FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
and Exchange Act of 1934
For the Quarterly Period Ended APRIL 4, 2001
Commission File Number 333-62775
NE RESTAURANT COMPANY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-1311266
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5 CLOCK TOWER PLACE, MAYNARD, MASSACHUSETTS 01754
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 897-1400
--------------
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
----- -----
2,978,955 shares of the registrant's Common Stock were outstanding on May 18,
2001.
NE RESTAURANT COMPANY, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements:
1) Consolidated Balance Sheets
April 4, 2001 (Unaudited) and January 3, 2001 3
2) Consolidated Statements of Operations
For the Thirteen Weeks Ended April 4, 2001 (Unaudited)
and March 29, 2000 (Unaudited) 4
3) Consolidated Statement of Stockholders'
Equity for the Thirteen Weeks Ended April 4, 2001 (Unaudited) 5
4) Consolidated Statements of Cash
Flows for the Thirteen Weeks April 4, 2001 (Unaudited)
and March 29, 2000 (Unaudited) 6
5) Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 11
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 15
PART II: OTHER INFORMATION 16
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 17
2
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
NE RESTAURANT COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
April 4, January 3,
2001 2001
---------------------- ----------------------
ASSETS
Current Assets:
Cash $ 1,145 $ 7,602
Credit card receivables 1,271 838
Inventories 1,868 1,885
Prepaid expenses and other current assets 653 2,617
Assets held for sale - short term - 200
Prepaid and current deferred income taxes 5,433 5,433
---------------------- ----------------------
Total current assets 10,370 18,575
---------------------- ----------------------
Property and equipment, at cost:
Land and land right 7,866 7,858
Buildings 12,570 12,549
Leasehold improvements 85,469 83,973
Furniture and equipment 51,636 50,455
---------------------- ----------------------
157,541 154,835
Less - Accumulated depreciation (43,437) (40,196)
---------------------- ----------------------
114,104 114,639
Construction work in process 3,879 2,917
---------------------- ----------------------
Net property and equipment 117,983 117,556
Goodwill, net 27,835 28,404
Deferred finance costs, net 7,800 8,025
Liquor licenses 3,014 3,014
Deferred taxes, noncurrent 6,451 6,451
Other assets, net 1,535 1,570
---------------------- ----------------------
Total Assets $ 174,988 $ 183,595
====================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit loans $ 1,100 $ -
Mortgage loans payable - current portion 1,562 1,578
Accounts payable 10,591 14,510
Accrued expenses 14,019 18,817
---------------------- ----------------------
Total current liabiliites 27,272 34,905
Mortgage loan payable, net of current portion 39,467 39,737
Bonds payable 100,000 100,000
Deferred rent and other long-term liabilites 4,839 4,887
---------------------- ----------------------
Total liabilities 171,578 179,529
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value 37 37
Authorized - 4,000,000 shares
Issued and outstanding - 3,666,370 shares
Less treasury stock-687,415 shares at cost (8,088) (8,088)
Additional paid-in capital 29,004 29,004
Accumulated deficit (17,543) (16,887)
---------------------- ----------------------
Total stockholders' equity 3,410 4,066
---------------------- ----------------------
Total Liabiliites and Stockholders' Equity $ 174,988 $ 183,595
====================== ======================
The accompanying notes are an integral part of these consolidated
financial statements
3
NE RESTAURANT COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
Thirteen weeks ended
--------------------------------------
April 4, March 29,
2001 2000
------------------ ------------------
Net sales $ 69,813 $ 67,035
------------------ ------------------
Cost of sales and expenses:
Cost of sales 18,070 17,563
Operating expenses 40,466 38,958
General and administrative expenses 3,808 4,488
Deferred rent, depreciation and
amortization and preopening expenses 4,476 4,529
------------------ ------------------
Total cost of sales and expenses 66,820 65,538
------------------ ------------------
Income from operations 2,993 1,497
Interest expense, net 3,781 3,674
------------------ ------------------
Loss before income tax benefit (788) (2,177)
Income tax benefit (132) (705)
