**FORM 10-Q**

 

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC  20549**

 

**ý****  Quarterly Report Voluntarily Filed Pursuantto Section 15(d) of the Securities and Exchange Act of 1934**

 

**For the Quarterly Period Ended October 2, 2002**

 

**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 filled by Section 13 or 15(d) of theSecurities Exchange Act of the 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

 

2,978,955 shares of the registrant’s CommonStock were outstanding on November 15, 2002.

 

 

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BERTUCCI’SCORPORATION

 

FORM10-Q

 

TABLEOF CONTENTS

 
| PART I:                                                                                                                | FINANCIAL INFORMATION |
|------------------------------------------------------------------------------------------------------------------------|-----------------------|
|                                                                                                                   |                  |   |
| Item 1.    Financial Statements:                                                                        |
| 1)                                                                                                                     |                  | Consolidated Balance Sheets  October 2, 2002 (Unaudited) and January 2, 2002 |
|                                                                                                                   |                  |   |
| 2)                                                                                                                     |                  | Consolidated  Statements of Operations for the 13 Weeks and 39 Weeks Ended October 2, 2002  (Unaudited) and October 3, 2001 (Unaudited) |
|                                                                                                                   |                  |   |
| 3)                                                                                                                     |                  | Consolidated  Statement of Changes in Stockholders’ Equity for the 39 Weeks Ended October  2, 2002 (Unaudited) |
|                                                                                                                   |                  |   |
| 4)                                                                                                                     |                  | Consolidated  Statements of Cash Flow for the 39 Weeks ended October 2, 2002 (Unaudited)  and October 3, 2001 (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                                                                                                         |                  |
|                                                                                                                        |                       |  |  |  |  |  |  |  |

 

2

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PART I:        FINANCIALINFORMATION

Item1.  Financial Statements

 

**BERTUCCI’S CORPORATION**

**CONSOLIDATED BALANCE SHEETS**

(In thousands, except share data)

 
|                                                                                                                 |   | **(Unaudited)**      |       |                 |       |
|----------------------------------------------------------------------------------------------------------------------|--------|----------------------|------------|----------------------|------------|
|                                                                                                                 |   | **October 2,  2002** |       | **January 2,  2002** |       |
| **ASSETS**                                                                                                           |   |                 | ** ** |                 | ** ** |
|                                                                                                                 |   |                 |       |                 |       |
| Current Assets:                                                                                                      |   |                 |       |                 |       |
| Cash                                                                                                                 |   | $                    | 7,855      |                 | $          | 23,235 |   |
| Restricted cash                                                                                                      |   | 1,911                |       | 1,013                |       |
| Accounts receivable                                                                                                  |   | 789                  |       | 1,033                |       |
| Income taxes refund receivable                                                                                       |   | 3,511                |       | —               |       |
| Inventories                                                                                                          |   | 1,028                |       | 805                  |       |
| Prepaid expenses and other current assets                                                                            |   | 551                  |       | 1,554                |       |
| Total current assets                                                                                                 |   | 15,645               |       | 27,640               |       |
|                                                                                                                 |   |                 |       |                 |       |
| Property and equipment, at cost:                                                                                     |   |                 |       |                 |       |
| Land                                                                                                                 |   | 2,469                |       | 2,647                |       |
| Buildings                                                                                                            |   | 6,635                |       | 6,624                |       |
| Leasehold improvements                                                                                               |   | 56,007               |       | 49,654               |       |
| Furniture and equipment                                                                                              |   | 34,597               |       | 29,058               |       |
|                                                                                                                 |   | 99,708               |       | 87,983               |       |
| Less - Accumulated depreciation                                                                                      |   | (29,433              | )          | (23,081              | )          |
|                                                                                                                 |   | 70,275               |       | 64,902               |       |
| Construction work in process                                                                                         |   | 1,482                |       | 139                  |       |
| Net property and equipment                                                                                           |   | 71,757               |       | 65,041               |       |
|                                                                                                                 |   |                 |       |                 |       |
| Goodwill, net                                                                                                        |   | 26,127               |       | 26,127               |       |
| Deferred taxes, noncurrent                                                                                           |   | 5,338                |       | 7,697                |       |
| Deferred finance costs, net                                                                                          |   | 3,881                |       | 4,384                |       |
| Liquor licenses                                                                                                      |   | 1,753                |       | 1,806                |       |
| Other assets, net                                                                                                    |   | 357                  |       | 102                  |       |
| Total Assets                                                                                                         |   | $                    | 124,858    |                 | $          | 132,797 |   |
|                                                                                                                 |   |                 |       |                 |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                            |   |                 |       |                 |       |
|                                                                                                                 |   |                 |       |                 |       |
| Current Liabilities:                                                                                                 |   |                 |       |                 |       |
| Accounts payable                                                                                                     |   | 6,523                |       | 8,808                |       |
| Accrued expenses                                                                                                     |   | 10,412               |       | 13,263               |       |
| Income taxes payable                                                                                                 |   | 1,030                |       | 1,196                |       |
| Total current liabiliites                                                                                            |   | 17,965               |       | 23,267               |       |
|                                                                                                                 |   |                 |       |                 |       |
| Senior Notes                                                                                                         |   | 85,310               |       | 85,310               |       |
| Restaurant closing reserve - noncurrent                                                                              |   | 2,005                |       | 2,685                |       |
| Deferred rent and other long-term liabilites                                                                         |   | 2,694                |       | 2,509                |       |
| Total liabilities                                                                                                    |   | 107,974              |       | 113,771              |       |
| Commitments and contingencies                                                                                        |   |                 |       |                 |       |
| Stockholders’ equity:                                                                                           |   |                 |       |                 |       |
| Common stock, $.01 par value  Authorized - 8,000,000 shares  Issued - 3,666,370 shares, outstanding 2,978,955 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                                                                                                  |   | (4,069               | )          | (1,927               | )          |
| Total stockholders’ equity                                                                                      |   | 16,884               |       | 19,026               |       |
| Total Liabilites and Stockholders’ Equity                                                                       |   | $                    | 124,858    |                 | $          | 132,797 |   |

 

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

 

3

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**BERTUCCI’SCORPORATION**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

(In thousands, except share and per share data)

