FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 For the Quarterly Period Ended October 5, 1996 Commission File Number 0-19315 Bertucci's, Inc. (Exact name of registrant as specified in its charter) Massachusetts 04-2947209 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 14 Audubon Road, Wakefield, Massachusetts, 01880 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 246-6700 Indicate by check mark whether the registrant (1) has filed all reports required to be filled by section 13 or 15(d) of the Securities Exchange Act of the 1934 during the preceding 12 months (or for 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 [X] No On November 18, 1996, 8,761,428 shares of the registrant's Common Stock were outstanding. BERTUCCI'S, INC. FORM 10-Q TABLE OF CONTENTS PAGE PART I: FINANCIAL INFORMATION Item 1. Financial Statements: 1) Consolidated Condensed Balance Sheets October 5, 1996, and December 30, 1995 4 2) Consolidated Condensed Statements of Operations For Twelve Weeks And Forty Weeks Ended October 5, 1996, and October 7, 1995 5 3) Consolidated Condensed Statements of Shareholders' Equity For The Forty-Week Period Ended October 5, 1996 6 4) Consolidated Condensed Statements of Cash Flows - Forty Weeks Ended October 5, 1996, and October 7, 1995 7 5) Notes to Consolidated Condensed Financial Statements 8 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 9-12 PART II: OTHER INFORMATION 13 PART I: FINANCIAL INFORMATION BERTUCCI'S, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) October 5, December 30, 1996 1995 ---------------------------------------- (in thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,694 $ 1,384 Inventories 997 951 Accounts receivable 200 154 Note receivable 70 70 Prepaid expenses 464 366 Deferred preopening costs 666 818 Prepaid taxes 758 758 ---------------- ---------------- Total current assets 4,849 4,501 ---------------- ---------------- PROPERTY AND EQUIPMENT, at cost: Land 2,902 2,902 Buildings 10,350 10,324 Leasehold improvements 71,689 69,028 Machinery and equipment 35,671 32,274 Construction in progress 403 1,216 Equipment under capital lease 164 164 ---------------- ---------------- 121,179 115,908 Less - Accumulated depreciation 29,151 26,048 ---------------- ---------------- Net property and equipment 92,028 89,860 ---------------- ---------------- PREPAID TAXES 2,405 2,405 OTHER ASSETS 1,797 2,172 ---------------- ---------------- $ 101,079 $ 98,938 ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable-current $ 25 $ 25 Accounts payable 2,932 4,243 Accrued expenses 892 513 Accrued restaurant closing expense 751 1,539 Accrued payroll and employee benefits 2,640 2,419 Accrued taxes 2,121 1,019 ---------------- ---------------- Total current liabilities 9,361 9,758 DEFERRED RENT 5,990 5,575 NOTES PAYABLE 50 75 LONG-TERM DEBT 19,438 19,438 SHAREHOLDERS' EQUITY: Preferred stock, $.01 par value - Authorized - 200,000 shares, none issued - - Common stock, $.005 par value - Authorized - 15,000,000 shares Issued and outstanding - 8,728,442 shares at December 30, 1995 and 8,752,928 shares at October 5, 1996 44 44 Additional paid-in capital 44,742 44,620 Retained earnings 21,454 19,428 ---------------- --------------- Total shareholders' equity 66,240 64,092 ---------------- ---------------- $ 101,079 $ 98,938 ================ ================ The accompanying notes are an integral part of these consolidated condensed financial statements. BERTUCCI'S, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) 12 Weeks Ended 40 Weeks Ended ---------------------------------- ---------------------------------- October 5, October 7, October 5, October 7, 1996 1995 1996 1995 -------------- --------------- --------------- -------------- (in thousands, except per share data) NET SALES $ 29,549 $ 28,211 $ 98,043 $ 92,178 -------------- --------------- --------------- -------------- COSTS AND EXPENSES: Cost of sales 7,538 7,240 24,925 23,569 Operating expenses 15,195 14,351 50,920 46,057 General and administrative expenses 1,683 1,673 5,938 6,344 Depreciation and amortization 2,074 2,173 6,829 7,147 Taxes other than income 1,516 1,474 5,184 4,922 -------------- --------------- --------------- -------------- Total costs and expenses 28,006 26,911 93,796 88,039 -------------- --------------- --------------- -------------- Operating income 1,543 1,300 4,247 4,139 INTEREST EXPENSE, net 279 317 1,020 932 INTEREST INCOME 3 5 13 18 -------------- --------------- --------------- -------------- Income before income tax expense 1,267 988 3,240 3,225 INCOME TAX EXPENSE 475 378 1,214 1,188 -------------- --------------- --------------- -------------- Net income $ 792 $ 610 $ 2,026 $ 2,037 ============== =============== =============== ============== WEIGHTED AVERAGE SHARES OUTSTANDING 8,860,253 8,848,273 8,883,798 8,877,257 ============== =============== =============== ============== EARNINGS PER SHARE $ 0.09 $ 0.07 $ 0.23 $ 0.23 ============== =============== =============== ============== The accompanying notes are an integral part of these consolidated condensed financial statements. BERTUCCI'S, INC. CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) Common Stock Additional ---------------------- Paid-In Retained Shareholders' Shares Par Capital Earnings Equity --------- ---------- -------- --------- ------------ (in thousands) BALANCE, December 30, 1995 8,728 $ 44 $ 44,620 $ 19,428 $ 64,092 Issuance of stock 25 - 122 - 122 Net income - - - 2,026 2,026 --------- ---------- ---------- ----------- ---------- BALANCE, October 5, 1996 8,753 $ 44 $ 44,742 $ 21,454 $ 66,240 ========= ========== ========== =========== ========== The accompanying notes are an integral part of these consolidated condensed financial statements. BERTUCCI'S, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Forty Weeks Ended ------------------------------------- October 5, October 7, 1996 1995 --------------- ----------------- (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,026 $ 2,037 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 7,041 7,320 Increase in inventories (46) (138) (Increase) decrease in prepaid expenses and accounts receivable, notes receivable and other assets 231 (402) Decrease in accounts payable (1,311) (2,222) Increase in accrued expenses and deferred rent 227 1,194 Increase (decrease) in accrued, deferred and prepaid taxes 1,102 (1,439) --------------- --------------- Net cash provided by operations 9,270 6,350 --------------- --------------- CASH FLOWS USED FROM INVESTING ACTIVITIES: Additions to preopening costs (982) (1,088) Additions to property and equipment (8,075) (11,201) --------------- --------------- Net cash used by investing activities (9,057) (12,289) --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock 122 122 Proceeds from debt - 5,438 Decrease in notes payable (25) (25) Exercise of options - 10 --------------- --------------- Net cash provided by financing activities 97 5,545 --------------- --------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 310 (394) CASH AND CASH EQUIVALENTS, beginning of period 1,384 750 --------------- --------------- CASH AND CASH EQUIVALENTS, end of period $ 1,694 $ 356 =============== =============== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for --- Interest, net of amount capitalized $ 1,019 $ 875 =============== =============== Income taxes $ 80 $ 1,674 =============== =============== The accompanying notes are an integral part of these consolidated condensed financial statements. BERTUCCI'S, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS October 5, 1996 1. Basis of Presentation In the opinion of management, the accompanying consolidated condensed financial statements contain all normal recurring adjustments necessary for a fair presentation. The results of operations for the twelve-week and forty-week periods ended October 5, 1996, are not necessarily indicative of the results to be expected for the full year. The significant accounting policies followed by the Company are set forth in the notes to Consolidated Financial Statements in the Company's 1995 Annual Report and Form 10-K filed with the Securities and Exchange Commission. These financial statements should be read in conjunction with the financial statements included in the 1995 Annual Report and Form 10-K. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following table sets forth the percentage relationship to net sales of certain items included in the company's income statements for the periods indicated. 