                               |   |               |    |                 |   |
|                                                                                    |   |               |    |                 |   |
| Current Liabilities:                                                                    |   |               |    |                 |   |
| Current portion of other  long-term obligations                                         |   | $                  | 92      |                 | $      | — |   |
| Accounts payable                                                                        |   | 8,199              |    | 7,986                |   |
| Accrued expenses                                                                        |   | 9,960              |    | 13,532               |   |
| Total current liabilities                                                               |   | 18,251             |    | 21,518               |   |
|                                                                                    |   |               |    |                 |   |
| Other long-term  obligations, net of current portion                                    |   | 4,126              |    | —               |   |
| Restaurant closing reserve,  net of current portion                                     |   | 1,242              |    | 1,857                |   |
| Deferred gain on  sale-leaseback transaction                                            |   | 2,194              |    | —               |   |
| Deferred rent                                                                           |   | 2,954              |    | 2,849                |   |
| Senior Notes                                                                            |   | 85,310             |    | 85,310               |   |
| Total liabilities                                                                       |   | 114,077            |    | 111,534              |   |
|                                                                                    |   |               |    |                 |   |
| Commitments and  contingencies                                                          |   |               |    |                 |   |
| Stockholders’ equity:                                                              |   |               |    |                 |   |
| Common stock, $.01 par  value                                                           |   | 37                 |    | 37                   |   |
| Authorized - 8,000,000  shares  Issued - 3,666,370 shares, outstanding 2,978,955 shares |   |               |    |                 |   |
| Less treasury stock -  687,415 shares at cost                                           |   | (8,088             | )       | (8,088               | )      |
| Additional paid-in capital                                                              |   | 29,004             |    | 29,004               |   |
| Accumulated deficit                                                                     |   | (8,867             | )       | (7,065               | )      |
| Total stockholders’ equity                                                         |   | 12,086             |    | 13,888               |   |
| Total Liabilities and  Stockholders’ Equity                                        |   | $                  | 126,163 |                 | $      | 125,422 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

3

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**BERTUCCI’SCORPORATIONCONSOLIDATED STATEMENTS OFOPERATIONS**(In thousands, exceptshare and per share data)(Unaudited)

 
|                                                                |   | **Thirteen weeks ended** |   |
|---------------------------------------------------------------------|--------|--------------------------|--------|
|                                                                |   | **April 2,  2003**       |   | **April 3,  2002** |   |
|                                                                |   |                     |   |   |   |
| Net sales                                                           |   | $                        | 42,674 |   | $ | 36,683 |   |
|                                                                |   |                     |   |   |   |
| Cost of sales and  expenses:                                        |   |                     |   |   |   |
| Cost of sales                                                       |   | 9,461                    |   | 8,323 |   |
| Operating expenses                                                  |   | 26,475                   |   | 21,445 |   |
| General and administrative  expenses                                |   | 3,179                    |   | 2,993 |   |
| Depreciation,  amortization, deferred rent and pre-opening expenses |   | 2,963                    |   | 2,304 |   |
| Total cost of sales and  expenses                                   |   | 42,078                   |   | 35,065 |   |
| Income from operations                                              |   | 596                      |   | 1,618 |   |
|                                                                |   |                     |   |   |   |
| Interest expense, net                                               |   | (2,398                   | )      | (2,397 | ) |
| Loss before income tax  benefit                                     |   | (1,802                   | )      | (779 | ) |
|                                                                |   |                     |   |   |   |
| Income tax benefit                                                  |   | —                   |   | (273 | ) |
|                                                                |   |                     |   |   |   |
| Net loss                                                            |   | $                        | (1,802 | ) | $ | (506 | ) |
|                                                                |   |                     |   |   |   |
| Basic and diluted loss per  share                                   |   | $                        | (0.60  | ) | $ | (0.17 | ) |
|                                                                |   |                     |   |   |   |
| Weighted average shares  outstanding - basic and diluted            |   | 2,978,955                |   | 2,978,955 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

4

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**BERTUCCI’SCORPORATIONCONSOLIDATED STATEMENT OF CHANGESIN STOCKHOLDERS’ EQUITY**

(In thousands, except share data)(Unaudited)

 
|                    |   | **Common Stock**      |   | **Treasury Stock** |   |                  |     |       |   | **Total  Stockholders’  Equity** |   |
|-------------------------|--------|-----------------------|--------|--------------------|--------|-----------------------|----------|------------|--------|---------------------------------------|--------|
|                    |   | **Number of  Shares** |   | **Amount**         |   | **Number of  Shares** |     | **Amount** |   | **Additional Paid-In  Capital**       |   | **Accumulated  Deficit** |   |   |
|                    |   |                  |   |               |   |                  |     |       |   |                                  |   |   |   |   |   |
| Balance January 1, 2003 |   | 3,666,370             |   | $                  | 37     |                  | (687,415 | )          | $      | (8,088                                | )      | $ | 29,004 |   | $ | (7,065 | ) | $ | 13,888 |   |
| Net loss                |   | —                |   | —             |   | —                |     | —     |   | —                                |   | (1,802 | ) | (1,802 | ) |
|                    |   |                  |   |               |   |                  |     |       |   |                                  |   |   |   |   |   |
| Balance April 2, 2003   |   | 3,666,370             |   | $                  | 37     |                  | (687,415 | )          | $      | (8,088                                | )      | $ | 29,004 |   | $ | (8,867 | ) | $ | 12,086 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

