**SECURITIES AND EXCHANGE COMMISSION**

**Washington,DC  20549**

 

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**FORM10-Q**

 

**ýQuarterly Report Voluntarily Filed Pursuant to Section 13 or 15(d) of theSecurities and Exchange Act of 1934**

 

**Forthe Quarterly Period Ended September 29, 2004**

 

**CommissionFile Number   333-62775**

 

**BERTUCCI’SCORPORATION**

(Exact name ofregistrant 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) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to the filing requirements for the past 90 days.

 

Yes   ýNo  o

 

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

 

Yes   oNo   ý

 

2,924,253 shares of the registrant’s Common Stock wereoutstanding on November 10, 2004.

 

 

 

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**BERTUCCI’SCORPORATION**

**FORM10-Q**

**TABLEOF CONTENTS**

 
| PART I:  | FINANCIAL INFORMATION |
|---------------|-----------------------|
|          |                  |   |   |
|          | Item 1.               |   | Financial Statements: |
|          |                  |   |   |
|          | 1)                    |   | Consolidated Balance  Sheets September 29, 2004 (Unaudited) and December 31, 2003 |
|          |                  |   |   |
|          | 2)                    |   | Consolidated Statements  of Operations for the 13 and 39 Weeks Ended September 29, 2004 (Unaudited)  and October 1, 2003 (Unaudited) |
|          |                  |   |   |
|          | 3)                    |   | Consolidated Statement  of Changes in Stockholders’ (Deficit) Equity for the 39 Weeks Ended September  29, 2004 (Unaudited) |
|          |                  |   |   |
|          | 4)                    |   | Consolidated Statements  of Cash Flow for the 39 Weeks Ended September 29, 2004 (Unaudited) and  October 1, 2003 (Unaudited) |
|          |                  |   |   |
|          | 5)                    |   | Notes to Consolidated  Financial Statements (Unaudited) |
|          |                  |   |   |
|          | Item 2.               |   | Management’s Discussion  and Analysis of Financial Condition and Results of Operations |
|          |                  |   |   |
|          | Item 3.               |   | Quantitative and  Qualitative Disclosure About Market Risk |
|          |                  |   |   |
|          | Item 4.               |   | Controls and Procedures |
|          |                  |   |   |
| PART  II:     |                  | OTHER INFORMATION |
|          | Item 1.               |   | Legal Proceedings |
|          | Item 2.               |   | Sales of Equity  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    |                  |   |
|          |                  |   |
| EXHIBITS      |                  |   |
|               |                       |  |  |  |  |

 

----

 

 

PART I: FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

 

 

**BERTUCCI’SCORPORATION**

**CONSOLIDATEDBALANCE SHEETS**

(In thousands, except share data)

 
| ** **                                                                                                       | ** ** | **(Unaudited)**        | ** ** | ** **                   | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------------|------------|
| ** **                                                                                                       | ** ** | **September 29, 2004** | ** ** | **December  31,  2003** | ** ** |
| ASSETS                                                                                                           |       |                   |       |                         |       |
| Current Assets:                                                                                                  |       |                   |       |                         |       |
| Cash and cash equivalents                                                                                        |       | $                      | 6,188      |                         | $          | 12,647 |   |
| Restricted cash                                                                                                  |       | 3,920                  |       | 3,129                        |       |
| Accounts receivable                                                                                              |       | 847                    |       | 753                          |       |
| Inventories                                                                                                      |       | 1,495                  |       | 1,268                        |       |
| Prepaid expenses and other current assets                                                                        |       | 1,709                  |       | 1,758                        |       |
| Total current assets                                                                                             |       | 14,159                 |       | 19,555                       |       |
|                                                                                                             |       |                   |       |                         |       |
| Property and Equipment, at cost:                                                                                 |       |                   |       |                         |       |
| Land                                                                                                             |       | 259                    |       | 259                          |       |
| Buildings                                                                                                        |       | 697                    |       | 697                          |       |
| Capital leases - land and buildings                                                                              |       | 5,764                  |       | 5,764                        |       |
| Leasehold improvements                                                                                           |       | 62,477                 |       | 63,084                       |       |
| Furniture and equipment                                                                                          |       | 46,950                 |       | 43,806                       |       |
|                                                                                                             |       | 116,147                |       | 113,610                      |       |
| Less - accumulated depreciation and amortization                                                                 |       | (48,904                | )          | (40,300                      | )          |
|                                                                                                             |       | 67,243                 |       | 73,310                       |       |
| Construction work in process                                                                                     |       | 451                    |       | 301                          |       |
| Net property and equipment                                                                                       |       | 67,694                 |       | 73,611                       |       |
|                                                                                                             |       |                   |       |                         |       |
| Goodwill                                                                                                         |       | 26,127                 |       | 26,127                       |       |
| Deferred finance costs, net                                                                                      |       | 3,036                  |       | 3,559                        |       |
| Liquor licenses, net                                                                                             |       | 2,509                  |       | 2,555                        |       |
| Other assets                                                                                                     |       | 438                    |       | 479                          |       |
| TOTAL ASSETS                                                                                                     |       | $                      | 113,963    |                         | $          | 125,886 |   |
|                                                                                                             |       |                   |       |                         |       |
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY                                                              |       |                   |       |                         |       |
|                                                                                                             |       |                   |       |                         |       |
| Current Liabilities:                                                                                             |       |                   |       |                         |       |
| Promissory notes - current portion                                                                               |       | $                      | 39         |                         | $          | 39 |   |
| Capital lease obligations - current portion                                                                      |       | 31                     |       | 31                           |       |
| Accounts payable                                                                                                 |       | 8,276                  |       | 8,443                        |       |
| Accrued expenses                                                                                                 |       | 11,450                 |       | 14,026                       |       |
| Total current liabiliites                                                                                        |       | 19,796                 |       | 22,539                       |       |
| Promissory notes, net of current portion                                                                         |       | 781                    |       | 821                          |       |
| Captial lease obligations, net of current portion                                                                |       | 5,698                  |       | 5,724                        |       |
| Senior Notes                                                                                                     |       | 85,310                 |       | 85,310                       |       |
| Deferred gain on sale leaseback transaction                                                                      |       | 2,030                  |       | 2,112                        |       |
| Other long-term liabilities                                                                                      |       | 4,113                  |       | 4,164                        |       |
| Total liabilities                                                                                                |       | 117,728                |       | 120,670                      |       |
| Stockholders’ (Deficit) Equity:                                                                             |       |                   |       |                         |       |
| Common stock, $.01 par value                                                                                     |       |                   |       |                         |       |
| Authorized - 8,000,000 shares                                                                                    |       |                   |       |                         |       |
| Issued  - 3,667,495 and 3,666,370 shares respectively; Outstanding 2,943,164 and  2,961,552 shares, respectively |       | 37                     |       | 37                           |       |
| Less treasury shares of 724,331 and 704,818 respectively, at cost                                                |       | (8,332                 | )          | (8,190                       | )          |
| Additional paid-in capital                                                                                       |       | 29,045                 |       | 29,035                       |       |
| Accumulated deficit                                                                                              |       | (24,515                | )          | (15,666                      | )          |
| Total stockholders’ (deficit) equity                                                                        |       | (3,765                 | )          | 5,216                        |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY                                                        |       | $                      | 113,963    |                         | $          | 125,886 |   |

