**FORM 10-Q**

 

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC  20549**

 

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

 

**For the Quarterly PeriodEnded   October 1, 2003**

 

**Commission File Number   333-62775**

 

**BERTUCCI’S CORPORATION**

(Exact name 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 whetherthe registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter 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

 

Indicateby check mark whether the registrant is an accelerated filer (as defined inRule 12b-2 of the Exchange Act).

 

Yes   o           No   ý

 

2,963,674 shares of theregistrant’s Common Stock were outstanding on November 12, 2003.

 

 

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BERTUCCI’S CORPORATION

 

FORM 10-Q

 

TABLE OF CONTENTS

 

 
| PART I:                                   FINANCIAL INFORMATION |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                 |   |   |
|                                                                                                                                                                                                                                 | Item 1.  Financial Statements: |
| 1)                                                                                                                                                                                                                                   |   | Consolidated  Balance Sheets October 1, 2003 (Unaudited) and January 1, 2003 |
|                                                                                                                                                                                                                                 |   |   |
| 2)                                                                                                                                                                                                                                   |   | Consolidated Statements of Operations  For the 13 and 39 Weeks Ended October 1, 2003 (Unaudited) and October 2, 2002  (Unaudited) |
|                                                                                                                                                                                                                                 |   |   |
| 3)                                                                                                                                                                                                                                   |   | Consolidated Statement of Changes in Stockholders’ Equity for the 39  Weeks Ended October 1, 2003 (Unaudited) |
|                                                                                                                                                                                                                                 |   |   |
| 4)                                                                                                                                                                                                                                   |   | Consolidated Statements of Cash Flow for the 39 Weeks Ended October  1, 2003 (Unaudited) and October 2, 2002 (Unaudited) |
|                                                                                                                                                                                                                                 |   |   |
| 5)                                                                                                                                                                                                                                   |   | Notes to Consolidated Financial Statements  (Unaudited) |
|                                                                                                                                                                                                                                 |   |
|                                                                                                                                                                                                                                 | Item 2.   Management’s Discussion and Analysis of Results of Operations and  Financial Condition |
|                                                                                                                                                                                                                                 |   |   |
|                                                                                                                                                                                                                                 | Item 3.  Quantitative and  Qualitative Disclosures about Market Risk |
|                                                                                                                                                                                                                                 |   |   |
|                                                                                                                                                                                                                                 | Item  4.  Controls and Procedures |
|                                                                                                                                                                                                                                 |   |   |
| PART II:                              OTHER INFORMATION                             |
|                                                                                                                                                                                                                                 | Item 1. | Legal Proceedings |
|                                                                                                                                                                                                                                 | Item  2. | Changes  in Securities and Use of Proceeds |
|                                                                                                                                                                                                                                 | Item  3. | Defaults  upon Senior Securities |
|                                                                                                                                                                                                                                 | Item 4. | Submission of Matters to a Vote of Security Holders |
|                                                                                                                                                                                                                                 | Item  5. | Other  Information |
|                                                                                                                                                                                                                                 | Item  6. | Exhibits  and Reports on Form 8-K |
|                                                                                                                                                                                                                                 |   |   |
| SIGNATURES                                                                                                                                                                                                                           |   |
|                                                                                                                                                                                                                                 |   |   |
| CERTIFICATIONS                                                                                                                                                                                                                       |   |
|                                                                                                                                                                                                                                      |  |  |  |  |  |

 

2

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PART I:     FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

 

**BERTUCCI’S CORPORATION**

**CONSOLIDATEDBALANCE SHEETS**

(In thousands, except share data)

(Unaudited)

 
|                                                                                   |   | **October 1,  2003** |    | **January 1,  2003** |   |
|----------------------------------------------------------------------------------------|--------|----------------------|---------|----------------------|--------|
| **ASSETS**                                                                             |   |                 |    |                 |   |
| Current Assets:                                                                        |   |                 |    |                 |   |
| Cash and cash equivalents                                                              |   | $                    | 7,425   |                 | $      | 13,133 |   |
| Restricted cash                                                                        |   | 3,120                |    | 2,468                |   |
| Accounts receivable                                                                    |   | 925                  |    | 1,733                |   |
| Inventories                                                                            |   | 1,257                |    | 900                  |   |
| Prepaid expenses and other current assets                                              |   | 1,770                |    | 1,995                |   |
| Total current assets                                                                   |   | 14,497               |    | 20,229               |   |
| Property and equipment, at cost:                                                       |   |                 |    |                 |   |
| Land                                                                                   |   | 767                  |    | 2,468                |   |
| Buildings                                                                              |   | 1,374                |    | 6,671                |   |
| Capital lease - buildings                                                              |   | 3,831                |    | —               |   |
| Leasehold improvements                                                                 |   | 58,705               |    | 57,130               |   |
| Furniture and equipment                                                                |   | 42,117               |    | 36,660               |   |
|                                                                                   |   | 106,794              |    | 102,929              |   |
| Less - accumulated depreciation                                                        |   | (36,958              | )       | (31,555              | )      |
|                                                                                   |   | 69,836               |    | 71,374               |   |
| Construction work in process                                                           |   | 3,041                |    | 1,830                |   |
| Net property and equipment                                                             |   | 72,877               |    | 73,204               |   |
|                                                                                   |   |                 |    |                 |   |
| Goodwill                                                                               |   | 26,127               |    | 26,127               |   |
| Deferred finance costs, net                                                            |   | 3,536                |    | 3,714                |   |
| Liquor licenses                                                                        |   | 2,426                |    | 1,763                |   |
| Other assets                                                                           |   | 460                  |    | 385                  |   |
| Total Assets                                                                           |   | $                    | 119,923 |                 | $      | 125,422 |   |
|                                                                                   |   |                 |    |                 |   |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                             |   |                 |    |                 |   |
| Current Liabilities:                                                                   |   |                 |    |                 |   |
| Current portion of other long-term obligations                                         |   | $                    | 92      |                 | $      | — |   |
| Accounts payable                                                                       |   | 8,505                |    | 7,986                |   |
| Accrued expenses                                                                       |   | 9,519                |    | 13,532               |   |
| Total current liabilities                                                              |   | 18,116               |    | 21,518               |   |
|                                                                                   |   |                 |    |                 |   |
| Capital lease obligation, net of current portion                                       |   | 3,815                |    | —               |   |
| Promissory note, net of current portion                                                |   | 793                  |    | —               |   |
| Restaurant closing reserve, net of current portion                                     |   | 926                  |    | 1,857                |   |
| Deferred gain on sale-leaseback transaction                                            |   | 2,139                |    | —               |   |
| Deferred rent                                                                          |   | 3,193                |    | 2,849                |   |
| Senior Notes                                                                           |   | 85,310               |    | 85,310               |   |
| Total liabilities                                                                      |   | 114,292              |    | 111,534              |   |
| Commitments and contingencies                                                          |   |                 |    |                 |   |
| Stockholders’ equity:                                                             |   |                 |    |                 |   |
| Common stock, $.01 par value                                                           |   | 37                   |    | 37                   |   |
| Authorized - 8,000,000 shares,                                                         |   |                 |    |                 |   |
| Issued - 3,666,370 shares, Outstanding - 2,963,674 and 2,978,955  shares, respectively |   |                 |    |                 |   |
| Less treasury stock - 702,696 and 687,415 shares, respectively, at  cost               |   | (8,178               | )       | (8,088               | )      |
| Additional paid-in capital                                                             |   | 29,004               |    | 29,004               |   |
| Accumulated deficit                                                                    |   | (15,232              | )       | (7,065               | )      |
| Total stockholders’ equity                                                        |   | 5,631                |    | 13,888               |   |
| Total Liabilities and Stockholders’ Equity                                        |   | $                    | 119,923 |                 | $      | 125,422 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