5

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**BERTUCCI’SCORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOW**(In thousands)(Unaudited)

 
|                                                                        |   | **Thirteen Weeks Ended** |   |
|-----------------------------------------------------------------------------|--------|--------------------------|--------|
|                                                                        |   | **April 2, 2003**        |   | **April 3, 2002** |   |
|                                                                        |   |                     |   |   |   |
| Cash flows of operating  activities                                         |   |                     |   |   |   |
| Net loss                                                                    |   | $                        | (1,802 | ) | $ | (506 | ) |
| Adjustments to reconcile  net loss to net cash used in operating activities |   |                     |   |   |   |
| Depreciation and  amortization                                              |   | 2,567                    |   | 2,370 |   |
| Deferred rent                                                               |   | 105                      |   | 71 |   |
| Gain on sale of property                                                    |   | —                   |   | (234 | ) |
| Changes in operating assets  and liabilities                                |   |                     |   |   |   |
| Inventories                                                                 |   | (302                     | )      | (215 | ) |
| Prepaid expenses and  accounts receivable                                   |   | 789                      |   | 407 |   |
| Accrued expenses                                                            |   | (3,797                   | )      | (4,282 | ) |
| Accounts payable                                                            |   | 213                      |   | (2,112 | ) |
| Other                                                                       |   | (59                      | )      | 54 |   |
| Total adjustments                                                           |   | (482                     | )      | (3,941 | ) |
| Net cash used in operating  activities                                      |   | (2,284                   | )      | (4,447 | ) |
|                                                                        |   |                     |   |   |   |
| Cash flows for investing  activities                                        |   |                     |   |   |   |
| Additions to property and  equipment                                        |   | (5,113                   | )      | (4,350 | ) |
| Proceeds from sale of  property                                             |   | —                   |   | 413 |   |
| Acquisition of liquor  licenses                                             |   | (65                      | )      | — |   |
| Net cash used in investing  activities                                      |   | (5,178                   | )      | (3,937 | ) |
|                                                                        |   |                     |   |   |   |
| Cash flows for financing  activities                                        |   |                     |   |   |   |
| Net proceeds from  sale-leaseback transaction                               |   | 7,176                    |   | — |   |
| (Decrease) increase in  restricted cash                                     |   | 252                      |   | (895 | ) |
| Net cash provided by (used  in) financing activities                        |   | 7,428                    |   | (895 | ) |
|                                                                        |   |                     |   |   |   |
| Net decrease in cash and  cash equivalents                                  |   | (34                      | )      | (9,279 | ) |
| Cash and cash equivalents,  beginning of period                             |   | 13,133                   |   | 23,235 |   |
| Cash and cash equivalents,  end of period                                   |   | $                        | 13,099 |   | $ | 13,956 |   |
|                                                                        |   |                     |   |   |   |
| Supplemental Disclosure of  Cash Flow Information                           |   |                     |   |   |   |
| Cash paid for interest                                                      |   | $                        | 4,640  |   | $ | 4,636 |   |
| Cash paid for income taxes                                                  |   | $                        | 5      |   | $ | 42 |   |
| Capital lease entered into  during quarter                                  |   | $                        | 3,821  |   | $ | — |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

6

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**BERTUCCI’S CORPORATIONNotes To Consolidated FinancialStatements**

April 2, 2003(Unaudited)

 

*1.  Basis of Presentation*

 

The unaudited consolidated condensedfinancial statements (the “Unaudited Financial Statements”) presented hereinhave been prepared by Bertucci’s Corporation and include all of itssubsidiaries (collectively, the “Company”) after elimination of inter-companyaccounts and transactions, without audit, and, in the opinion of management,reflect all adjustments (consisting of normal recurring adjustments) necessaryfor a fair statement of the interim periods presented.  The accompanying unaudited interimconsolidated financial statements have been prepared in accordance withaccounting principles generally accepted in the United States of America forinterim financial information and pursuant to the rules and regulations of theSecurities and Exchange Commission for reporting on Form 10-Q.  Accordingly, certain information andfootnote disclosures required for complete financial statements are notincluded herein.  It is suggested theUnaudited Financial Statements be read in conjunction with the consolidatedfinancial statements and notes included in the Company’s 2002 Form 10-K.  The operating results for the thirteen weeksended April 2, 2003 may not be indicative of the results expected for anysucceeding interim period or for the entire year ending December 31, 2003.

 

Certain reclassifications have been made toprior year financial statements to make them consistent with the current year’spresentation.