------------------ ------------------
Net loss $ (656) $ (1,472)
================== ==================
Basic and diluted loss per share $ (0.22) $ (0.49)
================== ==================
Basic and diluted weighted average shares outstanding 2,978,955 2,986,622
The accompanying notes are an integral part of these consolidated
financial statements
4
NE RESTAURANT COMPANY, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share data)
Common Stock Treasury Stock
------------------------------------- -----------------------------------------
Number of $.01 per Number of
Shares Share Shares Amount
------------------------------------- -------------------- -------------------
Balance January 3, 2001 3,666,370 $ 37 (687,415) $ (8,088)
Net loss
--------------------- -------------- -------------------- -------------------
Balance April 4, 2001
(Unaudited) 3,666,370 $ 37 (687,415) $ (8,088)
===================== ============== ==================== ===================
Total
Additional Paid - Accumulated Stockholders'
In Capital Deficit Equity
--------------------------- ---------------------- ----------------------
Balance January 3, 2001 $ 29,004 $ (16,887) $ 4,066
Net loss (656) (656)
--------------------------- ---------------------- ----------------------
Balance April 4, 2001
(Unaudited) $ 29,004 $ (17,543) $ 3,410
=========================== ====================== ======================
The accompanying notes are an integral part of these consolidated
financial statements
5
NE RESTAURANT COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
Thirteen weeks ended
------------------------------------------------
April 4, 2001 March 29, 2000
----------------------- -----------------------
Cash flows from operating activities
Net loss $ (656) $ (1,472)
----------------------- -----------------------
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation, amortization and deferred rent 4,240 4,153
Changes in operating assets and liabilities
Inventories 17 (51)
Prepaid expenses, receivables and other 1,531 702
Accrued expenses (4,798) (6,273)
Accounts payable (3,919) 89
Other operating assets and liabilities (220) (396)
----------------------- -----------------------
Total adjustments (3,149) (1,776)
----------------------- -----------------------
Net cash used in operating activities (3,805) (3,248)
----------------------- -----------------------
Cash flows from investing activities
Additions to property and equipment (3,666) (3,606)
Proceeds from sale of restaurant properties 200 1,390
----------------------- -----------------------
Net cash used for investing activities (3,466) (2,216)
----------------------- -----------------------
Cash flows from financing activities
Borrowings of mortgage loans - 1,100
Payments of mortgage loans and capital lease obligations (286) (348)
Borrowings of line of credit 1,100 -
----------------------- -----------------------
Net cash provided by financing activities 814 752
----------------------- -----------------------
Net decrease in cash (6,457) (4,712)
Cash, beginning of period 7,602 7,579
----------------------- -----------------------
Cash, end of period $ 1,145 $ 2,868
======================= =======================
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest, net of amounts capitalized $ 6,505 $ 6,261
======================= =======================
Cash paid (refunds received) for income taxes $ (356) $ 69
======================= =======================
The accompanying notes are an integral part of these consolidated
financial statements
6
NE RESTAURANT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 4, 2001
(Unaudited)
1. The unaudited consolidated financial statements (the "Unaudited Financial
Statements") presented herein have been prepared by NE Restaurant
Company, Inc. and include all of its subsidiaries (collectively, the
"Company") after elimination of intercompany accounts and transactions,
without audit, and, in the opinion of management, reflect all adjustments
of a normal recurring nature necessary for a fair statement of the
interim periods presented. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles ("GAAP") have been omitted,
although the Company believes that the disclosures included are adequate
to make the information presented not misleading. It is suggested that
the Unaudited Financial Statements be read in conjunction with the
consolidated financial statements and notes included in the Company's
Form 10-K.