3

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**BERTUCCI’S CORPORATION**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

(Inthousands, except share and per share data)

(Unaudited)

 
|                                                               |   | **Thirteen  weeks ended** |       | **Thirty-nine  weeks ended** |       |
|--------------------------------------------------------------------|--------|---------------------------|------------|------------------------------|------------|
|                                                               |   | **October 1,  2003**      |       | **October 2,  2002**         |       | **October 1,  2003** |   | **October 2,  2002** |   |
|                                                               |   |                      | ** ** |                         | ** ** |   | ** ** |   | ** ** |
| Net sales                                                          |   | $                         | 47,381     |                         | $          | 41,664 |   | $ | 137,642 |   | $ | 119,654 |   |
|                                                               |   |                      |       |                         |       |   |   |   |   |
| Cost of sales and expenses:                                        |   |                      |       |                         |       |   |   |   |   |
| Cost of sales                                                      |   | 11,402                    |       | 8,953                        |       | 31,882 |   | 26,627 |   |
| Operating expenses                                                 |   | 28,833                    |       | 24,973                       |       | 83,726 |   | 71,685 |   |
| General and administrative expenses                                |   | 2,554                     |       | 3,070                        |       | 8,589 |   | 9,112 |   |
| Asset impairment charge                                            |   | 4,682                     |       | —                       |       | 4,682 |   | — |   |
| Closed restaurant expenses                                         |   | —                    |       | 61                           |       | — |   | 236 |   |
| Depreciation, amortization, deferred rent and pre-opening expenses |   | 3,184                     |       | 3,153                        |       | 9,419 |   | 8,051 |   |
| Total cost of sales and expenses                                   |   | 50,655                    |       | 40,210                       |       | 138,298 |   | 115,711 |   |
| (Loss) income from operations                                      |   | (3,274                    | )          | 1,454                        |       | (656 | ) | 3,943 |   |
| Interest expense, net                                              |   | (2,615                    | )          | (2,447                       | )          | (7,511 | ) | (7,235 | ) |
| Loss before income tax benefit                                     |   | (5,889                    | )          | (993                         | )          | (8,167 | ) | (3,292 | ) |
|                                                               |   |                      |       |                         |       |   |   |   |   |
| Income tax benefit                                                 |   | —                    |       | 347                          |       | — |   | 1,152 |   |
|                                                               |   |                      |       |                         |       |   |   |   |   |
| Net loss                                                           |   | $                         | (5,889     | )                            | $          | (646 | ) | $ | (8,167 | ) | $ | (2,140 | ) |
|                                                               |   |                      |       |                         |       |   |   |   |   |
| Basic and diluted loss per share                                   |   | $                         | (1.99      | )                            | $          | (0.22 | ) | $ | (2.75 | ) | $ | (0.72 | ) |
|                                                               |   |                      |       |                         |       |   |   |   |   |
| Weighted average shares outstanding - basic and diluted            |   | 2,963,674                 |       | 2,978,955                    |       | 2,972,642 |   | 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**                          |   |
|----------------------------------------------|--------|-------------------------|--------|---------------------|--------|-------------------------|----------|------------|--------|------------------------------------|--------|
|                                         |   | **Number of****Shares** |   | **Amount**          |   | **Number of****Shares** |     | **Amount** |   | **Additional  Paid-In****Capital** |   | **Accumulated****Deficit** |   | **Stockholders’****Equity** |   |
|                                         |   |                    |   |                |   |                    |     |       |   |                               |   |   |   |   |   |
| Balance January 1, 2003                      |   | 3,666,370               |   | $                   | 37     |                    | (687,415 | )          | $      | (8,088                             | )      | $ | 29,004 |   | $ | (7,065 | ) | $ | 13,888 |   |
| Purchase of common stock shares for treasury |   | —                  |   | —              |   | (15,281                 | )        | (90        | )      | —                             |   | — |   | (90 | ) |
| Net loss                                     |   | —                  |   | —              |   | —                  |     | —     |   | —                             |   | (8,167 | ) | (8,167 | ) |
|                                         |   |                    |   |                |   |                    |     |       |   |                               |   |   |   |   |   |
| Balance October 1, 2003                      |   | 3,666,370               |   | $                   | 37     |                    | (702,696 | )          | $      | (8,178                             | )      | $ | 29,004 |   | $ | (15,232 | ) | $ | 5,631 |   |

 

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

 

5

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**BERTUCCI’S CORPORATION**

**CONSOLIDATED STATEMENTS OF CASH FLOW**

(Inthousands)

 

(Unaudited)

