-----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, Mt4KTbTDzkSkoN5T6JcuZZcwP1C7uNeQE62jlcehTRkAivt/ibWDjqeRHrqbYwAe 6FcGFCvIz0cliSfw3zlrxw== /in/edgar/work/20000809/0000950134-00-006547/0000950134-00-006547.txt : 20000921 0000950134-00-006547.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950134-00-006547 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000625 FILED AS OF DATE: 20000809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EATERIES INC CENTRAL INDEX KEY: 0000796369 STANDARD INDUSTRIAL CLASSIFICATION: [5812 ] IRS NUMBER: 731230348 STATE OF INCORPORATION: OK FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14968 FILM NUMBER: 689688 BUSINESS ADDRESS: STREET 1: 3240 W BRITTON RD STE 202 CITY: OKLAHOMA CITY STATE: OK ZIP: 73120 BUSINESS PHONE: 4057553607 10-Q 1 e10-q.txt FORM 10-Q FOR QUARTER ENDED JUNE 30, 2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934 for the Quarterly Period ended June 25, 2000. Commission File Number: 0-14968 -------------------------------------------------------- EATERIES, INC. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Oklahoma 73-1230348 - --------------------------------------- -------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1220 S. Santa Fe Ave. Edmond, Oklahoma 73003 - ---------------------------------------- -------------------------------- (Address of principal executive offices) (Zip Code) (405) 705-5000 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 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 such filing requirements for the past 90 days. [X] Yes [ ] No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of August 5, 2000, 3,064,696 common shares, $.002 par value, were outstanding. 2 EATERIES, INC. AND SUBSIDIARIES FORM 10-Q INDEX
Page ---- Part I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets June 25, 2000 (unaudited) and December 26, 1999..................................... 4 Condensed Consolidated Statements of Income (unaudited) Thirteen weeks ended June 25, 2000 and June 27, 1999..................................... 5 Twenty-six weeks ended June 25, 2000 and June 27, 1999..................................... 6 Condensed Consolidated Statements of Cash Flows (unaudited) Twenty-six weeks ended June 25, 2000 and June 27, 1999..................................... 7 Notes to Condensed Consolidated Financial Statements (unaudited)................................... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................. 12 Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K............................ 22
2 3 PART I FINANCIAL INFORMATION 3 4 ITEM 1. FINANCIAL STATEMENTS. EATERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
June 25, December 26, 2000 1999 ------------ ------------ (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents ................... $ 1,361,076 $ 2,243,332 Receivables ................................. 1,110,278 1,524,318 Deferred income taxes ....................... 226,000 226,000 Inventories ................................. 849,473 937,098 Other ....................................... 1,101,644 685,024 ------------ ------------ Total current assets .................... 4,648,471 5,615,772 ------------ ------------ PROPERTY AND EQUIPMENT ........................... 54,604,425 50,290,249 Less landlord finish-out allowances .............. (17,060,610) (16,304,266) Less accumulated depreciation and amortization ................................ (14,981,359) (13,080,932) ------------ ------------ Net property and equipment .............. 22,562,456 20,905,051 ------------ ------------ DEFERRED INCOME TAXES ............................ 1,100,224 1,143,171 GOODWILL, net .................................... 2,689,601 2,707,062 OTHER ASSETS, net ................................ 790,385 718,339 ------------ ------------ $ 31,791,137 $ 31,089,895 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ............................ $ 7,215,295 $ 7,035,152 Accrued liabilities ......................... 3,970,072 5,672,466 Current portion of long-term obligations ............................. 1,228,571 1,228,571 ------------ ------------ Total current liabilities ........... 12,413,938 13,936,189 ------------ ------------ OTHER NONCURRENT LIABILITIES ..................... 721,079 736,363 ------------ ------------ LONG-TERM OBLIGATIONS, net of current portion ............................. 11,176,292 9,092,131 ------------ ------------ COMMITMENTS STOCKHOLDERS' EQUITY: Preferred stock, none issued ................ -- -- Common stock ................................ 8,830 8,816 Additional paid-in capital .................. 10,125,794 10,114,079 Retained earnings ........................... 4,241,925 4,099,038 ------------ ------------ 14,376,549 14,221,933 Treasury stock, at cost, 1,380,399 shares at June 25, 2000 and December 26, 1999, respectively ......... (6,896,721) (6,896,721) ------------ ------------ Total stockholders' equity .......... 7,479,828 7,325,212 ------------ ------------ $ 31,791,137 $ 31,089,895 ============ ============