2. In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. This statement established accounting
and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts and
for hedging activities) be recorded in the balance sheet as either an
asset or liability measured at its fair value. SFAS No. 133 requires that
changes in the derivative's fair value be recognized currently in
earnings unless specific hedging accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. SFAS No. 133
is effective for fiscal years beginning after June 15, 2000.
In June 2000, the FASB issued SFAS No. 138, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES - AN AMENDMENT OF FASB STATEMENT NO.
133, which amended SFAS no. 133 and added guidance for certain derivative
instruments and hedging activities. The new standard, SFAS No. 133 as
amended by SFAS No. 138, requires recognition of all derivatives as
either assets or liabilities at fair value. One of the primary amendments
to SFAS No. 133 that is covered by SFAS No. 138 establishes an exemption
for normal purchases and normal sales that will be delivered in
quantities expected to be used or sold over a reasonable period in the
normal course of business. The adoption of this standard effective
January 4, 2000 did not have a material impact on the Company's fiscal
position or results of operations.
3. The Company had operated one Sal & Vinnie's Sicilian Steakhouse as a
result of its 1998 acquisition of Bertucci's Inc. In December 2000, the
Company abandoned the restaurant in exchange for termination of its lease
obligation and recorded a $2.0 million loss on abandonment.
On April 12, 2001, the Company completed its sale of 40 Chili's and seven
On The Border restaurants to the chains' franchisor Brinker
International, Inc. of Dallas, Texas (Brinker) (the Brinker Sale). Total
consideration, subject to closing adjustments, was $93.5 million. Brinker
acquired the inventory, facilities, equipment, management teams
associated with these restaurants, as well as the four Chili's
restaurants currently under development by the Company. Further, Brinker
assumed the mortgage debt on the Company's Chili's and On The Border
restaurants.
The pro forma Consolidated Balance Sheet presented below reflects the
recognition of the Brinker Sale as of April 4, 2001. The abandonment of
Sal & Vinnie's was previously reported in the Consolidated Balance Sheet
as of January 3, 2001 as filed in Form 10-K on March 30, 2001.
Brinker Sale impact assumptions used in the preparation of the pro forma
Consolidated Balance Sheet included:
a. Cash reflects the $93.5 million total consideration less mortgage debt
assumed of $41.3 million.
b. Income tax payable and Deferred Taxes (noncurrent), reflect the tax
liability associated with the gain on the transaction. This liability is
less than the statutory rate of 35% due to the availability of net
operating loss and tax credit carry forwards from prior years.
c. The increase in Retained earnings reflects the gain on the transaction,
net of income tax.
d. The unamortized balances of Finance Costs and Development Fees, as well
as Deferred Rent liability balances on Brinker Concepts Restaurants, are
written off by the Company as a result of the Brinker Sale.
e. All other adjustments are to reflect assets purchased and liabilities
assumed by Brinker.
The pro forma Consolidated Statements of Operations reflect (a) the
recognition of the Brinker Sale; and (b) the abandonment of Sal &
Vinnie's as if the dispositions occurred on December 30, 1999.
Accordingly, operating results of the Brinker restaurants are removed for
both periods presented. Sal & Vinnie's operating results are removed for
the prior year period presented only as it was abandoned in December
2000.
