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[BERTUCCI'S LOGO]
155 Otis Street
Northborough, MA 01532-2414
508-351-2500
May 26, 2005
BY EDGAR TRANSMISSION
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United States Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street
Washington, DC 20549
Mail Stop: 03-05 Fax: 202-772-9202
RE: BERTUCCI'S CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 29, 2004
COMMISSION FILE NUMBER: 333-62775
Ladies and Gentlemen:
Bertucci's Corporation, a Delaware corporation (the "Company"), hereby
submits by EDGAR transmission the Company's response to each of the comments
made by the staff of the Securities and Exchange Commission by letter dated
April 29, 2005 (the "SEC Comment Letter") commenting on the Company's Form 10-K
for the fiscal year ended December 29, 2004.
To facilitate your review, the numbered paragraphs of the Company's
response refer to the numbered paragraphs in the SEC Comment Letter. For
convenience, each of the Company's responses is preceded by the text of the
comment from the SEC Comment Letter.
If you have any questions regarding the information in the Company's
response, please do not hesitate to call the undersigned or Daniel E. Shea, Vice
President - Corporate Controller.
Sincerely,
BERTUCCI'S CORPORATION
By: /s/ David G. Lloyd
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David G. Lloyd
Chief Financial Officer
cc: Tedd Lustig, Brown Rudnick Berlack Israels LLP
Steven Feye, Deloitte & Touche LLP
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BERTUCCI'S CORPORATION
FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 29, 2004
Responses to Comments Set Forth in the Letter of the
Securities and Exchange Commission
Dated: April 29, 2005
Date of Responses: May 26, 2005
...........................................
Set forth below are the responses of Bertucci's Corporation (the "Company")
to the comments of the staff of the Securities and Exchange Commission (the
"SEC" or the "Commission") contained in a letter (the "Comment Letter") from the
SEC dated April 29, 2005 relating to the Company's Form 10-K for the fiscal year
ended December 29, 2004 and filed with the SEC on April 13, 2005. The numbered
paragraphs below refer to the numbered paragraphs in the Comment Letter. For
convenience, each of the Company's responses is preceded by the text of the
comment from the Comment Letter.
SEC COMMENT NO.1
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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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PROPERTY AND EQUIPMENT, PAGE 36
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1. WE NOTE FROM YOUR DISCLOSURE HERE AND ELSEWHERE IN YOUR FILING THAT
YOU HAVE RECOGNIZED IMPAIRMENT CHARGES OF $6.7 MILLION AND $3.6 MILLION
DURING THE 2004 AND 2003 FISCAL YEARS, RESPECTIVELY, RELATED TO CERTAIN
NON-PERFORMING RESTAURANT LOCATIONS. SUPPLEMENTALLY EXPLAIN TO US AND
EXPAND YOUR DISCLOSURE TO INDICATE HOW YOU DETERMINE WHICH RESTAURANTS
SHOULD BE EVALUATED FOR IMPAIRMENT. SPECIFICALLY, DESCRIBE THE CRITERIA
THAT DEFINE A RESTAURANT AS NON-PERFORMING, AND TELL US HOW LONG THESE
CRITERIA MUST BE MET IN ORDER TO BE CONSIDERED FOR IMPAIRMENT TESTING.
PLEASE ALSO INCLUDE IN YOUR RESPONSE WHY THE RESTAURANTS IMPAIRED IN
2004 WERE NOT IMPAIRED IN 2003.
Company Response:
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We review our long-lived assets for impairment at the restaurant level,
which is the lowest level of cash flow of the Company. Restaurants are
reviewed at least annually, or whenever periodic operating reviews,
events or changes in circumstances indicate that a restaurant's
carrying amount may not be recoverable. The review begins by
summarizing historical cash flows, defined as the last twelve months'
results through the date of review. When considered relevant, other
facts and circumstances are considered, such as non-recurring or
unusual charges, projected results, and recent sales trends. A
restaurant is initially considered for impairment at the end of the
quarter one full year after opening ("new restaurants"). Results for
the new restaurants are projected based on sales after the initial
sales trends have stabilized. In most instances, a restaurant's initial
sales volumes
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will be significantly different than can be expected once the
"newness" of the opening wears off. For both new and mature
restaurants, expected cash flows are generated and estimated
undiscounted future operating cash flows are calculated. With one
exception, all restaurant properties are leased, thus the period over
which to project estimated undiscounted future operating cash flows is
the date through which the long-lived assets for each restaurant are
being depreciated and over which straight line rent is being
calculated. Any restaurant that is not projected to generate
undiscounted future operating cash flows that exceed its carrying
value is considered as non-performing by the Company and tested for
impairment. Our impairment policy does not require a restaurant to be
considered non-performing for a period of time in order for it to be
considered for impairment testing; rather all non-performing
restaurants are considered for impairment testing.