 

*2.  Recent Accounting Pronouncements*

* *

In June 2001, the FASB issued Statement of Financial AccountingStandard (“SFAS”) No.143, *Accounting forAsset Retirement Obligations*.  This Statement addressesfinancial accounting and reporting for obligations associated with theretirement of tangible long-lived assets and the associated asset retirementcosts.  This Statement applies to all entities.  It applies to legalobligations associated with the retirement of long-lived assets that resultfrom the acquisition, construction, development and (or) the normal operationof a long-lived asset, except for certain obligations of lessees.  Theadoption of this statement on January 3, 2003 did not have a material impact onthe Company’s financial position or its results of operations.

 

In April 2002, the FASB issued SFAS No. 145, *Rescission of FASB Statements No. 4,44, and 64, Amendment of FASB Statement No.13, and Technical Corrections*.The adoption of SFAS No. 145 requires gains and losses from extinguishment ofdebt no longer be classified as extraordinary items, but rather be classifiedas part of other income (expense) on the Company’s consolidated statement ofoperations. Any such gains or losses, classified as extraordinary items inprior periods, will be reclassified in future financial statement presentationsupon the adoption of SFAS No. 145.  Theadoption of this statement on January 3, 2003 did not have a material impact onthe Company’s financial position or its results of operations.

 

In June 2002, the FASB issued SFAS No. 146, *Accountingfor Costs Associated with Exit or Disposal Activities*. SFAS No. 46supersedes Emerging Issues Task Force (“EITF”) No. 94-3, *Liability Recognition for CertainEmployee Termination Benefits and Other Costs to Exit an Activity (IncludingCertain Costs Incurred in a Restructuring)*. SFAS No. 146 eliminatesthe provisions of EITF No.  94-3 

 

7

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that required a liability to be recognized for certain exit or disposalactivities at the date an entity committed to an exit plan.  SFAS No. 146 requires a liability for costsassociated with an exit or disposal activity to be recognized when theliability is incurred.  SFAS No. 146 iseffective for exit or disposal activities that are initiated after December 31,2002.

 

In December 2002, the FASB issued SFAS No.  148, *Accounting for Stock-Based Compensation - Transitionand Disclosure, an amendment of SFAS No 123*.  This Statement amends SFAS No. 123, *Accounting for Stock-Based Compensation*, to provide alternative methods oftransition for a voluntary change to the fair value based method of accountingfor stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFASNo. 123 to require prominent disclosures in both annual and interim financialstatements about the method of accounting for stock-based employee compensationand the effect of the method used on reported results.  The disclosure requirements of SFAS No. 148were adopted on January 3, 2003.

 

In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”),*Consolidationof Variable Interest Entities, an Interpretation of ARB No. 51*.  FIN 46 requires certain variable interestentities to be consolidated by the primary beneficiary of the entity if theequity investors in the entity do not have the characteristics of a controllingfinancial interest or do not have sufficient equity at risk for the entity tofinance its activities without additional subordinated financial support fromother parties. FIN 46 is effective for all new variable interest entitiescreated or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1,2003, the provisions of FIN 46 must be applied for the first interim or annualperiod beginning after June 15, 2003. The Company did not create or acquire any variable interest entitiesduring the first quarter of 2003. The  adoption of this statementin the second quarter of 2003 is not expected to have a material impact on theCompany’s results of operations or financial position.

 

*3.  Restaurant Closing Reserves*

 

Restaurant closing reserves were establishedas part of the acquisition of Bertucci’s. These reserves were related to estimated future lease commitments andexit costs to close 18 Bertucci’s locations. In 2001, the Company accrued an additional $4.2 million related toselected locations (all of which had been closed), consisting of estimatedlease commitments and certain exit costs. It was originally expected the Company would be able to exit theselocations, sublease the locations or otherwise be released from the relatedleases.  However,  due to market conditions, the Company hasbeen unable to sell, sublease or exit certain of these leases.  In June 2002, the Company closed onerestaurant and recorded a charge of $236,000 primarily related to estimatedlease termination costs.  In March 2003,the Company terminated a lease for one of its closed locations in exchange forissuing a promissory note of $455,000 payable in varying installments through2010.  The note does not bear interest,accordingly the Company imputed interest on the note and recorded the obligation at its present value of$386,000 in other long-term obligations in the accompanying balance sheet.

 

8

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Activitywithin the reserve was as follows:

 
|                              |   | **Thirteen weeks ended** |   |
|-----------------------------------|--------|--------------------------|--------|
|                              |   | **April 2,  2003**       |   | **April 3,  2002** |   |
|                              |   |                     |   |   |   |
| Balance, beginning of the  year   |   | $                        | 2,499  |   | $ | 3,352 |   |
| Payments charged against  reserve |   | (235                     | )      | (332 | ) |
| Promissory note issued            |   | (386                     | )      | — |   |
| Balance, end of period            |   | $                        | 1,878  |   | $ | 3,020 |   |
|                              |   |                     |   |   |   |
| Current portion                   |   | $                        | 636    |   | $ | 635 |   |
| Noncurrent portion                |   | 1,242                    |   | 2,385 |   |
|                              |   | $                        | 1,878  |   | $ | 3,020 |   |

 

*4.  Loss per Share*

 

The number of shares used to calculate diluted loss per share for thethirteen weeks ended April 2, 2003 and April 3, 2002 exclude the effect of652,549 and 739,973 outstanding stock options, respectively, as the options areanti-dilutive.