7
NE RESTAURANT COMPANY, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
(Unaudited)
(In thousands)
As of April 4, 2001
As Reported Brinker Sale Pro Forma
------------ ------------- -------------
ASSETS
Current Assets:
Cash $ 1,145 $ 50,267 $ 51,412
Credit card receivables 1,271 - 1,271
Inventories 1,868 (854) 1,014
Prepaid expenses and other current assets 653 (350) 303
Prepaid and current deferred income taxes 5,433 - 5,433
------------ ------------- -------------
Total current assets 10,370 49,063 59,433
------------ ------------- -------------
Property and equipment, at cost:
Land and land right 7,866 (5,397) 2,469
Buildings 12,570 (5,979) 6,591
Leasehold improvements 85,469 (37,925) 47,544
Furniture and equipment 51,636 (25,418) 26,218
------------ ------------- -------------
157,541 (74,719) 82,822
Less - Accumulated depreciation (43,437) 22,856 (20,581)
------------ ------------- -------------
114,104 (51,863) 62,241
Construction work in process 3,879 (1,794) 2,085
------------ ------------- -------------
Net property and equipment 117,983 (53,657) 64,326
Goodwill, net 27,835 - 27,835
Deferred finance costs, net 7,800 (2,087) 5,713
Liquor licenses 3,014 (1,208) 1,806
Deferred taxes, noncurrent 6,451 (4,853) 1,598
Other assets, net 1,535 (1,368) 167
------------ ------------- -------------
Total Assets $ 174,988 $ (14,110) $ 160,878
============ ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit loans $ 1,100 $ (1,100) $ -
Mortgage loans payable - current portion 1,562 (1,562) -
Accounts payable 10,591 - 10,591
Accrued expenses 14,019 (1,848) 12,171
Income taxes payable - 9,784 9,784
------------ ------------- -------------
Total current liabiliites 27,272 5,274 32,546
Mortgage loan payable, net of current portion 39,467 (39,467) -
Bonds payable 100,000 - 100,000
Deferred rent and other long-term liabilites 4,839 (2,633) 2,206
------------ ------------- -------------
Total liabilities 171,578 (36,826) 134,752
Commitments and contingencies
Stockholders' Equity:
Common stock 37 - 37
Less treasury stock (8,088) - (8,088)
Additional paid-in capital 29,004 - 29,004
Retained earnings (accumulated deficit) (17,543) 22,716 5,173
------------ ------------- -------------
Total stockholders' equity 3,410 22,716 26,126
------------ ------------- -------------
Total Liabiliites and Stockholders' Equity $ 174,988 $ (14,110) $ 160,878
============ ============= =============
8
NE RESTAURANT COMPANY, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except share and per share data)
13 Weeks Ended April 4, 2001
As
Reported Brinker Sale Pro Forma
------------------ ------------------ -------------------
Net sales $ 69,813 $(33,827) $ 35,986
------------------ ------------------ -------------------
Cost of sales and expenses
Cost of sales 18,070 (9,494) 8,576
Operating expenses 40,465 (19,191) 21,274
General and administrative expenses 3,809 (951) 2,858
Deferred rent, depreciation and
amortization and preopening expenses 4,476 (1,297) 3,179
------------------ ------------------ -------------------
Total cost of sales and expenses 66,820 (30,933) 35,887
------------------ ------------------ -------------------
Income from operations 2,993 (2,894) 99
Interest expense, net 3,781 (1,671) 2,110
------------------ ------------------ -------------------
Loss before income tax benefit (788) (1,223) (2,010)
Income tax benefit (132) (489) (621)
------------------ ------------------ -------------------
Net loss $ (656) $ (734) $ (1,390)
================== ================== ===================
Basic and diluted loss per share $ (0.22) $ (0.25) $ (0.47)
================== ================== ===================
Basic and diluted weighted average shares
outstanding
2,978,955 2,978,955 2,978,955
9
NE RESTAURANT COMPANY, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except share and per share data)
13 Weeks Ended March 29, 2000
As Sal & Vinnie's
Reported Brinker Sale Abandonment Pro Forma
------------------ ------------------ ------------------ --------------
Net sales $ 67,035 $ (32,540) $ (635) $ 33,860
------------------ ------------------ ------------------ --------------