See notes to condensed consolidated financial statements. 4 5 EATERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Thirteen Weeks Ended June 25, June 27, 2000 1999 ------------ ------------ REVENUES: Food and beverage sales ................ $ 24,562,711 $ 22,714,590 Franchise fees and royalties ........... 84,575 68,369 Other income ........................... 149,606 104,363 ------------ ------------ 24,796,892 22,887,322 ------------ ------------ COSTS AND EXPENSES: Costs of sales ......................... 6,715,224 6,261,509 Operating expenses ..................... 15,370,576 14,338,364 Pre-opening costs ...................... 311,000 183,000 General and administrative ............. 1,381,565 1,473,952 Depreciation and amortization .......... 986,515 878,932 Interest expense ....................... 257,752 207,464 ------------ ------------ 25,022,632 23,343,221 ------------ ------------ LOSS BEFORE INCOME TAXES .................... (225,740) (455,899) PROVISION FOR INCOME TAXES .................. (45,162) (119,746) ------------ ------------ NET LOSS .................................... $ (180,578) $ (336,153) ============ ============ NET LOSS PER COMMON SHARE ................... $ (.06) $ (.11) ============ ============ NET INCOME PER COMMON SHARE ASSUMING DILUTION ......................... $ N/A $ N/A ============ ============
See notes to condensed consolidated financial statements. 5 6 EATERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Twenty-six Weeks Ended June 25, June 27, 2000 1999 ------------ ------------ REVENUES: Food and beverage sales ..................... $ 49,509,225 $ 45,619,047 Franchise fees and royalties ................ 123,823 136,207 Other income ................................ 272,023 205,888 ------------ ------------ 49,905,071 45,961,142 ------------ ------------ COSTS AND EXPENSES: Costs of sales .............................. 13,528,447 12,531,258 Operating expenses .......................... 30,510,045 28,263,226 Pre-opening costs ........................... 520,000 282,000 General and administrative .................. 2,733,066 2,914,445 Depreciation and amortization ............... 1,941,609 1,721,972 Interest expense ............................ 481,314 353,214 ------------ ------------ 49,714,481 46,066,115 ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES ................ 190,590 (104,973) PROVISION FOR INCOME TAXES ....................... 47,648 (15,746) ------------ ------------ NET INCOME (LOSS) ................................ $ 142,942 $ (89,227) ============ ============ NET INCOME (LOSS) PER COMMON SHARE ............... $ .05 $ (.03) ============ ============ NET INCOME PER COMMON SHARE ASSUMING DILUTION............................... $ .05 $ N/A ============ ============
See notes to condensed consolidated financial statements. 6 7 EATERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Twenty-six Weeks Ended June 25, June 27, 2000 1999 ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: Cash flows from operating activities: Net income (Loss) ........................................... $ 142,942 $ (89,227) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation & amortization ........................ 1,941,609 1,721,972 Deferred income taxes .............................. 22,818 (39,746) (Increase) decrease in: Receivables .................................. 414,040 (273,852) Inventories .................................. 87,625 89,681 Other ........................................ (416,620) (18,786) Increase (decrease) in: Accounts payable ............................. 180,143 (756,928) Accrued liabilities .......................... (1,702,394) 382,503 Other noncurrent liabilities ................. (15,284) 116,451 ----------- ----------- Total adjustments ........................ 511,937 1,221,293 ----------- ----------- Net cash provided by operating activities ....................... 654,879 1,132,066 ----------- ----------- Cash flows from investing activities: Capital expenditures ........................................ (4,314,177) (2,226,322) Landlord allowances ......................................... 