-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BviJjgprkBMnrMYI3d2NtMKZ1M+bvetCNJQ8imhEPk6QpSzk064THf3iqoHBqel4 XVT7kE80Aa8ab0MA5Z85yA== /in/edgar/work/0000912057-00-048242/0000912057-00-048242.txt : 20001110 0000912057-00-048242.hdr.sgml : 20001110 ACCESSION NUMBER: 0000912057-00-048242 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000927 FILED AS OF DATE: 20001109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NE RESTAURANT CO INC CENTRAL INDEX KEY: 0001061588 STANDARD INDUSTRIAL CLASSIFICATION: [5812 ] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-62775 FILM NUMBER: 757479 BUSINESS ADDRESS: STREET 1: 80A TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 5088709200 MAIL ADDRESS: STREET 1: 80 A TURNPIKE RD CITY: WESTBOROUGH STATE: MA ZIP: 01581 10-Q 1 a2030117z10-q.txt 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the Quarterly Period Ended September 27, 2000 ------------------ 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 November 9, 2000. NE RESTAURANT COMPANY, INC. FORM 10-Q TABLE OF CONTENTS
Page ---- PART I: FINANCIAL INFORMATION Item 1. Financial Statements: 1) Consolidated Balance Sheets September 27, 2000 (unaudited) and December 29, 1999 3 2) Consolidated Statements of Operations For the Three and Nine Months Ended September 27, 2000 (unaudited) and September 29, 1999 (unaudited) 4 3) Consolidated Statement of Shareholders' Equity for the Nine Months Ended September 27, 2000 (unaudited) 5 4) Consolidated Statements of Cash Flows for the Nine Months Ended September 27, 2000 (unaudited) and September 29, 1999 (unaudited) 6 5) Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk 14 PART II: OTHER INFORMATION 14 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 15
Page 2 of 16 PART I: FINANCIAL INFORMATION Item 1. Financial Statements NE RESTAURANT COMPANY, INC. CONSOLIDATED BALANCE SHEETS
SEPTEMBER 27, DECEMBER 29, 2000 1999 (UNAUDITED) ASSETS Current Assets: Cash $ 5,554,165 $ 7,578,632 Credit card receivables 1,075,035 1,630,844 Inventories 1,925,111 1,804,346 Prepaid expenses and other current assets 208,917 668,698 Short-term assets held for sale 435,210 1,847,584 Prepaid and current deferred income taxes 8,647,600 8,647,600 -------------- -------------- Total current assets 17,846,038 22,177,704 -------------- -------------- Property and Equipment, at cost: Land and land right 8,336,225 8,422,025 Buildings 12,525,732 12,199,895 Leasehold improvements 83,841,358 76,017,712 Furniture and equipment 49,846,258 44,732,345 -------------- -------------- 154,549,573 141,371,977 Less - Accumulated depreciation (37,395,514) (27,662,046) -------------- -------------- 117,154,059 113,709,930 Construction work in process 1,414,095 4,300,112 -------------- -------------- Net property and equipment 118,568,154 118,010,042 Goodwill, net 28,973,837 30,682,037 Deferred finance costs, net 8,226,307 8,761,004 Liquor licenses 3,112,235 3,057,235 Restricted investments -- 1,177,685 Deferred taxes, noncurrent 4,294,982 4,294,982 Other assets, net 1,528,223 1,417,140 -------------- -------------- TOTAL ASSETS 182,549,776 189,577,830 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Current portion of mortgage loan and bonds payable 1,301,260 1,255,406 Accounts payable 14,154,788 13,720,971 Accrued expenses 16,431,190 23,337,877 Capital lease obligation- current portion 60,526 72,647 -------------- -------------- Total current liabiliites 31,947,764 38,386,901 Capital lease obligation, net of current portion 0 57,861 Mortgage loan payable, net of current portion 40,782,252 38,017,489 Bonds payable, net of current portion 100,000,000 100,000,000 Deferred rent and other long-term liabilites 4,754,798 5,590,024 -------------- -------------- Total liabilities 177,484,814 182,052,274 -------------- -------------- Commitments and Contingencies Stockholders' Equity: Common stock 36,760 36,760 Less Treasury stock at cost (8,087,856) (8,017,070) Additional paid in capital 29,003,920 29,003,920 Accumulated deficit (15,887,862) (13,498,055) -------------- -------------- Total stockholders' equity 5,064,962 7,525,555 -------------- -------------- TOTAL LIABILITIES AND EQUITY 182,549,776 189,577,830 ============== ==============