 
|                                                                                      |   | **Thirty-nine  weeks ended** |       |
|-------------------------------------------------------------------------------------------|--------|------------------------------|------------|
|                                                                                      |   | **October 1,  2003**         |       | **October 2,  2002** |   |
|                                                                                      |   |                         | ** ** |   | ** ** |
| Cash flows of operating activities                                                        |   |                         |       |   |   |
| Net loss                                                                                  |   | $                            | (8,167     | ) | $ | (2,140 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in)  operating activities |   |                         |       |   |   |
| Depreciation and amortization                                                             |   | 8,052                        |       | 7,185 |   |
| Asset impairment charge                                                                   |   | 4,682                        |       | — |   |
| Deferred rent                                                                             |   | 344                          |       | 271 |   |
| Amortization of gain on sale-leaseback                                                    |   | (56                          | )          | — |   |
| Change in deferred taxes                                                                  |   | —                       |       | 2,359 |   |
| Closed restaurant expenses                                                                |   | —                       |       | 236 |   |
| Gain on sale of property                                                                  |   | —                       |       | (235 | ) |
| Changes in operating assets and liabilities                                               |   |                         |       |   |   |
| Inventories                                                                               |   | (357                         | )          | (223 | ) |
| Prepaid expenses and accounts receivable                                                  |   | 1,033                        |       | 1,261 |   |
| Accrued expenses                                                                          |   | (4,556                       | )          | (4,083 | ) |
| Income taxes payable                                                                      |   | —                       |       | (3,676 | ) |
| Accounts payable                                                                          |   | 519                          |       | (2,259 | ) |
| Other                                                                                     |   | (144                         | )          | 60 |   |
| Total adjustments                                                                         |   | 9,517                        |       | 896 |   |
| Net cash provided by (used in) operating activities                                       |   | 1,350                        |       | (1,244 | ) |
|                                                                                      |   |                         |       |   |   |
| Cash flows for investing activities                                                       |   |                         |       |   |   |
| Additions to property and equipment                                                       |   | (13,288                      | )          | (13,645 | ) |
| Proceeds from sale of property                                                            |   | —                       |       | 413 |   |
| Acquisition of liquor licenses                                                            |   | (133                         | )          | (7 | ) |
| Net cash used in investing activities                                                     |   | (13,421                      | )          | (13,239 | ) |
|                                                                                      |   |                         |       |   |   |
| Cash flows for financing activities                                                       |   |                         |       |   |   |
| Net proceeds from sale-leaseback transaction                                              |   | 7,177                        |       | — |   |
| Promissory note payments                                                                  |   | (67                          | )          | — |   |
| Increase in restricted cash                                                               |   | (652                         | )          | (897 | ) |
| Purchase of stock for treasury                                                            |   | (90                          | )          | — |   |
| Principal payments under capital lease obligations                                        |   | (5                           | )          | — |   |
| Net cash provided by (used in) financing activities                                       |   | 6,363                        |       | (897 | ) |
|                                                                                      |   |                         |       |   |   |
| Net decrease in cash and cash equivalents                                                 |   | (5,708                       | )          | (15,380 | ) |
| Cash and cash equivalents, beginning of period                                            |   | 13,133                       |       | 23,235 |   |
| Cash and cash equivalents, end of period                                                  |   | $                            | 7,425      |   | $ | 7,855 |   |
|                                                                                      |   |                         |       |   |   |
| Supplemental Disclosure of Cash Flow Information                                          |   |                         |       |   |   |
| Cash paid for interest                                                                    |   | $                            | 9,577      |   | $ | 9,124 |   |
| Cash paid for income taxes                                                                |   | $                            | 17         |   | $ | 183 |   |
| Capital lease entered into during period                                                  |   | $                            | 3,821      |   | $ | — |   |
| Promissory notes issued in exhchange for rights and settlements of  liabilities           |   | $                            | 941        |   | $ | — |   |

 

The accompanying notes are an integral part of these consolidated financialstatements.

 

6

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**BERTUCCI’S CORPORATION**

 

**Notes To Consolidated Financial Statements**

 

October 1, 2003

 

(Unaudited)

 

*1.  Basis of Presentation*

 

The unaudited consolidatedcondensed financial statements (the “Unaudited Financial Statements”) presentedherein have been prepared by Bertucci’s Corporation and include all of itssubsidiaries (collectively, the “Company”) after elimination of inter-companyaccounts and transactions, without audit, and, in the opinion of management,reflect all adjustments (consisting of normal recurring adjustments) necessaryfor a fair statement of the interim periods presented.  The accompanying unaudited interimconsolidated financial statements have been prepared in accordance withaccounting principles generally accepted in the United States of America forinterim financial information and pursuant to the rules and regulations of theSecurities and Exchange Commission for reporting on Form 10-Q.  Accordingly, certain information andfootnote disclosures required for complete financial statements are notincluded herein.  It is suggested theUnaudited Financial Statements be read in conjunction with the consolidatedfinancial statements and notes included in the Company’s 2002 Form 10-K.  The operating results for the thirteen orthirty-nine weeks ended October 1, 2003 may not be indicative of the resultsexpected for any succeeding interim period or for the entire year endingDecember 31, 2003.

 

Certain reclassifications havebeen made to prior year financial statements to make them consistent with thecurrent year’s presentation.

 

*2.  Recent AccountingPronouncements*

 

In June 2001, the FASB issuedStatement of Financial Accounting Standard (“SFAS”) No.143, *Accounting for Asset Retirement Obligations*. This Statement addresses financial accounting and reporting for obligationsassociated with the retirement of tangible long-lived assets and the associatedasset retirement costs.  This Statement applies to all entities.  Itapplies to legal obligations associated with the retirement of long-livedassets that result from the acquisition, construction, development and (or) thenormal operation of a long-lived asset, except for certain obligations oflessees.  The adoption of this statement on January 3, 2003 did not have amaterial impact on the Company’s financial position or its results ofoperations.

 

In April 2002, the FASB issuedSFAS No. 145, *Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASBStatement No.13, and Technical Corrections*. The adoption of SFAS No.145 requires gains and losses from extinguishment of debt no longer beclassified as extraordinary items, but rather be classified as part of otherincome (expense) on the Company’s consolidated statement of operations. Anysuch gains or losses, classified as extraordinary items in prior periods, willbe reclassified in future financial statement presentations upon the adoptionof SFAS No. 145.  The adoption of thisstatement on January 3, 2003 did not have a material impact on the Company’sfinancial position or its results of operations.

 

In June 2002, the FASB issuedSFAS No.  146, *Accounting for Costs Associated withExit or Disposal Activities*. SFAS No. 146 supersedes Emerging IssuesTask Force (“EITF”) No. 94-3, *Liability Recognition for Certain EmployeeTermination Benefits and Other Costs to Exit an Activity (Including CertainCosts Incurred in a Restructuring)*. SFAS No. 146 eliminates theprovisions of EITF No.  94-3

 

7

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that required a liability to berecognized for certain exit or disposal activities at the date an entitycommitted to an exit plan.  SFAS No. 146requires a liability for costs associated with an exit or disposal activity tobe recognized when the liability is incurred. SFAS No. 146 is effective for exit or disposal activities that areinitiated after December 31, 2002.

 

In December 2002, the FASBissued SFAS No.  148, *Accountingfor Stock-Based Compensation - Transition and Disclosure, an amendment of SFASNo 123*.  This Statementamends SFAS No. 123, *Accounting forStock-Based Compensation*,to provide alternative methods of transition for a voluntary change to the fairvalue based method of accounting for stock-based employee compensation.  In addition, this Statement amends thedisclosure requirements of SFAS No. 123 to require prominent disclosures inboth annual and interim financial statements about the method of accounting forstock-based employee compensation and the effect of the method used on reportedresults.  The disclosure requirements ofSFAS No. 148 were implemented on January 1, 2003.

 

In January 2003, the FASBissued FASB Interpretation No. 46 (“FIN 46”), *Consolidation of Variable InterestEntities, an Interpretation of ARB No. 51*.  FIN 46 requires certain variable interest entities to beconsolidated by the primary beneficiary of the entity if the equity investorsin the entity do not have the characteristics of a controlling financial interestor do not have sufficient equity at risk for the entity to finance itsactivities without additional subordinated financial support from otherparties. FIN 46 is effective for all new variable interest entities created oracquired after January 31, 2003.  Forvariable interest entities created or acquired prior to February 1, 2003, theprovisions of FIN 46 must be applied during the fourth quarter of 2003.  The Company did not create or acquire anyvariable interest entities during the thirty-nine weeks ended October 1,2003.  The adoption of this statement inthe fourth quarter of 2003 is not expected to have a material impact on theCompany’s financial position or results of operations.

