**FORM 10-Q**

 

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC  20549**

 

**ý****Quarterly ReportPursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934**

 

**For the Quarterly Period Ended    April 3, 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 May 17, 2002.

 

 

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BERTUCCI’SCORPORATION

 

FORM10-Q

 

TABLEOF CONTENTS

 

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

 

2

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PART  I:              FINANCIAL INFORMATION

Item 1.  Financial Statements 

 

**BERTUCCI’SCORPORATION**

**CONSOLIDATEDBALANCE SHEETS (UNAUDITED)**

(In thousands, exceptshare data)

 
|                                                                                    |   | **April 3,  2002** |       | **January 2,  2002** |       |
|-----------------------------------------------------------------------------------------|--------|--------------------|------------|----------------------|------------|
| **ASSETS**                                                                              |   |               | ** ** |                 | ** ** |
|                                                                                    |   |               |       |                 |       |
| Current Assets:                                                                         |   |               |       |                 |       |
| Cash                                                                                    |   | $                  | 13,956     |                 | $          | 23,235 |   |
| Restricted cash                                                                         |   | 1,908              |       | 1,013                |       |
| Accounts  receivable                                                                    |   | 600                |       | 1,033                |       |
| Inventories                                                                             |   | 1,020              |       | 805                  |       |
| Prepaid expenses  and other current assets                                              |   | 1,580              |       | 1,554                |       |
| Total current  assets                                                                   |   | 19,064             |       | 27,640               |       |
|                                                                                    |   |               |       |                 |       |
| Property and  equipment, at cost:                                                       |   |               |       |                 |       |
| Land                                                                                    |   | 2,469              |       | 2,647                |       |
| Buildings                                                                               |   | 6,624              |       | 6,624                |       |
| Leasehold  improvements                                                                 |   | 51,005             |       | 49,654               |       |
| Furniture and  equipment                                                                |   | 31,128             |       | 29,058               |       |
|                                                                                    |   | 91,226             |       | 87,983               |       |
| Less -  Accumulated depreciation                                                        |   | (25,283            | )          | (23,081              | )          |
|                                                                                    |   | 65,943             |       | 64,902               |       |
| Construction  work in process                                                           |   | 1,067              |       | 139                  |       |
| Net property and  equipment                                                             |   | 67,010             |       | 65,041               |       |
|                                                                                    |   |               |       |                 |       |
| Goodwill, net                                                                           |   | 26,127             |       | 26,127               |       |
| Deferred taxes,  noncurrent                                                             |   | 7,697              |       | 7,697                |       |
| Deferred finance  costs, net                                                            |   | 4,216              |       | 4,384                |       |
| Liquor licenses                                                                         |   | 1,806              |       | 1,806                |       |
| Other assets,  net                                                                      |   | 449                |       | 102                  |       |
| Total Assets                                                                            |   | $                  | 126,369    |                 | $          | 132,797 |   |
|                                                                                    |   |               |       |                 |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                               |   |               |       |                 |       |
|                                                                                    |   |               |       |                 |       |
| Current  Liabilities:                                                                   |   |               |       |                 |       |
| Accounts payable                                                                        |   | $                  | 6,696      |                 | $          | 8,808 |   |
| Accrued expenses                                                                        |   | 9,998              |       | 13,263               |       |
| Income taxes  payable                                                                   |   | 881                |       | 1,196                |       |
| Total current  liabiliites                                                              |   | 17,575             |       | 23,267               |       |
|                                                                                    |   |               |       |                 |       |
| Senior Notes                                                                            |   | 85,310             |       | 85,310               |       |
| Restaurant  closing reserve - non current                                               |   | 2,385              |       | 2,685                |       |
| Deferred rent  and other long-term liabilites                                           |   | 2,580              |       | 2,509                |       |
| Total  liabilities                                                                      |   | 107,850            |       | 113,771              |       |
| Commitments and  contingencies                                                          |   |               |       |                 |       |
| Stockholders’  equity:                                                             |   |               |       |                 |       |
| Common stock,  $.01 par value                                                           |   | 37                 |       | 37                   |       |
| Authorized - 8,000,000  shares  Issued - 3,666,370 shares, outstanding 2,978,955 shares |   |               |       |                 |       |
| Less treasury  stock - 687,415 shares at cost                                           |   | (8,088             | )          | (8,088               | )          |
| Additional  paid-in capital                                                             |   | 29,004             |       | 29,004               |       |
| Accumulated  deficit                                                                    |   | (2,434             | )          | (1,927               | )          |
| Total  stockholders’ equity                                                        |   | 18,519             |       | 19,026               |       |
| Total Liabilites  and Stockholders’ Equity                                         |   | $                  | 126,369    |                 | $          | 132,797 |   |