The accompanying notes are an integral part of these consolidated financial statements Page 3 of 16 NE RESTAURANT COMPANY, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended: Nine Months Ended: September 27, September 29, September 27, September 29, 2000 1999 2000 1999 -------------- -------------- -------------- -------------- Net Sales $ 71,801,621 $ 70,072,355 $ 210,181,261 $ 200,754,835 -------------- -------------- -------------- -------------- Cost of Sales and Expenses Cost of sales 18,852,694 19,238,407 55,214,395 54,864,543 Operating expenses 41,197,853 40,363,073 120,769,815 116,579,628 General and administrative expenses 3,928,113 3,735,417 12,551,352 11,166,987 Deferred rent, depreciation and amortization and preopening expenses 4,578,737 4,170,982 13,667,626 13,004,459 -------------- -------------- -------------- -------------- Total cost of sales and expenses 68,557,397 67,507,879 202,203,188 195,615,617 -------------- -------------- -------------- -------------- Income from operations 3,244,224 2,564,476 7,978,073 5,139,218 Interest Expense, net 3,740,663 3,625,661 11,120,380 10,420,052 -------------- -------------- -------------- -------------- Loss before benefit for income taxes and change in accounting principle (496,439) (1,061,185) (3,142,307) (5,280,834) Income Tax Benefit (29,900) (233,500) (752,500) (1,639,311) -------------- -------------- -------------- -------------- Loss before change in accounting principle (466,539) (827,685) (2,389,807) (3,641,523) Change in accounting principle (net of tax) -- -- -- (677,968) -------------- -------------- -------------- -------------- Net Loss $ (466,539) $ (827,685) $ (2,389,807) $ (4,319,491) ============== ============== ============== ============== Basic and diluted loss per share before change in accounting principle $ (0.16) $ (0.28) $ (0.80) $ (1.22) Change in accounting principle per share $ -- $ -- $ -- $ (0.23) -------------- -------------- -------------- -------------- Basic and diluted loss per share $ (0.16) $ (0.28) $ (0.80) $ (1.45) ============== ============== ============== ============== Weighted Average Shares Outstanding, primary and diluted 2,978,955 2,977,026 2,982,293 2,977,026
The accompanying notes are an integral part of these consolidated financial statements. Page 4 of 16 NE RESTAURANT COMPANY, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) For the nine months ended September 27, 2000
Common Stock Treasury Stock ----------------------------------------------------------------------- Number of $.01 per Number of Shares Share Shares Amount -------------- -------------- -------------- -------------- Balance December 29, 1999 3,675,966 $ 36,760 (689,344) $ (8,017,070) Repurchase of 7,667 shares at $9.23 per share to treasury (7,667) (70,786) Net (Loss) -------------- -------------- -------------- -------------- Balance September 27, 2000 3,675,966 $ 36,760 (697,011) $ (8,087,856) ============== ============== ============== ============== Total Stockholders' Additional Paid Accumulated (Deficit) In Capital Deficit Equity -------------- -------------- -------------- Balance December 29, 1999 $ 29,003,920 $ (13,498,055) $ 7,525,555 Repurchase of 7,667 shares at $9.23 per share to treasury (70,786) Net (Loss) (2,389,807) (2,389,807) -------------- -------------- -------------- Balance September 27, 2000 $ 29,003,920 $ (15,887,862) $ 5,064,962 ============== ============== ==============
The accompanying notes are an integral part of these consolidated financial statements. Page 5 of 16 NE RESTAURANT COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
Nine months ended Nine months ended September 27, 2000 September 29, 1999 CASH FLOWS FROM OPERATING ACTIVITIES Net loss (2,389,807) (4,319,491) Adjustments to reconcile net loss to net cash provided by operating activities: Total Depreciation, amortization and deferred rent 12,910,982 11,240,104 Change in deferred taxes -- (5,868) Cumulative effect of change in accounting principle -- 1,135,055 Changes in operating assets and liabilities Inventories (120,765) 80,418 Prepaid expenses, receivables and other 1,015,590 81,466 Accrued expenses (6,906,687) (5,297,161) Accounts payable 433,817 (324,320) Other operating assets and liabilities (451,020) 281,866 --------------- --------------- Total adjustments 6,881,917 7,191,560 --------------- --------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 4,492,110 2,872,069 --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (10,401,294) (12,328,548) Proceeds from sale, net of fees 1,390,167 400,000 Land sale/refund of land bond/sale of liquor license 119,716 -- Franchise/development fees