 

In May 2003, the FASB issuedSFAS No. 150, *Accounting for Certain Financial Instruments with Characteristics ofboth Liabilities and Equity*. The Statement requires an issuerclassify financial instruments within its scope as a liability. Many of thoseinstruments were classified as equity under previous guidance. SFAS No. 150 iseffective for all financial instruments entered into or modified after May 31,2003. Otherwise, it is effective on July 3, 2003 with the exception ofmandatory redeemable financial instruments of non-public entities, for whichthe provisions of this statement are applicable in the first quarter of 2004.The adoption of the applicable portions of this statement in the third quarterof 2003 did not have a material impact on the Company’s financial position orresults of operations.  The Company iscurrently assessing the implications of adopting the mandatory redeemablefinancial instruments provision in 2004.

 

*3. 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.  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 to sublease or exit certain of these leases.  In June 2002, the Company closed onerestaurant and recorded a charge of $236,000 primarily related to estimatedlease termination costs.  In March 2003,the Company terminated a lease for one of its closed locations in exchange forissuing a promissory note of $455,000 payable in varying installments through2010.  The note does not bear interest,accordingly the Company imputed interest on 

 

8

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the note and recorded theobligation at its present value of $386,000 in other long-term obligations inthe accompanying balance sheet.

 

Activity within the reserve was as follows:

 
|                                           |   | **Thirty-nine  weeks ended** |   |
|------------------------------------------------|--------|------------------------------|--------|
|                                           |   | **October 1,  2003**         |   | **October 2,  2002** |   |
|                                           |   |                         |   |   |   |
| Balance, beginning of the year                 |   | $                            | 2,499  |   | $ | 3,351 |   |
| Payments charged against reserve               |   | (566                         | )      | (685 | ) |
| Promissory note issued                         |   | (386                         | )      | — |   |
| Balance, end of period                         |   | $                            | 1,547  |   | $ | 2,666 |   |
|                                           |   |                         |   |   |   |
| Current portion (included in accrued expenses) |   | $                            | 621    |   | $ | 661 |   |
| Noncurrent portion                             |   | 926                          |   | 2,005 |   |
|                                           |   | $                            | 1,547  |   | $ | 2,666 |   |

 

*4.  Loss per Share*

The number of shares used tocalculate diluted loss per share for the periods ended October 1, 2003 andOctober 2, 2002 exclude the effect of 602,311 and 740,473 outstanding stockoptions, respectively, as the options are anti-dilutive.

 

 

*5.  Income Taxes*

The Companyrecognizes deferred tax assets and liabilities for the expected future taxconsequences of events that have been included in the financial statements ortax returns.  Additionally, the Companyis required to consider both negative and positive evidence in determining if avaluation allowance is required on a quarterly basis.  The fiscal year 2002 loss and the Company’s current plan forcontinued development of Company owned restaurants will burden pre-tax profitsbecause of the recognition of pre-opening costs and initial year inefficienciesassociated with new restaurants.  As aresult, management recorded a full valuation allowance for its deferred taxassets in the fourth quarter of 2002 and recorded an allowance in each quarterof 2003 for the tax benefits associated with the current period’s losses.

 

*6.  Stock-Based Compensation*

The Companyhas elected to account for stock-based compensation using the intrinsic valuemethod with disclosure of the effects of fair value accounting on net incomeand earnings per share on a pro forma basis. No stock-based employee compensation cost related to stock options isreflected in the reported net loss, as all options granted had an exerciseprice equal to, or in excess of, the market value of the underlying commonstock on the date of grant.  Thefollowing table illustrates the effect on net loss and earnings per share ifthe company had applied the fair value method.

 

9

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|                             |   | **Thirteen  weeks ended** |   | **Thirty-nine  weeks ended** |   |
|----------------------------------|--------|---------------------------|--------|------------------------------|--------|
|                             |   | **October 1,  2003**      |   | **October 2,  2002**         |   | **October 1,  2003** |   | **October 2,  2002** |   |
| Net loss, in thousands           |   |                      |   |                         |   |   |   |   |   |
| As reported                      |   | $                         | (5,889 | )                            | $      | (646 | ) | $ | (8,167 | ) | $ | (2,140 | ) |
| Pro Forma                        |   | $                         | (6,042 | )                            | $      | (679 | ) | $ | (8,627 | ) | $ | (2,238 | ) |
|                             |   |                      |   |                         |   |   |   |   |   |
| Basic and diluted loss per share |   |                      |   |                         |   |   |   |   |   |
| As reported                      |   | $                         | (1.99  | )                            | $      | (0.22 | ) | $ | (2.75 | ) | $ | (0.72 | ) |
| Pro Forma                        |   | $                         | (2.04  | )                            | $      | (0.23 | ) | $ | (2.90 | ) | $ | (0.75 | ) |

 

 

*7.  Sale of Properties*

 

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

 

In the first quarter of 2003,the Company completed a sale-leaseback transaction on three restaurantproperties for $7.2 million in cash (net of fees of approximately$300,000).  The properties sold includedland and buildings at three locations which the Company agreed to lease backfor a 20-year period with total contractual lease obligations of approximately$16.7 million.  The portion of thecontractual obligation relating to the buildings is recorded at its net presentvalue of $3.8 million (at inception) as an obligation under a capital lease,and is included in other long-term obligations in the accompanying balancesheet.  The land portion of theobligation is classified as an operating lease, requiring future payments to beclassified as operating expenses.  Thegain on the sale of these properties of approximately $2.2 million has beendeferred and will be recognized over the 20-year term of the leaseback.  The new lease for each of these restaurantshas a term of 20 years, with two five-year renewal terms, which the Company mayexercise at its option.  In addition tobase rent, the Company is required to maintain the facilities for the term ofthe lease and to pay all taxes, insurance, utilities and other costs associatedwith those facilities.  Under the lease,the Company agreed to customary indemnities and, in the event the Companydefaults on the lease, the landlord may terminate the lease, accelerate rentalpayments and collect liquidated damages.

 

*8.  Other Long-Term Obligations*

 

During the second quarter of2003, the Company issued a promissory note in the amount of $555,000 to acquirerights to a liquor license for a 10-year period.

 

*9.  Asset Impairment Charge*

 

The Company’s long-lived assets consistprimarily of goodwill and leasehold improvements related to its restaurantoperations. SFAS No. 144 requires management to test the recoverability oflong-lived assets (excluding goodwill) by comparing future cash flows expectedto be generated from these assets to the carrying amounts of the assetswhenever events or changes in circumstances indicate the carrying value may notbe recoverable.  If cash flows are notsufficient to recover the carrying amount of the assets, impairment hasoccurred and the assets should be written down to fair value.  Significant estimates and assumptionsregarding future sales, cost trends, productivity and market maturity arerequired to be made by management in order to test for impairment under thisstandard.