(Unaudited)

 
|                                                                      |   | **Thirteen weeks ended** |       | **Thirty-nine weeks ended** |       |
|---------------------------------------------------------------------------|--------|--------------------------|------------|-----------------------------|------------|
|                                                                      |   | **October 2,  2002**     |       | **October 3,  2001**        |       | **October 2,  2002** |   | **October 3,  2001** |   |
|                                                                      |   |                     | ** ** |                        | ** ** |   | ** ** |   | ** ** |
| Net sales                                                                 |   | $                        | 41,664     |                        | $          | 37,807 |   | $ | 119,654 |   | $ | 148,633 |   |
|                                                                      |   |                     |       |                        |       |   |   |   |   |
| Cost of sales and expenses:                                               |   |                     |       |                        |       |   |   |   |   |
| Cost of sales                                                             |   | 8,953                    |       | 8,381                       |       | 26,627 |   | 36,252 |   |
| Operating expenses                                                        |   | 24,972                   |       | 23,033                      |       | 71,686 |   | 88,724 |   |
| General and administrative expenses                                       |   | 3,070                    |       | 2,718                       |       | 9,112 |   | 9,357 |   |
| Asset impairment charge                                                   |   | —                   |       | 1,800                       |       | — |   | 1,800 |   |
| Closed restaurant charge                                                  |   | 61                       |       | 3,950                       |       | 236 |   | 4,200 |   |
| Deferred rent                                                             |   | 126                      |       | 148                         |       | 271 |   | 471 |   |
| Depreciation, amortization and preopening expenses                        |   | 3,195                    |       | 3,108                       |       | 8,283 |   | 10,643 |   |
| Total cost of sales and expenses                                          |   | 40,377                   |       | 43,138                      |       | 116,215 |   | 151,447 |   |
| Income (loss) from operations                                             |   | 1,287                    |       | (5,331                      | )          | 3,439 |   | (2,814 | ) |
| Other income (expense):                                                   |   |                     |       |                        |       |   |   |   |   |
| Gain on Brinker Sale                                                      |   | —                   |       | (500                        | )          | — |   | 36,932 |   |
| Interest expense, net                                                     |   | (2,280                   | )          | (2,486                      | )          | (6,733 | ) | (8,779 | ) |
| Other income (expense)                                                    |   | (2,280                   | )          | (2,986                      | )          | (6,733 | ) | 28,153 |   |
|                                                                      |   |                     |       |                        |       |   |   |   |   |
| (Loss) income before income tax benefit (expense)  and extraordinary item |   | (993                     | )          | (8,317                      | )          | (3,294 | ) | 25,339 |   |
|                                                                      |   |                     |       |                        |       |   |   |   |   |
| Income tax benefit (expense)                                              |   | 347                      |       | 3,287                       |       | 1,152 |   | (10,649 | ) |
|                                                                      |   |                     |       |                        |       |   |   |   |   |
| Net (loss) income before extraordinary item                               |   | (646                     | )          | (5,030                      | )          | (2,142 | ) | 14,690 |   |
|                                                                      |   |                     |       |                        |       |   |   |   |   |
| Gain on Senior Notes retirement, net of income tax                        |   | —                   |       | 1,338                       |       | — |   | 1,338 |   |
|                                                                      |   |                     |       |                        |       |   |   |   |   |
| Net (loss) income                                                         |   | $                        | (646       | )                           | $          | (3,692 | ) | $ | (2,142 | ) | $ | 16,028 |   |
|                                                                      |   |                     |       |                        |       |   |   |   |   |
| Basic (loss) income per share before extraordinary  item                  |   | $                        | (0.22      | )                           | $          | (1.69 | ) | $ | (0.72 | ) | $ | 4.93 |   |
| Gain on Senior Notes retirement, net of income tax                        |   | —                   |       | 0.45                        |       | — |   | 0.45 |   |
| Basic (loss) income per share                                             |   | $                        | (0.22      | )                           | $          | (1.24 | ) | $ | (0.72 | ) | $ | 5.38 |   |
|                                                                      |   |                     |       |                        |       |   |   |   |   |
| Weighted average shares outstanding - basic                               |   | 2,978,955                |       | 2,978,955                   |       | 2,978,955 |   | 2,978,955 |   |
|                                                                      |   |                     |       |                        |       |   |   |   |   |
| Diluted (loss) income per share before extraordinary  item                |   | $                        | (0.22      | )                           | $          | (1.69 | ) | $ | (0.72 | ) | $ | 4.53 |   |
| Gain on Senior Notes retirement, net of income tax                        |   | —                   |       | 0.45                        |       | — |   | 0.41 |   |
| Diluted (loss) income per share                                           |   | $                        | (0.22      | )                           | $          | (1.24 | ) | $ | (0.72 | ) | $ | 4.94 |   |
|                                                                      |   |                     |       |                        |       |   |   |   |   |
| Weighted average shares outstanding - diluted                             |   | 2,978,955                |       | 2,978,955                   |       | 2,978,955 |   | 3,240,126 |   |

 

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

 

4

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**BERTUCCI’SCORPORATION**

**CONSOLIDATEDSTATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY**

(In thousands, except sharedata)

(Unaudited)

 
|                    |   | **Common Stock**      |   | **Treasury Stock**   |   |                  |     |       |   | **Total  Stockholders’  Equity** |   |
|-------------------------|--------|-----------------------|--------|----------------------|--------|-----------------------|----------|------------|--------|---------------------------------------|--------|
|                    |   | **Number of  Shares** |   | **$ .01 per  Share** |   | **Number of  Shares** |     | **Amount** |   | **Additional Paid-In  Capital**       |   | **Accumulated  Deficit** |   |   |
|                    |   |                  |   |                 |   |                  |     |       |   |                                  |   |   |   |   |   |
| Balance January 2, 2002 |   | 3,666,370             |   | $                    | 37     |                  | (687,415 | )          | $      | (8,088                                | )      | $ | 29,004 |   | $ | (1,927 | ) | $ | 19,026 |   |
| Net loss                |   |                  |   |                 |   |                  |     |       |   |                                  |   | (2,142 | ) | (2,142 | ) |
|                    |   |                  |   |                 |   |                  |     |       |   |                                  |   |   |   |   |   |
| Balance October 2, 2002 |   | 3,666,370             |   | $                    | 37     |                  | (687,415 | )          | $      | (8,088                                | )      | $ | 29,004 |   | $ | (4,069 | ) | $ | 16,884 |   |

 

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

 

5

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**BERTUCCI’S CORPORATION**

**CONSOLIDATED STATEMENTS OF CASH FLOW**

(In thousands)

 

(Unaudited)