 

*5. Income Taxes*

 

The Company recognizes deferred tax assets andliabilities for the expected future tax consequences of events that have beenincluded in the financial statements or tax returns.   Additionally, the Company is required to consider both negativeand positive evidence in determining if a valuation allowance is required on aquarterly basis.  The fiscal year 2002loss and the Company’s current plan for continued development of Company ownedrestaurants will burden pre-tax profits because of the recognition of pre-opening costs and initial yearinefficiencies associated with new restaurants.  As a result, management recorded a full valuation allowance forits deferred tax assets in the fourth quarter of 2002 and recorded an allowancein the first quarter of 2003 for the current period’s future tax benefits.

 

*6. Stock-Based Compensation*

 

The Company has elected to account for stock-basedcompensation at intrinsic value with disclosure of the effects of fair valueaccounting on net income and earnings per share on a pro forma basis.  No stock-based employee compensation costrelated to stock options is reflected in net loss, as all options granted hadan exercise price equal to, or in excess of, the market value of the underlyingcommon stock on the date of grant.  Thefollowing table illustrates the effect on net income and earnings per share ifthe company had applied the fair value method.

 

|                   |   | **2003** |   | **2002** |   |
|------------------------|--------|----------|--------|----------|--------|
| Net loss, in thousands |   |     |   |     |   |
| As reported            |   | $        | (1,802 | )        | $      | (506 | ) |
| Pro Forma              |   | $        | (1,971 | )        | $      | (542 | ) |
|                   |   |     |   |     |   |
| Basic loss per share   |   |     |   |     |   |
| As reported            |   | $        | (0.60  | )        | $      | (0.17 | ) |
| Pro Forma              |   | $        | (0.66  | )        | $      | (0.18 | ) |

 

*7.  Sale of Properties*

 

In the first quarter of 2002, the Company sold land adjacent to arestaurant previously sold.  Theproperty had a carrying value of approximately $179,000 and sold for$413,000.  The gain is included inoperating 

 

9

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expenses in the consolidated statement of operations for the thirteenweeks ended April 2, 2002.

 

In the first quarter of 2003, the Company completed a sale-leasebacktransaction on three restaurant properties for $7.2 million in cash (net offees of approximately $300,000).  Theproperties sold included land and buildings at three locations which theCompany agreed to lease back for a 20-year period with total contractual leaseobligations of approximately $16.7 million. The portion of the cash contractual obligation relating to the buildingsis recorded as an obligation under a capital lease, net of future interestpayments.  An implicit interest rate of9.94% applies to this portion of payments and is included in other long-termobligations in the accompanying balance sheet. The land portion of the obligation is classified as an operating lease,requiring future payments to be classified as operating expenses.  The gain on the sale of these properties ofapproximately $2.2 million has been deferred and will be recognized over the20-year term of the leaseback.

 

### *********

 

10

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### **Item 2.**  MANAGEMENT’S DISCUSSION AND ANALYSIS OFRESULTS OF OPERATIONS ANDFINANCIAL CONDITION

 

The following discussion should be read in conjunction with theconsolidated financial statements of Bertucci’s Corporation, (the “Company”)and the notes thereto included herein.

 

### **General**

 

The Company is an operator of full-service,casual dining restaurants in the northeastern United States.  The Company’s wholly owned subsidiary,Bertucci’s Restaurant Corp. owns and operates a restaurant concept under thename Bertucci’s Brick Oven Pizzeria®.  InJuly 1998, the Company completed its acquisition of Bertucci’s RestaurantCorp.’s parent entity, Bertucci’s, Inc., a publicly-owned restaurant companyfor a purchase price, net of cash received, of approximately $89.4 million (the“Acquisition”).   The Company financedthe Acquisition primarily through the issuance of $100 million of 10 3/4%senior notes due 2008 (the “Senior Notes”). The Acquisition included 90 Bertucci’s restaurants and one Sal &Vinnie’s restaurant.  Since 1999, theCompany closed the Bertucci’s test kitchen restaurant in Wakefield,Massachusetts and closed seventeen under performing Bertucci’srestaurants.  In December of 2000, theCompany also closed the Sal and Vinnie’s restaurant located in Massachusetts.

 

As of April 2, 2003 the Company owned and operated 82 full-service,casual dining, Italian-style restaurants under the name Bertucci’s Brick OvenPizzeria® located primarily in New England and Mid-Atlantic United States.