paid (230,000) -- Acquisition of liquor licenses (65,000) (127,393) --------------- --------------- NET CASH USED FOR INVESTING ACTIVITIES (9,186,411) (12,055,941) --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings of mortgage loans 3,825,000 6,120,034 Repayments of mortgage loans (1,014,384) (703,561) Return of capital -- (50,000) Repurchase of common stock to treasury (70,800) -- Principal payments under capital lease obligations (69,982) (61,448) --------------- --------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 2,669,834 5,305,025 --------------- --------------- Net Decrease in Cash (2,024,467) (3,878,847) Cash, beginning of period 7,578,632 5,456,110 --------------- --------------- Cash, end of period 5,554,165 1,577,263 =============== =============== Supplemental Disclosure of Cash Flow Information: Cash paid for interest, net of amounts capitalized $ 13,856,540 $ 12,719,659 =============== =============== Cash paid for income taxes, net of tax refunds $ 114,634 $ 15,296 =============== ===============
The accompanying notes are an integral part of these consolidated financial statements. Page 6 of 16 NE RESTAURANT COMPANY, INC. Notes To Consolidated Financial Statements (Unaudited) 1. The unaudited consolidated financial statements (the "Unaudited Financial Statements") presented herein have been prepared by NE Restaurant Co., 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 financial statements and notes included in the Company's Form 10K. In 1998, the Company changed its fiscal year to the 52 or 53-week period ended on the Wednesday closest to December 31. The Company's fiscal quarters end March 29, June 28, September 27, 2000 and January 3, 2001. In 1999, the Company's fiscal quarters ended March 31, June 30, September 29 and December 29, 1999. 2. In April 1998, the American Institute of Certified Public Accountants ("AICPA") issued its Statement of Position 98-5 ("SOP 98-5"), REPORTING ON THE COSTS OF START-UP ACTIVITIES. SOP 98-5 requires that costs incurred during start-up activities, including organization costs, be expensed as incurred. SOP 98-5 was effective for financial statements for fiscal years beginning after December 15, 1998. The Company adopted SOP 98-5 on December 31, 1998, the first day of fiscal 1999. Upon adoption, the Company incurred a cumulative effect of a change in accounting principle of approximately $678,000, net of tax. This includes unamortized preopening costs which were previously amortized over the 12-month period subsequent to restaurant openings. 3. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards (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 133, as amended by SFAS 137, is effective for all fiscal quarters of all fiscal years beginning after June15, 2000. SFAS 133 cannot be applied retroactively. The Company has not determined the timing of adoption, but does not anticipate the adoption of this new standard to have a material impact on the Company's fiscal position or results of operations. 4. Under the terms of the corporation agreements, the stockholders have consented to the payment of an ongoing financial consulting fee to Jacobson Partners, Limited Partnership ("Jacobson Partners"), a stockholder of the corporation. Under this agreement, Jacobson Partners will provide various financial advisory services to the Company, including, among other things, assistance in preparing internal budgets, performing cash management activities, maintaining and improving accounting and other management information systems, negotiating financing arrangements, complying with public reporting and disclosure requirements and communicating with creditors and investors. In consideration of these services, the Company has entered into an agreement with Jacobson Partners whereby the Company would pay Jacobson Partners $500,000 per year together with reimbursement of certain travel and other incidental expenses. During 1999, Jacobson Partners agreed to reduce its annual fee to $250,000 until further notice. Effective with the beginning of fiscal year 2000, the Company has agreed to reinstate the annual fee of $500,000 retroactive to July 1, 1999 which required an additional payment in the first fiscal quarter 2000 of $125,000. 