**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC  20549**

 

**FORM 10-Q**

 

**ý Quarterly Report Voluntarily Filed Pursuantto Section 13 or 15(d) of the Securities and Exchange Act of 1934**

 

**For the Quarterly PeriodEnded   March 31, 2004**

 

**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** |

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to the filingrequirements 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

 

2,944,579shares of the registrant’s Common Stock were outstanding on May 13, 2004.

 

 

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**BERTUCCI’SCORPORATION**

** ****FORM 10-Q**

**TABLEOF CONTENTS**

 
| PART I:        | FINANCIAL INFORMATION |                                                                                        |
|----------------|-----------------------|---------------------------------------------------------------------------------------------|
|           |                  |                                                                                        |
|           | Item 1.               | Financial Statements:                                                                       |   |
|           |                  |                                                                                        |   |   |
|           |                  | 1)                                                                                          |   | Consolidated Balance Sheets  March 31, 2004 (Unaudited) and December 31, 2003 |   |
|           |                  |                                                                                        |   |   |
|           |                  | 2)                                                                                          |   | Consolidated Statements  of Operations For the 13 Weeks Ended March 31, 2004 (Unaudited) and April 2,  2003 (Unaudited) |   |
|           |                  |                                                                                        |   |   |
|           |                  | 3)                                                                                          |   | Consolidated  Statement of Changes in Stockholders’ Equity for the 13 Weeks Ended March 31,  2004 (Unaudited) |   |
|           |                  |                                                                                        |   |   |
|           |                  | 4)                                                                                          |   | Consolidated  Statements of Cash Flow for the 13 Weeks Ended March 31, 2004 (Unaudited) and  April 2, 2003 (Unaudited) |   |
|           |                  |                                                                                        |   |   |
|           |                  | 5)                                                                                          |   | Notes to  Consolidated Financial Statements (Unaudited) |   |
|           |                  |                                                                                        |   |   |
|           | Item  2.              | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
|           |                  |                                                                                        |   |   |
|           | Item  3.              | Quantitative  and Qualitative Disclosures About Market Risk                                 |   |
|           |                  |                                                                                        |   |   |
|           | Item 4.          | Controls and Procedures                                                                     |   |
|           |                  |                                                                                        |   |   |
| PART II:       |                  | OTHER INFORMATION                                                                           |   |
|           | Item 1.               |                                                                                        | Legal Proceedings |   |
|           | Item 2.               |                                                                                        | Changes in Securities,  Use of Proceeds and Issuer Purchases of Equity Securities |   |
|           | 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. FINANCIALSTATEMENTS

 

**BERTUCCI’SCORPORATION**

**CONSOLIDATEDBALANCE SHEETS**

(In thousands, except sharedata)

 
|                                                                                 |   | **March 31,  2004** |    | **December  31,  2003** |   |
|--------------------------------------------------------------------------------------|--------|---------------------|---------|-------------------------|--------|
|                                                                                 |   | **(Unaudited)**     |    |                    |   |
| ASSETS                                                                               |   |                |    |                    |   |
| Current Assets:                                                                      |   |                |    |                    |   |
| Cash and cash equivalents                                                            |   | $                   | 9,087   |                    | $      | 12,647 |   |
| Restricted cash                                                                      |   | 3,129               |    | 3,129                   |   |
| Accounts receivable                                                                  |   | 1,037               |    | 753                     |   |
| Inventories                                                                          |   | 1,408               |    | 1,268                   |   |
| Prepaid expenses and other current assets                                            |   | 2,336               |    | 1,758                   |   |
| Total current assets                                                                 |   | 16,997              |    | 19,555                  |   |
|                                                                                 |   |                |    |                    |   |
| Property and Equipment, at cost:                                                     |   |                |    |                    |   |
| Land                                                                                 |   | 259                 |    | 259                     |   |
| Buildings                                                                            |   | 697                 |    | 697                     |   |
| Capital leases - land and buildings                                                  |   | 5,764               |    | 5,764                   |   |
| Leasehold improvements                                                               |   | 63,795              |    | 63,084                  |   |
| Furniture and equipment                                                              |   | 44,569              |    | 43,806                  |   |
|                                                                                 |   | 115,084             |    | 113,610                 |   |
| Less - accumulated depreciation and  amortization                                    |   | (43,192             | )       | (40,300                 | )      |
|                                                                                 |   | 71,892              |    | 73,310                  |   |
| Construction work in process                                                         |   | 262                 |    | 301                     |   |
| Net property and equipment                                                           |   | 72,154              |    | 73,611                  |   |
|                                                                                 |   |                |    |                    |   |
| Goodwill                                                                             |   | 26,127              |    | 26,127                  |   |
| Deferred finance costs, net                                                          |   | 3,386               |    | 3,559                   |   |
| Liquor licenses, net                                                                 |   | 2,540               |    | 2,555                   |   |
| Other assets                                                                         |   | 546                 |    | 479                     |   |
| TOTAL ASSETS                                                                         |   | $                   | 121,750 |                    | $      | 125,886 |   |
|                                                                                 |   |                |    |                    |   |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                           |   |                |    |                    |   |
|                                                                                 |   |                |    |                    |   |
| Current Liabilities:                                                                 |   |                |    |                    |   |
| Promissory notes - current portion                                                   |   | $                   | 39      |                    | $      | 39 |   |
| Capital lease obligations - current portion                                          |   | 31                  |    | 31                      |   |
| Accounts payable                                                                     |   | 7,463               |    | 8,443                   |   |
| Accrued expenses                                                                     |   | 11,736              |    | 14,026                  |   |
| Total current liabiliites                                                            |   | 19,269              |    | 22,539                  |   |
| Promissory notes, net of current portion                                             |   | 803                 |    | 821                     |   |
| Captial lease obligations, net of current  portion                                   |   | 5,717               |    | 5,724                   |   |
| Senior Notes                                                                         |   | 85,310              |    | 85,310                  |   |
| Deferred gain on sale leaseback transaction                                          |   | 2,090               |    | 2,112                   |   |
| Other long-term liabilities                                                          |   | 4,130               |    | 4,164                   |   |
| Total liabilities                                                                    |   | 117,319             |    | 120,670                 |   |
| Stockholders’ Equity:                                                           |   |                |    |                    |   |
| Common stock, $.01 par value                                                         |   |                |    |                    |   |
| Authorized -  8,000,000 shares                                                  |   |                |    |                    |   |
| Issued - 3,666,370 shares, Outstanding  2,951,049 and 2,961,552 shares, respectively |   | 37                  |    | 37                      |   |
| Less treasury shares of 715,321 and 704,818  respectively, at cost                   |   | (8,252              | )       | (8,190                  | )      |
| Additional paid-in capital                                                           |   | 29,035              |    | 29,035                  |   |
| Accumulated deficit                                                                  |   | (16,389             | )       | (15,666                 | )      |
| Total stockholders’ equity                                                      |   | 4,431               |    | 5,216                   |   |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                      |   | $                   | 121,750 |                    | $      | 125,886 |   |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