 
|                                                                                  |   | **Thirty-Nine Weeks Ended** |       |
|---------------------------------------------------------------------------------------|--------|-----------------------------|------------|
|                                                                                  |   | **October 2, 2002**         |       | **October 3, 2001** |   |
|                                                                                  |   |                        | ** ** |   | ** ** |
| Cash flows of operating activities                                                    |   |                        |       |   |   |
| Net (loss) income                                                                     |   | $                           | (2,142     | ) | $ | 16,028 |   |
| Less gain on Brinker Sale                                                             |   | —                      |       | (36,932 | ) |
| Income taxes on Brinker Sale                                                          |   | —                      |       | 14,782 |   |
| Less gain on Senior Notes retirement, net of tax                                      |   | —                      |       | (1,338 | ) |
|                                                                                  |   |                        |       |   |   |
| Adjustments to reconcile net (loss) income to net  cash used in operating activities: |   |                        |       |   |   |
| Deferred rent                                                                         |   | 271                         |       | 471 |   |
| Depreciation and amortization                                                         |   | 7,185                       |       | 9,914 |   |
| Change in deferred taxes                                                              |   | 2,359                       |       | (2,211 | ) |
| Closed restaurant charge                                                              |   | 236                         |       | 4,200 |   |
| Asset impairment charge                                                               |   | —                      |       | 1,800 |   |
| Gain on sale of property                                                              |   | (235                        | )          | — |   |
| Changes in operating assets and liabilities                                           |   |                        |       |   |   |
| Inventories                                                                           |   | (223                        | )          | 72 |   |
| Prepaid expenses and accounts receivable                                              |   | 1,261                       |       | 1,419 |   |
| Accrued expenses                                                                      |   | (4,083                      | )          | (3,904 | ) |
| Income taxes refundable / payable                                                     |   | (3,676                      | )          | (4,872 | ) |
| Accounts payable                                                                      |   | (2,259                      | )          | (4,147 | ) |
| Other                                                                                 |   | 62                          |       | (2,613 | ) |
| Total adjustments                                                                     |   | 898                         |       | 129 |   |
| Net cash used in operating activities                                                 |   | (1,244                      | )          | (7,331 | ) |
|                                                                                  |   |                        |       |   |   |
| Cash flows of investing activities                                                    |   |                        |       |   |   |
| Additions to property and equipment                                                   |   | (13,645                     | )          | (9,280 | ) |
| Proceeds from sale of restaurant properties                                           |   | 413                         |       | 200 |   |
| Acquisition of liquor licenses                                                        |   | (7                          | )          | — |   |
| Net proceeds from Brinker Sale                                                        |   | —                      |       | 42,775 |   |
| Net cash (used in) provided by investing activities                                   |   | (13,239                     | )          | 33,695 |   |
|                                                                                  |   |                        |       |   |   |
| Cash flows of financing activities                                                    |   |                        |       |   |   |
| Increase in restricted cash                                                           |   | (897                        | )          | (1,000 | ) |
| Payments of mortgage loans and capital lease  obligations                             |   | —                      |       | (421 | ) |
| Senior Notes retirement                                                               |   | —                      |       | (11,522 | ) |
| Net cash used in financing activities                                                 |   | (897                        | )          | (12,943 | ) |
|                                                                                  |   |                        |       |   |   |
| Net (decrease) increase in cash                                                       |   | (15,380                     | )          | 13,421 |   |
| Cash, beginning of period                                                             |   | 23,235                      |       | 7,602 |   |
| Cash, end of period                                                                   |   | $                           | 7,855      |   | $ | 21,023 |   |
|                                                                                  |   |                        |       |   |   |
| Supplemental Disclosure of Cash Flow Information:                                     |   |                        |       |   |   |
| Cash paid for interest, net of interest income                                        |   | $                           | 9,124      |   | $ | 11,737 |   |
| Cash paid for income taxes                                                            |   | $                           | 183        |   | $ | 4,841 |   |

 

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

 

6

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**BERTUCCI’S CORPORATION**

**Notes To Consolidated Financial Statements**

October2, 2002

(Unaudited)

 

*1.**     **Basis of Presentation*

 

The unaudited consolidatedcondensed financial statements (the “Unaudited Financial Statements”) presentedherein have 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 for interimfinancial 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 2001 Form 10-K.  The operating results for the thirty-nineweeks ended October 2, 2002 may not be indicative of the results expected forany succeeding interim period or for the entire year ending January 1, 2003.

 

Certain reclassificationshave been made to prior year financial statements to make them consistent withthe current year’s presentation and to conform with the presentation utilizedin the Company’s 2001 Form 10-K.

 

*2.**     **New AccountingPronouncements*

 

On January 3, 2002, theCompany adopted the provisions of Statement of Financial Accounting Standard(SFAS) No.  142, *Goodwill and Other Intangible Assets.*  SFAS No. 142 superseded APB Opinion No. 17, *Intangible Assets,*and requires thatgoodwill and other intangible assets with indefinite lives no longer beamortized, but reviewed for impairment at least annually.  Accordingly, the Company ceased amortizinggoodwill on January 3, 2002. Amortization expense totaling $569,000 and $1,708,000 is recorded in theConsolidated Statement of Operations for the thirteen and thirty-nine weeksended October 3, 2001, respectively.

 

In accordance with SFAS No.142, the effect of this accounting change is reflected prospectively. Had theCompany accounted for goodwill in accordance with SFAS No. 142 in 2001, netloss and loss per share for the periods presented would have been as follows(in thousands, except per share amounts):

 

7

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|                                                  |   | **Thirteen  weeks ended** |   | **Thirty-nine  weeks ended** |   |
|-------------------------------------------------------|--------|---------------------------|--------|------------------------------|--------|
|                                                  |   | **October 2,  2002**      |   | **October 3,  2001**         |   | **October 2,  2002** |   | **October 3,  2001** |   |
| Net (loss)  income before extraordinary item:         |   |                      |   |                         |   |   |   |   |   |
| Reported net  (loss) income before extraordinary item |   | $                         | (646   | )                            | $      | (5,030 | ) | $ | (2,142 | ) | $ | 14,690 |   |
| Goodwill  amortization                                |   | —                    |   | 569                          |   | — |   | 1,708 |   |
| Adjusted net  (loss) income before extraordinary item |   | $                         | (646   | )                            | $      | (4,461 | ) | $ | (2,142 | ) | $ | 16,398 |   |
|                                                  |   |                      |   |                         |   |   |   |   |   |
| Reported net  (loss) income                           |   | $                         | (646   | )                            | $      | (3,692 | ) | $ | (2,142 | ) | $ | 16,028 |   |
| Goodwill  amortization                                |   | —                    |   | 569                          |   | — |   | 1,708 |   |
| Adjusted net  (loss) income                           |   | $                         | (646   | )                            | $      | (3,123 | ) | $ | (2,142 | ) | $ | 17,736 |   |
|                                                  |   |                      |   |                         |   |   |   |   |   |
| Basic (loss)  income per share:                       |   |                      |   |                         |   |   |   |   |   |
| Reported (loss)  income per share                     |   | $                         | (0.22  | )                            | $      | (1.24 | ) | $ | (0.72 | ) | $ | 5.38 |   |
| Goodwill  amortization                                |   | —                    |   | 0.19                         |   | — |   | 0.57 |   |
| Adjusted basic  (loss) income per share               |   | $                         | (0.22  | )                            | $      | (1.05 | ) | $ | (0.72 | ) | $ | 5.95 |   |
|                                                  |   |                      |   |                         |   |   |   |   |   |
| Diluted (loss)  income per share:                     |   |                      |   |                         |   |   |   |   |   |
| Reported (loss)  income per share                     |   | $                         | (0.22  | )                            | $      | (1.24 | ) | $ | (0.72 | ) | $ | 4.94 |   |
| Goodwill  amortization                                |   | —                    |   | 0.19                         |   | — |   | 0.53 |   |
| Adjusted diluted  (loss) income per share             |   | $                         | (0.22  | )                            | $      | (1.05 | ) | $ | (0.72 | ) | $ | 5.47 |   |

 

Adjusted Basic and Diluted (loss) income beforeextraordinary item for the thirteen and thirty-nine weeks ended October 3, 2001were ($1.50), ($1.50), $5.50, and $5.07, respectively.

 

The Company completed the transitional goodwillimpairment test as required by SFAS No. 142 during the second quarter of 2002and determined no goodwill impairment charge was necessary.