 

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

 

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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** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                         | ** ** | **September 29,**        | ** ** | **October 1,**              | ** ** | **September 29,** | ** ** | **October 1,** | ** ** |
|                                                               |       | **2004**                 | ** ** | **2003**                    | ** ** | **2004** | ** ** | **2003** |   |
| ** **                                                         | ** ** | ** **               | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                                          |       | $                        | 49,260     |                        | $          | 47,381 |   | $ | 150,440 |   | $ | 137,642 |   |
|                                                               |       |                     |       |                        |       |   |   |   |   |
| Cost of sales and expenses:                                        |       |                     |       |                        |       |   |   |   |   |
| Cost of sales                                                      |       | 12,256                   |       | 11,402                      |       | 36,695 |   | 31,882 |   |
| Operating expenses                                                 |       | 29,521                   |       | 28,833                      |       | 92,640 |   | 83,726 |   |
| General and administrative expenses                                |       | 2,655                    |       | 2,554                       |       | 9,226 |   | 8,589 |   |
| Asset impairment charge                                            |       | —                   |       | 4,682                       |       | 3,338 |   | 4,682 |   |
| Depreciation, amortization, deferred rent and pre-opening expenses |       | 3,111                    |       | 3,184                       |       | 9,456 |   | 9,419 |   |
| Total cost of sales and expenses                                   |       | 47,543                   |       | 50,655                      |       | 151,355 |   | 138,298 |   |
| Income (loss) from operations                                      |       | 1,717                    |       | (3,274                      | )          | (915 | ) | (656 | ) |
|                                                               |       |                     |       |                        |       |   |   |   |   |
| Interest expense, net                                              |       | (2,654                   | )          | (2,615                      | )          | (7,934 | ) | (7,511 | ) |
| Loss before income tax benefit                                     |       | (937                     | )          | (5,889                      | )          | (8,849 | ) | (8,167 | ) |
|                                                               |       |                     |       |                        |       |   |   |   |   |
| Income tax benefit                                                 |       | —                   |       | —                      |       | — |   | — |   |
|                                                               |       |                     |       |                        |       |   |   |   |   |
| Net loss                                                           |       | $                        | (937       | )                           | $          | (5,889 | ) | $ | (8,849 | ) | $ | (8,167 | ) |
|                                                               |       |                     |       |                        |       |   |   |   |   |
| Basic and diluted loss per share                                   |       | $                        | (0.32      | )                           | $          | (1.99 | ) | $ | (3.00 | ) | $ | (2.75 | ) |
|                                                               |       |                     |       |                        |       |   |   |   |   |
| Weighted average shares outstanding - basic and diluted            |       | 2,944,377                |       | 2,963,674                   |       | 2,949,279 |   | 2,972,642 |   |
|                                                                    |            |                          |            |                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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

 

----

 

 

**BERTUCCI’S CORPORATION**

**CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ (DEFICIT)EQUITY**

(Inthousands, except share data)

(Unaudited)

 
| ** **                                     | ** ** | ** **            | ** ** | ** **          | ** ** | ** **            | ** ** | ** ** | ** ** | ** **                      | ** ** | ** **               | ** ** | ** **                                     | ** ** |
|------------------------------------------------|------------|-----------------------|------------|---------------------|------------|-----------------------|------------|------------|------------|---------------------------------|------------|--------------------------|------------|------------------------------------------------|------------|
| ** **                                     | ** ** | **Common  Stock**     | ** ** | **Treasury  Stock** | ** ** | ** **            | ** ** | ** ** | ** ** | ** **                      | ** ** |
|                                           |       | **Number  of Shares** | ** ** | **Amount**          | ** ** | **Number  of Shares** | ** ** | **Amount** | ** ** | **Additional  Paid-In Capital** | ** ** | **Accumulated  Deficit** | ** ** | **Total  Stockholders’ (Deficit) Equity** |       |
|                                           |       |                  |       |                |       |                  |       |       |       |                            |       |                     |       |                                           |       |
| Balance December  31, 2003                     |       | 3,666,370             |       | $                   | 37         |                  | (704,818   | )          | $          | (8,190                          | )          | $                        | 29,035     |                                           | $          | (15,666 | ) | $ | 5,216 |   |
| Purchase of  common stock for treasury         |       | —                |       | —              |       | (19,513               | )          | (142       | )          | —                          |       | —                   |       | (142                                           | )          |
| Sale of common  stock from exercise of options |       | 1,125                 |       | —              |       | —                |       | —     |       | 10                              |       | —                   |       | 10                                             |       |
| Net loss                                       |       | —                |       | —              |       | —                |       | —     |       | —                          |       | (8,849                   | )          | (8,849                                         | )          |
| Balance September  29, 2004                    |       | 3,667,495             |       | $                   | 37         |                  | (724,331   | )          | $          | (8,332                          | )          | $                        | 29,045     |                                           | $          | (24,515 | ) | $ | (3,765 | ) |
|                                                |            |                       |            |                     |            |                       |            |            |            |                                 |            |                          |            |                                                |            |  |  |  |  |  |  |  |  |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

----

 

 

**BERTUCCI’S CORPORATION**

**CONSOLIDATED STATEMENTS OF CASH FLOW**

(In thousands)

(Unaudited)

 
| ** **                                                                       | ** ** | **Thirty-Nine Weeks Ended** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                       | ** ** | **September 29, 2004**      | ** ** | **October 1,**