756,344 232,741 Net cash paid for restaurant acquisitions ................... -- (673,890) Payments received on notes receivable ....................... -- 2,763 (Increase) in other assets .................................. (72,046) (81,063) ----------- ----------- Net cash (used in) investing activities ......................... (3,629,879) (2,745,771) ----------- ----------- Cash flows from financing activities: Payments on long-term obligations ............................ (614,286) (307,462) Net borrowing on long-term obligations ..................... -- 5,463,333 Borrowings under note payable .............................. -- 2,250,000 Net borrowings under revolving credit agreement ............ 2,700,000 384,702 Proceeds from sale of common stock ......................... -- Proceeds from exercise of stock options .................... 7,030 58,380 Acquisition of treasury stock .............................. -- (5,634,318) ----------- ----------- Net cash provided by financing activities ....................... 2,092,744 2,214,635 ----------- ----------- Net increase (decrease) in cash & cash equivalents .............. (882,256) 600,930 Cash and cash equivalents at beginning of period ................ 2,243,332 1,297,638 ----------- ----------- Cash and cash equivalents at end of period ...................... $ 1,361,076 $ 1,898,568 =========== ===========
See notes to condensed consolidated financial statements. 7 8 EATERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 1 - Basis of Preparation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the thirteen and twenty-six week periods ended June 25, 2000, are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 26, 1999. Note 2 - Balance Sheet Information Receivables are comprised of the following:
June 25, December 26, 2000 1999 ---------- ---------- Franchisees ....................... $ 44,888 $ 157,238 Insurance refunds ................. 74,746 309,213 Landlord finish-out allowances .... 10,000 10,000 Other ............................. 980,644 1,047,867 ---------- ---------- $1,110,278 $1,524,318 ========== ==========
Accrued liabilities are comprised of the following:
June 25, December 26, 2000 1999 ---------- ---------- Compensation ...................... $2,089,582 $2,462,458 Taxes, other than income .......... 1,120,074 1,063,360 Other ............................. 760,416 2,146,648 ---------- ---------- $3,970,072 $5,672,466 ========== ==========
8 9 Note 3 - Supplemental Cash Flow Information Interest of $481,314 and $353,214 was paid for the twenty-six weeks ended June 25, 2000 and June 27, 1999, respectively. For the twenty-six week periods ended June 25, 2000 and June 27, 1999, the Company had the following non-cash investing and financing activities:
Twenty-six Weeks Ended June 25, June 27, 2000 1999 --------- --------- Increase in additional paid-in capital as a result of tax benefits from the exercise of non-qualified stock options ......................... 4,700 30,000 Asset write-offs related to restaurant closures .................................. -- 42,352 Issuance of treasury stock for acquisitions ......................................... -- 384,702
Note 4 - Stock Repurchases In April 1997, the Company's Board of directors authorized the repurchase of up to 200,000 shares of the Company's common stock. In July 1997, an additional 200,000 shares were authorized for repurchase. As of June 25, 2000, 130,262 shares had been repurchased under this plan for a total purchase price of approximately $556,000. No additional shares have been repurchased subsequent to June 25, 2000. In February 1999, the Company purchased 1,056,200 shares of its common stock from Astoria Capital Partners, L.P., Montavilla Partners, L.P., and MicroCap Partners L.P. ("Sellers") for a purchase price of $5.125 per share of an aggregate purchase price of $5,413,025. The shares purchased from the Sellers represented 26.7% of the outstanding common stock of the Company, prior to the transaction. The purchase price was financed by the Company through a term loan with a bank. Note 5 - Restaurant Acquisitions and Dispositions In May 1999, the Company acquired all of the outstanding common stock of K & L Restaurants, Inc. for 36,101 shares of the Company's common stock and $125,000 in cash. K & L Restaurants, Inc. owns and operates Bellini's, a restaurant located on Waterford Boulevard in Oklahoma City, Oklahoma. The acquisition has been accounted for under the purchase method. Pro forma operating results for the thirteen and twenty-six week period ended June 27, 1999, assuming that the acquisition had been made at the beginning of fiscal year 1999, would not be materially different than the results reported. 