3

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**BERTUCCI’SCORPORATION**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

(In thousands, except shareand per share data)

(Unaudited)

 
|                                                                |   | **Thirteen  weeks ended** |   |
|---------------------------------------------------------------------|--------|---------------------------|--------|
|                                                                |   | **March 31,  2004**       |   | **April 2,  2003** |   |
|                                                                |   |                      |   |   |   |
| Net sales                                                           |   | $                         | 49,426 |   | $ | 42,674 |   |
|                                                                |   |                      |   |   |   |
| Cost of sales and expenses:                                         |   |                      |   |   |   |
| Cost of sales                                                       |   | 11,556                    |   | 9,461 |   |
| Operating expenses                                                  |   | 29,639                    |   | 26,475 |   |
| General and administrative expenses                                 |   | 3,093                     |   | 3,179 |   |
| Depreciation, amortization, deferred rent  and pre-opening expenses |   | 3,232                     |   | 2,963 |   |
| Total cost of sales and expenses                                    |   | 47,520                    |   | 42,078 |   |
| Income from operations                                              |   | 1,906                     |   | 596 |   |
| Interest expense, net                                               |   | (2,629                    | )      | (2,398 | ) |
| Loss before income tax benefit                                      |   | (723                      | )      | (1,802 | ) |
|                                                                |   |                      |   |   |   |
| Income tax benefit                                                  |   | —                    |   | — |   |
|                                                                |   |                      |   |   |   |
| Net loss                                                            |   | $                         | (723   | ) | $ | (1,802 | ) |
|                                                                |   |                      |   |   |   |
| Basic and diluted loss per share                                    |   | $                         | (0.24  | ) | $ | (0.60 | ) |
|                                                                |   |                      |   |   |   |
| Weighted average shares outstanding - basic  and diluted            |   | 2,958,436                 |   | 2,978,955 |   |

 

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

 

4

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**BERTUCCI'SCORPORATION**

**CONSOLIDATEDSTATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY**

(In thousands, except sharedata)

(Unaudited)

 
|                                         |   | **Common  Stock**     |   | **Treasury  Stock** |   |                  |     |       |   | **Total**                        |   |
|----------------------------------------------|--------|-----------------------|--------|---------------------|--------|-----------------------|----------|------------|--------|----------------------------------|--------|
|                                         |   | **Number of  Shares** |   | **Amount**          |   | **Number of  Shares** |     | **Amount** |   | **Additional  Paid-In  Capital** |   | **Accumulated  Deficit** |   | **Stockholders'  Equity** |   |
|                                         |   |                  |   |                |   |                  |     |       |   |                             |   |   |   |   |   |
| Balance December 31, 2003                    |   | 3,666,370             |   | $                   | 37     |                  | (704,818 | )          | $      | (8,190                           | )      | $ | 29,035 |   | $ | (15,666 | ) | $ | 5,216 |   |
| Purchase of common stock shares for treasury |   | —                |   | —              |   | (10,503               | )        | (62        | )      | —                           |   | — |   | (62 | ) |
| Net loss                                     |   | —                |   | —              |   | —                |     | —     |   | —                           |   | (723 | ) | (723 | ) |
|                                         |   |                  |   |                |   |                  |     |       |   |                             |   |   |   |   |   |
| Balance March 31, 2004                       |   | 3,666,370             |   | $                   | 37     |                  | (715,321 | )          | $      | (8,252                           | )      | $ | 29,035 |   | $ | (16,389 | ) | $ | 4,431 |   |