 

In August,2001, the FASB issued SFAS No. 144, *Accountingfor Impairment or Disposal of Long-lived Assets.*  SFAS No. 144 establishes a single accountingmodel for the impairment or disposal of long-lived assets and new standards forreporting discontinued operations.  TheCompany adopted SFAS No. 144 on January 3, 2002.  The adoption of SFAS No. 144 had no impact on the condensedconsolidated financial statements.

 

In June 2002, the FASB issues SFAS No. 146, *Accountingfor Costs Associated with Exit or Disposal Activities. *This statement supersedes Emerging Issues Task Force (EITF) No. 94-3, *LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity. *Under this statement, a liability for a costassociated with a disposal or exit activity is recognized at fair value whenthe liability is incurred rather than at the date of an entity’s commitment toan exit plan as required under EITF 94-3. The provisions of this statement are effective for exit or disposalactivities that are initiated after December 31, 2002, with early adoptionpermitted.

 

*3.**     **Brinker Sale*

 

On April 12, 2001, the Company completed its sale of40 Chili’s and seven On The Border restaurants to the chains’ franchisor,Brinker International, Inc. of Dallas, Texas (“Brinker”) (“the BrinkerSale”).  Total consideration after closing adjustments was $92.2 million.Brinker acquired the inventory, facilities, equipment, and management teamsassociated with these restaurants, as well as four Chili’s restaurants underdevelopment by the Company. Further, Brinker assumed the mortgage debt on theCompany’s Chili’s and On The Border restaurants.  The net cash proceeds from the sale was approximately $43 million.

 

8

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The unaudited pro formaConsolidated Statements of Operations for the 39 weeks ended October 3,2001 presented below reflect the recognition of the Brinker Sale as if thedisposition occurred on January 2, 2001.

** **

**BERTUCCI’SCORPORATION**

**PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS**

(In thousands, exceptshare and per share data)

(Unaudited)

 
|                                                                      |   | **39 Weeks  Ended 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 expenses                                               |   | 4,200                               |    | — |   | 4,200 |   |
| Asset impairment  charge                                                  |   | 1,800                               |    | — |   | 1,800 |   |
| Deferred rent                                                             |   | 471                                 |    | 57 |   | 414 |   |
| Depreciation,  amortization and preopening expenses                       |   | 10,643                              |    | 1,336 |   | 9,307 |   |
| Total cost of  sales and expenses                                         |   | 151,447                             |    | 34,662 |   | 116,785 |   |
| Income (loss) from  operations                                            |   | (2,814                              | )       | 1,865 |   | (4,679 | ) |
|                                                                      |   |                                |    |   |   |   |   |
| Other income  (expense):                                                  |   |                                |    |   |   |   |   |
| Gain on Brinker  Sale                                                     |   | 36,932                              |    | 36,932 |   | — |   |
| Interest  expense, net                                                    |   | (8,779                              | )       | (1,871 | ) | (6,908 | ) |
| Other income  (expense)                                                   |   | 28,153                              |    | 35,061 |   | (6,908 | ) |
|                                                                      |   |                                |    |   |   |   |   |
| Income (loss)  before income tax (expense) benefit and extraordinary item |   | 25,339                              |    | 36,926 |   | (11,587 | ) |
|                                                                      |   |                                |    |   |   |   |   |
| Income tax  (expense) benefit                                             |   | (10,649                             | )       | (14,780 | ) | 4,131 |   |
|                                                                      |   |                                |    |   |   |   |   |
| Net income  (loss) before extraordinary item                              |   | 14,690                              |    | 22,146 |   | (7,456 | ) |
|                                                                      |   |                                |    |   |   |   |   |
| Gain on Senior  Notes retirement, net of income tax                       |   | 1,338                               |    | 1,338 |   | — |   |
| Net income  (loss)                                                        |   | $                                   | 16,028  |   | $ | 23,484 |   | $ | (7,456 | ) |
|                                                                      |   |                                |    |   |   |   |   |
| Basic income  (loss) per share before extraordinary item                  |   | $                                   | 4.93    |   | $ | 7.43 |   | $ | (2.50 | ) |
| Gain on Senior  Notes retirement, net of income tax                       |   | 0.45                                |    | 0.45 |   | — |   |
| Basic income  (loss) per share                                            |   | $                                   | 5.38    |   | $ | 7.88 |   | $ | (2.50 | ) |
|                                                                      |   |                                |    |   |   |   |   |
| Weighted average  shares outstanding - basic                              |   | 2,978,955                           |    | 2,978,955 |   | 2,978,955 |   |
|                                                                      |   |                                |    |   |   |   |   |
| Diluted income  (loss) per share before extraordinary item                |   | $                                   | 4.53    |   | $ | 7.03 |   | $ | (2.50 | ) |
| Gain on Senior  Notes retirement, net of income tax                       |   | 0.41                                |    | 0.41 |   | — |   |
| Diluted income  (loss) per share                                          |   | $                                   | 4.94    |   | $ | 7.44 |   | $ | (2.50 | ) |
|                                                                      |   |                                |    |   |   |   |   |
| Weighted average  shares outstanding - diluted                            |   | 3,240,126                           |    | 3,240,126 |   | 2,978,955 |   |

 

9

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*4.**      Restaurant Closing Reserves*

 

Restaurant closing reserves were established as part of theAcquisition of Bertucci’s.  Thesereserves were related to estimated future lease commitments and exit costs toclose 18 Bertucci’s locations.  Duringthe second and third quarters of 2001, the Company accrued $200,000 and $4.0million, respectively, related to selected locations (all of which had beenclosed), consisting of estimated lease commitments and certain exit costs.  It was originally expected the Company wouldbe able to exit these locations, sublease the locations or otherwise bereleased from the related leases. However,  due to marketconditions, the Company has been unable to sell, sublease or exit certain ofthese leases.  Additionally, in 2002,the Company closed one restaurant and recorded a charge of $236,000 primarilyrelated to estimated lease termination costs.

 

Activity within the reserve in 2002 was as follows:

 

|                                     |   | **Thirty-nine weeks  ended October 2,  2002** |   |
|------------------------------------------|--------|-----------------------------------------------|--------|
|                                     |   |                                          |   |
| Balance at begnning of the year          |   | $                                             | 3,352  |   |
| Costs associated with restaurant closing |   | 236                                           |   |
| Lease costs charged to reserve           |   | (922                                          | )      |
| Balance at end of period                 |   | $                                             | 2,666  |   |
|                                     |   |                                          |   |
| Current portion                          |   | $                                             | 661    |   |
| Noncurrent portion                       |   | 2,005                                         |   |
|                                     |   | $                                             | 2,666  |   |

 

*5.**     **Loss per Share*

 

The number of shares used to calculate diluted lossper share for each of the thirteen and thirty-nine weeks ended October 2, 2002,and the thirteen weeks ended October 3, 2001, exclude the effect of740,473 and 704,793 outstanding stock options, respectively, as the options areanti-dilutive.

 

*6.**      Income Taxes*

 

The Company provides for income taxes at the end ofeach interim period based on the estimated effective tax rate for the fullfiscal year.  Cummulative adjustments tothe Company’s estimate are recorded in the interim period in which a change tothe estimated annual effective rate is determined.