12 Weeks Ended 40 Weeks Ended --------------------------- --------------------------- October 5, October 7, October 5, October 7, 1996 1995 1996 1995 ------------ ------------- ------------- ------------ NET SALES 100.0% 100.0% 100.0% 100.0% ------------ ------------- ------------- ------------ COSTS AND EXPENSES: Cost of sales 25.5 25.7 25.4 25.6 Operating expenses 51.5 50.9 51.9 49.9 General and administrative expenses 5.7 5.9 6.1 6.9 Depreciation and amortization 7.0 7.7 7.0 7.8 Taxes other than income 5.1 5.2 5.3 5.3 ------------ ------------- ------------- ------------ Total costs and expenses 94.8 95.4 95.7 95.5 ------------ ------------- ------------- ------------ Operating income 5.2 4.6 4.3 4.5 INTEREST EXPENSE, net 0.9 1.1 1.0 1.0 INTEREST INCOME 0.0 0.0 0.0 0.0 ------------ ------------- ------------- ------------ Income before income tax expense 4.3 3.5 3.3 3.5 INCOME TAX EXPENSE 1.6 1.3 1.2 1.3 ------------ ------------- ------------- ------------ Net income 2.7% 2.2% 2.1% 2.2% ============ ============= ============= ============ NUMBER OF RESTAURANTS: Restaurants open at beginning of period 77 73 76 67 Restaurants opened during period 2 1 6 7 Restaurants closed during period 0 0 (3) 0 ------------ ------------- ------------- ------------ Restaurants open at end of period 79 74 79 74 Twelve Weeks Ended October 5, 1996, Compared To Twelve Weeks Ended October 7, 1995 Net sales increased $1.3 million, or 4.7%, to $29.5 million in the third quarter of fiscal year 1996, from $28.2 million in the third quarter of fiscal year 1995. Comparable restaurant sales for the twelve-week period decreased 0.45%. The Company opened two additional new restaurants in the twelve-week period ended October 5, 1996. Cost of sales, primarily food and beverages, increased from $7.2 million in the twelve weeks ended October 7, 1995, to $7.5 million in the corresponding 1996 period. As a percentage of net sales, these costs were 25.7% in the 1995 fiscal period, and 25.5% in the corresponding 1996 fiscal period. The percentage decrease was the result of more efficient operations. The price of flour and cheese remained high throughout the period. Restaurant operating expenses for the twelve-week period increased from $14.4 million in fiscal year 1995, to $15.2 million for the corresponding period in fiscal year 1996. As a percentage of net sales, operating expenses increased from 50.9% during the twelve weeks ended October 7, 1995, to 51.5% during the corresponding period in 1996. The increase was the result of higher payroll costs. General and administrative expenses decreased, as a percentage of net sales, from 5.9% during the twelve weeks ended October 7, 1995, to 5.7% during the corresponding period of fiscal year 1996. The decrease has come from attrition at the corporate level, and a reduction of in-house marketing costs. Depreciation and amortization expense decreased, as a percentage of net sales, from 7.7% in the 1995 twelve-week period, to 7.0% in the 1996 twelve-week period. This decrease was attributable to the amortization expense on fewer new restaurants. Taxes, other than income taxes, were $1.5 million for both twelve-week periods in 1995 and 1996. However, taxes, other than income taxes, decreased, as a percentage of net sales, from 5.2% for 1995 to 5.1% for 1996. The percentage decrease was due to lower state unemployment tax rates on payroll. Interest expense decreased from $317,000 to $279,000 for the corresponding weeks of 1995 and 1996, respectively. The decrease was attributable to the higher amount of interest capitalized on new locations during the 1996 period. The effective income tax rate decreased from 38.4% for the twelve weeks ended October 7, 1995, to 37.5% for the corresponding period ending October 5, 1996. Forty Weeks Ended October 5, 1996, Compared To Forty Weeks Ended October 7, 1995 Net sales increased $5.9 million, or 6.4%, to $98.0 million for the forty-week period in 1996, compared to $92.1 million in the same period last year. New restaurants that were opened in 1995 and 1996 contributed to the increase. Comparative restaurant sales during the forty-week period were positive by 0.4%. Menu price-increases for the period under comparison were less than 2.0%. Cost of sales, primarily food and beverages, increased from $23.6 million for the 1995 forty-week period, to $24.9 million for the 1996 forty-week period, and decreased slightly, as a percentage of net sales, from 25.6% to 25.4% for the forty-week periods ended in 1995 and 1996, respectively. While the costs of flour, cheese, and produce increased during the comparable period, the Company was able to offset the increase through more efficient operations. Restaurant operating expenses for the forty-week period increased from $46.1 million in fiscal year 1995, to $50.9 million in fiscal year 1996. As a percentage of net sales, operating