 

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

 

5

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**BERTUCCI'SCORPORATION**

**CONSOLIDATEDSTATEMENTS OF CASH FLOW**

(In thousands)

(Unaudited)

 
|                                                                         |   | **13 Weeks  Ended** |   |
|------------------------------------------------------------------------------|--------|---------------------|--------|
|                                                                         |   | **March 31,  2004** |   | **April 2,  2003** |   |
|                                                                         |   |                |   |   |   |
| Cash flows from operating activities                                         |   |                |   |   |   |
| Net loss                                                                     |   | $                   | (723   | ) | $ | (1,802 | ) |
| Adjustments to reconcile net loss to net  cash used by operating activities: |   |                |   |   |   |
| Depreciation, amortization, and deferred  rent                               |   | 3,208               |   | 2,672 |   |
| Changes in operating assets and liabilities                                  |   |                |   |   |   |
| Inventories                                                                  |   | (140                | )      | (302 | ) |
| Prepaid expenses, receivables and other                                      |   | (862                | )      | 789 |   |
| Other accrued expenses                                                       |   | (2,475              | )      | (3,797 | ) |
| Accounts payable                                                             |   | (980                | )      | 215 |   |
| Other operating assets and liabilities                                       |   | (66                 | )      | (59 | ) |
| Total adjustments                                                            |   | (1,315              | )      | (482 | ) |
|                                                                         |   |                |   |   |   |
| Net cash used by operating activities                                        |   | (2,038              | )      | (2,284 | ) |
|                                                                         |   |                |   |   |   |
| Cash flows from investing activities                                         |   |                |   |   |   |
| Additions to property and equipment                                          |   | (1,435              | )      | (5,113 | ) |
| Acquisition of liquor licenses                                               |   | —              |   | (65 | ) |
|                                                                         |   |                |   |   |   |
| Net cash used in investing activities                                        |   | (1,435              | )      | (5,178 | ) |
|                                                                         |   |                |   |   |   |
| Cash flows from financing activities                                         |   |                |   |   |   |
| Net proceeds from sale leaseback  transactions                               |   | —              |   | 7,176 |   |
| Decrease in restricted cash                                                  |   | —              |   | 252 |   |
| Purchase common stock shares for treasury                                    |   | (62                 | )      | — |   |
| Payment on promissory note                                                   |   | (18                 | )      | — |   |
| Principal payments under capital lease  obligations                          |   | (7                  | )      | — |   |
|                                                                         |   |                |   |   |   |
| Net cash (used in) provided by financing  activities                         |   | (87                 | )      | 7,428 |   |
|                                                                         |   |                |   |   |   |
| Net decrease in cash and cash equivalents                                    |   | (3,560              | )      | (34 | ) |
| Cash and cash equivalents, beginning of  year                                |   | 12,647              |   | 13,133 |   |
| Cash and cash equivalents, end of period                                     |   | $                   | 9,087  |   | $ | 13,099 |   |
|                                                                         |   |                |   |   |   |
| Supplemental disclosure of cash flow  information:                           |   |                |   |   |   |
| Cash paid for interest                                                       |   | $                   | 4,817  |   | $ | 4,640 |   |
| Cash paid for income taxes                                                   |   | $                   | 182    |   | $ | 5 |   |
| Capital leases entered into during period                                    |   | $                   | — |   | $ | 3,821 |   |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

6

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**BERTUCCI’S CORPORATION**

**Notes To Consolidated FinancialStatements**

March 31, 2004

(Unaudited)

 

*1.  Basis of Presentation*

 

Theunaudited consolidated condensed financial statements (the “Unaudited FinancialStatements”) presented herein have been prepared by Bertucci’s Corporation andinclude all of its subsidiaries (collectively, the “Company”) after eliminationof inter-company accounts and transactions, without audit, and, in the opinionof management, reflect all adjustments (consisting of normal recurringadjustments) necessary for a fair statement of the interim periodspresented.  The accompanying unaudited interim consolidated financialstatements have been prepared in accordance with accounting principles generallyaccepted in the United States of America for interim financial information andpursuant to the rules and regulations of the Securities and Exchange Commissionfor reporting on Form 10-Q.  Accordingly, certain information and footnotedisclosures required for complete financial statements are not includedherein.  It is suggested the Unaudited Financial Statements be read inconjunction with the consolidated financial statements and notes included inthe Company’s Annual Report on Form 10-K for the year ended December 31,2003.  The operating results for the thirteen weeks ended March 31, 2004may not be indicative of the results expected for any succeeding interim periodor for the entire year ending December 29, 2004.