 

During the third quarter of 2003, the Companyassessed certain non-performing restaurants for recoverability and determinedan impairment of fixed assets existed at eleven restaurant locations.  The Company estimated the fair value ofthese assets based on the net present value of the expected cash flows of theeleven restaurants.  The carrying amountof the assets exceeded the fair value of the assets by 

 

10

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approximately $4.7 million.  The Company has recorded an impairmentcharge during the quarter to reflect the write down of the affected assets tofair value.

 

 

Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS ANDFINANCIAL CONDITION

 

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

 

### **General**

 

The Company is an operator offull-service, casual dining restaurants in the northeastern United States.  The Company’s wholly owned subsidiary,Bertucci’s Restaurant Corp. owns and operates a restaurant concept under thename Bertucci’s Brick Oven Pizzeria®. In July 1998, the Company completed its acquisition of Bertucci’sRestaurant Corp.’s parent entity, Bertucci’s, Inc., a publicly-owned restaurantcompany for a purchase price, net of cash received, of approximately $89.4million (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’s restaurantsand one Sal & Vinnie’s restaurant. Since 1999, the Company closed the Bertucci’s test kitchen restaurant,18 under performing Bertucci’s restaurants, one Bertucci’s restaurant that hadreached the end of its lease term and the Sal and Vinnie’s restaurant.  Since January 2001, the Company has opened18 new Bertucci’s restaurants.

 

As of October 1, 2003 theCompany owned and operated 87 full-service, casual dining, Italian-stylerestaurants under the name Bertucci’s Brick Oven Pizzeria® located primarily inNew England and Mid-Atlantic United States.

### ** **

### **Results of Operations**

 

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

 

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**STATEMENTS OF OPERATIONS DATA**

(Percentageof Net Sales)

 
|                                                                |   | **Thirteen  weeks ended** |   | **Thirty-nine  weeks ended** |       |
|---------------------------------------------------------------------|--------|---------------------------|--------|------------------------------|------------|
|                                                                |   | **October 1,****2003**    |   | **October 2,****2002**       | ** ** | **October 1,****2003** | ** ** | **October 2,****2002** | ** ** |
| Net sales                                                           |   | 100.0                     | %      | 100.0                        | %          | 100.0 | % | 100.0 | % |
|                                                                |   |                      |   |                         |       |   |   |   |   |
| Cost of sales and expenses:                                         |   |                      |   |                         |       |   |   |   |   |
| Cost of sales                                                       |   | 24.1                      | %      | 21.5                         | %          | 23.2 | % | 22.3 | % |
| Operating expenses                                                  |   | 60.8                      | %      | 59.9                         | %          | 60.8 | % | 59.9 | % |
| General and administrative expenses                                 |   | 5.4                       | %      | 7.4                          | %          | 6.2 | % | 7.6 | % |
| Asset impairment charge                                             |   | 9.9                       | %      | —                       |       | 3.4 | % | — |   |
| Closed restaurant expenses                                          |   | —                    |   | 0.1                          | %          | — |   | 0.2 | % |
| Depreciation, amortization, deferred rent, and pre-opening expenses |   | 6.7                       | %      | 7.6                          | %          | 6.8 | % | 6.7 | % |
| Total cost of sales and expenses                                    |   | 106.9                     | %      | 96.5                         | %          | 100.4 | % | 96.7 | % |
| Loss (income) from operations                                       |   | (6.9                      | )%     | 3.5                          | %          | (0.4 | )% | 3.3 | % |
| Interest expense, net                                               |   | (5.5                      | )%     | (5.9                         | )%         | (5.5 | )% | (6.0 | )% |
| Loss before income tax benefit                                      |   | (12.4                     | )%     | (2.4                         | )%         | (5.9 | )% | (2.7 | )% |
|                                                                |   |                      |   |                         |       |   |   |   |   |
| Income tax benefit                                                  |   | —                    |   | 0.8                          | %          | — |   | 1.0 | % |
| Net loss                                                            |   | (12.4                     | )%     | (1.6                         | )%         | (5.9 | )% | (1.7 | )% |
|                                                                |   |                      |   |                         |       |   |   |   |   |
| **Restaurant Operating Data:**                                      |   |                      |   |                         |       |   |   |   |   |
| Increase in comparable restaurant sales (a)                         |   | 2.4                       | %      | 9.1                          | %          | 4.3 | % | 5.5 | % |
| Number of restaurants:                                              |   |                      |   |                         |       |   |   |   |   |
| Restaurants open, beginning of period                               |   | 86                        |   | 75                           |       | 80 |   | 74 |   |
| Restaurants opened                                                  |   | 1                         |   | 4                            |       | 7 |   | 5 |   |
| Restaurant closed                                                   |   | —                    |   | (1                           | )          | — |   | (1 | ) |
| Total restaurants open, end of period                               |   | 87                        |   | 78                           |       | 87 |   | 78 |   |

 

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(a)                TheCompany defines comparable restaurant sales as net sales from restaurants openat least one full fiscal year prior to the beginning of the current reportedperiod.

 

**ThirteenWeeks Ended October 1, 2003 Compared to Thirteen Weeks Ended October 2, 2002**

 

*Net Sales*. Total company net sales increased by $5.7 million, or 13.7%, to $47.4 millionduring the third quarter 2003 from $41.7 million during the third quarter2002.  The increase was primarily due toa $952,000 (2.4%) increase in comparable restaurant sales and a $4.7 millionincrease in sales from fourteen restaurants opened since January 2002.  Comparable Bertucci’s restaurant dine-inguest counts decreased 3.7% for the quarter as compared to the third quarter of2002.  Bertucci’s comparable restaurantdine-in sales increased 2.9% and comparable carry-out and delivery sales increased0.6% for the quarter as compared to the third quarter of 2002.  The carry-out and delivery change was theresult of a 2.4% increase in average transaction partially offset by 1.7%decrease in transaction counts.  TheCompany believes the comparable increase in dine-in sales was primarily due tostrong guest response to marketing efforts, a 2.1% increase in menu priceseffective March 2003 and menu mix shift to higher priced items.   In addition to traditional mediaadvertising, the Company promoted specials with coupons throughout the thirdquarter 2003, including the September lobster promotion consisting of fourlobster-based menu items, all with a selling price of $11.99.  The Company believes the lobster promotionaccounted for approximately 1.9% of the comparable sales for the quarter.  For the 73 comparable restaurants, averageweekly sales increased from $42,106 in the third quarter 2002 to $43,109 duringthe third quarter 2003.  For the 14restaurants opened since January 2002, average weekly sales were $35,552 duringthe third quarter 2003.