As to restaurants being impaired in 2004 but not in 2003, of the $6.7
million recorded in 2004, $5.7 million of the charge is related to
restaurants opened in 2003, thus the first review for possible
impairment took place in 2004. Based on our analysis there was no
reasonable set of assumptions that would result in the restaurants
generating undiscounted operating cash flows exceeding their respective
carrying values. The $1.0 million balance is related to five
restaurants where recent negative trends, primarily in net sales,
indicate an impairment charge is now warranted.
The Company will modify future disclosures to read:
The Company evaluates long-lived assets at the restaurant level, which
is the Company's lowest level of cash flows. The evaluation is
performed for each restaurant to be held and used in the business which
has been open for more than one year. The evaluation is performed on an
annual basis, or whenever periodic operating reviews, events or changes
in circumstances indicate the carrying amount of the long-lived assets
may not be recoverable. An impairment is determined by comparing
estimated undiscounted future operating cash flows (which the Company
estimates primarily using historical cash flows adjusted, as considered
appropriate, for other relevant facts and circumstances) for each
non-performing restaurant to the carrying amount of its assets. If
impairment exists, the amount of impairment is measured as the excess
of the carrying amount over the sum of estimated discounted future
operating cash flows of the asset and any expected proceeds upon sale
of the asset. The estimates and assumptions used during this process
are subject to a high degree of judgment.
SEC COMMENT NO. 2
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2. AS A RELATED MATTER, WE NOTE THAT NO GOODWILL IMPAIRMENT CHARGES
WERE RECORDED. SUPPLEMENTALLY DESCRIBE, IN GREATER DETAIL, THE
METHODOLOGY YOU USE TO TEST FOR POSSIBLE GOODWILL IMPAIRMENT. INDICATE
YOUR REPORTING UNITS AND EXPLAIN HOW THEY HAVE BEEN IDENTIFIED UNDER
PARAGRAPHS 30 AND 31 OF SFAS 142. WE MAY HAVE FURTHER COMMENTS UPON
REVIEW OF YOUR RESPONSE.
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Company Response:
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In accordance with paragraph 10 of SFAS 131 we have concluded the
Company operates as a single operating segment, the Bertucci's
restaurant concept. At the level below our single operating segment we
have determined each restaurant is a component, as each restaurant
qualifies as a business unit for which discrete financial information
is available and senior management regularly reviews the operating
results of each restaurant. We have considered the aggregation criteria
set forth in paragraph 30 of SFAS 142 and paragraph 17 of SFAS 131, and
concluded the components have similar economic characteristics. All
Bertucci's restaurants have the same menu, offer primarily the same
services, have similar productions processes, target the same class of
customer and use the same methods to distribute products and services.
Based on this criteria we have aggregated all Bertucci's restaurants
into a single reporting unit.
The Company tests goodwill for impairment by comparing the estimated
fair value of the Company to its carrying value, including goodwill.
The determination of the estimated fair value of the Company involves
estimates and assumptions subject to a high degree of judgment.
Management estimates the fair value of the Company by multiplying the
Company's latest twelve month's EBITDA (as defined by the Company) by a
multiple to establish an enterprise value. The multiple used by the
Company is derived from a review of EBITDA trading multiples readily
available for similar publicly traded companies. Such multiples are
then subject to a substantial discount when being considered for use by
a non-publicly traded company. The Company estimates such a discount to
be approximately 35-40%. The multiple used in the latest impairment
test was six times EBITDA. To date, the enterprise value has exceeded
the carrying value and accordingly no impairment of goodwill has been
indicated.
SEC COMMENT NO. 3
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NOTE 4 - RESTAURANT SALES AND CLOSURES
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BRINKER SALE, PAGE 41
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3. SUPPLEMENTALLY EXPLAIN TO US THE FACTS AND CIRCUMSTANCES SURROUNDING
THE $650,000 REVERSAL OF ACCRUED LIABILITIES RELATED TO THE 2001
BRINKER SALE. INCLUDE IN YOUR RESPONSE WHY THESE LIABILITIES WERE
INITIALLY BOOKED, AND HOW YOU DETERMINED THAT THESE ACCRUALS WERE NO
LONGER NECESSARY IN 2003. WE MAY HAVE FURTHER COMMENT ON YOUR RESPONSE.
Company Response:
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In April 2001, the Company completed the sale (the "Brinker Sale") of
40 Chili's and seven On The Border restaurants to Brinker
International, Inc. ("Brinker") for a total consideration of $93.5
million. Brinker acquired the inventory, facilities, equipment, and
management teams associated with these restaurants, as well as the
four Chili's
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restaurants under development by the Company. A gain of $36.9 million
was recorded on the transaction. The asset purchase agreement provided
that the Company would retain responsibility for certain obligations.