 

### **Results of Operations**

 

The following table sets forth the percentage relationship to netsales, unless otherwise indicated, of certain items included in the Company’sconsolidated statements of operations, as well as certain operating data, forthe periods indicated:

 

**STATEMENTS OF OPERATIONS DATA**(Percentage of NetSales)

 

|                                                                 |   | **Thirteen weeks ended** |   |
|----------------------------------------------------------------------|--------|--------------------------|--------|
|                                                                 |   | **April 2,  2003**       |   | **April 3,  2002** |   |
| Net sales                                                            |   | 100.0                    | %      | 100.0 | % |
|                                                                 |   |                     |   |   |   |
| Cost of sales and expenses:                                          |   |                     |   |   |   |
| Cost of sales                                                        |   | 22.2                     | %      | 22.7 | % |
| Operating expenses                                                   |   | 62.1                     | %      | 58.4 | % |
| General and administrative  expenses                                 |   | 7.4                      | %      | 8.2 | % |
| Depreciation, amortization,  deferred rent, and pre-opening expenses |   | 6.9                      | %      | 6.3 | % |
| Total cost of sales and  expenses                                    |   | 98.6                     | %      | 95.6 | % |
|                                                                 |   |                     |   |   |   |
| Income from operations                                               |   | 1.4                      | %      | 4.4 | % |
| Interest expense, net                                                |   | (5.6                     | )%     | (6.5 | )% |
| Loss before income tax  benefit                                      |   | (4.2                     | )%     | (2.1% | ) |
|                                                                 |   |                     |   |   |   |
| Income tax benefit                                                   |   | 0.0                      | %      | 0.7 | % |
|                                                                 |   |                     |   |   |   |
| Net loss                                                             |   | (4.2                     | )%     | (1.4% | ) |
|                                                                 |   |                     |   |   |   |
| **Restaurant  Operating Data:**                                      |   |                     |   |   |   |
| Increase in comparable  restaurant sales (a)                         |   | 6.6                      | %      | 0.2 | % |
| Number of restaurants:                                               |   |                     |   |   |   |
| Restaurants open, beginning  of period                               |   | 80                       |   | 74 |   |
| Restaurants opened                                                   |   | 2                        |   | — |   |
| Total restaurants open, end  of period                               |   | 82                       |   | 74 |   |

 

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(a)   The Company defines comparable restaurantsales as net sales from restaurants open at least one full fiscal year.

 

11

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**Thirteen Weeks Ended April 2, 2003Compared to Thirteen Weeks Ended April 3, 2002**

 

*Net Sales*. Total company net sales increased by $6.0 million, or 16.3%, to $42.7million during the first quarter 2003 from $36.7 million during the firstquarter 2002.  The increase wasprimarily due to a $2.4 million (6.6%) increase in comparable restaurant salesand a $3.8 million increase in sales from nine restaurants opened since April3, 2002, offset by an $182,000 decrease due to one restaurant closed at the endof the 2nd quarter of 2002.  ComparableBertucci’s restaurant dine-in guest counts increased 1.5% for the quarter ascompared to the first quarter of 2002. Bertucci’s comparable restaurant dine-in sales increased 7.8% for thequarter as compared to the first quarter of 2002. Comparable Bertucci’srestaurant carry-out and delivery sales increased 2.9% for the quarter ascompared to the same period in the prior year.

 

*Cost ofSales*.  Cost of sales increased by approximately$1.2 million, or 13.7%, to $9.5 million during the first quarter 2003 from $8.3million during the first quarter 2002. Expressed as a percentage of net sales, overall cost of sales decreasedto 22.2% during the first quarter 2003 from 22.7% during the first quarter2002.  The dollar increase was a resultof higher volumes while the percent change was primarily due to improvedmanagement efficiency, sound purchasing practices and lower cost ofingredients.

 

*Operating Expenses.*  Operating expenses increased by $5.1 millionor 23.4%, to $26.5 million during the first quarter 2003 from $21.4 million duringthe first quarter 2002.  Expressed as apercentage of net sales, operating expenses increased to 62.1% in the firstquarter 2003 from 58.4% during the first quarter 2002.  The dollar increase was primarily due toincreased labor costs associated with two additional restaurant openings duringthe first quarter 2003, and the percentage increase was primarily due toincreased spending on advertising.  TheCompany spent $855,000 more on advertising in the first quarter of 2003 than inthe first quarter 2002, primarily media and print costs.

 

*General and Administrative Expenses.*  General and administrative expensesincreased by approximately $186,000, or 6.2%, to $3.2 million during the firstquarter 2003 from $3.0 million during the first quarter 2002.  Expressed as a percentage of net sales,general and administrative expenses decreased to 7.4% in the first quarter 2003from 8.2% during the first quarter 2002. The dollar increase is primarily due to higher salaries and incrementalbonus expenses.

 

*Depreciation,Amortization, Deferred Rent, and Pre-opening Expenses*. Depreciation, amortization, deferred rent, and pre-opening expensesincreased by approximately $659,000 or 28.6%, to $3.0 million during the firstquarter 2003 from $2.3 million during the first quarter of 2002.  Expressed as a percentage of net sales,depreciation, amortization, deferred rent, and pre-opening expenses increasedto 6.9% in the first quarter 2003 from 6.3% during the first quarter 2002.  The dollar increase was primarily due to thehigher pre-opening costs during the quarter and depreciation expensesassociated with nine new restaurants opened since April 3, 2002.  The capital lease portion of thesale-leaseback transaction will result in incremental amortization expense ofapproximately $48,000 per quarter.  SeeNote 7 of Notes to Consolidated Financial Statements.