 

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

 

3

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**BERTUCCI’S CORPORATION**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

(In thousands, exceptshare and per share data)

 
|                                                 |   | **(Unaudited)**           |       |
|------------------------------------------------------|--------|---------------------------|------------|
|                                                 |   | **Thirteen  weeks ended** |       |
|                                                 |   | **April 3,  2002**        |       | **April 4,  2001** |   |
|                                                 |   |                      | ** ** |   | ** ** |
| Net sales                                            |   | $                         | 36,683     |   | $ | 69,813 |   |
|                                                 |   |                      |       |   |   |
| Cost of sales  and expenses:                         |   |                      |       |   |   |
| Cost of sales                                        |   | 8,323                     |       | 18,070 |   |
| Operating  expenses                                  |   | 21,446                    |       | 40,466 |   |
| General and  administrative expenses                 |   | 2,993                     |       | 3,808 |   |
| Deferred rent                                        |   | 71                        |       | 172 |   |
| Depreciation,  amortization, and preopening expenses |   | 2,401                     |       | 4,304 |   |
| Total cost of  sales and expenses                    |   | 35,234                    |       | 66,820 |   |
| Income from  operations                              |   | 1,449                     |       | 2,993 |   |
|                                                 |   |                      |       |   |   |
| Interest  expense, net                               |   | (2,229                    | )          | (3,781 | ) |
|                                                 |   |                      |       |   |   |
| Loss before  income tax benefit                      |   | (780                      | )          | (788 | ) |
|                                                 |   |                      |       |   |   |
| Income tax benefit                                   |   | 273                       |       | 132 |   |
|                                                 |   |                      |       |   |   |
| Net loss                                             |   | $                         | (507       | ) | $ | (656 | ) |
|                                                 |   |                      |       |   |   |
| Basic and  diluted loss per share                    |   | $                         | (0.17      | ) | $ | (0.22 | ) |
|                                                 |   |                      |       |   |   |
| Weighted average  shares outstanding                 |   | 2,978,955                 |       | 2,978,955 |   |

 

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

 

4

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**BERTUCCI’S CORPORATION**

**CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY**

(Inthousands, except share data)

(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                |   |                  |   |                    |   |                  |     |       |   |                                        |   | (507 | ) | (507 | ) |
| Balance April 3, 2002   |   | 3,666,370             |   | $                       | 37     |                  | (687,415 | )          | $      | (8,088                                      | )      | $ | 29,004 |   | $ | (2,434 | ) | $ | 18,519 |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

5

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**BERTUCCI’SCORPORATION**

**CONSOLIDATEDSTATEMENTS OF CASH FLOW**

(In thousands)