 

*7.**      Sale of Land*

 

During the first quarter of 2002, the Company soldland adjacent to a restaurant included in the Brinker Sale.  The property had a carrying value ofapproximately $179,000 and sold for $413,000. The gain is included in operating expenses in the consolidated statementof operations for the thirty-nine weeks ended October 2, 2002.

 

*****

 

10

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**Item 2.  Management****’s Discussion and Analysis of Results of Operations and FinancialCondition**

 

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

 

**General**

 

The Company is an operatorof full-service, casual dining restaurants in the northeastern UnitedStates.  The Company’s wholly ownedsubsidiary, Bertucci’s Restaurant Corp. owns and operates a restaurant conceptunder the name Bertucci’s Brick Oven Pizzeria®.    Prior to April 11, 2001, the Company operated 40 Chili’s andseven On The Border restaurants in five New England states.  On April 12, 2001, the Company completed itssale of 40 Chili’s and seven On The Border restaurants to the chains’franchisor, Brinker International, Inc. of Dallas, Texas (“Brinker”) (“theBrinker Sale”).  Total consideration after closing adjustments was $92.2million.  Brinker acquired theinventory, facilities, equipment and management teams associated with theserestaurants, as well as four Chili’s restaurants under development by theCompany.  Further, Brinker assumed themortgage debt on the Company’s Chili’s and On The Border restaurants.

 

In July 1998, the Company completed its acquisition ofBertucci’s Restaurant Corp.’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 Sal and Vinnie’s restaurant located inMassachusetts.

 

As of October 2, 2002 the Company owned and operated78 full-service, casual dining, Italian-style restaurants under the nameBertucci’s Brick Oven Pizzeria® located primarily in New England andMid-Atlantic United States.

 

**Significant Accounting Policies**

 

The Company’s Form 10-K for the year ended January 2,2002 outlines the Company’s significant accounting policies.  The Company reviewed those policies anddetermined they remain the most significant accounting policies for thethirty-nine weeks ended October 2, 2002. No changes to those polices were made during the period with theexception of the adoption of SFAS Nos. 142 and 144 during the period asdescribed in Note 2 to the October 2, 2002 consolidated financial statements.

 

**Results of Operations**

 

The following table sets forth the percentagerelationship to net sales, unless otherwise indicated, of certain itemsincluded in the Company’s statement of operations, as well as certain operatingdata, for the periods indicated:

 

11

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**BERTUCCI’SCORPORATION**

**PROFORMACONSOLIDATED STATEMENTS OF OPERATIONS**

(Unaudited)

 
|                                                                      |   |                     |   |               |   | **Thirty -nine weeks ended** |   |
|---------------------------------------------------------------------------|--------|--------------------------|--------|--------------------|--------|------------------------------|--------|
|                                                                      |   | **Thirteen weeks ended** |   |               |   |                         |   | ***Pro Forma  Bertucci’s  Only (b)*** |   |
|                                                                      |   | **October 2,2002**       |   | **October 3,2001** |   | **October 2,2002**           |   | **October 3,2001** |   | **October 3,2001** |   |
| Net Sales                                                                 |   | 100.0                    | %      | 100.0              | %      | 100.0                        | %      | 100.0 | % | 100.0 | % |
|                                                                      |   |                     |   |               |   |                         |   |   |   |   |   |
| Cost of sales and expenses:                                               |   |                     |   |               |   |                         |   |   |   |   |   |
| Cost of sales                                                             |   | 21.5                     | %      | 22.2               | %      | 22.3                         | %      | 24.4 | % | 23.1 | % |
| Operating expenses                                                        |   | 59.9                     | %      | 60.9               | %      | 59.9                         | %      | 59.7 | % | 59.8 | % |
| General and administrative expenses                                       |   | 7.4                      | %      | 7.2                | %      | 7.6                          | %      | 6.3 | % | 7.2 | % |
| Asset impairment charge                                                   |   | —                   |   | 4.8                | %      | —                       |   | 1.2 | % | 1.6 | % |
| Closed restaurant expenses                                                |   | 0.1                      | %      | 10.4               | %      | 0.2                          | %      | 2.8 | % | 3.7 | % |
| Deferred rent                                                             |   | 0.3                      | %      | 0.4                | %      | 0.2                          | %      | 0.3 | % | 0.4 | % |
| Depreciation, amortization and preopening expenses                        |   | 7.7                      | %      | 8.2                | %      | 6.9                          | %      | 7.2 | % | 8.3 | % |
| Total cost of sales and expenses                                          |   | 96.9                     | %      | 114.1              | %      | 97.1                         | %      | 101.9 | % | 104.1 | % |
|                                                                      |   |                     |   |               |   |                         |   |   |   |   |   |
| Income (loss) from operations                                             |   | 3.1                      | %      | (14.1              | )%     | 2.9                          | %      | (1.9 | )% | (4.1 | )% |
|                                                                      |   |                     |   |               |   |                         |   |   |   |   |   |
| Other income (expense):                                                   |   |                     |   |               |   |                         |   |   |   |   |   |
|                                                                      |   |                     |   |               |   |                         |   |   |   |   |   |
| Gain on Brinker Sale                                                      |   | —                   |   | (1.3               | )%     | —                       |   | 24.8 | % | — |   |
| Interest expense, net                                                     |   | (5.5                     | )%     | (6.6               | )%     | (5.6                         | )%     | (5.9 | )% | (6.2 | )% |
| Other income (expense)                                                    |   | (5.5                     | )%     | (7.9               | )%     | (5.6                         | )%     | 18.9 | % | (6.2 | )% |
|                                                                      |   |                     |   |               |   |                         |   |   |   |   |   |
| (Loss) income before income tax benefit (expense)  and extraordinary item |   | (2.4                     | )%     | (22.0              | )%     | (2.7                         | )%     | 17.0 | % | (10.3 | )% |
|                                                                      |   |                     |   |               |   |                         |   |   |   |   |   |
| Income tax benefit (expense)                                              |   | 0.8                      | %      | 8.7                | %      | 1.0                          | %      | (7.2 | )% | 3.7 | % |
|                                                                      |   |                     |   |               |   |                         |   |   |   |   |   |
| Net (loss) income before extraordinary item                               |   | (1.6                     | )%     | (13.3              | )%     | (1.7                         | )%     | 9.8 | % | (6.6 | )% |
| Gain on Senior Notes retirement, net of tax                               |   | —                   |   | 3.5                | %      | —                       |   | 0.9 | % | — |   |
| Net (loss) income                                                         |   | (1.6                     | )%     | (9.8               | )%     | (1.7                         | )%     | 10.7 | % | (6.6 | )% |
|                                                                      |   |                     |   |               |   |                         |   |   |   |   |   |
| **Restaurant  Operating Data (Dollars in Thousands):**                    |   |                     |   |               |   |                         |   |   |   |   |   |
| EBITDA (a)                                                                |   | $                        | 4,669  |               | $      | 3,675                        |   | $ | 11,994 |   | $ | 14,300 |   | $ | 11,042 |   |
| EBITDA Margin                                                             |   | 11.2                     | %      | 9.7                | %      | 10.0                         | %      | 9.6 | % | 9.8 | % |
| Comparable restaurant sales  (c)                                          |   | 9.1                      | %      | (1.6               | )%     | 5.5                          | %      | 2.3 | % | 2.3 | % |
| Number of Bertucci’s  restaurants:                                   |   |                     |   |               |   |                         |   |   |   |   |   |
| Restaurants open at  beginning of period                                  |   | 74                       |   | 75                 |   | 74                           |   | 72 |   |   |   |
| Restaurants opened                                                        |   | 4                        |   | 1                  |   | 5                            |   | 4 |   |   |   |
| Restaurant closed                                                         |   | —                   |   | (1                 | )      | (1                           | )      | (1 | ) |   |   |
| Total restaurants open at  end of period                                  |   | 78                       |   | 75                 |   | 78                           |   | 75 |   |   |   |
|                                                                           |        |                          |        |                    |        |                              |        |  |  |  |  |  |  |  |  |  |  |  |