 

*2.  Recent Accounting Pronouncements*

 

In May 2003, the Financial Accounting StandardsBoard (“FASB”) issued Statement of Financial Accounting Standard No. 150,Accounting for Certain Financial Instruments with Characteristics of bothLiabilities and Equity (“SFAS No. 150”). The Statement requires an issuer toclassify financial instruments within its scope as a liability. Many of thoseinstruments were previously classified as equity under prior accountingguidelines. SFAS No. 150 is effective for all such financial instruments enteredinto or modified after May 31, 2003. Otherwise, it was effective on July 3,2003, with the exception of mandatory redeemable financial instruments ofnon-public entities, for which the provisions of this statement are applicablein the first quarter of 2004. The Company does not use such financialinstruments therefore the adoption of the applicable portions of this statementin the third quarter of 2003 and the first quarter of 2004 did not have amaterial impact on the Company’s financial position or results of operations.

 

*3.  Restaurant Closing Reserves*

 

Restaurantclosing reserves were established as part of the acquisition of Bertucci’s,Inc. in July 1998.  These reserves were related to estimated future leasecommitments and exit costs to close 18 Bertucci’s locations.  In 2001, theCompany accrued an additional $4.2 million related to selected locations (allof which had been closed), consisting of estimated lease commitments andcertain exit costs.  It was originally expected the Company would be ableto exit these locations, sublease the locations or otherwise be released fromthe related leases.  However, due to market conditions, the Companyhas been unable to sublease or exit certain of these leases.  In June2002, the Company closed one restaurant and recorded a charge of $236,000primarily related to estimated lease 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 imputedinterest on the note and recorded the obligation at its present value of$386,000 in other long-term obligations in the accompanying balance sheet.

 

Theclosed restaurant reserve was calculated net of sublease income at 14 locationsthat are partially or fully subleased as of March 31, 2004.  The Companyremains primarily liable for the remaining lease obligations should thesublessor default.  Total sublease income excluded from the reserve isapproximately $8.2 million for subleases expiring at various dates through2017.  There have been no defaults by sublessors to date.

 

7

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Activity within the reserve was as follows(in thousands):

 
|                                            |   | **Thirteen  weeks ended** |   |
|-------------------------------------------------|--------|---------------------------|--------|
|                                            |   | **March 31,  2004**       |   | **April 2,  2003** |   |
|                                            |   |                      |   |   |   |
| Balance, beginning of the year                  |   | $                         | 1,449  |   | $ | 2,499 |   |
| Payments charged against reserve                |   | (184                      | )      | (235 | ) |
| Promissory note issued                          |   | —                    |   | (386 | ) |
| Balance, end of period                          |   | $                         | 1,265  |   | $ | 1,878 |   |
| Current portion (included in accrued  expenses) |   | $                         | 615    |   | $ | 636 |   |
| Noncurrent portion                              |   | 650                       |   | 1,242 |   |
|                                            |   | $                         | 1,265  |   | $ | 1,878 |   |

 

*4.  Loss per Share*

 

Thenumber of shares used to calculate diluted loss per share for the periods endedMarch 31, 2004 and April 2, 2003 exclude the effect of 592,396 and 652,549shares of Common Stock subject to outstanding stock options, respectively, asthe options are anti-dilutive.

 

*5.  Income Taxes*

 

TheCompany recognizes deferred tax assets and liabilities for the expected futuretax consequences of events that have been included in the financial statementsor tax returns.  Additionally, the Company is required to consider bothnegative and positive evidence in determining if a valuation allowance isrequired on a quarterly basis.  Management recorded a full valuationallowance for its deferred tax assets in fiscal 2002 and continues to record anallowance quarterly for the tax benefits associated with the current period’slosses.

 

*6.  Stock-Based Compensation*

 

TheCompany has elected to account for stock-based compensation using the intrinsicvalue method with disclosure of the effects of fair value accounting on netloss and loss per share on a pro forma basis.  No stock-based employeecompensation cost related to stock options is reflected in the reported netloss, as all options granted had an exercise price equal to, or in excess of,the market value of the underlying common stock on the date of grant.  Thefollowing table illustrates the effect on net loss and loss per share if theCompany had applied the fair value method.

 
|                                                                                                                                          |   | **Thirteen  weeks ended** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|--------|
|                                                                                                                                          |   | **March 31,  2004**       |   | **April 2,  2003** |   |
| Net loss, as reported                                                                                                                         |   | $                         | (723   | ) | $ | (1,802 | ) |
| Add: Stock-based employee compensation  expense included in reported net income, net of related tax effects                                   |   | —                    |   | — |   |
|                                                                                                                                          |   |                      |   |   |   |
| Deduct: Total stock-based employee  compensation expense determined under fair value based method for all awards,  net of related tax effects |   | (96                       | )      | (169 | ) |
|                                                                                                                                          |   |                      |   |   |   |
| Pro forma net loss                                                                                                                            |   | $                         | (819   | ) | $ | (1,971 | ) |
| Loss per share:                                                                                                                               |   |                      |   |   |   |
| Basic and diluted—as reported                                                                                                            |   | $                         | (0.24  | ) | $ | (0.60 | ) |
| Basic and diluted—pro forma                                                                                                              |   | $                         | (0.28  | ) | $ | (0.66 | ) |