Cost of sales and expenses
Cost of sales 17,563 (9,025) (229) 8,309
Operating expenses 38,958 (17,856) (429) 20,673
General and administrative expenses 4,488 (1,323) - 3,165
Deferred rent, depreciation and
amortization and preopening expenses 4,529 (1,634) (43) 2,852
------------------ ------------------ ------------------ --------------
Total cost of sales and expenses 65,538 (29,838) (701) 34,999
------------------ ------------------ ------------------ --------------
Income (loss) from operations 1,497 (2,702) 66 (1,139)
Interest expense, net 3,674 (1,545) - 2,129
------------------ ------------------ ------------------ --------------
Loss before income tax benefit (2,177) (1,157) 66 (3,268)
Income tax benefit (705) (463) 26 (1,142)
------------------ ------------------ ------------------ --------------
Net income (loss) before gain on Brinker Sale (1,472) (694) 40 (2,126)
Gain on Brinker Sale, net of income tax - 21,953 - 21,953
------------------ ------------------ ------------------ --------------
Net income (loss) $ (1,472) $ 21,259 $ 40 $ 19,827
================== ================== ================== ==============
Basic income (loss) per share:
Income (loss) per share before Brinker Sale $ (0.49) $ (0.23) $ 0.01 $ (0.71)
Gain on Brinker Sale, net of income tax - 7.35 - 7.35
------------------ ------------------ ------------------ --------------
Basic income (loss) per share $ (0.49) $ 7.12 $ 0.01 $ 6.64
================== ================== ================== ==============
Weighted Average Shares Outstanding 2,986,622 2,986,622 2,986,622 2,986,622
Diluted income (loss) per share:
Income (loss) per share before Brinker Sale $ (0.49) $ (0.23) $ 0.01 $ (0.71)
Gain on Brinker Sale, net of income tax - 7.04 - 7.04
------------------ ------------------ ------------------ --------------
Diluted income (loss) per share $ (0.49) $ 6.81 $ 0.01 $ 6.33
================== ================== ================== ==============
Weighted Average Shares Outstanding 2,986,622 3,118,661 3,118,661 3,118,661
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with the
consolidated financial statements of NE Restaurant Company, Inc. ("The Company")
and the notes thereto included herein.
GENERAL
The Company is an operator of full-service, casual dining restaurants
in the northeastern United States. The Company's wholly owned subsidiary,
Bertucci's Restaurant Corp. ("Bertucci's") owns and operates a restaurant
concept under the name Bertucci's Brick Oven Pizzeria(R) ("Bertucci's
restaurants). The Company was formed to acquire 15 Chili's restaurants from a
prior franchisee. The Company has grown through the addition of 25 new Chili's
and seven On The Border restaurants in New England. The Company develops and
operates these restaurant franchises under franchise agreements with Brinker
International, Inc., a publicly-owned company ("Brinker" or the "Franchisor").
As of April 4, 2001, the Company operated 40 Chili's and 7 On The Border
restaurants in five New England states (collectively, the "Brinker Concepts
Restaurants"). See Note 3 of Notes to Consolidated Financial Statements for
discussion of the sale of the Brinker concepts.
In July 1998, the Company completed its acquisition of Bertucci's'
parent entity, Bertucci's, Inc., a publicly-owned restaurant company for a
purchase price, net of cash received, of approximately $89.4 million (the
"Acquisition"). The Company financed the Acquisition primarily through the
issuance of $100 million of 10 3/4% senior notes due 2008 (the "Senior Notes").
The Acquisition included 90 Bertucci's restaurants and one Sal & Vinnie's
restaurant. Since 1999, the Company closed the Bertucci's test kitchen
restaurant in Wakefield, Massachusetts and closed seventeen under performing
Bertucci's restaurants. In December of 2000 the Company also closed the one Sal
and Vinnie's Sicilian Steakhouse(TM) ("Sal and Vinnie's") located in
Massachusetts. As of April 4, 2001, the Company owned and operated 73
full-service, casual dining, Italian-style restaurants under the name Bertucci's
Brick Oven Pizzeria(R) located primarily in New England and Mid-Atlantic United
States.