 

----

(a)               ’’EBITDA’’ isdefined as income from operations before deferred rent, depreciation,amortization, pre-opening costs, asset impairment and closed restaurantcharges, and property disposal gains and losses.  EBITDA is not a measure of performance defined by GenerallyAccepted Accounting Principles (“GAAP”). EBITDA should not be considered inisolation or as a substitute for net income or the statement of cash flows,which have been prepared in accordance with GAAP. The Company believes EBITDAprovides useful information regarding the Company’s ability to service its debtand the Company understands that such information is considered by certaininvestors to be an additional basis for evaluating a company’s ability to pay.

 

(b)              Reflects the impact of the Brinker Sale, seeNote 3 to the October 2, 2002 consolidated financial statements.

 

(c)               The Company defines comparable restaurantsales as net sales from restaurants that have been open for at least one fullfiscal year.

 

12

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**Thirteen Weeks Ended October 2, 2002Compared to Thirteen Weeks Ended October 3, 2001**

 

*Net Sales*. Total company net sales increased by $3.9 million, or 10.3%, to $41.7million during the third quarter 2002 from $37.8 million during the thirdquarter 2001.  The increase wasprimarily due to a $3.1 million (9.1%) increase in comparable restaurant salesand a $1.7 million increase in sales from five new restaurants, partiallyoffset by a $977,000 decrease from three restaurant closings.  Comparable Bertucci’s restaurant dine-inguest counts increased for each of the three months of the quarter and 6.3% inaggregate for the quarter as compared to the third quarter of 2001.  Bertucci’s comparable restaurant dine-insales increased 10.5% for the quarter as compared to the third quarter of 2001.Comparable Bertucci’s restaurant carry-out and delivery sales increased 4.5%for the quarter as compared to the same period in the prior year.  The Company believes that the majority ofthe comparable sales increases have been a result of increased guest visitscombined with a shift in menu mix and an approximate 1.0% price increase inApril 2002.

 

*Cost ofSales*.  Cost of sales increased by approximately$572,000, or 6.8%, to $9.0 million during the third quarter 2002 from $8.4million during the third quarter 2001. Expressed as a percentage of net sales, overall cost of sales decreasedto 21.5% during the third quarter 2002 from 22.2% during the third quarter2001.  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.

 

*OperatingExpenses.*  Operating expenses increased by 1.9 millionor 8.4%, to $25.0 million during the third quarter 2002 from $23.0 millionduring the third quarter 2001.  Thedollar increase was primarily due to increased labor costs as a result ofhigher sales and increased spending on advertising.  Expressed as a percentage of net sales, operating expensesdecreased to 59.9% in the third quarter 2002 from 60.9% during the thirdquarter 2001.  The percentage decreaseis a result of relative decreases as a percentage of sales in labor andoccupancy costs partially offset by higher advertising and insurance costs.

 

*Generaland Administrative Expenses.* General and administrative expenses increased by approximately$353,000, or 13.0%, to $3.1 million during the third quarter 2002 from $2.7million during the third quarter 2001. Expressed as a percentage of net sales, general and administrativeexpenses increased to 7.4% in the third quarter 2002 from 7.2% during the thirdquarter 2001.  The increase is primarilydue to higher new management recruiting and training costs, expenses related topotential franchising opportunities and incremental bonus expenses.

 

*DeferredRent,**Depreciation, Amortization and Pre-opening Expenses*.  Deferred rent, depreciation, amortizationand pre-opening expenses increased by approximately $63,000 or 1.9%, to $3.3million during the third quarter 2002 from $3.3 million during the thirdquarter of 2001.  Expressed as apercentage of net sales, deferred rent, depreciation, amortization and pre-openingexpenses decreased to 8.0% in the third quarter 2002 from 8.6% during the thirdquarter 2001.  The dollar decrease wasprimarily due to the elimination of goodwill amortization resulting from theCompany’s adoption of SFAS No. 142 as discussed in Note 2 to the ConsolidatedFinancial Statements, offset by higher pre-opening expenses associated withfive new restaurants.

 

*InterestExpense.*  Net interest expense decreased byapproximately $206,000 to $2.3 million during the third quarter of 2002 from$2.5 million during the third quarter 2001. The decrease was primarily due to the retirement of $14.7 million inSenior Notes in July 2001 augmented by reduced interest income.

 

*IncomeTaxes.*  The effective income tax benefit rate was35.0% during the third quarter 2002 versus 39.5% for the prior year period.

 

13

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**Thirty-Nine Weeks Ended October 2,2002 Compared to Thirty-Nine Weeks Ended October 3, 2001**

 

*Net Sales*. Total company net sales decreased by $29.0 million, or 19.5%, to $119.6million during the three quarters of 2002 from $148.6 million during the threequarters of 2001.  The decrease was dueto the Brinker Sale.  After removing theimpact of the Brinker Sale, net sales for Bertucci’s for the three quarters of2002 increased by 6.7% or $7.5 million as compared to 2001 due to nine newrestaurants and a 5.5% increase in comparable restaurant sales, partiallyoffset by the closing of three restaurants. Comparable Bertucci’s restaurant dine-in guest counts increased over thesame period 2001 for each of the first nine months of 2002 and, in aggregate,increased for the three quarters of the year by 4.1%.  Bertucci’s comparable restaurant dine-in sales increased 6.5%while comparable Bertucci’s restaurant carry-out and delivery sales increased2.3% for the three quarters of 2002 as compared to the same period in the prioryear.  The Company believes that themajority of the comparable sales increases have been a result of increasedguest visits combined with a shift in menu mix and an approximate 1.0% priceincrease in April 2002.