5. Certain prior year amounts have been reclassified to conform to the current year presentation. Page 7 of 16 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 the Company and the notes thereto included herein. All mentions of period data refer to the Company's fiscal periods as defined in Note 1 to the consolidated financial statements. GENERAL The Company was founded in 1991 as a Massachusetts corporation, serving first as a general partner to a Massachusetts limited partnership and then as the successor entity to such partnership and two other limited partnerships, and was re-incorporated in Delaware on October 20, 1994. The Company was formed to acquire 15 Chili's restaurants from a prior franchisee. 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-Registered Trademark-. 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. During 1999, the Company closed the Bertucci's test kitchen restaurant in Wakefield, Massachusetts and closed ten under performing Bertucci's restaurants. Between December 29, 1999 and January 31, 2000, the Company closed seven additional under performing Bertucci's restaurants, thereby completing the planned closings identified shortly after the Acquisition. As of September 27, 2000, Bertucci's owned and operated 72 full-service, casual dining, Italian-style restaurants under the name Bertucci's Brick Oven Pizzeria-Registered Trademark- located primarily in New England and Mid-Atlantic United States and one Sal and Vinnie's Sicilian Steakhouse-TM- ("Sal & Vinnie's") located in Massachusetts. The Company also develops and operates two distinct restaurant franchises, Chili's Grill & Bar-Registered Trademark- ("Chili's") and On The Border Mexican Cafe-Registered Trademark- ("On The Border"), under franchise agreements with Brinker International, Inc., a publicly owned company ("Brinker" or the "Franchisor"). The Company is the world's largest Chili's franchisee and as of September 27, 2000, the Company operated 40 Chili's and 7 On The Border restaurants in five New England states. The Company offers its targeted customer base three distinct yet complementary casual dining menus: Italian at Bertucci's, "American/southwestern" at Chili's and "Tex-Mex" at On The Border. 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 income statement, as well as certain operating data, for the periods indicated: Page 8 of 16
Three Months Ended: Nine Months Ended: September 27, September 29, September 27, September 29, 2000 1999 2000 1999 (Unaudited) (Unaudited) (Unaudited) (Unaudited) -------------- -------------- -------------- -------------- Net Sales 100.0% 100.0% 100.0% 100.0% -------------- -------------- -------------- -------------- Cost of sales and expenses Cost of sales 26.3 27.5 26.3 27.3 Operating expenses 57.4 57.6 57.5 58.1 General and administrative expenses 5.5 5.3 6.0 5.6 Deferred rent, depreciation, amortization and preopening expenses 6.4 6.0 6.4 6.4 -------------- -------------- -------------- -------------- Total cost of sales and expenses 95.6 96.4 96.2 97.4 -------------- -------------- -------------- -------------- Income from operations 4.4 3.6 3.8 2.6 Interest expense, net 5.2 5.2 5.3 5.2 -------------- -------------- -------------- -------------- Loss before income tax benefit (0.8) (1.6) (1.5) (2.6) Income tax benefit (0.1) (0.3) (0.4) (0.8) ============== ============== ============== ============== Loss before cumulative effect of change in accounting principle (0.7) (1.3) (1.1) (1.8) ============== ============== ============== ============== Cumulative effect of change in accounting principle (net of tax) -- -- -- (0.4) ============== ============== ============== ============== Net Loss (0.7) (1.3) (1.1) (2.2) ============== ============== ============== ============== RESTAURANT OPERATING DATA (DOLLARS IN THOUSANDS): - ----------------------------------------------------------------------------------------------------------------------------------- EBITDA (a) $ 7,823 $ 6,735 $ 21,646 $ 18,144 EBITDA Margin 10.9% 9.6% 10.3% 9.0% Comparable restaurant sales (b) 3.1% 5.6% 5.4% 1.1% Number of restaurants - Chili's and On The Border restaurants: Restaurants open at beginning of period 46 42 43 37 Restaurants opened 1 -- 4 5 -------------- -------------- -------------- -------------- Total restaurants open at end of period 47 42 47 42 Number of restaurants - Bertucci's restaurants: (c) Restaurants open at beginning of period 72 89 79 90 Restaurants opened -- -- -- -- Restaurants closed -- 5 7 6 -------------- -------------- -------------- -------------- Total restaurants open at end of period 72 84 72 84