expenses increased from 49.9% during the forty weeks ended October 7, 1995, to 51.9% during the corresponding period in 1996. The increase was the result of advertising costs of 1.3%, as a percentage of net sales, that were over and above the amount expensed in the first forty weeks of 1995. In addition, costs for maintenance and labor also increased during the 1996 fiscal year period. General and administrative expenses, as a percentage of net sales for the forty-week period, decreased from 6.9% in 1995, to 6.1% in 1996. This decrease was the result of attrition at the corporate level, reduction in training costs associated with new restaurant openings, and a reduction of in-house marketing costs. Depreciation and amortization expense, as a percentage of net sales, decreased from 7.8% in the 1995 forty-week period, to 7.0% in the 1996 forty-week period. This decrease was attributable to the amortization expense on fewer new restaurants. Taxes, other than income taxes, increased from $4.9 million during the forty weeks ended October 7, 1995, to $5.2 million for the corresponding period in 1996, and remained, as a percentage of net sales, at 5.3% for both the 1995 and 1996 periods. Interest expense increased from $932,000 to $1.0 million for the corresponding forty-week periods of 1995 and 1996, respectively. The increase was attributable to higher interest rates and the higher amounts of bank borrowings during the 1996 period. The effective income tax rate increased from 36.8% for the forty weeks ended October 7, 1995, to 37.5% for the corresponding period ending October 5, 1996. The increase in tax rate is attributable to the expiration of the Targeted Sales Tax Credit program, and reduction of start-up costs associated with fewer new store openings. Liquidity and Sources of Capital To date, the Company has financed its expansion from operations, bank borrowing, and private placements and public offerings of equity securities. The Company does not have significant receivables or inventory, and receives trade credit based upon negotiated terms in purchasing food and supplies. The Company has a bank line-of-credit in effect until November 30, 1997, under which it may borrow up to $30.0 million. On November 30, 1997, the Company will be able to convert the balance, if any, to a term loan maturing on November 30, 2000. The Company pays a fee of 1/4 of 1% on the unused balance, and interest is calculated using LIBOR plus 1.25%. There are no compensating balance arrangements or legal restrictions as to the withdrawal of these funds. The amount outstanding under this bank line-of-credit for both October 7, 1995, and October 5, 1996, was $19.4 million. During the forty weeks ended October 7, 1995, and October 5, 1996, the Company's investment in property and equipment was $11.2 million and $8.1 million, respectively. The investments were funded with cash provided by operations and with the proceeds of financing activities. Cash provided by operations amounted to $6.4 million and $9.3 million for the forty weeks ended October 7, 1995, and October 5, 1996, respectively. Cash from financing activities amounted to $5.5 million for the forty-week period in 1995. The Company opened six new restaurants in the first forty weeks of 1996, and expects to open one additional new restaurant by the end of fiscal year 1996, with five to six new restaurants planned for fiscal year 1997. The Company expects to expend approximately $11.0 million in fiscal year 1996, and approximately $10.0 million in fiscal year 1997, to finance expansion. The Company believes that it will have sufficient working capital and bank borrowings to finance its expansion plans through the end of fiscal year 1997. PART II: OTHER INFORMATION Item 1. LEGAL PROCEEDINGS None Item 2. CHANGES IN SECURITIES None Item 3. DEFAULTS UPON SENIOR SECURITIES None Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None Item 5. OTHER INFORMATION None Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27: Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the period covered by this report. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BERTUCCI'S, INC. (Registrant) Date: November 18, 1996 By: /s/ Joseph Crugnale ----------------------------- Joseph Crugnale President and Chief Executive Officer Date: November 18, 1996 By: /s/ Norman S. Mallett ----------------------------- Norman S. Mallett Vice President - Finance Chief Financial Officer and Treasurer