 
|                                                                         |   | **(Unaudited)**           |       |
|------------------------------------------------------------------------------|--------|---------------------------|------------|
|                                                                         |   | **Thirteen  weeks ended** |       |
|                                                                         |   | **April 3, 2002**         |       | **April 4,  2001** |   |
|                                                                         |   |                      | ** ** |   | ** ** |
| Cash flows from  operating activities                                        |   |                      |       |   |   |
| Net loss                                                                     |   | $                         | (507       | ) | $ | (656 | ) |
|                                                                         |   |                      |       |   |   |
| Adjustments to  reconcile net loss to net cash used in operating activities: |   |                      |       |   |   |
| Deferred rent                                                                |   | 71                        |       | 172 |   |
| Depreciation and  amortization                                               |   | 2,370                     |       | 4,068 |   |
| Gain on sale of  property                                                    |   | (234                      | )          | — |   |
| Changes in  operating assets and liabilities                                 |   |                      |       |   |   |
| Inventories                                                                  |   | (215                      | )          | 17 |   |
| Prepaid expenses  and receivables                                            |   | 407                       |       | 1,531 |   |
| Accrued expenses                                                             |   | (3,967                    | )          | (4,978 | ) |
| Income taxes  payable                                                        |   | (315                      | )          | 205 |   |
| Accounts payable                                                             |   | (2,112                    | )          | (3,919 | ) |
| Other                                                                        |   | 55                        |       | (245 | ) |
| Total adjustments                                                            |   | (3,940                    | )          | (3,149 | ) |
| Net cash used in  operating activities                                       |   | (4,447                    | )          | (3,805 | ) |
|                                                                         |   |                      |       |   |   |
| Cash flows used  for investing activities                                    |   |                      |       |   |   |
| Additions to  property and equipment                                         |   | (4,350                    | )          | (3,666 | ) |
| Proceeds from  sale of restaurant properties                                 |   | 413                       |       | 200 |   |
| Net cash used in  investing activities                                       |   | (3,937                    | )          | (3,466 | ) |
|                                                                         |   |                      |       |   |   |
| Cash flows used  for financing activities                                    |   |                      |       |   |   |
| Borrowings on  line of credit                                                |   | —                    |       | 1,100 |   |
| Increase in  restricted cash                                                 |   | (895                      | )          | — |   |
| Payments of  mortgage loans and capital lease obligations                    |   | —                    |       | (286 | ) |
| Net cash (used  in) provided by financing activities                         |   | (895                      | )          | 814 |   |
|                                                                         |   |                      |       |   |   |
| Net decrease in  cash                                                        |   | (9,279                    | )          | (6,457 | ) |
| Cash, beginning  of period                                                   |   | 23,235                    |       | 7,602 |   |
| Cash, end of  period                                                         |   | $                         | 13,956     |   | $ | 1,145 |   |
|                                                                         |   |                      |       |   |   |
| Supplemental  Disclosure of Cash Flow Information:                           |   |                      |       |   |   |
| Cash paid for  interest                                                      |   | $                         | 4,528      |   | $ | 6,544 |   |
| Cash paid  (refunds received) for income taxes                               |   | $                         | 42         |   | $ | (356 | ) |

 

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

 

6

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**BERTUCCI’S CORPORATION**

**Notes To Consolidated Financial Statements**

April 3, 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 intercompanyaccounts 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 three monthsended April 3, 2002 may not be indicative of the results expected for anysucceeding quarter 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.

 

*2.**            **New Accounting Pronouncements*

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 that  goodwill and other intangible assets withindefinite lives no longer be amortized, but reviewed for impairment at leastannually.  Accordingly, the Companyceased amortizing goodwill on January 3, 2002.     Amortization expense totaling $569,400 is recorded in the ConsolidatedStatement of Operations for the thirteen weeks ended April 4, 2001.

 

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 thirteen weeks ended April 3, 2002 and April 4,2001 would have been as follows (in thousands, except per share amounts):

 

7

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|                                       |   | **Thirteen  weeks ended** |   |
|--------------------------------------------|--------|---------------------------|--------|
|                                       |   | **April 3,  2002**        |   | **April 4,  2001** |   |
|                                       |   |                      |   |   |   |
| Net loss:                                  |   |                      |   |   |   |
| Reported net  loss                         |   | $                         | (507   | ) | $ | (656 | ) |
| Goodwill  amortization                     |   | —                    |   | 569 |   |
| Adjusted net  loss                         |   | $                         | (507   | ) | $ | (87 | ) |
|                                       |   |                      |   |   |   |
| Basic and  diluted loss per share:         |   |                      |   |   |   |
| Reported loss  per share                   |   | $                         | (0.17  | ) | $ | (0.22 | ) |
| Goodwill  amortization                     |   | —                    |   | 0.19 |   |
| Adjusted basic  and diluted loss per share |   | $                         | (0.17  | ) | $ | (0.03 | ) |

 

The Company is conductingthe first step of the transitional goodwill impairment test as required by SFASNo. 142.  In accordance with SFAS No.142, the first step of the transitional impairment test must  be completed within six months from the datethe standard was adopted.  The Companywill complete the transitional impairment test during the second quarter of2002 and currently expects no goodwill impairment charge will be necessary.