 

8

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7.  Sale of Properties

 

During 2003, theCompany completed two sale-leaseback transactions on four restaurantproperties.  In the first transaction(which occurred in the second quarter of 2003), the Company sold threeproperties for $7.2 million in cash (net of fees of approximately $320,000),resulting in a gain of $2.2 million. The gain has been deferred and will be amortized into income over thelease term. The properties sold included land and buildings at each locationwhich the Company agreed to lease back for a 20-year period. 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.The land portion of the obligation is classified as an operating lease,requiring future payments to be classified as operating expenses.  In the second transaction (which occurred inthe fourth quarter of 2003), the Company sold a property consisting of land anda building for $1.8 million in cash (net of fees of approximately$210,000).  In connection with this transactionthe Company recorded a charge of $60,000 representing the excess of theproperty’s carrying value over its fair market value.  The fair value of the land is less than 25% of the transactionvalue and therefore the entire contractual obligation is recorded at its netpresent value of $1.9 million (at inception) as a capital leaseobligation.  The Company agreed to leaseback the property for a 20-year period. All leases entered into in connectionwith these transactions include two five-year renewal terms, which the Companymay exercise at its option.  The Companyis required to maintain the properties for the term of the leases and to payall taxes, insurance, utilities and other costs associated with thoseproperties.  Under the leases, theCompany agreed to customary indemnities and, in the event the Company defaultson any lease, the landlord may terminate the lease, accelerate rental paymentsand collect liquidated damages.

 

9

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS

 

**Forward-Looking Statements**

 

Allstatements other than statements of historical facts included in this Report onForm 10-Q, including, without limitation, statements set forth under this“Management’s Discussion and Analysis of Financial Condition and Results ofOperations” regarding the Company’s future financial position, businessstrategy, budgets, projected costs and plans and objectives of management forfuture operations, are forward-looking statements.  In addition,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 theexpectations reflected in such forward-looking statements will prove to havebeen correct, it can give no assurance that such expectations will prove to becorrect.  Factors that could cause actual results to materially differinclude, without limitation, the Company’s high degree of leverage could, amongother things, reduce Company’s ability to obtain financing for operations andexpansion, place the Company at a competitive disadvantage and limit theCompany’s flexibility to adjust to changing market conditions; the challengesof managing geographic expansion; changes in food costs, supplies and keysupplier relationships; and the possible adverse impact of governmentregulation on the Company.  Other factors that could adversely affect ourbusiness and prospects are described in our filings with the Securities andExchange Commission.  Investors are cautioned not to place undue relianceon these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release any revisions to theseforward-looking statements to reflect events or circumstances after the datehereof or to reflect the occurrence of unanticipated events.

 

Thefollowing discussion should be read in conjunction with the consolidatedfinancial statements of Bertucci’s Corporation, (the “Company”) and the notesthereto included herein.

 

### **General**

### ** **

TheCompany’s wholly owned subsidiary, Bertucci’s Restaurant Corp. owns andoperates a full-service, casual dining, Italian-style restaurant concept underthe name Bertucci’s Brick Oven Pizzeria®. As of March 31, 2004, theCompany owned and operated 90 such restaurants located primarily in thenortheastern United States.

 

10

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**Results of Operations**

### ** **

Thefollowing table sets forth the percentage relationship to net sales, unlessotherwise indicated, of certain items included in the Company’s consolidatedstatements of operations, as well as certain operating data, for the periodsindicated:

 

**STATEMENTSOF OPERATIONS DATA**

(Percentage of Net Sales)

 
|                                                                 |   | **Thirteen  weeks ended** |   |
|----------------------------------------------------------------------|--------|---------------------------|--------|
|                                                                 |   | **March 31,  2004**       |   | **April 2,  2003** |   |
| Net sales                                                            |   | 100.0                     | %      | 100.0 | % |
| Cost of sales and expenses:                                          |   |                      |   |   |   |
| Cost of sales                                                        |   | 23.4                      | %      | 22.2 | % |
| Operating expenses                                                   |   | 60.0                      | %      | 62.1 | % |
| General and administrative expenses                                  |   | 6.3                       | %      | 7.4 | % |
| Depreciation, amortization, deferred rent,  and pre-opening expenses |   | 6.5                       | %      | 6.9 | % |
| Total cost of sales and expenses                                     |   | 96.2                      | %      | 98.6 | % |
| Income from operations                                               |   | 3.8                       | %      | 1.4 | % |
| Interest expense, net                                                |   | (5.3                      | )%     | (5.6 | )% |
| Loss before income tax benefit                                       |   | (1.5                      | )%     | (4.2 | )% |
| Income tax benefit                                                   |   | —                    |   | — |   |
| Net loss                                                             |   | (1.5                      | )%     | (4.2 | )% |
|                                                                 |   |                      |   |   |   |
| **Restaurant Operating Data:**                                       |   |                      |   |   |   |
| Increase in comparable restaurant sales (a)                          |   | 4.9                       | %      | 6.6 | % |
| Number of restaurants:                                               |   |                      |   |   |   |
| Restaurants open, beginning of period                                |   | 89                        |   | 80 |   |
| Restaurants opened                                                   |   | 1                         |   | 2 |   |
| Total restaurants open, end of period                                |   | 90                        |   | 82 |   |