**2003** | ** ** |
|                                                                             |       |                        |       |   |   |
| Cash flows from operating activities                                             |       |                        |       |   |   |
| Net loss                                                                         |       | $                           | (8,849     | ) | $ | (8,167 | ) |
| Adjustments to reconcile net loss to net cash provided by operating  activities: |       |                        |       |   |   |
| Depreciation and amortization                                                    |       | 9,173                       |       | 8,052 |   |
| Asset impairment charge                                                          |       | 3,338                       |       | 4,682 |   |
| Deferred rent                                                                    |       | 418                         |       | 344 |   |
| Amortization of gain on sale-leaseback                                           |       | (82                         | )          | (56 | ) |
| Changes in operating assets and liabilities                                      |       |                        |       |   |   |
| Inventories                                                                      |       | (227                        | )          | (357 | ) |
| Prepaid expenses, receivables and other                                          |       | (45                         | )          | 1,033 |   |
| Other accrued expenses                                                           |       | (3,045                      | )          | (4,556 | ) |
| Accounts payable                                                                 |       | (167                        | )          | 519 |   |
| Other operating assets and liabilities                                           |       | 41                          |       | (144 | ) |
| Total adjustments                                                                |       | 9,404                       |       | 9,517 |   |
| Net cash provided by operating activities                                        |       | 555                         |       | 1,350 |   |
|                                                                             |       |                        |       |   |   |
| Cash flows from investing activities                                             |       |                        |       |   |   |
| Additions to property and equipment                                              |       | (6,025                      | )          | (13,288 | ) |
| Acquisition of liquor licenses                                                   |       | —                      |       | (133 | ) |
| Net cash used in investing activities                                            |       | (6,025                      | )          | (13,421 | ) |
|                                                                             |       |                        |       |   |   |
| Cash flows from financing activities                                             |       |                        |       |   |   |
| Net proceeds from sale leaseback transactions                                    |       | —                      |       | 7,177 |   |
| Increase in restricted cash                                                      |       | (791                        | )          | (652 | ) |
| Purchase of common stock for treasury                                            |       | (142                        | )          | (90 | ) |
| Sale of common stock from exercise of options                                    |       | 10                          |       | — |   |
| Payment on promissory note                                                       |       | (40                         | )          | (67 | ) |
| Principal payments under capital lease obligations                               |       | (26                         | )          | (5 | ) |
| Net cash (used in) provided by financing activities                              |       | (989                        | )          | 6,363 |   |
|                                                                             |       |                        |       |   |   |
| Net decrease in cash and cash equivalents                                        |       | (6,459                      | )          | (5,708 | ) |
| Cash and cash equivalents, beginning of year                                     |       | 12,647                      |       | 13,133 |   |
| Cash and cash equivalents, end of period                                         |       | $                           | 6,188      |   | $ | 7,425 |   |
|                                                                             |       |                        |       |   |   |
| Supplemental disclosure of cash flow information:                                |       |                        |       |   |   |
| Cash paid for interest                                                           |       | $                           | 9,863      |   | $ | 9,577 |   |
| Cash paid for income taxes                                                       |       | $                           | 373        |   | $ | 17 |   |
| Capital leases entered into during period                                        |       | $                           | —     |   | $ | 3,821 |   |
| Promissory note issued in exchange for liquor license rights                     |       | $                           | —     |   | $ | 555 |   |
| Promissory note issued in exchange for settlement of lease liability             |       | $                           | —     |   | $ | 941 |   |

 

The accompanying notes are an integral part of theseconsolidated financial statements.

 

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**BERTUCCI’SCORPORATION**

**NotesTo Consolidated Financial Statements**

September 29, 2004

(Unaudited)

 

*1.  Basis of Presentation*

 

The unaudited consolidated condensed financialstatements (the “Unaudited Financial Statements”) presented herein have beenprepared by Bertucci’s Corporation and include all of its subsidiaries(collectively, the “Company”) after elimination of inter-company accounts andtransactions, without audit, and, in the opinion of management, reflect alladjustments (consisting of normal recurring adjustments) necessary for a fairstatement of the interim periods presented. The accompanying unaudited interim consolidated financial statementshave been prepared in accordance with accounting principles generally acceptedin the United States of America for interim financial information and pursuantto the rules and regulations of the Securities and Exchange Commission forreporting on Form 10-Q.  Accordingly,certain information and footnote disclosures required for complete financialstatements are not included herein.  It issuggested the Unaudited Financial Statements be read in conjunction with theconsolidated financial statements and notes included in the Company’s AnnualReport on Form 10-K for the year ended December 31, 2003.  The operating results for the thirteen andthirty-nine weeks ended September 29, 2004 may not be indicative of the resultsexpected for any succeeding interim period or for the entire year endingDecember 29, 2004.

 

*2.  Recent Accounting Pronouncements*

 

In May 2003, the Financial Accounting Standards Board(“FASB”) issued Statement of Financial Accounting Standard No. 150, Accountingfor Certain Financial Instruments with Characteristics of both Liabilities andEquity (“SFAS No. 150”).  The Statementrequires an issuer to classify financial instruments within its scope as aliability. Many of those instruments were previously classified as equity underprior accounting guidelines. SFAS No. 150 is effective for all such financialinstruments entered into or modified after May 31, 2003. Otherwise, it waseffective on July 3, 2003, with the exception of mandatory redeemable financialinstruments of non-public entities, for which the provisions of this statementwere applicable in the first quarter of 2004. The Company does not use such financial instruments, and therefore, theadoption of the applicable portions of this statement did not have a materialimpact on the Company’s financial position or results of operations.

 

*3.Liquor Licenses*

 

Transferable liquor licenses purchased are accountedfor at the lower of cost or fair market value and are not amortized.  Annual renewal fees are expensed asincurred.  Non-transferable liquorlicenses are amortized on a straight-line basis over the contractual life ofthe license.  The carrying value oftransferable liquor licenses was $2.0 million at December 31, 2003 andSeptember 29, 2004.  Accumulatedamortization at December 31, 2003 and September 29, 2004 for a non-transferableliquor license was $40,000 and $86,000, respectively.  Amortization expense for the thirty-nineweeks ended September 29, 2004 was $46,000 and is expected to be $60,000 peryear through fiscal 2013.

 

*4.  Restaurant Closing Reserves*

 

Restaurant closing reserves were established as partof the acquisition of Bertucci’s, Inc. in July 1998.  These reserves were related to estimatedfuture lease commitments and exit costs to close 18 Bertucci’s locations.  In 2001, the Company accrued an additional$4.2 million related to selected locations (all of which had been closed),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 market conditions, the Company has been unable tosublease or exit certain of these leases. In June 2002, the Company closed one restaurant and recorded a charge of$236,000 primarily related to estimated lease termination costs.  In March 2003, the Company terminated a leasefor one of its closed locations in exchange for issuing a promissory note of$455,000 payable in varying installments through 2010.  The note does not bear interest. Accordingly,the Company imputed interest on the note and recorded the obligation at itsthen present value of $386,000 in other long-term obligations in theaccompanying balance sheet.

 

The closed restaurant reserve was calculated net ofsublease income at 14 locations that are partially or fully subleased as ofSeptember 29, 2004.  The Company remainsprimarily liable for the remaining lease obligations should the sublesseedefault.  Total sublease income excludedfrom the reserve is approximately $7.5 million for subleases expiring atvarious dates through 2017.  There havebeen no defaults by sublessors to date.