 

In August, 2001, the FASBissued SFAS No. 144, *Accounting forImpairment 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.

 

*3.**            **Brinker Sale*

On April 12, 2001, theCompany completed its sale of 40 Chili’s and seven On The Border restaurants tothe chains’ franchisor, Brinker International, Inc. of Dallas, Texas(“Brinker”) (“the Brinker Sale”).  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 $43million.

 

The unaudited pro formaConsolidated Statement of Operations presented below reflects the recognitionof the Brinker Sale as if the disposition occurred on January 2, 2001.

 

8

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**BERTUCCI’S CORPORATION**

**PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS**

(Unaudited)

(In thousands, exceptshare and per share data)

13 Weeks Ended April 4,2001

 
|                                                |   | **As  Reported** |   | **Brinker  Sale** |   | **Pro Forma** |   |
|-----------------------------------------------------|--------|------------------|--------|-------------------|--------|---------------|--------|
|                                                |   |             |   |              |   |          |   |
| Net sales                                           |   | $                | 69,813 |              | $      | (33,827       | )      | $ | 35,986 |   |
|                                                |   |             |   |              |   |          |   |
| Cost of sales  and expenses:                        |   |             |   |              |   |          |   |
| Cost of sales                                       |   | 18,070           |   | (9,494            | )      | 8,576         |   |
| Operating  expenses                                 |   | 40,466           |   | (19,191           | )      | 21,275        |   |
| General and  administrative expenses                |   | 3,809            |   | (951              | )      | 2,857         |   |
| Deferred rent                                       |   | 172              |   | (34               | )      | 138           |   |
| Depreciation,  amortization and preopening expenses |   | 4,304            |   | (1,263            | )      | 3,041         |   |
| Total cost of  sales and expenses                   |   | 66,820           |   | (30,933           | )      | 35,887        |   |
| Income from  operations                             |   | 2,993            |   | (2,894            | )      | 99            |   |
|                                                |   |             |   |              |   |          |   |
| Interest  expense, net                              |   | (3,781           | )      | 1,671             |   | (2,110        | )      |
|                                                |   |             |   |              |   |          |   |
| Loss before  income tax benefit                     |   | (788             | )      | (1,223            | )      | (2,010        | )      |
|                                                |   |             |   |              |   |          |   |
| Income tax  benefit                                 |   | 132              |   | 489               |   | 621           |   |
|                                                |   |             |   |              |   |          |   |
| Net loss                                            |   | $                | (656   | )                 | $      | (734          | )      | $ | (1,390 | ) |
|                                                |   |             |   |              |   |          |   |
| Basic and  diluted loss per share                   |   | $                | (0.22  | )                 | $      | (0.25         | )      | $ | (0.47 | ) |
|                                                |   |             |   |              |   |          |   |
| Weighted average  shares outstanding                |   | 2,978,955        |   | 2,978,955         |   | 2,978,955     |   |

 

9

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**BERTUCCI’S CORPORATION**

**Notes To Consolidated Financial Statements**

April 3, 2002

(Unaudited)

 

*4.**            **Restaurant Closing Reserves*

Restaurant closing reserveswere established as part of the Acquisition of Bertucci’s.  These reserves were related to estimatedfuture lease commitments and exit costs to close 18 Bertucci’s locations.  During the third quarter of 2001, theCompany accrued an additional  $4.2million related to selected locations (all of which have been closed),consisting of estimated lease commitments and certain exit costs.  It was originally expected the Company wouldbe able to exit these locations and the related leases, but due to marketconditions, the Company has been unable to sell or sublease these locations orexit the related leases.