(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) The Company defines comparable restaurant sales as net sales from restaurants that have been open for at least one full fiscal year. (c) Does not include Sal & Vinnie's. Page 9 of 16 THREE MONTHS ENDED SEPTEMBER 27, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER 29,1999 NET SALES. Net sales increased $1.7 million, or 2.5%, to $71.8 million during the third quarter 2000 from $70.1 million during the third quarter 1999. The increase in net sales primarily was due to increased comparable restaurant sales and the addition of three new Chili's and two new On The Border restaurants partially offset by closing 18 under performing Bertucci's restaurants. Comparable restaurant sales for the Bertucci's restaurants increased by 4.7% in the third quarter 2000 as compared to the same period in 1999 while comparable restaurant sales increased by 0.9% for the Chili's and On The Border Restaurants ("Brinker concept restaurants") for the same period. The Company raised menu prices early in fiscal year 2000 to offset rising wage costs. The Company believes that the majority of the sales increases were the result of increased guest satisfaction resulting in repeat visits. COST OF SALES. Cost of sales decreased by approximately $385,700, or 2.0%, to $18.9 million during the third quarter 2000 from $19.2 million during the third quarter 1999. The dollar decrease in cost of sales primarily was due to cost control measures of management, lower ingredient costs as a result of favorable purchasing practices and the beneficial impact of the aforementioned restaurant closings. These positive changes were partially offset by dollar increases resulting from higher sales volumes generated by both comparable and new restaurants. Expressed as a percentage of net sales, overall cost of sales decreased to 26.3% during the third quarter 2000 from 27.5% during the third quarter 1999. This percentage decrease was due to the same factors mentioned above. OPERATING EXPENSES. Operating expenses increased by $834,800 or 2.1%, to $41.2 million during the third quarter 2000 from $40.4 million during the third quarter 1999. Expressed as a percentage of net sales, operating expenses decreased to 57.4% in the third quarter 2000 from 57.6% during the third quarter 1999. The dollar increase in operating expenses primarily was due to an increase in advertising expense and from new restaurant openings but partially offset by the closing of the aforementioned Bertucci's restaurants. Furthermore, the dollar increase was partially due to increased payroll expenses, employee benefits expenses and payroll taxes. The percentage decrease primarily was attributable to increased efficiency at the restaurants, leverage on increased sales and the favorable impact of closing the under performing Bertucci's restaurants. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased by approximately $192,700, or 5.2%, to $3.9 million during the third quarter 2000 from $3.7 million during the third quarter 1999. The dollar increase in general and administrative expenses was mainly due to higher rent, recruiting costs, increased training costs associated with restaurant management and severance expense. Expressed as a percentage of net sales, general and administrative costs increased to 5.5% during the third quarter 2000 from 5.3% during the third quarter 1999. The increase was attributable to the aforementioned dollar increases. DEFERRED RENT, DEPRECIATION, AMORTIZATION AND PREOPENING EXPENSES. Deferred rent, depreciation, amortization and preopening expenses increased by $407,800 or 9.8% to $4.6 million in the third quarter 2000 from $4.2 million during the third quarter 1999. Depreciation, amortization and deferred rent increased by approximately $288,300 and preopening costs increased by approximately $119,500. Preopening costs totaled approximately $142,500 in the third quarter 2000 versus $23,000 of preopening in the third quarter 1999. INTEREST EXPENSE. Interest expense increased by approximately $115,000 to $3.7 million during Page 10 of 16 the third quarter 2000 from $3.6 million during the third quarter 1999. This increase was primarily attributable to additional mortgage loan financing for new restaurant development. Interest was approximately $2.7 million on the Senior Notes, $1.0 million on the mortgage loans and $60,000 on the Company's revolving credit