 

*Cost ofSales*.  Cost of sales decreased by approximately$9.6 million, or 26.6%, to $26.6 million during the three quarters of 2002 from$36.2 million during the three quarters of 2001.  The decrease was due to the Brinker Sale.  Expressed as a percentage of net sales,overall cost of sales decreased to 22.3% during the three quarters of 2002 from24.4% during the three quarters of 2001. The change was primarily due to the Brinker Sale as Brinker ConceptRestaurants ran a higher cost of sales than Bertucci’s restaurants.  After removing the impact of the BrinkerSale, cost of sales for the Bertucci’s restaurants increased by $705,000, or2.7%, to $26.6 million during the three quarters of 2002 from $25.9 millionduring the three quarters of 2001. Expressed as a percentage of net sales, Bertucci’s cost of salesdecreased to 22.3% during the three quarters of 2002 from the pro forma cost ofsales rate of 23.1% during the three quarters of 2001.   The Company believes that managementefficiency, sound purchasing practices and lower cost of ingredients combinedto effectuate the favorable change in Bertucci’s cost of sales percentage.

 

*OperatingExpenses.* Operatingexpenses decreased by $17.0 million, or 19.2%, to $71.7 million during thethree quarters of 2002 from $88.7 million during the three quarters of2001.  The dollar decrease was primarilydue to the Brinker Sale.  Expressed as apercentage of net sales, operating expenses increased to 59.9% in the threequarters of 2002 from 59.7% during the three quarters of 2001.  The percent increase was primarily a resultof reduced leverage due to Brinker Sale. After eliminating the impact of the Brinker Sale, operating expensesincreased by $4.6 million, or 6.9%, to $71.7 million during the three quartersof 2002 from $67.1 million during the three quarters of 2001.  Expressed as a percentage of net sales,operating expenses for Bertucci’s increased to 59.9% in the three quarters of 2002compared to the pro forma operating expense rate of 58.8% in the three quartersof 2001.  The dollar increases areprimarily due to higher advertising expenses, increased labor costs from newrestaurant inefficiencies and higher insurance costs partially offset byreduced utility expenses.  The pro formapercent increase is primarily due to increased advertising and insuranceexpenses partially offset by favorable changes in labor, supplies and occupancycosts in relation to net sales.

 

* General and Administrative Expenses.* General and administrative expensesdecreased by approximately $245,000, or 2.6% to $9.1 million during the threequarters of 2002 from $9.4 million during the three quarters of 2001.  Expressed as a percentage of net sales,general and administrative expenses increased to 7.6% in the three quarters of2002 from 6.3% during the three quarters of 2001.  The dollar decrease was primarily due to staff reduction as aresult of the Brinker Sale and, to a lesser degree, reduced corporate officerent due to the Company’s move to a smaller facility in August 2001 partiallyoffset by higher recruiting and training costs for new restaurant managers. Thepercentage increase is a result of unfavorable leverage of the sales reductiondue to the Brinker Sale combined with higher new restaurant managementrecruiting and training costs.

 

*DeferredRent,**Depreciation, Amortization and Pre-opening Expenses*.  Deferred rent, depreciation, amortizationand pre-opening expenses decreased by approximately $2.6 million or 23.0%, to$8.6 million

 

14

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during the three quarters of 2002 from $11.1million during the three quarters of 2001. Expressed as a percentage of net sales, deferred rent, depreciation,amortization and pre-opening expenses decreased to 7.1% in the three quartersof 2002 from 7.5% during the three quarters of 2001.  The dollar decrease was primarily due to the Brinker Sale and theelimination of goodwill amortization resulting from the Company’s adoption ofSFAS No. 142 as discussed in Note 2 to the Consolidated FinancialStatements.  The percentage decreaseresulted from the elimination of goodwill amortization partially offset byunfavorable leverage of the sales reduction due to the Brinker Sale.

 

*InterestExpense.*  Interest expense decreased by approximately$2.0 million to $6.7 million during the three quarters of 2002 from $8.8million during the three quarters of 2001. The decrease was due to: a) The Brinker Sale as $40.9 million ofmortgage indebtedness was assumed by Brinker; b) $14.7 million of Senior Noteswere retired in July 2001, by using a portion of the proceeds of the BrinkerSale partially offset by c) a reduction in interest income as a result ofreduced investments combined with lower market interest rates.

 

*Income Taxes.*  The effective income tax benefit rate was35.0% during the three quarters of 2002 versus a 42.0% income tax expense ratefor the prior year period.

 

**Liquidity And Capital Resources**

 

Net cash flows used by operating activities were $1.2 million for thethree quarters of 2002, $6.1 million less than the $7.3 million used during thethree quarters of 2001.  As of October2, 2002, the cash and cash equivalents of $9.8 million consisted of $8.9million of short-term investments ($1.9 million of which is restricted, seebelow) and the remainder in operating cash accounts.

 

The Company’s 2002 capital expenditures were $13.6 million throughOctober 2, 2002 compared to $9.3 million for the comparable prior yearperiod.  The capital expenditures for 2002 were primarily comprised of$7.6 million for new Bertucci’s restaurants and $6.0 million for remodels andmaintenance capital.

 

On July 21, 2001, the Company’s Senior Bank Facility expired and wasnot replaced; the Company is currently operating without a line of credit andis funding all of its growth, debt reductions and operating needs from cash onhand combined with cash generated by operations.

 

The Indenture governing the Senior Notes defines the use of netproceeds from an asset sale (the Brinker Sale) and the types of uses ofproceeds, namely, repurchase of debt or investments in assets.  TheIndenture requires use of the proceeds within one year of the asset sale (April12, 2002 for the Brinker Sale).  The Company believes it has met the termsof the indenture for use of Brinker Sale proceeds.  Furthermore, theCompany believes that the cash flow generated from its operations, certainsale-leaseback transactions, and current cash on hand should be sufficient to fundits debt service requirements, lease obligations, current expected capitalexpenditures and other operating expenses through 2003.  While the Companyexpects to be able to service its debt, the lack of short term borrowingavailability may impede growth.

 

As of October 2, 2002, the Company had $85.3 million in consolidatedindebtedness, all pursuant to the Senior Notes.  During July 2001, theCompany established a $2.0 million (maximum) Letter of Credit Facility. As of October 2, 2002, this facility is collateralized with $1.9 million ofcash restricted from general use.

 

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.

 

 

 

15

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As of January 2, 2002, the Company had contractual obligations asfollows:

 
|                               |   | **Future payments due by year (in thousands):** |   |
|------------------------------------|--------|-------------------------------------------------|--------|
|                               |   | **2002**                                        |   | **2003** |   | **2004** |   | **2005** |   | **2006** |   | **Thereafter** |   |
| Contractual obligations            |   |                                            |   |   |   |   |   |   |   |   |   |   |   |
| Operating leases                   |   | $                                               | 10,661 |   | $ | 9,471 |   | $ | 8,442 |   | $ | 7,731 |   | $ | 7,449 |   | $ | 28,970 |   |
| Senior Notes                       |   | —                                          |   | — |   | — |   | — |   | — |   | 85,310 |   |
| Total contractual cash obligations |   | $                                               | 10,661 |   | $ | 9,471 |   | $ | 8,442 |   | $ | 7,731 |   | $ | 7,449 |   | $ | 114,280 |   |

 