11
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to net
sales, unless otherwise indicated, of certain items included in the Company's
statement of operations, as well as certain operating data, for the periods
indicated:
NE RESTAURANT COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
Thirteen Weeks Ended:
(Unaudited)
April 4, March 29,
2001 2000
-------------- ---------------
Net Sales 100.0% 100.0%
-------------- ---------------
Cost of sales and expenses
Cost of sales 25.9% 26.2%
Operating expenses 58.0% 58.1%
General and administrative expenses 5.5% 6.7%
Deferred rent, depreciation, amortization and preopening expenses 6.4% 6.8%
-------------- ---------------
Total cost of sales and expenses 95.7% 97.8%
-------------- ---------------
Income from operations 4.3% 2.2%
Interest expense, net 5.4% 5.5%
-------------- ---------------
Loss before income tax benefit (1.1%) (3.2%)
Income tax benefit (0.2%) (1.1%)
-------------- ---------------
Net Loss (0.9%) (2.2%)
============== ===============
RESTAURANT OPERATING DATA (DOLLARS IN THOUSANDS):
- ------------------------------------------------------------------------------------------------------------
EBITDA (a) $ 7,469 $ 6,026
Comparable restaurant sales 1.7% 5.5%
Number of restaurants - Brinker restaurants:
Restaurants open at beginning of period 47 43
Restaurants opened - 2
-------------- ---------------
Total restaurants open at end of period 47 45
Number of restaurants - Bertucci's restaurants: (b)
Restaurants open at beginning of period 72 79
Restaurants opened 1 -
Restaurants closed - 7
-------------- ---------------
Total restaurants open at end of period 73 72
(a) "EBITDA" is defined as income from operations before deferred rent,
depreciation, amortization and preopening costs. EBITDA is not a
measure of performance defined by Generally Accepted Accounting
Principles ("GAAP"). EBITDA should not be considered in isolation or as
a substitute for net income or the statement of cash flows which have
been prepared in accordance with GAAP. The Company believes EBITDA
provides useful information regarding the Company's ability to service
its debt and the Company understands that such information is
considered by certain investors to be an additional basis for
evaluating a company's ability to pay interest and repay debt. The
EBITDA measures presented herein may not be comparable to similarly
titled measures of other companies.
(b) Does not include Sal & Vinnie's.
12
THIRTEEN WEEKS ENDED APRIL 4, 2001 COMPARED TO THIRTEEN WEEKS ENDED MARCH 29,
2000
NET SALES. Net sales increased $2.8 million, or 4.1%, to $69.8 million
during the first quarter 2001 from $67.0 million during the first quarter 2000.
The increase was primarily due to increased comparable restaurant sales for the
Bertucci's restaurants of 4.8% plus the addition of one new Bertucci's
restaurant in Danbury, CT. This increase was partially offset by the closing of
the Sal & Vinnies restaurant and a decrease in comparable restaurant sales of
1.6% at the Brinker Concepts Restaurants. In response to minimum wage increases
in some states and the increasing upward pressure on hourly labor rates, the
Company raised menu prices early in the first quarter 2001. The Company believes
that the majority of the Bertucci's sales increases were the result of menu
engineering and the introduction of a broad range of product offerings in fiscal
2000 and the aforementioned menu price increases that took effect in January
2001.
COST OF SALES. Cost of sales increased by approximately $500,000, or
2.9%, to $18.1 million during the first quarter 2001 from $17.6 million during
the first quarter 2000. The dollar increase in cost of sales primarily was due
to increased sales volume. Expressed as a percentage of net sales, overall cost
of sales decreased to 25.9% during the first quarter 2001 from 26.2% during the
first quarter 2000. Bertucci's restaurants experienced favorable commodity
prices on flour, poultry, and oils, as well as a favorable impact from the menu
engineering initiated during fiscal 2000. Menu price increases of 2.9% favorably
impacted cost of sales at Bertucci's restaurants in the first quarter 2001.