The Company's estimate at the time of closing of the most likely
amounts of such obligations approximated $1.5 million and represented
obligations including trade payables, self-insured group health
claims, legal reserves (relating primarily to employment matters),
real estate taxes, and certain other obligations. The Company made
payments against the obligation of approximately $487,000, $135,000
and $253,000 in 2001, 2002 and 2003, respectively. At the end of
fiscal 2001 and 2002 the Company reassessed its estimate and concluded
it was still appropriate, given its estimate of expected additional
charges. In 2003 the Company performed its annual assessment of its
remaining obligations from the Brinker Sale. Based on actual payments
made to date, the resolution of certain matters for amounts less than
originally estimated, and the resolution of all remaining legal and
other matters in 2003, the Company revised its estimate of its
remaining obligations and concluded an adjustment of $649,878 to the
original gain recorded on the Brinker Sale was required at this time.
SEC COMMENT NO. 4
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NOTE 5 - INCOME TAXES, PAGE 43
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4. FROM THE DISCLOSURE PROVIDED IT APPEARS YOU HAVE CALCULATED YOUR
VALUATION ALLOWANCE BASED ON THE NET, NOT GROSS, DEFERRED TAX ASSET.
PLEASE NOTE THAT EACH SOURCE OF DEFERRED TAX ASSETS MUST BE CONSIDERED
SEPARATELY AND GROSS OF DEFERRED TAX LIABILITIES WHEN EVALUATING THE
NEED FOR A VALUATION ALLOWANCE. REFER TO PARAGRAPH 21 OF SFAS 109. AS
SUCH, PLEASE REEVALUATE YOUR VALUATION ALLOWANCE.
Company Response:
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The Company has considered separately each source of the deferred tax
assets detailed in footnote 7 of the Notes to Consolidated Financial
Statements in evaluating the need for a valuation allowance. We have
considered paragraph 21 of SFAS No. 109 when evaluating the possible
sources of taxable income available to realize a tax benefit for
deductible temporary differences and carry-forwards. As indicated in
paragraph 21 of SFAS No. 109, future reversals of existing taxable
temporary differences may be considered a source of taxable income. In
evaluating our valuation allowance we considered the reversal of
deferred tax liabilities resulting from temporary differences of
approximately $300,000 relative to liquor license amortization that is
accelerated for income tax purposes. The reversal of this temporary
difference will create taxable income in the future that will allow us
to realize a portion of our tax benefit for deductible temporary
differences or carry-forwards. Accordingly, we have concluded that it
is more likely than not that $300,000 of our gross deferred tax assets
will be realized and have recorded a valuation allowance for the
remaining portion or our deferred tax assets as it is not more likely
than not the remaining portion of our deferred tax asset will be
realized.
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SEC COMMENT NO. 5
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NOTE 6 - SENIOR NOTES PAYABLE, PAGE 43
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5. PLEASE SUPPLEMENTALLY RECONCILE YOUR DISCLOSURE REGARDING
RESTRICTIVE COVENANTS ON PAGE 16 WITH THAT CONTAINED IN NOTE 6 ON PAGE
43 AND ELSEWHERE IN YOUR FILING. SPECIFICALLY, THE DISCLOSURE ON PAGE
16 INDICATES THAT THERE ARE FINANCIAL COVENANTS, WHILE THE DISCLOSURE
INCLUDED IN PAGE 43 AND ELSEWHERE IN YOUR FILING INDICATES ONLY
NON-FINANCIAL COVENANTS ARE ASSOCIATED WITH THE SENIOR NOTES PAYABLE.
Company Response:
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The Company believes the two disclosures are correct but recognizes the
possibility for confusion. Page 16 indicates: "The Indenture for the
Senior Notes imposes significant operating and FINANCIAL RESTRICTIONS
on the Company and its subsidiaries" and page 43 states: "The Senior
Notes contain no financial covenants and the Company is in compliance
with all non-financial covenants...". The FINANCIAL RESTRICTIONS
mentioned in the first citing is intended to refer to financial
restrictions on the Company and its subsidiaries that significantly
limit or prohibit, among other things, the ability of the Company to
incur additional indebtedness, pay dividends or make other
distributions, make certain investments, create certain liens, sell
certain assets, enter into certain transactions with affiliates, or
engage in certain mergers or consolidations involving the Company.
The Company will modify future disclosures when discussing Senior
Notes covenants on page 43 and elsewhere to read:
"The Senior Notes include certain financial restrictions on the Company
and its subsidiaries that significantly limit or prohibit, among other
things, the ability of the Company to incur additional indebtedness,
pay dividends or make other distributions, make certain investments,
create certain liens, sell certain assets, enter into certain
transactions with affiliates, or engage in certain mergers or
consolidations involving the Company. The Senior Notes do not contain
any other financial-type covenants. The Company is in compliance with
all covenants."
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ACKNOWLEDGEMENT BY BERTUCCI'S CORPORATION:
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Bertucci's Corporation (the "Company") acknowledges that the Company is
responsible for the adequacy and accuracy of the disclosure in the
filing described herein. The Company acknowledges that staff comments
or changes to disclosure in response to staff comments in the filings
reviewed by the staff do not foreclose the Commission from taking any
action with respect to the filing. The Company also acknowledges that
staff comments may not be asserted as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
BERTUCCI'S CORPORATION
By: /s/ David G. Lloyd
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David G. Lloyd
Chief Financial Officer