 

----

 

Activity within thereserve was as follows (in thousands):

 

 
| ** **                                     | ** ** | **Thirty-nine weeks ended** | ** ** |
|------------------------------------------------|------------|-----------------------------|------------|
| ** **                                     | ** ** | **September 29,****2004**   | ** ** | **October 1,****2003** | ** ** |
|                                           |       |                        |       |   |   |
| Balance, beginning of the year                 |       | $                           | 1,449      |   | $ | 2,499 |   |
| Payments charged against reserve               |       | (469                        | )          | (566 | ) |
| Promissory note issued                         |       | —                      |       | (386 | ) |
| Balance, end of period                         |       | $                           | 980        |   | $ | 1,547 |   |
|                                           |       |                        |       |   |   |
| Current portion (included in accrued expenses) |       | $                           | 615        |   | $ | 621 |   |
| Noncurrent portion                             |       | 365                         |       | 926 |   |
|                                           |       | $                           | 980        |   | $ | 1,547 |   |

 

*5.  Loss per Share*

 

The number of shares used to calculate diluted lossper share for the periods ended September 29, 2004 and October 1, 2003 excludethe effect of 554,021 and 602,311 shares of Common Stock subject to outstandingstock options, respectively, as the options are anti-dilutive.

 

*6.  Income Taxes*

 

The Company recognizes deferred tax assets andliabilities for the expected future tax consequences of events that have beenincluded in the financial statements or tax returns.  Additionally, the Company is required toconsider both negative and positive evidence in determining if a valuationallowance is required on a quarterly basis. Management recorded a full valuation allowance for its deferred taxassets in fiscal 2002 and continues to record an allowance quarterly for thetax benefits associated with the current period’s losses.

 

*7.  Stock-Based Compensation*

 

The Company has elected to account for stock-basedcompensation using the intrinsic value method with disclosure of the effects offair value accounting on net loss and loss per share on a pro forma basis.  No stock-based employee compensation costrelated to stock options is reflected in the reported net loss, as all optionsgranted had an exercise price equal to, or in excess of, the market value ofthe underlying common stock on the date of grant.  The following table illustrates the effect onnet loss and loss per share if the Company had applied the fair value method.

 

 
| ** **                                                                                                                                              | ** ** | **Thirteen weeks ended** | ** ** | **Thirty-nine weeks ended** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                              | ** ** | **September 29, 2004**   | ** ** | **October 1, 2003**         | ** ** | **September 29, 2004** | ** ** | **October 1,****2003** | ** ** |
|                                                                                                                                                    |       |                     |       |                        |       |   |   |   |   |
| Net loss, as reported                                                                                                                                   |       | $                        | (937       | )                           | $          | (5,889 | ) | $ | (8,849 | ) | $ | (8,167 | ) |
| Add: Stock-based employee compensation expense included in reported  net income, net of related tax effects                                             |       | —                   |       | —                      |       | — |   | — |   |
|                                                                                                                                                    |       |                     |       |                        |       |   |   |   |   |
| Adjust: Net stock-based employee compensation expense/income  determined under fair value based method for all awards, net of related  tax effects |       | 61                       |       | (153                        | )          | (95 | ) | (460 | ) |
|                                                                                                                                                    |       |                     |       |                        |       |   |   |   |   |
| Pro forma net loss                                                                                                                                      |       | $                        | (876       | )                           | $          | (6,042 | ) | $ | (8,944 | ) | $ | (8,627 | ) |
|                                                                                                                                                    |       |                     |       |                        |       |   |   |   |   |
| Loss per share:                                                                                                                                         |       |                     |       |                        |       |   |   |   |   |
| Basic and diluted—as reported                                                                                                                      |       | $                        | (0.32      | )                           | $          | (1.99 | ) | $ | (3.00 | ) | $ | (2.75 | ) |
| Basic and diluted—pro forma                                                                                                                        |       | $                        | (0.30      | )                           | $          | (2.04 | ) | $ | (3.03 | ) | $ | (2.90 | ) |
|                                                                                                                                                         |            |                          |            |                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

8.  *Sale of Properties*

 

During 2003, the Company completed two sale-leasebacktransactions on four restaurant properties. In the first transaction (which occurred in the second quarter of 2003),the Company sold three properties for $7.2 million in cash (net of fees of 

 

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approximately $320,000), resulting in a gain of $2.2million.  The gain has been deferred andwill be amortized into income over the lease term.  The properties sold included land andbuildings at each location which the Company agreed to lease back for a 20-yearperiod.  The portion of the contractualobligation relating to the buildings is recorded at its net present value of$3.8 million (at inception) as an obligation under a capital lease.  The land portion of the obligation isclassified as an operating lease, requiring future payments to be classified asoperating expenses.  In the secondtransaction (which occurred in the fourth quarter of 2003), the Company sold aproperty consisting of land and a building for $1.8 million in cash (net offees of approximately $210,000).  Inconnection with this transaction the Company recorded a charge of $60,000representing the excess of the property’s carrying value over its fair marketvalue.  The fair value of the land isless than 25% of the transaction value and therefore the entire contractualobligation is recorded at its net present value of $1.9 million (at inception)as a capital lease obligation.  TheCompany agreed to lease back the property for a 20-year period.  All leases entered into in connection withthese transactions include two five-year renewal terms, which the Company mayexercise at its option.  The Company isrequired to maintain the properties for the term of the leases and to pay alltaxes, insurance, utilities and other costs associated with thoseproperties.  Under the leases, theCompany agreed to customary indemnities and, in the event the Company defaultson any lease, the landlord may terminate the lease, accelerate rental paymentsand collect liquidated damages.

 

9.  *Asset Impairment Charge*

 

The Company’s long-lived assets consist primarily ofgoodwill and leasehold improvements related to its restaurant operations.Statement of Financial Accounting Standard No. 144, Accounting for theImpairment or Disposal of Long-Lived Assets, requires management to test therecoverability of long-lived assets (excluding goodwill) by comparing estimatedundiscounted future operating cash flows expected to be generated from theseassets to the carrying amounts of the assets whenever events or changes incircumstances indicate the carrying value may not be recoverable.  If cash flows are not sufficient to recoverthe carrying amount of the assets, impairment has occurred and the assets arewritten down to fair value.  Significantestimates and assumptions regarding future sales, cost trends, productivity andmarket maturity are required to be made by management in order to test forimpairment under this standard.

 

During the second quarter of 2004, the Companyassessed certain non-performing restaurants for recoverability and determinedan impairment of fixed assets existed at seven restaurant locations.  The Company estimated the fair value of theseassets based on the net present value of the expected cash flows of the sevenrestaurants.  The carrying amount of theassets exceeded the fair value of the assets by approximately $3.3million.  The Company recorded animpairment charge during the quarter to reflect the write down of the affectedassets to fair value.

 

During the third quarter of 2003, the Company made asimilar assessment and determined an impairment of fixed assets existed ateleven restaurant locations. The carrying amount of the assets exceeded thefair value of the assets (determined with the same method described above) byapproximately $4.7 million.  The Company recorded an impairment chargeduring the quarter to reflect the write down of the affected assets to fairvalue.