 

Activity within the reservefor the first quarter of 2002 was as follows:

 

|                            |   | **Thirteen  weeks  ended April 3,  2002** |   |
|---------------------------------|--------|-------------------------------------------|--------|
|                            |   |                                      |   |
| Balance at  begnning of period  |   | $                                         | 3,352  |   |
| Lease costs  charged to reserve |   | (332                                      | )      |
| Balance at end  of period       |   | $                                         | 3,020  |   |
|                            |   |                                      |   |
| Current portion                 |   | $                                         | 635    |   |
| Noncurrent  portion             |   | 2,385                                     |   |
|                            |   | $                                         | 3,020  |   |

 

*5.**            **Loss per Share*

The number of shares used to calculate diluted loss per share for the thirteenweeks ended April 3, 2002 and April 4, 2001 excludes the effect of 738,473 and713,973 outstanding stock options, respectively, as the options areanti-dilutive.

 

*6.**             Income Taxes*

The Company provides for income taxes at the end of each interim periodbased on the estimated effective tax rate for the full fiscal year.  Cummulative adjustments to the Company’sestimate are recorded in the interim period in which a change to the estimatedannual effective rate is determined.

 

*7.**             Sale of Land*

During the thirteen weeks ended April 3, 2002, theCompany sold a plot of land with a carrying value of approximately $179,000 for$413,000.  The gain is included inoperating expenses in the consolidated statement of operations for the period.

 

10

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

 

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 and 7 OnThe Border restaurants in 5 New England states.  On April 12, 2001, the Company completed the sale of the Chili’sand On The Border restaurants to Brinker (the “Brinker Sale”).  Totalconsideration after closing adjustments was $92.2 million.  Brinker acquired the inventory, facilities,equipment and management teams associated with these restaurants, as well asfour Chili’s restaurants under development by the Company. Further, Brinkerassumed the mortgage debt on the Company’s Chili’s and On The Borderrestaurants.

 

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 in Massachusetts.

 

As of April 3, 2002 the Company owned and operated 74full-service, casual dining, Italian-style restaurants under the nameBertucci’s Brick Oven Pizzeria® located primarily in New England andMid-Atlantic United States.

 

11

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**SignificantAccounting 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 thethirteen weeks ended April 3, 2002.  Nochanges to those polices were made during the quarter with the exception of theadoption of SFAS Nos. 142 and 144 during the period as described in Note 2 tothe April 3, 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:

 

**BERTUCCI’S CORPORATION**

**PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Dollars in Thousands)**

(Unaudited)