9 10 In May 1999, the Company acquired all of the outstanding common stock of B & C Development Company for 36,101 shares of the Company's common stock and $125,000 in cash. B & C Development Company owns and operates Tommy's Italian-American Grill located at North Park Mall in Oklahoma City, Oklahoma. The acquisition has been accounted for under the purchase method. Pro forma operating results for the thirteen and twenty-six week period ended June 27, 1999, assuming that the acquisition had been made at the beginning of fiscal year 1999, would not be materially different than the results reported. In May 1999, the Company acquired certain assets of Bellini's Ristorante and Grill of Edmond, LLC for 27,076 shares of the Company's common stock. Bellini's Ristorante and Grill of Edmond, LLC owns and operates Bellini's, a restaurant located in Edmond, Oklahoma. Assuming the acquisition had been made at the beginning of the fiscal year 1999, pro forma operating results for the thirteen and twenty-six week period ended June 27, 1999 would not be materially different than the results reported. No Company owned restaurants were closed during the thirteen weeks ended June 25, 2000. However, the banquet center lease at the Terre Haute, Indiana Garfield's was terminated in February, 2000. The Company terminated the lease on one underperforming Garfield's Restaurant during 1999 which was located in Shreveport, Louisiana. In addition, the Company did not renew leases and ceased operations at two other Garfield's Restaurants during 1999. 10 11 Note 6 - Earnings Per Share The following tables set forth the computation of basic and diluted EPS for the thirteen week and twenty-six week periods ended June 25, 2000, and June 27, 1999. Diluted ESP is not calculated for periods where the company had a net loss as the results would be antidilutive:
Thirteen Weeks Ended June 25, June 27, 2000 1999 ----------- ----------- Numerator: Net income (Loss) .................................... $ (180,578) $ (336,153) =========== =========== Denominator: Denominator for basic EPS-weighted average shares outstanding ........................................ 3,003,906 2,937,969 Dilutive effect of nonqualified stock options ....... -- -- ----------- ----------- Denominator for diluted EPS ........................ 3,003,906 2,937,969 =========== =========== Basic EPS .................................................. $ (.06) $ (.11) =========== =========== Diluted EPS ................................................ $ N/A $ N/A =========== ===========
Twenty-six Weeks Ended June 25, June 27, 2000 1999 ----------- ----------- Numerator: Net income (Loss) .................................... $ 142,942 $ (89,227) =========== =========== Denominator: Denominator for basic EPS-weighted average shares outstanding ........................................ 3,000,584 3,228,480 Dilutive effect of nonqualified stock options ........ 76,202 -- ----------- ----------- Denominator for diluted EPS ........................ 3,076,786 3,228,480 =========== =========== Basic EPS .................................................. $ .05 $ (.03) =========== =========== Diluted EPS ................................................ $ .05 $ N/A =========== ===========
11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. From time to time, the Company may publish forward-looking statements relating to certain matters including anticipated financial performance, business prospects, the future opening of Company-owned and franchised restaurants, anticipated capital expenditures, and other matters. All statements other than statements of historical fact contained in this Form 10-Q or in any other report of the Company are forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of that safe harbor, the Company notes that a variety of factors, individually or in the aggregate, could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements including, without limitation, the following: consumer spending trends and habits; competition in the casual dining restaurant segment; weather conditions in the Company's operating regions; laws and government regulations; general business and economic conditions; availability of capital; success of operating initiatives and marketing and promotional efforts; and changes in accounting policies. In addition, the Company disclaims any intent or obligation to update those forward-looking statements. INTRODUCTION As of June 25, 2000, the Company owned and operated 71 (50 Garfield's, 16 Garcia's, two Pepperoni Grills, two Bellini's, one Tommy's Italian-American Restaurant), and seven franchised Garfield's and one licensed Garcia's restaurants. The Company currently has three additional new Garcia's under development. As of the date of this report, the entire system includes 79 restaurants of which 71 are Company-owned. In 1999, the Company hired Mr. Larry Bader as Vice President of Franchising. Mr. Bader