 

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*Cost of Sales*.  Cost of sales increased by approximately $2.5 million, or 28.1%,to $11.4 million during the third quarter 2003 from $8.9 million during thethird quarter 2002.  Expressed as apercentage of net sales, overall cost of sales increased to 24.1% during thethird quarter 2003 from 21.5% during the third quarter 2002.  The dollar increase was a result of highersales from new restaurants, menu mix shift to higher cost items, increases iningredient costs and an increase in comparable restaurant sales.  The Company believes the percent change wasdue primarily to menu mix shift to higher cost items, increases in ingredientcosts and new restaurant inefficiencies.

 

*Operating Expenses.*  Operating expenses increased by $3.9 million or 15.5%, to $28.8million during the third quarter 2003 from $24.9 million during the thirdquarter 2002.  Expressed as a percentageof net sales, operating expenses increased to 60.8% in the third quarter 2003from 59.9% during the third quarter 2002. The dollar increase was primarily due to increased labor costsassociated with inefficiencies of five restaurant openings during the secondand third quarters of 2003 (four restaurants opened during the second quarterand one restaurant opened in the third quarter) compounded by increased labor,occupancy and utility costs in comparable restaurants partially offset byreduced advertising and property and casualty insurance costs.  The percentage increase was primarily due tothe higher costs and decreased leverage on occupancy costs due to the lowersales volumes of new restaurants.

 

*General and Administrative Expenses.*  General and administrative expensesdecreased by approximately $516,000, or 16.8% to $2.6 million during the thirdquarter 2003 from $3.1 million during the third quarter 2002.  Expressed as a percentage of net sales,general and administrative expenses decreased to 5.4% in the third quarter 2003from 7.4% during the third quarter 2002. The dollar decrease was primarily due to lower incentive compensationcosts and reduced costs of training and recruiting new restaurant managerspartially offset by higher benefits and travel costs.

 

*Asset Impairment Charge.* As discussed inNote 9 of Notes to Consolidated Financial Statements, the company recorded acharge of approximately $4.7 million in the third quarter 2003 to recognize theestimated impairment of depreciable long-lived assets at eleven restaurantlocations.  Approximately $2.6 millionof the charge was to recognize the impairment on three of the seven restaurantsopened during 2002 due to their poor performance and the likelihood the poorperformance will continue.

 

*Depreciation, Amortization, Deferred Rent, and Pre-opening Expenses*.  Depreciation, amortization, deferred rent,and pre-opening expenses increased by approximately $31,000 or 1.0%, to $3.2million during the third quarter 2003 from $3.2 million during the thirdquarter of 2002.  Expressed as a percentageof net sales, depreciation, amortization, deferred rent, and pre-openingexpenses decreased to 6.7% in the third quarter 2003 from 7.6% during the thirdquarter 2002.  The dollar variance wasthe result of a $361,000 increase in depreciation costs and a $15,000 increasein capital lease amortization partially offset by a $315,000 decrease inpre-opening costs and a $27,000 recognition of the deferred gain on thesale-leaseback transaction completed in the first quarter of 2003.

 

*Interest Expense.*  Net interest expense increased by approximately $168,000 or 6.9%to $2.6 million during the third quarter of 2003 from $2.5 million during thethird quarter 2002.  Incrementalinterest expense of approximately $95,000 was incurred in the third quarter of 2003as a result of the new capital lease. See Note 7 of Notes to Consolidated Financial Statements.

 

*Income Taxes.*  The Company has an historical trend ofrecurring pre-tax losses since 1998 excluding the sale of 47 Chili’s and On TheBorder restaurants in 2001.  The Companyanticipates its current plan for continued development of Company ownedBertucci’s restaurants will burden pre-tax profits because of the recognitionof pre-opening costs and initial year inefficiencies associated with newrestaurants.

 

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During the fourth quarter of 2002 the Company recorded a full valuationallowance for its net deferred tax asset. During the third quarter of 2003, the Company has also provided a fullvaluation allowance relating to the tax benefits generated during the quarter(primarily its operating losses).

 

**Thirty-NineWeeks Ended October 1, 2003 Compared to Thirty-Nine Weeks Ended October 2, 2002**

 

*Net Sales*. Total company net sales increased by $18.0 million, or 15.0%, to $137.6million during the three quarters of 2003 from $119.7 million during the firstthree quarters of 2002.  The increasewas primarily due to a $5.0 million (4.3%) increase in comparable restaurant salesand a $13.4 million increase in sales from 14 restaurants opened since January2002, partially offset by a $379,000 decrease due to one restaurant closed atthe end of the second quarter of 2002. Of the 14 new restaurants, seven opened during 2002, two opened duringthe first quarter 2003, four opened during the second quarter 2003 and oneopened in the third quarter 2003. Comparable Bertucci’s restaurant dine-in guest counts decreased by 1.3%for the three quarters of 2003 as compared to the first three quarters of2002.  Bertucci’s comparable restaurantdine-in sales increased 5.2% for the three quarters of 2003 as compared to thefirst three quarters of 2002 mainly as a result of a 2.1% increase in menuprices in March 2003 and menu mix shift. Comparable Bertucci’s restaurant carry-out and delivery sales increased1.3% for the three quarters of 2003 as compared to the same period in the prioryear, primarily from a 3.4% increase in average transaction partially offset bya 2.0% decrease in transaction counts. For the 73 comparable restaurants, average weekly sales increased from$41,170 for the first three quarters of 2002 to $42,925 for the first threequarters of 2003.  For the 14restaurants opened since January 2002, average weekly sales were $37,843 forthe first three quarters of 2003.

 

*Cost of Sales*.  Cost of sales increased by approximately $5.3 million, or 19.7%,to $31.9 million during the three quarters of 2003 from $26.6 million duringthe first three quarters of 2002. Expressed as a percentage of net sales, overall cost of sales increasedto 23.2% during the three quarters of 2003 compared to 22.3% during the firstthree quarters of 2002.  The dollarincrease was primarily the result of higher sales due to new restaurants.  The Company believes the percentage increasewas due to menu mix shift to higher cost items and higher cost of ingredients,partially offset by the impact of the 2.1% price increase taken March 2003.

 

*Operating Expenses.*  Operating expenses increased by $12.0 million or 16.8%, to $83.7million during the three quarters of 2003 from $71.7 million during the firstthree quarters of 2002.  Expressed as apercentage of net sales, operating expenses increased to 60.8% in the threequarters of 2003 from 59.9% during the first three quarters of 2002.  The dollar and percentage increases wereprimarily due to increased labor costs associated with 14 additional restaurantopenings since January 2002 compounded by increased labor, utilities andoccupancy costs in comparable restaurants partially offset by reduced advertisingcosts.  Furthermore, during the firstthree quarters of 2002, the Company received the benefit of a $234,900 gain onthe sale of land recorded as a reduction of operating expenses.  However, the Company spent $495,300 less onadvertising in the three quarters of 2003 versus 2002, primarily media andprint costs.