 

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**Item2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Forward-LookingStatements**

 

All statements other than statements of historicalfacts included in this Report on Form 10-Q, including, without limitation,statements set forth under this “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” regarding the Company’s futurefinancial position, business strategy, budgets, projected costs and plans andobjectives of management for future operations, are forward-lookingstatements.  In addition, forward-lookingstatements generally can be identified by the use of forward-lookingterminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate”or “believe” or the negative thereof or variations thereon or similarterminology.  Although the Companybelieves that the expectations reflected in such forward-looking statementswill prove to have been correct, it can give no assurance that suchexpectations will prove to be correct. Factors that could cause actual results to materially differ include,without limitation: (a) the Company’s high degree of leverage which could,among other things, reduce the Company’s ability to obtain financing foroperations and expansion, place the Company at a competitive disadvantage andlimit the Company’s flexibility to adjust to changing market conditions; (b)the challenges of managing geographic expansion; (c) changes in food costs,supplies and key supplier relationships; and (d) the possible adverse impact ofgovernment regulation on the Company. Other factors that could adversely affect the Company’s business andprospects are described in its filings with the Securities and ExchangeCommission.  Investors are cautioned notto place undue reliance on these forward-looking statements, which speak onlyas of the date hereof.  The Companyundertakes no obligation to publicly release any revisions to theseforward-looking statements to reflect events or circumstances after the datehereof or to reflect the occurrence of unanticipated events.

 

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’s wholly owned subsidiary, Bertucci’sRestaurant Corp., owns and operates a full-service, casual dining,Italian-style restaurant concept under the names Bertucci’s Brick OvenPizzeria® and Bertucci’s Brick Oven Ristorante®.  As of September 29, 2004, the Company ownedand operated 91 such restaurants located primarily in the northeastern UnitedStates.

 

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**Resultsof Operations**

 

The following table sets forth the percentagerelationship to net sales, unless otherwise indicated, of certain itemsincluded in the Company’s consolidated statements of operations, as well ascertain operating data, for the periods indicated:

 

**STATEMENTSOF OPERATIONS DATA**

(Percentage of Net Sales)

 
| ** **                                                          | ** ** | **Thirteen weeks ended** | ** ** | **Thirty-nine weeks ended** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                          | ** ** | **September 29,**        | ** ** | **October 1,**              | ** ** | **September 29,** | ** ** | **October 1,** | ** ** |
|                                                                |       | **2004**                 | ** ** | **2003**                    | ** ** | **2004** | ** ** | **2003** |   |
| Net sales                                                           |       | 100.0                    | %          | 100.0                       | %          | 100.0 | % | 100.0 | % |
|                                                                |       |                     |       |                        |       |   |   |   |   |
| Cost of sales and expenses:                                         |       |                     |       |                        |       |   |   |   |   |
| Cost of sales                                                       |       | 24.9                     | %          | 24.1                        | %          | 24.4 | % | 23.2 | % |
| Operating expenses                                                  |       | 59.9                     | %          | 60.8                        | %          | 61.6 | % | 60.8 | % |
| General and administrative expenses                                 |       | 5.4                      | %          | 5.4                         | %          | 6.1 | % | 6.2 | % |
| Asset impairment charge                                             |       | —                   |       | 9.9                         | %          | 2.2 | % | 3.4 | % |
| Depreciation, amortization, deferred rent, and pre-opening expenses |       | 6.3                      | %          | 6.7                         | %          | 6.3 | % | 6.8 | % |
| Total cost of sales and expenses                                    |       | 96.5                     | %          | 106.9                       | %          | 100.6 | % | 100.4 | % |
|                                                                |       |                     |       |                        |       |   |   |   |   |
| Income (loss) from operations                                       |       | 3.5                      | %          | (6.9                        | )%         | (0.6 | )% | (0.4 | )% |
| Interest expense, net                                               |       | (5.4                     | )%         | (5.5                        | )%         | (5.3 | )% | (5.5 | )% |
| Loss before income tax benefit                                      |       | (1.9                     | )%         | (12.4                       | )%         | (5.9 | )% | (5.9 | )% |
|                                                                |       |                     |       |                        |       |   |   |   |   |
| Income tax benefit                                                  |       | —                   |       | —                      |       | — |   | — |   |
|                                                                |       |                     |       |                        |       |   |   |   |   |
| Net loss                                                            |       | (1.9                     | )%         | (12.4                       | )%         | (5.9 | )% | (5.9 | )% |
|                                                                |       |                     |       |                        |       |   |   |   |   |
| **Restaurant Operating Data:**                                      |       |                     |       |                        |       |   |   |   |   |
| Increase in comparable restaurant sales (a)                         |       | —                   |       | 2.4                         | %          | 1.9 | % | 4.3 | % |
| Number of restaurants:                                              |       |                     |       |                        |       |   |   |   |   |
| Restaurants open, beginning of period                               |       | 90                       |       | 86                          |       | 89 |   | 80 |   |
| Restaurants opened                                                  |       | 1                        |       | 1                           |       | 2 |   | 7 |   |
| Total restaurants open, end of period                               |       | 91                       |       | 87                          |       | 91 |   | 87 |   |

(a)               The Company definescomparable restaurant sales as net sales from restaurants open at least onefull fiscal year prior to the beginning of the current reported period.

 

 

**ThirteenWeeks Ended September 29, 2004 Compared to Thirteen Weeks Ended October 1, 2003**

 

*NetSales*.  Total net sales increased by $1.9 million, or4.0%, to $49.3 million during the third quarter of 2004 from $47.4 million duringthe third quarter of 2003.  The increasewas primarily due to a net 43 incremental restaurant weeks from elevenrestaurants opened since January 2003 ($2.2 million), and an offset ofapproximately $301,000 from one restaurant closing in the fourth quarter of2003. Comparable Bertucci’s restaurant dine-in guest counts decreased 5.3% forthe third quarter of 2004 as compared to the third quarter of 2003.  Bertucci’s comparable restaurant dine-insales increased 0.4% and comparable carry-out and delivery sales decreased 1.6%for the quarter as compared to the third quarter of 2003.  Comparable sales were essentially flatbecause of an aggregate 3.7% increase in menu prices in February 2004 and amenu mix shift to higher priced items, partially offset by the aforementionedguest count decreases.  For the 79comparable restaurants, average weekly sales were flat from the third quarter2003 to the third quarter of 2004.  Forthe eleven restaurants opened since January 2003, average weekly sales were$39,200 per restaurant during the third quarter of 2004.

 

*Cost ofSales.*  Cost of sales increased by approximately$853,400, or 7.5%, to $12.3 million during the third quarter of 2004 from $11.4million during the third quarter 2003. Expressed as a percentage of net sales, overall cost of sales increasedto 24.9% during the third quarter of 2004 from 24.1% during the third quarterof 2003.  Approximately $452,000 resultedfrom the increase in net sales, while approximately $512,000 (1.0% as apercentage of sales) was due to a menu mix shift to higher cost items, and approximately$335,000 (0.7% as a percentage of sales) was due to increases in selectedingredient costs, primarily cheese and oil. These increases were partiallymitigated by the benefit of menu price increases, such benefit approximating$441,000 or 0.9% of sales.  The Companybelieves the higher ingredient costs and the shift in menu emphasis willcontinue during 2004.