Pizza sales as a percent of total item sales has remained steady in the 35%
range, which has helped to mitigate the impact of rising cheese prices. Cost of
sales at the Brinker Concepts Restaurants, at 28.1% were unfavorable to prior
year by 0.4%, and were unfavorably impacted by higher beef, pork and produce
costs.
OPERATING EXPENSES. Operating expenses increased by $1.5 million, or
3.9%, to $40.5 million during the first quarter 2001 from $39.0 million during
the first quarter 2000. Expressed as a percentage of net sales, operating
expenses decreased to 58.0% in the first quarter 2001 from 58.1% during the
first quarter 2000. The dollar increase in operating expenses is primarily due
to higher payroll, snow removal and utilities costs. These increases were offset
by a decrease in advertising expenses during the first quarter 2001.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses decreased by approximately $679,000, or 15.1%, to $3.8 million during
the first quarter 2001 from $4.9 million during the first quarter 2000. The
dollar and percentage decrease in general and administrative expenses was due to
decreased payroll costs from reduced staffing, and less recruiting and
consulting fees. Expressed as a percentage of net sales, general and
administrative costs decreased to 5.5% during the first quarter 2001 from 6.7%
during the first quarter 2000.
DEFERRED RENT, DEPRECIATION, AMORTIZATION AND PREOPENING EXPENSES.
Deferred rent, depreciation, amortization and preopening expenses decreased by
approximately $53,000 or 1.2%, to $4.48 million during the first quarter 2001
from $4.53 million during the first quarter 2000. The decrease was primarily due
to fewer restaurants built in the first quarter of 2001 offset by higher
depreciation expense. Preopening costs of $243,000 in the first quarter 2001
decreased 35% from the $376,500 incurred in the first quarter 2000.
INTEREST EXPENSE. Interest expense increased by approximately $100,000
to $3.8 million during the first quarter 2001 from $3.7 million during the first
quarter 2000. This increase was primarily attributable to approximately $3.8
million of additional mortgage loan financing for new Brinker
13
Concepts Restaurant development during the last three quarters of fiscal 2000.
Interest was approximately $2.7 million on the Senior Notes, $994,000 on the
mortgage loans and $104,000 on the Company's revolving credit facility, during
the first quarter 2001.
INCOME TAXES. The effective income tax benefit rate decreased to 16.7%
during the first quarter 2001 from 32.4% during the first quarter 2000. The
difference in rate was mainly due to the impact of non-deductible expenses,
primarily Goodwill amortization, and certain tax credits on quarterly results.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its capital expenditures and working
capital needs through a combination of operating cash flow, mortgage loan
financing and borrowing under the Company's revolving credit facility, which
provides for borrowings of up to $20.0 million.
Net cash flows used by operating activities were $3.8 million for the
first quarter 2001 or $600,000 more than the $3.2 million used during the first
quarter 2000. A primary reason for the change was an increase in working capital
needs. This was partially offset by improvement in the net loss from operations.
The Company's capital expenditures increase of $60,000 to $3.66 million
for the first quarter 2001 compared to $3.60 million of capital expenditures for
the first quarter 2000. The capital expenditures for 2001 were primarily due to
$1.6 million for three new Bertucci's restaurants in process and $1.1 million
for one new Brinker restaurant near completion. The remaining $900,000 was spent
on existing restaurants.
As of April 4, 2001, the Company had approximately $142.3 million in
consolidated indebtedness, including $100.0 million of indebtedness pursuant to
the Senior Notes, $41.1 million of mortgage loan financing, $0.1 million of
capital lease obligations, and $1.1 million under the Senior Bank Facility.
Significant liquidity demands will arise from debt service on the Senior Notes
and borrowings under the Senior Bank Facility.