 

*InterestExpense.*  Net interest expense was essentially flat at$2.4 million during the first quarter of 2003 compared to the first quarter2002.  The incremental indebtednessprimarily associated with the new capital lease was not incurred until the endof the first quarter of 2003. Incremental interest expense of approximately $95,000 per quarter willbe incurred as a result of this lease. See Note 7 of Notes to Consolidated Financial Statements.

 

*Income Taxes.*  The Company has anhistorical trend of recurring pre-tax losses since 1998 excluding the BrinkerSale.  The Company’s current plan forcontinued development of Company owned restaurants 

 

12

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will burden pre-taxprofits because of the recognition of pre-opening costs and initial yearinefficiencies associated with new restaurants.  During the fourth quarter of 2002 the Company recorded a fullvaluation allowance for its net deferred tax asset.  During the first quarter of 2003, the Company has also provided afull valuation allowance relating to the tax benefits generated during thequarter (primarily its operating losses).

 

# **LiquidityAnd Capital Resources**

 

Net cash flows used by operating activities were $2.2 million for thefirst quarter of 2003, $2.2 million less than the $4.4 million used during thefirst quarter of 2002.  As of April 2,2003, the cash and cash equivalents of $15.3 million consisted of $14.9 millionof short-term investments ($2.2 million of which is restricted, see below) andthe remainder in operating cash accounts.

 

The Company’s 2003 capital expenditures were $5.1 million through April2, 2003 compared to $4.4 million for the comparable prior year period. The capital expenditures for 2003 were primarily comprised of $3.1 million fornew Bertucci’s restaurants and $1.3 million for remodels and maintenancecapital.  In the first quarter of 2003,the Company completed a sale-leaseback transaction on three restaurantproperties.  This transaction generated$7.2 million in cash and increased the Company’s cash contractual obligationsover the next twenty years by $16.7 million.

 

The Company believes that the cash flow generated from its operations,the sale-leaseback transaction above, and current cash on hand should besufficient to fund its debt service requirements, lease obligations, balance ofthe year capital expenditures of approximately $19.5 million and otheroperating expenses through 2003.  While the Company expects to be able toservice its debt, the lack of short term borrowing availability may impedegrowth.

 

As of April 2, 2003, the Company had $89.6 million in consolidatedindebtedness, $85.3 million pursuant to the Senior Notes, $3.9 million relatedto the capital lease portion of the sale-leaseback transaction, and $386,000for a promissory note.  The Company has a $3.0 million (maximum) Letter ofCredit Facility.  As of April 2, 2003, this facility is collateralized with$2.2 million of cash restricted from general use in support of $2.2 million ofoutstanding letters of credit.

 

The Company’s future operating performance and ability to service orrefinance the Senior Notes will be subject to future economic conditions and tofinancial, business and other factors, many of which are beyond the Company’scontrol.  Significant liquidity demands will arise from debt service onthe Senior Notes.

 

As of January 1, 2003, the Company had contractual obligations asfollows:

 

Payments Due by Period

(Dollars in Thousands)

 
|                                                         |   | **Total** |    | **Less than 1year** |   | **1 - 3  years** |   | **4 - 5  years** |   | **After 5  years** |   |
|--------------------------------------------------------------|--------|-----------|---------|---------------------|--------|------------------|--------|------------------|--------|--------------------|--------|
| Contractual Obligations:                                     |   |      |    |                |   |             |   |             |   |               |   |
| Operating Leases                                             |   | $         | 118,098 |                | $      | 13,660           |   | $                | 39,266 |               | $      | 20,321 |   | $ | 44,851 |   |
| Senior Notes                                                 |   | 85,310    |    | —              |   | —           |   | —           |   | 85,310             |   |
| Closed restaurant reserve,  net of sublease income estimated |   | 2,499     |    | 642                 |   | 1,347            |   | 255              |   | 255                |   |
| Total Contractual Cash  Obligations                          |   | $         | 205,907 |                | $      | 14,302           |   | $                | 40,613 |               | $      | 20,576 |   | $ | 130,416 |   |

 

13

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Contractual obligations executed subsequentto January 1, 2003:

 

PaymentsDue by Period(Dollars in Thousands)

 
|                  |   | **Total** |   | **Less than 1  year** |   | **1 - 3 years** |   | **4 - 5 years** |   | **After 5 years** |   |
|-----------------------|--------|-----------|--------|-----------------------|--------|-----------------|--------|-----------------|--------|-------------------|--------|
| Operating Leases      |   | 11,081    |   | $                     | 458    |            | $      | 1,746           |   | $                 | 1,178  |   | $ | 7,699 |   |
| Capital Leases        |   | 9,346     |   | 391                   |   | 1,218           |   | 851             |   | 6,886             |   |
| Total new obligations |   | $         | 20,427 |                  | $      | 849             |   | $               | 2,964  |              | $      | 2,029 |   | $ | 14,585 |   |
|                       |        |           |        |                       |        |                 |        |                 |        |                   |        |  |  |  |  |  |

 

As mentioned above, the Company entered intoa sale-leaseback transaction for three properties.  The land portion is classified as an operating lease and thebuilding portion is classified as a capital lease.  In addition, the Company executed an operating lease during thefirst quarter of 2003 for a future restaurant opening.