 

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(a)                The Company defines comparable restaurantsales as net sales from restaurants open at least one full fiscal year prior tothe beginning of the current reported period.

 

**Thirteen Weeks Ended March 31, 2004 Compared to ThirteenWeeks Ended April 2, 2003**

 

*Net Sales*.  Total net sales increased by $6.7 million, or15.7%, to $49.4 million during the first quarter of 2004 from $42.7 millionduring the first quarter of 2003.  The increase was primarily due to a$2.0 million (4.9%) increase in comparable restaurant sales, a $5.0 millionincrease in sales due to 109 incremental restaurant weeks from elevenrestaurants opened since January 2003, and an offset of approximately $300,000from one restaurant closing in the fourth quarter of 2003.  ComparableBertucci’s restaurant dine-in guest counts decreased 2.5% for the first quarterof 2004 as compared to the first quarter of 2003.  Bertucci’s comparablerestaurant dine-in sales increased 5.3% and comparable carry-out and deliverysales increased 3.5% for the quarter as compared to the first quarter of 2003.The Company believes the increase in comparable sales was primarily due to anaggregate 4.9% increase in menu prices in March 2003 and February 2004 and amenu mix shift to higher priced items, partially offset by the aforementionedguest count decreases.  For the 79 comparable restaurants, averageweekly sales increased from $40,800 per restaurant in the first quarter 2003 to$42,800 per restaurant during the first quarter of 2004.  For the elevenrestaurants opened since January 2003, average weekly sales were $38,300 perrestaurant during the first quarter of 2004.

 

*Cost of Sales*.  Cost of sales increased by approximately $2.1million, or 22.1%, to $11.6 million during the first quarter of 2004 from $9.5million during the first quarter 2003.  Expressed as a percentage of netsales, overall cost of sales increased to 23.4% during the first quarter of2004 from 22.2% during the first quarter of 2003.  Approximately $1.0million of the increase was due to increased sales, $600,000 from increases inselected ingredient costs, primarily cheese and oil, and $500,000 due to a menumix shift to higher cost items.  TheCompany believes that this shift in menu emphasis will continue during 2004.

 

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*Operating Expenses.* Operating expenses increased by $3.1 million, or 11.7%, to $29.6 million duringthe first quarter of 2004 from $26.5 million during the first quarter of2003.  Expressed as a percentage of net sales, operating expensesdecreased to 60.0% in the first quarter of 2004 from 62.1% during the firstquarter of 2003.  The dollar increase was primarily due to the opening andoperation of restaurants that were not opened in the first quarter of2003.  In addition, with only onerestaurant opening in the first quarter of 2004, new restaurant inefficiencieswere less than during the first quarter of 2003; accordingly a marginimprovement of approximately 1.1% was realized. Further, advertisingexpenditures were $456,000 less in first quarter of 2004 as compared to thefirst quarter of 2003, primarily due to the timing of marketing campaigns each year.The first marketing campaign of fiscal 2004 began in April, while a similarcampaign began in March of fiscal 2003. These factors combined to mitigate anincrease in utilities expense, primarily natural gas, which reduced margin byapproximately.4% of net sales.

 

*General and Administrative Expenses.*  General and administrativeexpenses decreased by approximately $86,000, or 2.6%, to $3.1 million duringthe first quarter of 2004 from $3.2 million during the first quarter of2003.  Expressed as a percentage of net sales, general and administrativeexpenses decreased to 6.3% in the first quarter of 2004 from 7.4% during thefirst quarter of 2003.  The dollar decrease was primarily due to reducedcosts of training and recruiting new restaurant managers.

 

*Depreciation, Amortization, Deferred Rent, and Pre-openingExpenses*. Depreciation, amortization, deferred rent, and pre-opening expenses increasedby approximately $269,000, or 9.0%, to $3.2 million during the first quarter of2004 from $3.0 million during the first quarter of 2003.  Expressed as apercentage of net sales, depreciation, amortization, deferred rent, andpre-opening expenses decreased to 6.5% in the first quarter of 2004 from 6.9%during the first quarter of 2003.  The dollar variance was primarily theresult of a $490,000 increase in depreciation costs due to new restaurantspartially offset by a $260,000 decrease in pre-opening costs.