 
|                                                   |   | **Thirteen  Weeks Ended:** |   |
|--------------------------------------------------------|--------|----------------------------|--------|
|                                                   |   |                       |   |   |   | ***Pro Forma  Bertucci’s Only  (b)*** |   |
|                                                   |   | **April 3,  2002**         |   | **April 4,  2001** |   | **April 4,  2001** |   |
| Net Sales                                              |   | 100.0                      | %      | 100.0 | % | 100.0 | % |
|                                                   |   |                       |   |   |   |   |   |
| Cost of sales  and expenses:                           |   |                       |   |   |   |   |   |
| Cost of sales                                          |   | 22.7                       | %      | 25.9 | % | 23.8 | % |
| Operating  expenses                                    |   | 58.4                       | %      | 58.0 | % | 59.1 | % |
| General and  administrative expenses                   |   | 8.2                        | %      | 5.5 | % | 7.9 | % |
| Deferred rent                                          |   | 0.2                        | %      | 0.2 | % | 0.4 | % |
| Depreciation,  amortization and preopening expenses    |   | 6.5                        | %      | 6.2 | % | 8.5 | % |
| Total cost of  sales and expenses                      |   | 96.0                       | %      | 95.8 | % | 99.7 | % |
|                                                   |   |                       |   |   |   |   |   |
| Income from  operations                                |   | 4.0                        | %      | 4.2 | % | 0.3 | % |
|                                                   |   |                       |   |   |   |   |   |
| Interest  expense, net                                 |   | (6.1                       | )%     | (5.4 | )% | (5.9 | )% |
| Loss before  income tax benefit                        |   | (2.1                       | )%     | (1.2 | )% | (5.6 | )% |
|                                                   |   |                       |   |   |   |   |   |
| Income tax  benefit                                    |   | 0.8                        | %      | 0.2 | % | 1.7 | % |
| Net loss                                               |   | (1.3                       | )%     | (1.0 | )% | (3.9 | )% |
|                                                   |   |                       |   |   |   |   |   |
| **Restaurant  Operating Data (Dollars in Thousands):** |   |                       |   |   |   |   |   |
| EBITDA (a)                                             |   | $                          | 3,687  |   | $ | 7,469 |   | $ | 3,278 |   |
| Comparable restaurant sales (c)                        |   | 0.2                        | %      | 1.7 | % | 4.7 | % |
| Cash flows from operating activities                   |   | $                          | (4,447 | ) |   |   |   |   |
| Cash flows from investing activities                   |   | $                          | (3,937 | ) |   |   |   |   |
| Cash flows from financing activities                   |   | $                          | (895   | ) |   |   |   |   |
| Number of Bertucci’s Restaurants:                 |   |                       |   |   |   |   |   |
| Restaurants open at beginning of period                |   | 74                         |   | 72 |   |   |   |
| Restaurants opened                                     |   | —                     |   | 1 |   |   |   |
| Restaurants closed                                     |   | —                     |   | — |   |   |   |
| Total restaurants open at end of period                |   | 74                         |   | 73 |   |   |   |
|                                                        |        |                            |        |  |  |  |  |  |  |  |

 

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

 

(b)                     Reflects the impact of the Brinker Sale, seeNote 3 to the April 3, 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.

 

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**Thirteen Weeks Ended April 3, 2002Compared to Thirteen Weeks Ended April 4, 2001**

 

*Net Sales*. Total company net sales decreased by $33.1 million, or 47.5%, to $36.7million during the first quarter 2002 from $69.8 million during the firstquarter 2001.  The decrease wasprimarily due to the Brinker Sale. After removing the impact of the Brinker Sale, Net Sales for Bertucci’sfor the quarter increased by 1.9% or $697,000 as compared to 2001 due to fournew restaurants (a total of 43 incremental operating weeks), plus a 0.2%increase in comparable restaurant sales partially offset by the closing of tworestaurants.  Comparable Bertucci’srestaurant dine-in guest counts increased for each of the three months of thequarter and 1.4% in aggregate for the quarter as compared to the first quarterof 2001.  Bertucci’s comparablerestaurant dine-in sales increased 0.9% for the quarter as compared to thefirst quarter of 2001. Comparable Bertucci’s restaurant carry-out and deliverysales decreased 1.9% for the quarter as compared to the same period in theprior year.  The Company believes thatthe recessionary business climate, which became pronounced in July 2001 atBertucci’s, hampered the corporate catering component of carry out and deliverysales.

 

*Cost ofSales*.  Cost of sales decreased by approximately$9.7 million, or 53.9%, to $8.3 million during the first quarter 2002 from$18.1 million during the first quarter 2001. The decrease was primarily due tothe Brinker Sale.  Expressed as apercentage of net sales, overall cost of sales decreased to 22.7% during thefirst quarter 2002 from 25.9% during the first quarter 2001.  The change was primarily due to the BrinkerSale as Brinker Concept Restaurants ran a higher cost of sales than Bertucci’sConcept Restaurants.  After removing theimpact of the Brinker Sale, Cost of sales for the Bertucci’s restaurantsdecreased by $253,000, or 2.9%, to $8.3 million during the first quarter 2002from $8.6 million during the first quarter 2001.  Expressed as a percentage of net sales, Bertucci’s cost of salesdecreased to 22.7% during the first quarter 2002 from the pro forma cost ofsales rate of 23.8% during the first quarter 2001.   The Company believes that management efficiency, soundpurchasing practices and lower cost of ingredients combined to effectuate thefavorable change in Bertucci’s cost of sales.