facility. INCOME TAXES. The effective income tax benefit rate decreased to 6.0% during the third quarter 2000 from a 9.5% tax benefit during the third quarter 1999. The 6.0% rate during the third quarter 2000 resulted from a minimal tax loss during the quarter resulting from non-deductible goodwill. NINE MONTHS ENDED SEPTEMBER 27, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 29,1999 NET SALES. Net sales increased $9.4 million, or 4.7%, to $210.2 million during the first nine months of 2000 from $200.8 million over the first nine months of 1999. The increase in net sales primarily was due to increased comparable restaurant sales and the addition of seven new Chili's and three new On The Border restaurants partially offset by the closed Bertucci's restaurants. Comparable restaurant sales for the Bertucci's restaurants increased by 6.7% in the first nine months of 2000 as compared to the same period in 1999. Comparable restaurant sales increased by 3.8% for the Brinker concept restaurants operated by the Company in the first nine months of 2000 as compared to the first nine months of 1999. The Company believes that the majority of the sales increases were the result of increased guest satisfaction resulting in repeat visits. COST OF SALES. Cost of sales increased by approximately $349,700, or 0.6%, to $55.2 million during the first nine months of 2000 from $54.9 million during the first nine months of 1999. The dollar increase in cost of sales primarily was due to increased sales volume partially offset by the closing of the Bertucci's restaurants, most of which closed during 1999. Expressed as a percentage of net sales, overall cost of sales decreased to 26.3% during the first nine months of 2000 from 27.3% during the first nine months of 1999. This percentage decrease was due to cost control measures at Bertucci's, the favorable impact of closing the under performing Bertucci's restaurants and menu price increases. OPERATING EXPENSES. Operating expenses increased by $4.2 million, or 3.6%, to $120.8 million during the first nine months of 2000 from $116.6 million during the first nine months of 1999. Expressed as a percentage of net sales, operating expenses decreased to 57.5% in the first nine months of 2000 from 58.1% during the first nine months of 1999. The dollar increase in operating expenses primarily was due to an increase in advertising expense, increased labor and benefits costs and from new restaurant openings. The percentage decrease primarily was attributable to increased efficiency at the restaurants and increased sales volume leverage on fixed costs. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased by approximately $1.4 million, or 12.4%, to $12.6 million during the first nine months of 2000 from $11.2 million during the first nine months of 1999. The dollar increase in general and administrative expenses was due to rent, higher recruiting costs, increased training costs associated with restaurant management and severance expense. Expressed as a percentage of net sales, general and administrative costs increased to 6.0% during the first nine months of 2000 from 5.6% during the first nine months of 1999. The increase was attributable to the aforementioned dollar increases. Page 11 of 16 DEFERRED RENT, DEPRECIATION, AMORTIZATION AND PREOPENING EXPENSES. Deferred rent, depreciation, amortization and preopening expenses increased by approximately $663,200 or 5.1%, to $13.7 million during the first nine months of 2000 from $13.0 million during the first nine months of 1999. The increase was primarily due to additional depreciation expense offset by a favorable variance in preopening costs. Preopening costs of approximately $756,600 in the first nine months of 2000 were $313,400 favorable to the approximate $1.1 million expensed in first nine months of 1999. INTEREST EXPENSE. Interest expense increased by approximately $700,300 to $11.1 million during the first nine months of 2000 from $10.4 million during the first nine months of 1999. This increase was primarily attributable to additional mortgage loan financing for new restaurant development. Interest was approximately $8.0 million on the Senior Notes, $2.9 million on the mortgage loans and $224,700 on the Company's revolving credit facility. INCOME TAXES. The effective income tax benefit rate decreased to 23.9% during the first nine months of 2000 from 31.9% during the first nine months of 1999. The difference in rate was mainly due to a decrease in taxable income after non-deductible goodwill. 