The Company believes that the cash flow generated from its
operations with available borrowings under the Senior Bank Facility should be
sufficient to fund its debt service requirements, lease obligations, current
expected capital expenditures and other operating expenses for the next
twelve months. The Senior Bank Facility provides the Company with available
borrowing up to an aggregate amount of $20.0 million. As of April 4, 2001,
there was $1.1 million outstanding under the Senior Bank Facility. Concurrent
with the completion of the Brinker Sale, the Company repaid the balance
outstanding under the Senior Bank Facility. Further, the availability of the
Senior Bank Facility was restricted due to the change in the Company as a
result of the Brinker Sale. The net proceeds of the Brinker Sale provided
approximately $40 million in cash. The Company is considering making an offer
for a portion of the Senior Notes. The Company's future operating performance
and ability to service or refinance the Senior Notes will be subject to
future economic conditions and to financial, business and other factors, many
of which are beyond the Company's control.
14
SEASONALITY
The Company's quarterly results of operations have fluctuated and are
expected to continue to fluctuate depending on a variety of factors, including
the timing of new restaurant openings and related pre-opening and other startup
expenses, net sales contributed by new restaurants, increases or decreases in
comparable restaurant sales, competition and overall economic conditions. The
Company's business is also subject to seasonal influences of consumer spending,
dining out patterns and weather. As is the case with many restaurant companies,
the Company typically experiences lower net sales and net income during the
first and fourth quarters. Because of these fluctuations in net sales and net
loss, the results of operations of any quarter are not necessarily indicative of
the results that may be achieved for a full year or any future quarter.
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts included in
this Quarterly Report on Form 10-Q, including, without limitation, statements
set forth under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" regarding the Company's future financial position,
business strategy, budgets, projected costs and plans and objectives of
management for future operations, are forward-looking statements. In addition,
forward-looking statements generally can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "intend,"
"estimate," "anticipate" or "believe" or the negative thereof or variations
thereon or similar terminology. Although the Company believes that the
expectations reflected in such forward-looking statements will prove to have
been correct, it can give no assurance that such expectations will prove to have
been correct. Factors including those set forth herein, as well as those set
forth in the Company's Form 10K filed with the Securities and Exchange
Commission ("SEC") on March 30, 2001 and other filings with the SEC may affect
such expectations. Investors are cautioned 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 revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
The Company has market risk associated with interest rate risk. The Company
manages its exposure through its regular financing activities. Interest rate
changes would result in a change in the fair value of the Company's debt
facilities due to the difference between the market interest rate and the rate
at the date of issuance of the debt facilities. Furthermore, the Company has no
exposure to specific risks related to derivatives or other "hedging" types of
financial instruments.
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PART II: OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings from time to time
incidental to the conduct of its business. In the opinion of management, any
ultimate liability arising out of such proceedings will not have a material
adverse effect on the financial condition or results of operations of the
Company.
Management is not aware of any litigation to which the Company is a
party that is likely to have a material adverse effect on the Company.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) ASSET PURCHASE AND SALES AGREEMENT
99-1 Asset Purchase Agreement on Brinker Sale dated November 20,
2000, and fully executed on April 12, 2001, by and among NE
Restaurant Company, Inc., a Delaware corporation, NERC Limited
Partnership, a Delaware limited partnership, NERC Limited
Partnership II, a Delaware limited partnership, and Brinker
International, Inc., a Delaware corporation.
(b) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K on April 27,
2001 announcing the completion of the Brinker Sale. A Pro
Forma Consolidated Balance Sheet and Pro Forma Consolidated
Statement of Operations as of January 3, 2001 and for the 53
weeks then ended were included in the filing. The pro forma
financial statements assumed the completion of the Brinker
Sale occurred on December 30, 1999.
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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.
NE RESTAURANT COMPANY, INC.
---------------------------------------------
(Registrant)
Date: May 18, 2001 By: /s/ Benjamin R. Jacobson
---------------------------------------------
Chairman of the Board of Directors,
President and Chief Executive Officer,
Treasurer (Principal Executive Officer)
Date: May 18, 2001 By: /s/ Kurt J. Schnaubelt
---------------------------------------------
Vice President (Principal Financial
Officer and Principal Accounting Officer)
17