 

*OperatingExpenses.*  Operating expenses decreased by $19.0million, or 47.0%, to $21.4 million during the first quarter 2002 from $40.5million during the first quarter 2001. The dollar decrease was primarily due to the Brinker Sale. Expressed asa percentage of net sales, operating expenses increased to 58.4% in the firstquarter 2002 from 58.0% during the first quarter 2001.  The percentage increase is a result ofreduced leverage over fixed costs as a result of the Brinker Sale.  After the impact of the Brinker Sale,operating expenses increased by $172,000, or 0.8%, to $21.4 million during thefirst quarter 2002 from $21.3 million during the first quarter 2001.  Expressed as a percentage of net sales,operating expenses for Bertucci’s decreased to 58.4% from the pro formaoperating expense rate of 59.1% in the first quarter 2002 compared to the firstquarter 2001.  The dollar increase isprimarily due to higher management labor costs from more fully staffedrestaurants and higher insurance costs partially offset by reduced advertisingspending.

 

*Generaland Administrative Expenses.* General and administrative expenses decreased by approximately$815,000, or 21.4% to $3.0 million during the first quarter 2002 from $3.8million during the first quarter 2001. Expressed as a percentage of net sales, general and administrativeexpenses increased to 8.2% in the first quarter 2002 from 5.5% during the firstquarter 2001.  The dollar decrease wasprimarily due to staff

 

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reduction as a result of the Brinker Saleand, to a lesser degree, reduced corporate office rent which is due to theCompany’s move to a smaller office in August 2001. The percentage increaseresulted from the unfavorable leverage of the sales reduction due to theBrinker Sale.

 

*DeferredRent,**Depreciation, Amortization and Preopening Expenses*.  Deferred rent, depreciation, amortizationand preopening expenses decreased by approximately $2.0 million or 44.8%, to$2.5 million during the first quarter 2002 from $4.5 million during the firstquarter of 2001.  Expressed as apercentage of net sales, deferred rent, depreciation, amortization andpreopening expenses increased to 6.7% in the first quarter 2002 from 6.4%during the first quarter 2001.  Thedollar decrease was primarily due to the Brinker Sale.  The percentage increase resulted from theunfavorable leverage of the sales reduction due to the Brinker Sale.

 

*InterestExpense.*  Interest expense decreased by approximately$1.6 million to $2.2 million during the first quarter of 2002 from $3.8 millionduring the first quarter 2001.  Thedecrease was due to:  a) The BrinkerSale as $40.9 million of mortgage indebtedness was assumed by Brinker; and b)$14.7 million of Senior Notes were retired in July 2001, by using a portion ofthe proceeds of the Brinker Sale.

 

*IncomeTaxes.*  The effective income tax benefit rateincreased to 35.0% during the first quarter 2002 from 16.8% during the firstquarter 2001. The difference in rate is primarily attributable to theelimination of Goodwill amortization expense (which was non-deductible for taxpurposes) in 2002.

 

**Liquidity And Capital Resources**

 

Net cash flows used by operating activities were $4.4 million for thefirst quarter 2002, $642,000 more than the $3.8 million used during the firstquarter of 2001.  The primary reasonsfor the change was an increase in working capital requirements, payments ofaccrued severance and bonuses and the reduction of accrued expenses andaccounts payable related to the Brinker Concept Restaurants.  As of April3, 2002, the cash and cash equivalents of $14.0 million consisted of $12.4million of short-term investments and the remainder in operating cash accounts.

 

The Company’s 2002 capital expenditures were $4.4 million through April3, 2002 compared to $3.7 million for the comparable prior year period. The capital expenditures for 2002 were primarily comprised of $1.0 million fornew Bertucci’s restaurants and $3.3 million for remodels and maintenancecapital.

 

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 as of April 3, 2002.  Furthermore,the Company believes that the cash flow generated from its operations with thecurrent cash on hand should be sufficient to fund its debt servicerequirements, lease obligations, current expected capital expenditures andother operating expenses.  While the Company expects to be able to serviceits debt, the lack of short term borrowing availability may impede growth.