 

*Interest Expense.*  Net interest expense increased by approximately$231,000, or 9.6%, to $2.6 million during the first quarter of 2004 from $2.4million during the first quarter of 2003.  Incremental interest expense ofapproximately $152,000 was incurred in the first quarter of 2004 as a result ofcapitalized leases recorded in 2003.

 

*IncomeTaxes*.  The Company has an historicaltrend of recurring pre-tax losses since 1998 excluding the sale of 40 Chili’s and seven On TheBorder restaurants to Brinker International, Inc. in April 2001.  The Company anticipates that its currentplan for continued development of Company owned Bertucci’s restaurants willburden pre-tax profits because of the recognition of pre-opening costs andinitial year inefficiencies associated with new restaurants.  During the fourth quarter of 2002 the Companyrecorded a full valuation allowance for its net deferred tax asset.  The Company has also provided a fullvaluation allowance relating to the tax benefits generated during 2004 and 2003(primarily from its operating losses).

 

# **Liquidityand Capital Resources**

# ** **

TheCompany has historically met its capital expenditures and working capital needsthrough a combination of operating cash flow, bank and mortgage borrowings, thesale of Common Stock, and, in fiscal 2003, two sale leasebacktransactions.  Future capital andworking capital needs are expected to be funded from operating cash flow.

 

Net cashflows used by operating activities were $2.0 million for the first quarter of2004, $300,000 less than the $2.3 million used during the first quarter of2003.  As of March 31, 2004, the Company had cash and cash equivalents of$9.1 million.

 

TheCompany’s capital expenditures were $1.4 million from January 1, 2004 throughMarch 31, 2004 compared to $5.1 million for the comparable prior yearperiod.  The capital expenditures were primarily comprised of $1.0 millionfor new Bertucci’s restaurants and $400,000 for remodels and maintenancecapital.  The Company anticipates capital expenditures for the remainderof 2004 will be approximately $6.6 million.

 

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As of March 31, 2004, the Company had $91.9 million in consolidatedindebtedness: $85.3 million pursuant to the Senior Notes, $5.7 million relatedto the capital lease portion of the sale-leaseback transaction, and $860,000 ofpromissory notes.  The Company has a $4.0 million (maximum) Letter ofCredit Facility.  As of March 31, 2004, this facility was collateralizedwith $3.1 million of cash restricted from general use in support of $3.1million of outstanding letters of credit. The Company does not have a line ofcredit or other similar borrowing facility.

 

TheCompany believes the cash flow generated from operations and current cash onhand will be sufficient to fund its planned operations, including debt service,lease commitments and capital expenditures, for the next twelve months.  The Company expects that it will experiencesignificant liquidity demands in 2008, however, when its 10 3/4% senior noteswith a current outstanding principal amount of $85.3 million (the “SeniorNotes”) must be paid in full.  Currently, the Company is onlyrequired to pay semi-annual interest payments on the Senior Notes.

 

TheCompany’s future operating performance and ability to service or refinance theSenior Notes will be subject to future economic conditions and to financial,business and other factors, many of which are beyond the Company’s control.

 

## **Impactof Inflation**

## ** **

Inflationaryfactors such as increases in labor, food or other operating costs couldadversely affect the Company’s operations.  The Company does not believeinflation has had a material impact on its financial position or results ofoperations for the periods discussed above.  Management believes throughthe proper leveraging of purchasing size, labor scheduling, and restaurantdevelopment analysis, inflation will not have a material adverse effect onoperations during the foreseeable future.  There can be no assuranceinflation will not materially adversely affect the Company.

 

**Seasonality**

 

TheCompany’s quarterly results of operations have fluctuated and are expected tocontinue to fluctuate depending on a variety of factors, including the timingof new restaurant openings and related pre-opening and other startup expenses,net sales contributed by new restaurants, increases or decreases in comparablerestaurant sales, competition and overall economic conditions.  TheCompany’s business is also subject to seasonal 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 innet sales and net loss, the results of operations of any quarter are notnecessarily indicative of the results that may be achieved for a full year orany future quarter.

 

**Critical Accounting Policies andEstimates**

 

The discussion and analysis of our financialcondition and results of operations are based upon our consolidated financialstatements, which have been prepared in accordance with accounting principlesgenerally accepted in the United States of America.  The preparation of these financial statements requires us to makeestimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses, and related disclosure of contingent assetsand liabilities.  On an on-going basis,we evaluate our estimates, including those related to impairment of long-livedassets, self-insurance, and closed restaurants reserve. We base our estimateson historical experience and on various other assumptions that are believed tobe reasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities that arenot readily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions.

 

We believe the following critical accountingpolicies affect our more significant judgments and estimates used in thepreparation of our consolidated financial statements.