Subsequent to January 2, 2002, the Companyexecuted fifteen leases for future restaurant openings, all classified asoperating leases, increasing the contractual obligations of the Company asfollows:

 
|       |   | **Future payments due by year (in thousands):** |   |
|------------|--------|-------------------------------------------------|--------|
|       |   | **2002**                                        |   | **2003** |   | **2004** |   | **2005** |   | **2006** |   | **Thereafter** |   |
|       |   |                                            |   |   |   |   |   |   |   |   |   |   |   |
| New leases |   | $                                               | 423    |   | $ | 2,246 |   | $ | 2,596 |   | $ | 2,596 |   | $ | 2,596 |   | $ | 26,841 |   |
|            |        |                                                 |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**Seasonality**

 

The Company’s quarterlyresults of operations have fluctuated and are expected to continue to fluctuatedepending on a variety of factors, including the timing of new restaurantopenings and related pre-opening and other startup expenses, net salescontributed by new restaurants, increases or decreases in comparable restaurantsales, competition and overall economic conditions.  The Company’s business is also subject to seasonal influences ofconsumer spending, dining out patterns and weather.  As is the case with many restaurant companies, the Companytypically experiences lower net sales and net income during the first andfourth quarters.  Because of thesefluctuations in net sales and net loss, the results of operations of anyquarter are not necessarily indicative of the results that may be achieved fora full year or any future quarter.

 

**Forward-LookingStatements**

 

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 includingthose set forth herein, as well as those set forth in the Company’s Form 10-Kfiled with the Securities and Exchange Commission (“SEC”) on April 1, 2002 andother filings with the SEC may affect such expectations.  Investors are cautioned not to place unduereliance on these forward-looking statements, which speak only as of the datehereof.  The Company undertakes noobligation to publicly release any revisions to these forward-lookingstatements to reflect events or circumstances after the date hereof or toreflect the occurrence of unanticipated events.

 

Item 3.  QUANTITATIVE ANDQUALITATIVE DISCLOSURE ABOUT MARKET RISKS

 

The Company has market risk associated with interestrate risk.  The Company manages itsexposure through its regular financing activities.  Interest rate changes would result in a change in the fair valueof the Company’s debt facilities due to the difference between the marketinterest rate and the rate at the date of issuance of the debt facilities.  Furthermore, the Company has no exposure tospecific risks related to derivatives or other “hedging” types of financialinstruments.

 

Item 4. CONTROLS AND PROCEDURES

 

As of October 2, 2002, an evaluation was performed under thesupervision and with the participation of the Company’s management, includingthe Chief Executive Officer and Chief Accounting Officer, of the effectivenessof the design and operation of the Company’s disclosure controls andprocedures.  Based on that evaluation,the Company’s management, including the Chief Executive Officer and ChiefAccounting Officer, concluded that the Company’s disclosure controls andprocedures were effective as of October 2, 2002.  There have been no significant changes in the Company’s internalcontrols or in other factors that could significantly affect internal controlssubsequent to October 2, 2002.

 

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PARTII: OTHER INFORMATION

 

Item1.      LEGAL PROCEEDINGS

The Company is involved invarious legal proceedings from time to time incidental to the conduct of itsbusiness. In the opinion of management, any ultimate liability arising out ofsuch proceedings will not have a material adverse effect on the financial conditionor results of operations of the Company.

 

Management is not aware ofany litigation to which the Company is a party that is likely to have amaterial adverse effect on the Company.

 

Item 2.      CHANGES IN SECURITIESAND USE OF PROCEEDS

None

 

Item3.      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:  November 15, 2002 |                                                                                 | By:  /s/ Benjamin R. Jacobson |   |   |
|                          | Chairman of the Board  of Directors,                                                 |                          |
|                          | Chief Executive  Officer, Treasurer                                                  |                          |
|                          | (Principal Executive  Officer)                                                       |                          |
|                          |                                                                                 |                          |
| Date:  November 15, 2002 |                                                                                 | 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 have reviewed this quarterly report on Form 10-Q of Bertucci’s Corporation;

 

2. Based on my knowledge, this quarterly report does not contain anyuntrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by thisquarterly report;

 

3. Based on my knowledge, the financial statements, and other financialinformation included in this quarterly report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this quarterly report;

 

4. The registrant’s other certifying officer and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

a) designed such disclosure controls and procedures to ensure thatmaterial information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this quarterly report is being prepared;

 

b) evaluated the effectiveness of the registrant’s disclosure controlsand procedures as of a date within 90 days prior to the filing date of thisquarterly report (the “Evaluation Date”); and

 

c) presented in this quarterly report our conclusions about theeffectiveness of the disclosure controls and procedures based on our evaluationas of the Evaluation Date;

 

5. The registrant’s other certifying officer and I have disclosed,based on our most recent evaluation, to the registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing theequivalent function):

 

a) all significant deficiencies in the design or operation of internalcontrols which could adversely affect the registrant’s ability to record,process, summarize and report financial data and have identified for theregistrant’s auditors any material weaknesses in internal controls; and

 

b) any fraud, whether or not material, that involves management orother employees who have a significant role in the registrant’s internalcontrols; and

 

6. The registrant’s other certifying officer and I have indicated inthis quarterly report whether or not there were significant changes in internalcontrols or in other factors that could significantly affect internal controlssubsequent to the date of our most recent evaluation, including any correctiveactions with regard to significant deficiencies and material weaknesses.

 

 
| Date:  November 15, 2002 |                                                                     | By:  /s/ 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 have reviewed this quarterly report on Form 10-Q of Bertucci’sCorporation;

 

2. Based on my knowledge, this quarterly report does not contain anyuntrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by thisquarterly report;

 

3. Based on my knowledge, the financial statements, and other financialinformation included in this quarterly report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this quarterly report;

 

4. The registrant’s other certifying officer and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

a) designed such disclosure controls and procedures to ensure thatmaterial information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this quarterly report is being prepared;

 

b) evaluated the effectiveness of the registrant’s disclosure controlsand procedures as of a date within 90 days prior to the filing date of thisquarterly report (the “Evaluation Date”); and

 

c) presented in this quarterly report our conclusions about theeffectiveness of the disclosure controls and procedures based on our evaluationas of the Evaluation Date;

 

5. The registrant’s other certifying officer and I have disclosed,based on our most recent evaluation, to the registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing theequivalent function):

 

a) all significant deficiencies in the design or operation of internalcontrols which could adversely affect the registrant’s ability to record,process, summarize and report financial data and have identified for theregistrant’s auditors any material weaknesses in internal controls; and

 

b) any fraud, whether or not material, that involves management orother employees who have a significant role in the registrant’s internal controls;and

 

6. The registrant’s other certifying officer and I have indicated inthis quarterly report whether or not there were significant changes in internalcontrols or in other factors that could significantly affect internal controlssubsequent to the date of our most recent evaluation, including any correctiveactions with regard to significant deficiencies and material weaknesses.

 

 
| Date:  November 15, 2002 |                                                                                                           | By:  /s/ Kurt J. Schnaubelt |   |
|-------------------------------|----------------------------------------------------------------------------------------------------------------|-----------------------------|--------|
|                          | Chief  Financial Officer,  Senior Vice President – Finance and  Administration (Chief Accounting Officer) |

 

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