 

*General and Administrative Expenses.*  General and administrative expensesdecreased by approximately $523,000, or 5.7% to $8.6 million during the threequarters of 2003 from $9.1 million during the first three quarters of2002.  Higher corporate payroll, traveland utility costs were offset by reduced incentive compensation costs, trainingcosts associated with new restaurant managers and meeting costs.  Expressed as a percentage of net sales,general and administrative expenses decreased to 6.2% in the three quarters of2003 from 7.6% during the first three quarters of 2002.  The percentage reduction was primarily aresult of higher sales volumes associated with 14 new restaurants opened sinceJanuary 2002 and the comparable restaurant sales increase.

 

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*Asset Impairment Charge.* As discussed inNote 9 of Notes to Consolidated Financial Statements, the company recorded acharge of approximately $4.7 million in the third quarter 2003 to recognize theestimated impairment of depreciable long-lived assets at eleven restaurantlocations.  Approximately $2.6 millionof the charge was to recognize the impairment on three of the seven restaurantsopened during 2002 due to their poor performance and the likelihood the poorperformance will continue.

 

*Depreciation, Amortization, Deferred Rent, and Pre-opening Expenses*.  Depreciation, amortization, deferred rent,and pre-opening expenses increased by approximately $1.4 million or 17.0%, to$9.4 million during the three quarters of 2003 from $8.0 million during thefirst three quarters of 2002.  Expressedas a percentage of net sales, depreciation, amortization, deferred rent, andpre-opening expenses increased to 6.8% in the three quarters of 2003 from 6.7%during the first three quarters of 2002. The dollar increase was primarily due to higher depreciation expensesassociated with the 14 restaurants opened since January 2002 and higherpre-opening costs due to more restaurant openings during the three quarters of2003.

 

*Interest Expense.*  Net interest expense increased by approximately $276,000, or3.8%, to $7.5 million from $7.2 million during the three quarters of 2003compared to the first three quarters of 2002. The increase was primarily the result of incremental indebtednessprimarily associated with the new capital lease resulting in incrementalinterest expense of approximately $195,000 in 2003 versus 2002 as described inNote 7 of Notes to Consolidated Financial Statements.

 

*Income Taxes.*  The Company has an historical trend ofrecurring pre-tax losses since 1998 excluding the sale of 47 Chili’s and On TheBorder restaurants in 2001.  The Companyanticipates that its current plan for continued development of Company ownedBertucci’s restaurants will burden pre-tax profits because of the recognitionof pre-opening costs and initial year inefficiencies associated with newrestaurants.  During the fourth quarter of2002 the Company recorded a full valuation allowance for its net deferred taxasset.  During the third quarter of2003, the Company has also provided a full valuation allowance relating to thetax benefits generated during the quarter (primarily its operating losses).

 

# **LiquidityAnd Capital Resources**

 

Net cash flows provided byoperating activities were $1.3 million for the first three quarters of 2003,$2.5 million more than the $1.2 million used during the first three quarters of2002.  As of October 1, 2003, cash andcash equivalents of $10.5 million consisted of $7.1 million of short-terminvestments ($3.1 million of which is restricted, see below) and the remainderin operating cash accounts.  Net cashflows provided by operating activities in the 2003 period were primarilyattributable to adjustments for noncash expenses, including $8.1 million ofdepreciation and amortization and a $4.7 million asset impairment charge,partially offset by the Company’s net loss and changes in operating assets andliabilities.  Changes in operatingassets and liabilities included a use of cash attributable to a $4.6 milliondecrease in accrued expenses, partially offset by a $1.0 million decrease inprepaid expenses and accounts receivable.

 

The Company’s 2003 capitalexpenditures were $13.3 million through October 1, 2003 compared to $13.6million for the comparable prior year period. The capital expenditures for 2003 were primarily comprised of $9.8million for new Bertucci’s restaurants and $3.5 million for remodels andmaintenance capital.  The Company anticipatesit will incur approximately $4.0 million of additional capital expenditures inthe last quarter of 2003, primarily relating to new restaurants.

 

In the first quarter of 2003,the Company completed a sale-leaseback transaction on three restaurantproperties.  This transaction generated$7.2 million in cash and increased the Company’s cash contractual

 

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obligations over the nexttwenty years by $16.7 million, as further described in Note 7 to the FinancialStatements.  Furthermore, the Companyincreased the amount of restricted cash by approximately $652,000 during thefirst three quarters of 2003.  Therestricted cash served as collateral for Letters of Credit, primarilysupporting property, casualty and workers’ compensation insurance.  The Company is currently negotiating asale-leaseback transaction for an additional property, with anticipated netproceeds of approximately $1.6 million, which the Company expects to completein the fourth quarter of 2003.

 

As of October 1, 2003, theCompany had $90.0 million in consolidated indebtedness, $85.3 million pursuantto the Senior Notes, $3.8 million related to the capital lease portion of thesale-leaseback transaction, and $900,000 of promissory notes.  The Companyhas a $4.0 million (maximum) Letter of Credit Facility.  As of October 1,2003, this facility is collateralized with $3.1 million of cash restricted fromgeneral use in support of $3.1 million of outstanding letters of credit. TheCompany does not have a line of credit or other similar borrowing facility.

 

The Company believes the cashflow generated from operations, the proceeds from the additional sale-leasebacktransaction and current cash on hand should be sufficient to fund its plannedoperations, including debt service, lease commitments and capital expenditures,for the next twelve months.  If theCompany does not obtain the proceeds of the anticipated sale-leasebacktransaction, it believes it would continue to have sufficient funds to meet itsongoing debt service and lease commitments, but may have to curtail its newrestaurant capital expenditures.  Inaddition, the Company’s growth may be impeded by its lack of short termborrowing availability.

 

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

 

## **ContractualObligations**

 

As of January 1, 2003, theCompany had contractual obligations as follows:

 

PaymentsDue by Period

(Dollarsin Thousands)

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

 

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Contractual obligationsexecuted subsequent to January 1, 2003:

 

Payments Due by Period

(Dollars in Thousands)

 
|                   |   | **Total** |   | **Less than 1  year** |   | **1 - 3 years** |   | **4 - 5 years** |   | **After 5 years** |   |
|------------------------|--------|-----------|--------|-----------------------|--------|-----------------|--------|-----------------|--------|-------------------|--------|
| Operating  Leases      |   | $         | 17,864 |                  | $      | 614             |   | $               | 3,876  |              | $      | 2,476 |   | $ | 10,898 |   |
| Capital Leases         |   | 9,346     |   | 391                   |   | 1,218           |   | 851             |   | 6,886             |   |
| Promissory  Notes      |   | 941       |   | 82                    |   | 122             |   | 137             |   | 600               |   |
| Total new  obligations |   | $         | 28,151 |                  | $      | 1,087           |   | $               | 5,216  |              | $      | 3,464 |   | $ | 18,384 |   |
|                        |        |           |        |                       |        |                 |        |                 |        |                   |        |  |  |  |  |  |  |

 

As mentioned above, the Companyentered into a sale-leaseback transaction for three properties.  The land portion is classified as anoperating lease and the building portion is classified as a capital lease.  In addition, the Company executed operatingleases during 2003 for four future restaurant openings.