 

*OperatingExpenses.*  Operating expenses increased by $688,000 or2.4%, to $29.5 million during the third quarter of 2004 from $28.8 millionduring the third quarter of 2003. Expressed as a percentage of net sales, operating expenses decreased to59.9% in the third quarter of 2004 from 60.8% during the third quarter of2003.  The dollar increase was primarilydue to the opening and operation of restaurants opened after the third quarterof 2003 and offset by advertising expenditures of $1.0 million less in thethird quarter of 2004 as compared to the third quarter of 2003, primarily dueto the timing of marketing campaigns.

 

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*Generaland Administrative Expenses.*  General andadministrative expenses increased by approximately $101,000, or 4.0%, to $2.7million during the third quarter of 2004 from $2.6 million during the thirdquarter of 2003.  Expressed as apercentage of net sales, general and administrative expenses were essentiallyflat at 5.4%.  The net dollar increasewas primarily due to incentive compensation reductions recorded in the thridquarter of the prior year.

 

*Depreciation,Amortization, Deferred Rent and Pre-opening Expenses*. Depreciation, amortization, deferred rent and pre-opening expensesdecreased by approximately $73,000, or 2.2%, to $3.1 million during the thirdquarter of 2004 from $3.2 million during the third quarter of 2003.  Expressed as a percentage of net sales,depreciation, amortization, deferred rent and pre-opening expenses decreased to6.3% in the third quarter of 2004 from 6.7% during the third quarter of 2003.  The dollar variance was primarily the resultof a $245,000 decrease in pre-opening costs as there was only one opening inthe third quarter of 2004 partially offset by an $185,000 increase indepreciation costs due to restaurants open since October 2003.

 

*InterestExpense, net.*  Net interest expense increased byapproximately $39,000 or 1.5%, to $2.7 million during the third quarter of 2004from $2.6 million during the third quarter of 2003 primarily as a result ofreduced interest rates available for short term (primarily overnight) investingand reduced construction costs capitalized.

 

*IncomeTaxes*.  The Company has an historical trend ofrecurring pre-tax losses since 1998 excluding the sale of 40 Chili’s and sevenOn The Border restaurants to Brinker International, Inc. in April 2001.  The Company anticipates its current plan forcontinued development of Company owned Bertucci’s restaurants will burdenpre-tax profits because of the recognition of pre-opening costs and initialyear inefficiencies associated with new restaurants.  During the fourth quarter of 2002, theCompany recorded a full valuation allowance for its net deferred taxasset.  The Company has also provided afull valuation allowance relating to the tax benefits subsequently generated(primarily from its operating losses).

 

**Thirty-NineWeeks Ended September 29, 2004 Compared to Thirty-Nine Weeks Ended October 1,2003**

 

*NetSales*.  Total net sales increased by $12.8 million,or 9.3%, to $150.4 million during the first three quarters of 2004 from $137.6million during the first three quarters of 2003.  The increase was primarily due to an $11.2million increase in sales due to a net 244 incremental restaurant weeks fromeleven restaurants opened since January 2003, a $2.5 million, or 1.9%, increasein comparable restaurant sales, and an offset of approximately $935,000 fromone restaurant closing in the fourth quarter of 2003.  Comparable Bertucci’s restaurant dine-inguest counts decreased 4.3% for the first three quarters of 2004 as compared tothe first three quarters of 2003.  Bertucci’scomparable restaurant dine-in sales increased 2.2% and comparable carry-out anddelivery sales increased 0.7% for the period as compared to the first threequarters of 2003.  The increase incomparable sales was primarily due to an aggregate 3.4% increase in menu pricesin March 2003 and February 2004 and a menu mix shift to higher priced items,partially offset by the aforementioned guest count decreases.  For the 79 comparable restaurants, averageweekly sales increased from $42,500 per restaurant in the first three quarters2003 to $43,300 per restaurant during the first three quarters of 2004. For the eleven restaurants opened since January 2003, average weekly saleswere $39,800 per restaurant during the first three quarters of 2004.

 

*Cost ofSales*.  Cost of sales increased by approximately $4.8million, or 15.0%, to $36.7 million during the first three quarters of 2004from $31.9 million during the first three quarters 2003.  Expressed as a percentage of net sales,overall cost of sales increased to 24.4% during the first three quarters of2004 from 23.2% during the first three quarters of 2003.  Approximately $2.9 million resulted from theincrease in net sales, while approximately $1.7 million (1.1% as a percentageof sales) was due to a menu mix shift to higher cost items, approximately $1.4million (0.9% as a percentage of sales) was due to increases in selectedingredient costs, primarily cheese and oil. These increases were partiallymitigated by the benefit of menu price increases, such benefit approximating$1.2 million or 0.8% of sales.  TheCompany believes the higher ingredient costs and the shift in menu emphasiswill continue during 2004.

 

*OperatingExpenses.*  Operating expenses increased by $8.9 million,or 10.6%, to $92.6 million during the first three quarters of 2004 from $83.7million during the first three quarters of 2003.  Expressed as a percentage of net sales,operating expenses increased to 61.6% in the first three quarters of 2004 from60.8% during the first three quarters of 2003. Advertising expenditures were $1.4 million more in the first threequarters of 2004 as compared to the first three quarters of 2003. Expenses innew restaurants, exclusive of advertising, were responsible for $7.4 million ofthe increase.

 

*Generaland Administrative Expenses.*  General andadministrative expenses increased by approximately $637,000 or 7.4%, to $9.2million during the first three quarters of 2004 from $8.6 million during thefirst three quarters of 2003.  Expressedas a percentage of net sales, general and administrative expenses decreased to6.1% in the first three quarters of 2004 from 6.2% during the first threequarters of 2003.  The dollar increasewas primarily due to higher benefit expenses and higher professional fees.

 

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*AssetImpairment Charge.*  As discussed in Note 9 of Notes toConsolidated Financial Statements, the Company recorded a charge ofapproximately $3.3 million in the second quarter 2004 to recognize theestimated impairment of depreciable long-lived assets in seven restaurants.Impairment of three restaurants opened in 2003 comprised all but $80,000 of thetotal charge.

 

*Depreciation,Amortization, Deferred Rent and Pre-opening Expenses*. Depreciation, amortization, deferred rent and pre-opening expensesincreased by approximately $37,000, or 0.4%, to $9.5 million during the firstthree quarters of 2004 from $9.4 million during the first three quarters of2003.  Expressed as a percentage of netsales, depreciation, amortization, deferred rent and pre-opening expensesdecreased to 6.3% in the first three quarters of 2004 from 6.8% during thefirst three quarters of 2003.  The dollarvariance was primarily the result of a $1.2 million increase in depreciationcosts and deferred rent due to new restaurants partially offset by a $1.1million decrease in pre-opening costs.