 

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As of April 3, 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 April 3, 2002, this facility is collateralized with $1.9 million of cashrestricted 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.

 

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

 
|                                |   | **Future  payments due by year (in thousands):** |   |
|-------------------------------------|--------|--------------------------------------------------|--------|
| **Contractual  obligations**        |   | **2002**                                         |   | **2003** |   | **2004** |   | **2005** |   | **2006** |   | **Thereafter** |   |
|                                |   |                                             |   |   |   |   |   |   |   |   |   |   |   |
| Operating leases                    |   | 10,661                                           |   | 9,471 |   | 8,442 |   | 7,731 |   | 28,970 |   | 72,024 |   |
| Senior Notes                        |   | —                                           |   | — |   | — |   | — |   | — |   | 85,310 |   |
|                                |   |                                             |   |   |   |   |   |   |   |   |   |   |   |
| Total  contractual cash obligations |   | 10,661                                           |   | 9,471 |   | 8,442 |   | 7,731 |   | 28,970 |   | 157,334 |   |

 

There have been no significant changes tocontractual obligations since January 2, 2002.

 

**Seasonality**

 

The Company’s quarterly results of operations have fluctuated andare expected to continue to fluctuate depending on a variety of factors,including the timing of new restaurant openings and related preopening andother startup expenses, net sales contributed by new restaurants, increases ordecreases in comparable restaurant sales, competition and overall economicconditions.  The Company’s business isalso subject to seasonal influences of consumer spending, dining out patternsand weather.  As is the case with manyrestaurant companies, the Company typically experiences lower net sales and netincome during the first and fourth quarters. Because of these fluctuations in net sales and net loss, the results ofoperations of any quarter are not necessarily indicative of the results thatmay be achieved for a full year or any future quarter.

 

**Forward-LookingStatements**

 

All statements other than statements ofhistorical facts included in this Quarterly Report on Form 10-Q, including,without limitation, statements set forth under “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” regarding theCompany’s future financial position, business strategy, budgets, projectedcosts and plans and objectives of management for future operations, areforward-looking statements.  Inaddition, forward-looking statements generally can be identified by the use offorward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate” or “believe” or thenegative thereof or variations thereon or similar terminology.  Although the Company believes that theexpectations reflected in such forward-looking statements will prove to havebeen correct, it can give no assurance that such expectations will prove tohave been correct. Factors including those set forth herein, as well as thoseset forth in the Company’s Form 10-K filed with the Securities and ExchangeCommission (“SEC”) on April 1, 2002 and other filings with the SEC may affectsuch expectations.  Investors arecautioned not to place undue reliance on these forward-looking statements,which speak only as of the date hereof. The Company undertakes no obligation to publicly release any revisionsto these forward-looking statements to reflect events or circumstances afterthe date hereof or to reflect the occurrence of unanticipated events.

 

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Item3.  QUANTITATIVE AND QUALITATIVEDISCLOSURE 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.

 

PART II:    OTHER INFORMATION

 

Item 1.  LEGAL PROCEEDINGS

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

 

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

 

Item 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

None

 

Item 3.  DEFAULTS UPON SENIOR SECURITIES

None

 

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF 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 requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 
|                     | BERTUCCI’S  CORPORATION              |   |
|--------------------------|-------------------------------------------|--------|
|                     | (Registrant)                              |   |
|                     |                                      |   |
|                     |                                      |   |
|                     |                                      |   |
| Date:  May 20, 2002 | By: /s/ Benjamin R.  Jacobson             |   |   |
|                     | Chairman of the Board  of Directors,      |   |
|                     | Chief Executive  Officer, Treasurer       |   |
|                     | (Principal Executive  Officer)            |   |
|                     |                                      |   |
|                     |                                      |   |
|                     |                                      |   |
| Date:  May 20, 2002 | By: /s/ Kurt J. Schnaubelt                |   |   |
|                     | Senior Vice President – Finance and  |   |
|                     | Administration (Chief Accounting Officer) |   |
|                          |                                           |        |  |  |

 

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