 

## **Impact ofInflation**

 

Inflationaryfactors such as increases in labor, food or other operating costs couldadversely affect the Company’s operations. The Company does not believe inflation has had a material impact on itsfinancial position or results of operations for the periods discussedabove.  Management believes through theproper leveraging of purchasing size, labor scheduling, and restaurantdevelopment analysis, inflation will not have a material adverse effect onincome during the foreseeable future. There can be no assurance inflation will not materially adversely affectthe Company.

 

**Seasonality**

 

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

 

# **Critical AccountingPolicies**

 

The following discussion addresses theCompany’s most critical accounting policies, which are those most important tothe portrayal of the Company’s financial condition and results, and requiresignificant judgment.

 

*Property and Equipment*

 

Property and equipment are depreciated on astraight-line basis over the estimated useful lives of the assets.  The useful lives of the assets are basedupon the Company’s expectations for the period of time

 

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that the asset will be used to generaterevenue.  The Company periodicallyreviews the assets for changes in circumstances which may impact their usefullives.

* *

*Impairment of Long-Lived Assets*

 

The Company reviews propertyand equipment for impairment when events or circumstances indicate it might beimpaired. The Company tests impairment using historical cash flows and otherrelevant facts and circumstances as the primary basis for its estimates offuture cash flows.  This processrequires the use of estimates and assumptions which are subject to a highdegree of judgment.  In addition, atleast annually, the Company assesses the recoverability of goodwill and otherintangible assets related to its restaurant concepts. These impairment testsrequire the Company to estimate fair values of its restaurant concepts bymaking assumptions 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. Asdiscussed in Note 9 of Notes to Consolidated Financial Statements, the companyrecorded a charge of approximately $4.7 million in the third quarter 2003 torecognize the estimated impairment of depreciable long-lived assets at elevenrestaurant locations.

 

*Self-Insurance*

 

The Company is self-insured forcertain losses related to general liability, group health insurance, andworkers’ compensation.  The Companymaintains stop loss coverage with third party insurers to limit its totalexposure.  The self-insurance liabilityrepresents an estimate of the ultimate cost of claims incurred as of thebalance sheet date.  The estimatedliability is not discounted and is established based upon analysis ofhistorical data and actuarial estimates, and is reviewed by the Company on aquarterly 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.

 

*Closed Restaurant Reserve*

* *

The Company remains primarily liable onapproximately 14 leases for closed restaurants. Management reviews thespecifics of each site on a quarterly basis to estimate the Company’s netremaining liability over the remaining lease term. Certain locations havesubtenants in place while others remain vacant. Estimates must be made offuture sublease income or lease assignment possibilities. If subtenants defaulton their subleases or projected future subtenants are not arranged, actualresults could differ from the Company’s estimates, thereby impacting theCompany’s financial results.

 

**Forward-LookingStatements**

 

All statements other thanstatements of historical facts included in this Report on Form 10-Q, including,without limitation, statements set forth under “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” regarding theCompany’s future financial position, business strategy, budgets, projectedcosts and plans and objectives of management for future operations, areforward-looking statements.  Inaddition, forward-looking statements generally can be identified by the use offorward-looking terminology such as “may,” “will,” “expect,” “intend,”“estimate,” “anticipate” or “believe” or the negative thereof or variationsthereon or similar terminology. Although the Company believes that the expectations reflected in suchforward-looking statements will prove to have been correct, it can give noassurance that such expectations will prove to have been correct.  Factors that could cause actual results tomaterially differ include, without limitation, the Company’s high degree ofleverage could, among other things, reduce Company’s ability to obtainfinancing for operations and expansion, place the Company at a competitivedisadvantage and limit the Company’s flexibility to adjust to changing marketconditions; the challenges of managing geographic expansion; changes in foodcosts, supplies and key

 

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supplier relationships; and thepossible adverse impact of government regulation on the Company.  Other factors that could adversely affectour business and prospects are described in our filings with the Securities andExchange Commission.  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.

 

# **Item3.  QUANTITATIVE** AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

 

The Companyhas no exposure to specific risks related to derivatives or other “hedging”types of financial instruments.

 

# **Item 4. CONTROLS** AND PROCEDURES

 

The Company has establisheddisclosure controls and procedures to ensure material information relating tothe Company, including consolidated subsidiaries, is made known to the officerswho certify financial reports and to other members of senior management and theBoard of Directors.

 

a)       *Evaluation of disclosure contro1s and procedures.*  Our management, with the participation of our principal executive officerand principal financial officer, has evaluated the effectiveness of the designand operation of our disclosure controls and procedures (as defined in Rules13(a)-15(e) and 15(d)-15(e)**under the Securities Exchange Act of1934, as amended) as of the end of the period covered by this Quarterly Reporton Form 10-Q. Based on this evaluation our principal executive officer andprincipal financial officer concluded these disclosure controls and proceduresare effective and designed to ensure the information required to be disclosed in our reports filedor submitted under the Securities Exchange Act of 1934 is recorded, processed,summarized and reported within the requisite time periods.

 

b)       *Changes in internal controls.*  There was no change in our internal control over financial reporting(as defined in Rules 13(a)-15(f) and15(d)-l5(f) under the Securities and Exchange Act of 1934, as amended)identified in connection with the evaluation of our internal control performedduring our last fiscal quarter which materially affected, or is reasonablylikely to materially affect, the Company’s internal control over financialreporting.

 

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PART II: OTHER INFORMATION

 

Item 1. LEGAL PROCEEDINGS

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

 

Management is not aware of anylitigation to which the Company is a party that is likely to have a materialadverse 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

Exhibits

31.1        Certification of Benjamin R. Jacobson pursuantto Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002 (*).

31.2        Certificationof Kurt J. Schnaubelt pursuant to Rule 13a-14(a) and 15d-14(a), as adoptedpursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (*).

 

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(*) – Includedwith this report.

 

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SIGNATURES

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned thereunto duly authorized.

 

 
|   |               | BERTUCCI’S CORPORATION               |                         |
|--------|--------------------|-------------------------------------------|------------------------------|
|   |               | (Registrant)                              |                         |
|   |               |                                      |                         |
|   |               |                                      |
| Date:  | November 12,  2003 |                                      | By: /s/ Benjamin R. Jacobson |   |
|   |               | Chairman of the Board of Directors,       |                         |
|   |               | Chief Executive Officer, Treasurer        |                         |
|   |               | (Principal Executive Officer)             |                         |
|   |               |                                      |                         |
|   |               |                                      |                         |
| Date:  | November 12,  2003 |                                      | By: /s/ Kurt J. Schnaubelt   |   |
|   |               | Chief Financial Officer,                  |                         |
|   |               | Senior Vice President – Finance and  |                         |
|   |               | Administration (Chief Accounting Officer) |                         |
|        |                    |                                           |                              |  |  |

 

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