 

*InterestExpense, net.*  Net interest expense increased byapproximately $423,000, or 5.6%, to $7.9 million during the first threequarters of 2004 from $7.5 million during the first three quarters of2003.  Incremental interest expense ofapproximately $232,000 was incurred in the first three quarters of 2004 as aresult of capitalized leases and promissory notes recorded in 2003.  Fewer restaurant openings contributed toapproximately $140,000 less interest capitalized to construction costs.  Reduced interest income, due to both lowerinterest rates and lower cash balances available, were primarily responsiblefor the balance of the net increase.

 

*IncomeTaxes*.  TheCompany has an historical trend of recurring pre-tax losses since 1998excluding the sale of 40 Chili’s and seven On The Border restaurants to BrinkerInternational, Inc. in April 2001. The Company anticipates that its current plan for continued developmentof Company owned Bertucci’s restaurants will burden pre-tax profits because ofthe recognition of pre-opening costs and initial year inefficiencies associatedwith new restaurants.  During the fourthquarter of 2002, the Company recorded a full valuation allowance for its netdeferred tax asset.  The Company has alsoprovided a full valuation allowance relating to the tax benefits subsequentlygenerated (primarily from its operating losses).

 

**Liquidityand Capital Resources**

 

The Company has historically met its capitalexpenditures and working capital needs through a combination of operating cashflow, borrowings and, in fiscal 2003, two sale leaseback transactions.  Future capital and working capital needs areexpected to be funded from net cash flows provided by operating activities.

 

Net cash flows provided by operating activities were$555,000 for the first three quarters of 2004, approximately $800,000 less thanthe $1.4 million provided during the first three quarters of 2003.  As of September 29, 2004, the Company hadcash and cash equivalents of $6.2 million.

 

The Company’s capital expenditures were $6.0 millionduring the first three quarters of 2004 compared to $13.3 million for thecomparable prior year period.  Thecapital expenditures were primarily comprised of $2.8 million for new Bertucci’srestaurants and $3.2 million for remodeling and maintenance capital.  The Company anticipates capital expendituresfor the remainder of 2004 will be approximately $2.0 million.

 

As of September 29, 2004, the Company had $91.9million in consolidated indebtedness: $85.3 million in outstanding principalamount of 10 3⁄4% senior notes (the “Senior Notes”), $5.7 million related to thecapital lease portion of the sale-leaseback transactions, and $820,000 ofpromissory notes.  The Company has a $4.0million (maximum) Letter of Credit Facility. As of September 29, 2004, this facility was collateralized with $3.9million of cash restricted from general use in support of $3.9 million ofoutstanding letters of credit. The Company does not have a line of credit orother similar borrowing facility.

 

The Company believes the cash flow generated fromoperations and current cash on hand will be sufficient to fund its plannedoperations, including debt service, lease commitments and capital expenditures,for the next twelve months.  The Companyexpects that it will experience significant liquidity demands in 2008 when itsSenior Notes must be paid in full. Currently, the Company is only required to pay semi-annual interestpayments on the Senior Notes.

 

The Company’s future operating performance and abilityto service or refinance the Senior Notes will be subject to future economicconditions and to financial, business and other factors, many of which arebeyond the Company’s control.

 

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**Impactof Inflation**

 

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

 

**Seasonality**

 

The Company’s quarterly results of operations havefluctuated and are expected to continue to fluctuate depending on a variety offactors, including the timing of new restaurant openings and relatedpre-opening and other startup expenses, net sales contributed by newrestaurants, increases or decreases in comparable restaurant sales, competitionand overall economic conditions.  The Company’s business is also subject toseasonal influences of consumer spending, dining out patterns andweather.  As is the case with many restaurant companies, the Companytypically experiences lower net sales and net income during the firstquarter.  Because of these fluctuationsin net sales and net loss, the results of operations of any quarter are notnecessarily indicative of the results that may be achieved for a full year orany future quarter.

 

**CriticalAccounting Policies and Estimates**

 

The discussion and analysis of the Company’s financialcondition and results of operations are based upon its consolidated financialstatements, which have been prepared in accordance with accounting principlesgenerally accepted in the United States of America.  The preparation of these financial statementsrequired the Company to make estimates and judgments affecting the reportedamounts of assets, liabilities, revenues and expenses, and related disclosureof contingent assets and liabilities.  Onan on-going basis, the Company evaluates its estimates, including those relatedto impairment of long-lived assets, self-insurance, and closed restaurantsreserve.  The Company bases its estimateson historical experience and on various other assumptions believed to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities notreadily apparent from other sources. Actual results may differ from these estimates under different assumptionsor conditions.

 

The Company believes the following critical accountingpolicies affect the more significant judgments and estimates used in thepreparation of the consolidated financial statements.

 

*Impairmentof Long-Lived Assets*

 

The Company evaluates property and equipment forimpairment whenever events or changes in circumstances indicate the carryingamount of a restaurant’s assets may not be recoverable. Unless extremecircumstances dictate otherwise, the evaluation is not performed on a newrestaurant until it has been opened a full year. An impairment is determined bycomparing estimated undiscounted future operating cash flows (which the Companyestimates using historical cash flows and other relevant facts andcircumstances) for a restaurant to the carrying amount of its assets.  If an impairment exists, the amount ofimpairment is measured as the excess of the carrying amount over the estimateddiscounted future operating cash flows of the asset and the expected proceedsupon sale of the asset.  The estimatesand assumptions used during this process are subject to a high degree ofjudgment.

 

During the second quarter of 2004, the Companyassessed certain non-performing restaurants for recoverability and determinedan impairment of fixed assets existed at seven restaurant locations.  The Company estimated the fair value of theseassets based on the net present value of the expected cash flows of the sevenrestaurants.  The carrying amount of theassets exceeded the fair value of the assets by approximately $3.3million.  In the second quarter of 2004,the Company recorded an impairment charge to reflect the write down of theaffected assets to fair value. Impairment of three restaurants opened in 2003comprised all but $80,000 of the total charge.

 

A similar assessment by the Company during the thirdquarter of 2003 determined an impairment of fixed assets existed at elevenrestaurant locations.  The carryingamount of the assets exceeded the estimated fair value of the assets byapproximately $4.7 million.  The Companyrecorded an impairment charge of that amount in the third quarter of 2003 toreflect the write down of the affected assets to fair value.

 

In addition, at least annually, the Company assessesthe recoverability of goodwill and other intangible assets related to its restaurantconcepts.  These impairment tests requirethe Company to estimate fair values of its restaurant concepts by makingassumptions regarding future cash flows and other factors.  If these assumptions change in the future,the Company may be required to record impairment charges for these assets.  To date, such analysis has indicated noimpairment of goodwill and other intangible assets has occurred.