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 generated by operating activities were $4.5 million for the first nine months of 2000 or $1.6 million more than the $2.9 million generated during the first nine months of 1999. Net income plus the add back for non-cash expenses was $10.5 million or $2.4 million favorable to the $8.1 million generated for the same period 1999. Accounts payable increased by approximately $433,800 during the first nine months of this year, while accrued expenses decreased by $6.9 million during the same period mostly due to reductions in accrued interest, accrued bonus and deferred compensation, gift certificates and closing reserves. The Company's capital expenditures decreased by $1.9 million to $10.4 million for the first nine months of 2000 compared to $12.3 million of capital expenditures for the first nine months of 1999. The decrease in capital expenditures was primarily due to reduced new restaurant construction. The Company received almost $1.5 million of proceeds in fiscal 2000 from the sale of five previously closed Bertucci's restaurants, sale of land adjacent to restaurant properties and the sale of a liquor license. As of September 27, 2000, the Company had approximately $142.1 million in consolidated indebtedness, including $100.0 million of indebtedness pursuant to the Senior Notes, $42.0 million of mortgage loan financing and $60,500 of capital lease obligations. Significant liquidity demands will arise from debt service on the Senior Notes, the mortgage loans and borrowings under the Senior Bank Facility. The Company believes that the cash flow generated from its operations, together with available Page 12 of 16 borrowings under the Senior Bank Facility and mortgage loan financing and similar secured indebtedness, should be sufficient to fund its debt service requirements, lease obligations, current expected capital expenditures and other operating expenses. The Senior Bank Facility provides the Company with available borrowing up to an aggregate amount of $20.0 million. As of September 27, 2000, there were no borrowings under the Senior Bank Facility. The Company's future operating performance and ability to service or refinance the Senior Notes, mortgage loan financing, and the Senior Bank Facility will be subject to future economic conditions and to financial, business and other factors, many of which are beyond the Company's control. SEASONALITY The Company's 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 preopening 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 income (loss), the results of operations of any half are not necessarily indicative of the results that may be achieved for a full year or any future half. FORWARD-LOOKING STATEMENTS All statements other than statements of historical facts included in this 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 28, 2000 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. Page 13 of 16 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. 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) EXHIBITS 27.1 Financial Data Schedule (b) The Company did not file a Current Report on Form 8-K during the second half 2000. Page 14 of 16 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: November 9, 2000 BY: /s/ Benjamin R. Jacobson ------------------------------------------ Benjamin R. Jacobson Chairman of the Board of Directors Date: November 9, 2000 BY: /s/ David J. Nace ------------------------------------------ David J. Nace Chief Financial Officer and Executive Vice President Page 15 of 16 Exhibit Index 27.1 Financial Data Schedule Page 16 of 16 EX-27.1 2 a2030117zex-27_1.txt EX-27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR QUARTERLY PERIOD ENDED SEPTEMBER 27, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001061588 NE RESTAURANT COMPANY, INC. 1,000 3-MOS 9-MOS JAN-03-2001 JAN-03-2001 JUN-29-2000 DEC-30-1999 SEP-27-2000 SEP-27-2000 5,554 5,554 0 0 1,075 1,075 0 0 1,925 1,925 17,846 17,846 155,964 155,964 (39,396) (39,396) 182,550 182,550 31,948 31,948 100,000 100,000 0 0 0 0 37 37 5,028 5,028 182,550 182,550 71,801 210,181 71,801 210,181 18,853 55,214 68,557 202,203 0 0 0 0 3,741 11,120 (496) (3,142) (30) (753) (466) (2,389) 0 0 0 0 0 0 (466) (2,389) (0.16) (0.80) (0.16) (0.80)
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