##  

## **Impact of Inflation**

 

Inflationary factors such as increases in labor, food or otheroperating costs could adversely affect the Company’s operations.  The Company does not believe inflation hashad a material impact on its financial position or results of operations forthe periods discussed above.  Managementbelieves through the proper leveraging of purchasing size, labor scheduling,and restaurant development analysis, inflation will not have a material adverseeffect on income during the foreseeable future.  There can be no assurance inflation will not materially adverselyaffect the Company.

 

**Seasonality**

 

The Company’s quarterly results of operationshave fluctuated and are expected to continue to fluctuate depending on avariety of factors, including the timing of new restaurant openings and relatedpre-opening and other startup expenses, net sales contributed by newrestaurants, increases or decreases in comparable restaurant sales, competitionand overall economic conditions.  TheCompany’s business is also subject to seasonal influences of consumer spending,dining out patterns and weather.  As isthe case with many restaurant companies, the Company typically experienceslower net sales and net income during the first and fourth quarters.  Because of these fluctuations in net salesand net loss, the results of operations of any quarter are not necessarilyindicative of the results that may be achieved for a full year or any futurequarter.

 

# **Critical AccountingPolicies**

 

The following discussion addresses the Company’s most criticalaccounting policies, which are those most important to the portrayal of theCompany’s financial condition and results, and require significant judgment.

 

*Propertyand Equipment*

 

Property and equipment are depreciated on a straight-line basis overthe estimated useful lives of the assets. The useful lives of the assets are based upon the Company’s expectationsfor the period of time that the asset will be used to generate revenue.  The Company periodically reviews the assetsfor changes in circumstances which may impact their useful lives.

 

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*Impairmentof Long-Lived Assets*

 

The Company reviews property and equipment for impairment when eventsor circumstances indicate it might be impaired. The Company tests impairmentusing historical cash flows and other relevant facts and circumstances as theprimary basis for its estimates of future cash flows.  This process requires the use of estimates and assumptions whichare subject to a high degree of judgment. In addition, at least annually, the Company assesses the recoverabilityof goodwill and other intangible assets related to its restaurant concepts.These impairment tests require the Company to estimate fair values of itsrestaurant concepts by making assumptions regarding future cash flows and otherfactors.  If these assumptions change inthe future, the Company may be required to record impairment charges for theseassets.

 

*Self-Insurance*

 

The Company is self-insured for certain losses related to generalliability, group health insurance, and workers’ compensation.  The Company maintains stop loss coveragewith third party insurers to limit its total exposure.  The self-insurance liability represents anestimate of the ultimate cost of claims incurred as of the balance sheetdate.  The estimated liability is notdiscounted and is established based upon analysis of historical data andactuarial estimates, and is reviewed by the Company on a quarterly basis toensure that the liability is appropriate. If actual trends, including the severity or frequency of claims, differfrom the Company’s estimates, the Company’s financial results could beimpacted.

 

*Closed Restaurant Reserve*

 

The Company remains primarily liable on approximately 14 leases forclosed restaurants. Management reviews the specifics of each site on aquarterly basis to estimate the Company’s net remaining liability over theremaining lease term. Certain locations have subtenants in place while othersremain vacant. Estimates must be made of future sublease income or leaseassignment possibilities. If subtenants default on their subleases or projectedfuture subtenants are not arranged, actual results could differ from theCompany’s estimates, thereby impacting the Company’s financial results.

 

**Forward-LookingStatements**

 

All statements other than statements ofhistorical facts included in this Quarterly Report on Form 10-Q, including,without limitation, statements set forth under “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” regarding theCompany’s future financial position, business strategy, budgets, projectedcosts and plans and objectives of management for future operations, areforward-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 the negative thereof or variationsthereon or similar terminology. Although the Company believes that the expectations reflected in suchforward-looking statements will prove to have been correct, it can give noassurance that such expectations will prove to have been correct.  Factors including those set forth herein, aswell as those set forth in the Company’s Form 10-K filed with the Securitiesand Exchange Commission (“SEC”) on March 28, 2003 and other filings with theSEC may affect such expectations. Investors are cautioned not to place undue reliance on theseforward-looking statements, which speak only as of the date hereof.  The Company undertakes no obligation topublicly release any revisions to these forward-looking statements to reflectevents or circumstances after the date hereof or to reflect the occurrence ofunanticipated events.

 

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# **Item 3.**  QUANTITATIVE AND QUALITATIVE DISCLOSUREABOUT MARKET RISKS

 

The Company has no exposure to specific risks relatedto derivatives or other “hedging” types of financial instruments.