 

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*Impairment of Long-Lived Assets*

 

The Company evaluates property and equipment heldand used in the business for impairment whenever events or changes incircumstances indicate that the carrying amount of a restaurant’s assets maynot be recoverable.  An impairment isdetermined by comparing estimated undiscounted future operating cash flows(which the Company estimates using historical cash flows and other relevant factsand circumstances) for a restaurant to the carrying amount of its assets.  If an impairment exists, the amount ofimpairment is measured as the excess of the carrying amount over the estimateddiscounted future operating cash flows of the asset and the expected proceedsupon sale of the asset.  The estimatesand assumptions used during this process are subject to a high degree ofjudgment.

 

During the 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 approximately $4.7million.  In the third quarter of 2003,the Company recorded an impairment charge to reflect the write down of theaffected assets to fair value.

 

In addition, at least annually, the Company assessesthe recoverability of goodwill and other intangible assets related to itsrestaurant concepts. These impairment tests require the Company to estimatefair values of its restaurant concepts by making assumptions regarding futurecash flows and other factors.  If theseassumptions change in the future, the Company may be required to recordimpairment charges for these assets. To date, such analysis has indicated noimpairment of goodwill and other intangible assets has occurred.

 

*Self-Insurance*

 

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

 

*ClosedRestaurants Reserve*

 

The Company remains primarily liable on leases for14 closed locations. Management reviews the specifics of each site on aquarterly basis to estimate the Company’s net remaining liability over theremaining lease term. Certain locations have subtenants in place while othersremain vacant. Estimates must be made of future sublease income or leaseassignment possibilities. If subtenants default on their subleases or projectedfuture subtenants are not obtained, actual results could differ from theCompany’s estimates, thereby impacting the Company’s financial results. Allactivity in fiscal 2003 and 2004 has been consistent with reserves and noincreases in the reserve have been necessary.

 

# **Item 3.  QUANTITATIVE ANDQUALITATIVE DISCLOSURE ABOUT MARKET RISKS**

# ** **

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

 

14

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Item 4.CONTROLS AND PROCEDURES

 

TheCompany maintains disclosure controls and procedures that are designed toensure that information required to be disclosed in the Company’s SecuritiesExchange Act reports is recorded, processed, summarized and reported within thetime periods specified in the SEC’s rules and forms, and that such informationis accumulated and communicated to our management, including our ChiefExecutive Officer and Chief Financial Officer, as appropriate, to allow timelydecisions regarding required disclosure. In designing and evaluating thedisclosure controls and procedures, management recognized that any controls andprocedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired control objectives, as ours aredesigned to do, and management necessarily was required to apply its judgmentin evaluating the cost-benefit relationship of possible controls andprocedures.

 

As ofMarch 31, 2004, the Company carried out an evaluation, under the supervisionand with the participation of our management, including our Chief ExecutiveOfficer and Chief Financial Officer, of the effectiveness of the design andoperation of our disclosure controls and procedures, as defined in Rule15d-15(e) under the Securities Exchange Act of 1934.  Based upon thatevaluation, our Chief Executive Officer and Chief Financial Officer concludedthat our disclosure controls and procedures are effective in enabling us torecord, process, summarize and report information required to be included inour periodic SEC filings within the required time period.

 

Therehave been no changes in our internal control over financial reporting thatoccurred during the first quarter of fiscal 2004 that have materially affected,or are reasonably likely to materially affect, our internal control overfinancial reporting.

 

PART II: OTHERINFORMATION

 

Item 1.  LEGALPROCEEDINGS

 

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 currently a party thatis likely to have a material adverse effect on the Company.

 

Item 2.    CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OFEQUITY SECURITIES

 

None

 

Item 3.    DEFAULTS UPON SENIOR SECURITIES

 

None

 

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

 

None

 

Item 5.  OTHERINFORMATION

 

None

 

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Item 6. EXHIBITS AND REPORTS ON FORM 8-K

 

Exhibits

 

31.1        Certification of Benjamin R. Jacobsonpursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section302 of the Sarbanes-Oxley Act of 2002 (*).

 

31.2        Certification of Kurt J. Schnaubeltpursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section302 of the Sarbanes-Oxley Act of 2002 (*).

 

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(*) – Included with this report.

 

Reportson Form 8-K

 

The Company did not file any Current Reports on Form8-K during the period covered by this report.

 

 

SIGNATURES

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|   |          |   | BERTUCCI’S CORPORATION               |
|--------|---------------|--------|-------------------------------------------|
|   |          |   | (Registrant)                              |
|   |          |   |                                      |
| Date:  | May 13,  2004 |   |                                      | By: /s/ Benjamin R. Jacobson |   |
|   |          |   | Chairman of the Board of Directors,       |
|   |          |   | Chief Executive Officer, Treasurer        |
|   |          |   | (Principal Executive Officer)             |
|   |          |   |                                      |
| Date:  | May 13,  2004 |   |                                      | By: /s/ Kurt J. Schnaubelt |   |
|   |          |   | Chief Financial Officer,                  |
|   |          |   | Senior Vice President – Finance and  |
|   |          |   | Administration (Chief Accounting Officer) |
|        |               |        |                                           |  |  |  |  |

 

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