 

----

 

 

*Self-Insurance*

 

The Company is self-insured for certain losses relatedto general liability, group health insurance, and workers’ compensation.  The Company maintains stop loss coverage withthird party insurers to limit its total exposure.  The self-insurance liability represents anestimate of the ultimate cost of claims incurred as of the balance sheetdate.  The estimated liability is notdiscounted and is established based upon analysis of historical data andestimates of the ultimate costs of claims incurred, which is reviewed by theCompany on a quarterly basis to ensure that the liability is appropriate.  If actual trends, including the severity orfrequency of claims, differ from the Company’s estimates, the Company’sfinancial results could be impacted.  Todate, no activity has occurred requiring significant adjustments to thesereserves.

 

*ClosedRestaurants Reserve*

 

The Company remains primarily liable on leases for 14closed locations.  Management reviews thespecifics of each site on a quarterly basis to estimate the Company’s netremaining liability over the remaining lease term.  Certain locations have subtenants in placewhile others remain vacant.  Estimatesmust be made of future sublease income or lease assignment possibilities.  If subtenants default on their subleases orprojected future subtenants are not obtained, actual results could differ fromthe Company’s estimates, thereby impacting the Company’s financialresults.  All activity in fiscal 2003 and2004 has been consistent with reserves and no increases in the reserve havebeen necessary.

 

**Item3.  QUANTITATIVE AND QUALITATIVE DISCLOSUREABOUT MARKET RISK**

 

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

 

**Item 4.CONTROLS AND PROCEDURES**

 

The Company maintains disclosure controls andprocedures designed to ensure information required to be disclosed in theCompany’s Securities Exchange Act reports is recorded, processed, summarizedand reported within the time periods specified in the SEC’s rules and forms,and such information is accumulated and communicated to our management,including our Chief Executive Officer and Chief Financial Officer, asappropriate, to allow timely decisions regarding required disclosure.  In designing and evaluating the disclosurecontrols and procedures, management recognized controls and procedures, nomatter how well designed and operated, can provide only reasonable assurance ofachieving the desired control objectives, as ours are designed to do, andmanagement necessarily was required to apply its judgment in evaluating thecost-benefit relationship of possible controls and procedures.

 

As of September 29, 2004, the Company carried out anevaluation, under the supervision and with the participation of our management,including our Chief Executive Officer and our then Chief Financial Officer, KurtJ. Schnaubelt, of the effectiveness of the design and operation of ourdisclosure controls and procedures, as defined in Rule 15d-15(e) under theSecurities Exchange Act of 1934.  Basedupon that evaluation, our Chief Executive Officer and our then Chief FinancialOfficer concluded our disclosure controls and procedures are effective inenabling us to record, process, summarize and report information required to beincluded in our periodic SEC filings within the required time period.  Since September 29, 2004, our new ChiefFinancial Officer, David G. Lloyd, has confirmed the conclusions of Mr.Schnaubelt as of September 29, 2004. 

 

No changes in our internal control over financialreporting occurred during the third quarter of fiscal 2004 which materiallyaffected, or were reasonably likely to materially affect, our internal controlover financial reporting.

 

PART II: OTHER INFORMATION

 

Item 1.  LEGALPROCEEDINGS

 

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

 

Management is not aware of any litigation to which theCompany is currently a party that is likely to have a material adverse effecton the Company.

 

Item 2.  SALESOF EQUITY SECURITIES AND USE OF PROCEEDS

 

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None

 

Item 3. DEFAULTS UPON SENIOR SECURITIES

 

None

 

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

None

 

Item 5.  OTHER INFORMATION

 

On October 22, 2004, Raymond P. Barbrick resigned fromthe office of President and Chief Operating Officer of the Company. Thoseduties were assumed by Stephen V. Clark, who was elected the Company’s ChiefExecutive Officer in August 2004.

 

On November 10, 2004, Kurt J. Schnaubelt, ChiefFinancial Officer, Senior Vice President — Finance and Administration resignedfrom the office of Chief Financial Officer. Also, on November 10, 2004, theBoard of Directors of the Company elected David G. Lloyd, 41, as the Company’sChief Financial Officer.  Mr. Lloyd has served as a Vice President of theCompany since September 2004 and is very familiar with the Company's financialoperations.  Mr. Lloyd has been the Chief Financial Officer of Taco Bueno,a quick service Mexican restaurant chain of over 120 stores, sinceJune 2001. He will retain that position in addition to his duties with theCompany.  He previously served as Taco Cabana Inc.’s Chief FinancialOfficer from November 1994 through June 2001. Prior to that, Mr.Lloyd, a Certified Public Accountant, was with Deloitte & Touche LLP from1985 through 1994.

 

J.P. Acquisition Fund II, L.P., a Delawarelimited partnership (“JPAF II”) owns a controlling interest in theCompany.  J.P. Acquisition Fund III,L.P., a Delaware limited partnership (“JPAF III”) owns a controlling interestin Taco Bueno.  JPAF, Inc., a Delawarecorporation, is a general partner of both JPAF II and JPAF III.  Benjamin R. Jacobson, Chairman of theCompany, is president of JPAF, Inc. Mr. Jacobson is a general partner ofJacobson Partners, which is the sole shareholder of JPAF, Inc.  While Mr. Clark and Mr. Lloyd hold executivepositions in the Company and Taco Bueno, no agreement exists between the twoentities as to the allocation of services by Mr. Clark or Mr. Lloyd.  Compensation arrangements for theseindividuals are independently approved by each company’s Board of Directors.

 

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

 

Exhibits

 
| 31.1   |   |   |   | Certification of  Stephen V. Clark pursuant to Item 601(b)(31) of Regulation S-K, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (*). |
|--------|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   |                                                                                                                                                         |
| 31.2   |   |   |   | Certification of David  G. Lloyd pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002 (*).   |
|   |   |   |   |                                                                                                                                                         |
| (*)    |   | — |   | Included with this  report.                                                                                                                                  |

 

Reports on Form 8-K

 

The Company did not fileany Current Reports on Form 8-K during the period covered by this report.

 

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SIGNATURES

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 

 
|                    | BERTUCCI’S  CORPORATION   |   |
|-------------------------|--------------------------------|--------|
|                    | (Registrant)                   |   |
|                    |                           |   |
| Date: November 12, 2004 | By: /s/ Stephen  V. Clark      |   |
|                    | Chief Executive  Officer       |   |
|                    | (Principal  Executive Officer) |   |
|                    |                           |   |
| Date: November 12, 2004 | By: /s/ David G.  Lloyd        |   |
|                    | Chief Financial  Officer,      |   |
|                    | (Chief  Accounting Officer)    |   |
|                         |                                |        |  |  |

 

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