# ** **

# **Item 4.** CONTROLSAND PROCEDURES

 

As of April 2, 2003, an evaluation was performed under the supervisionand with the participation of the Company’s management, including the ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of thedesign and operation of the Company’s disclosure controls and procedures.  Based on that evaluation, the Company’smanagement, including the Chief Executive Officer and Chief Financial Officer,concluded that the Company’s disclosure controls and procedures were effectiveas of April 2, 2003.  There have been nosignificant changes in the Company’s internal controls or in other factors thatcould significantly affect internal controls subsequent to April 2, 2003.

 

PARTII: OTHER INFORMATION

 

Item 1.  LEGAL PROCEEDINGS

The Company is involved in various legal proceedings from time to timeincidental to the conduct of its business. In the opinion of management, anyultimate liability arising out of such proceedings will not have a materialadverse effect on the financial condition or results of operations of theCompany.

 

Management is not aware of any litigation towhich the Company is a party that is likely to have a material adverse effecton 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 SECURITYHOLDERS

None

 

Item 5.  OTHER INFORMATION

None

 

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

None

 

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SIGNATURES

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 

 
|               | BERTUCCI’S  CORPORATION               |      |
|--------------------|--------------------------------------------|-----------|
|               | (Registrant)                               |      |
|               |                                       |      |
|               |                                       |      |
| Date: May 13, 2003 |                                       | By:  |  /s/ Benjamin R. Jacobson |   |   |
|               | Chairman of the Board  of Directors,       |      |
|               | Chief Executive  Officer, Treasurer        |      |
|               | (Principal Executive  Officer)             |      |
|               |                                       |      |
|               |                                       |      |
| Date: May 13, 2003 |                                       | By:  | /s/ Kurt J. Schnaubelt |   |   |
|               | Chief  Financial Officer,                  |      |
|               | Senior  Vice President – Finance and  |      |
|               | Administration  (Chief Accounting Officer) |      |

 

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**CERTIFICATION**

 

I, Benjamin R. Jacobson, certify that:

 

1.                           I havereviewed this quarterly report on Form 10-Q of Bertucci’s Corporation;

2.                           Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

3.                           Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the Company as of,and for, the periods presented in this quarterly report;

4.                           TheCompany’s other certifying officer and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the Company and have:

a.                           designedsuch disclosure controls and procedures to ensure that material informationrelating to the Company, including its consolidated subsidiaries, is made knownto us by others within those entities, particularly during the period in whichthis quarterly report is being prepared;

b.                          evaluatedthe effectiveness of the Company’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

c.                           presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

5.                           TheCompany’s other certifying officer and I have disclosed, based on our mostrecent evaluation, to the Company’s auditors and the Company’s board ofdirectors:

a.                           allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the Company’s ability to record, process, summarize andreport financial data and have identified for the Company’s auditors anymaterial weaknesses in internal controls; and

b.                          anyfraud, whether or not material, that involves management or other employees whohave a significant role in the Company’s internal controls; and

6.                           TheCompany’s other certifying officer and I have indicated in this quarterlyreport whether there were significant changes in internal controls or in otherfactors that could significantly affect internal controls subsequent to thedate of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 

Date: May 13, 2003

 

 
|   |                                |   | By: | /s/ Benjamin R. Jacobson |   |
|--------|-------------------------------------|--------|-----|--------------------------|--------|
|   | Benjamin R. Jacobson                |
|   | Chairman of the Board of Directors, |
|   | Chief Executive  Officer, Treasurer |
|   | (Principal Executive Officer)       |

 

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**CERTIFICATION**

 

I, Kurt J.Schnaubelt, certify that:

 

1.                           I havereviewed this quarterly report on Form 10-Q of Bertucci’s Corporation;

2.                           Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

3.                           Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the Company as of,and for, the periods presented in this quarterly report;

4.                           TheCompany’s other certifying officer and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the Company and have:

a.                           designedsuch disclosure controls and procedures to ensure that material informationrelating to the Company, including its consolidated subsidiaries, is made knownto us by others within those entities, particularly during the period in which thisquarterly report is being prepared;

b.                          evaluatedthe effectiveness of the Company’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

c.                           presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

5.                           TheCompany’s other certifying officer and I have disclosed, based on our mostrecent evaluation, to the Company’s auditors and the Company’s board ofdirectors:

a.                           allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the Company’s ability to record, process, summarize andreport financial data and have identified for the Company’s auditors anymaterial weaknesses in internal controls; and

b.                          anyfraud, whether or not material, that involves management or other employees whohave a significant role in the Company’s internal controls; and

6.                           TheCompany’s other certifying officer and I have indicated in this quarterlyreport whether there were significant changes in internal controls or in otherfactors that could significantly affect internal controls subsequent to thedate of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 

Date: May 13,2003

 

 
|   | By:                                                                                                                               | /s/ Kurt J. Schnaubelt |   |
|--------|-----------------------------------------------------------------------------------------------------------------------------------|------------------------|--------|
|   | Kurt J. Schnaubelt  Chief Financial Officer,  Senior Vice President – Finance and  Administration (Chief Accounting Officer) |

 

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