formerly held a similar position at KFC and more recently at Applebee's. The Company has prepared a new franchise program and an updated franchise and development agreement for Garfield's Restaurant & Pub. The development agreement is new to the Company and will allow a franchisee to have an exclusive territory in which to build out the Garfield's brand over a specified time period. During the twenty-six weeks ended June 25, 2000, the Company signed two new multi-unit franchise agreements for 15 Garfield's Restaurants in Indiana and Nebraska. In addition, management anticipates at least one additional new franchise restaurant will be completed during the calendar 2000. The uniform franchise offering circular ("UFOC"), containing the franchise and development agreement, is registered nationally. The Company has initiated a national advertising campaign seeking prospective franchisees. The intention is to 12 13 find candidates or organizations who have a substantial net worth, a proven track record in multi-unit food service, retail or hospitality, and interest in developing and operating multiple casual dining restaurants. In 1999, the Company hired Marc Buehler as Vice President of Marketing. Mr. Buehler formerly held a similar position with Applebee's. His responsibilities with the Company include a focus around one central theme--enhancing the guest experience in all the Company concepts. Each program is designed with the guest in mind, to develop concept marketing plans to improve guest satisfaction in the areas of food, value, and service. The Company continues to offer a broad range of products that guests' desire while striving to deliver the food in a fast and friendly manner. Utilizing multiple mediums such as television, local cable, radio, outdoor and print, the Company is able to deliver messages to the guest in the most efficient way. The restaurant managers are also encouraged to be involved in the community and to use proven local store marketing programs to drive their business. The Company introduced a new menu in the 4th quarter of 1999 which has led to increases in average check and same-store sales for the Garfield concept. Key priorities for the remainder of 2000 include the continued brand image strategies for all concepts, while developing marketing programs that deliver enhanced guest satisfaction and bottom line results. 13 14 PERCENTAGE RESULTS OF OPERATIONS AND RESTAURANT DATA The following table sets forth, for the periods indicated, (i) the percentages that certain items of income and expense bear to total revenues, unless otherwise indicated, and (ii) selected operating data:
THIRTEEN WEEKS TWENTY-SIX WEEKS ENDED ENDED June 25, June 27, June 25, June 27, 2000 1999 2000 1999 --------- --------- --------- --------- Statements of Income Data: Revenues: Food and beverage sales ................. 99.1% 99.2% 99.2% 99.3% Franchise fees and royalties ............ 0.3% 0.3% 0.3% 0.3% Other income ............................ 0.6% 0.5% 0.5% 0.4% --------- --------- --------- --------- 100.0% 100.0% 100.0% 100.0% Costs and Expenses: Costs of sales (1) ...................... 27.3% 27.6% 27.3% 27.5% Operating expenses(1) ................... 62.6% 63.1% 61.6% 62.0% Pre-opening costs (1) ................... 1.3% 0.8% 1.1% 0.6% General and administrative .............. 5.6% 6.4% 5.5% 6.3% Depreciation and amortization (1) ....... 4.0% 3.9% 3.9% 3.8% Interest expense ........................ 1.0% 0.9% 1.0% 0.8% Income (loss) before income taxes ............ (0.9)% (2.0)% 0.4% (0.2)% Provision for income taxes ................... (0.2)% (0.5)% 0.1% 0.0% --------- --------- --------- --------- Net income (loss) ............................ (0.7)% (1.5)% 0.3% (0.2)% ========= ========= ========= ========= Selected Operating Data: (Dollars in thousands) System-wide sales: Company restaurants ..................... $ 24,563 $ 22,715 $ 49,509 $ 45,619 Franchise restaurants ................... 2,018 2,207 4,121 4,424 --------- --------- --------- --------- Total ............................... $ 26,581 $ 24,922 $ 53,630 $ 50,043 ========= ========= ========= ========= Number of restaurants (at end of period): Company restaurants ..................... 71 66 Franchise restaurants ................... 8 8 --------- --------- Total ............................... 79 74 ========= =========
(1) As a percentage of food and beverage sales RESULTS OF OPERATIONS For the quarter ended June 25, 2000, the Company recorded a net loss of $(180,578)($.06) per common share; on revenues of $24,796,892. This compares to a net loss of $(336,153) ($0.11) per common share; for the quarter ended June 27, 1999, on revenues of $22,887,322. For the twenty-six weeks ended June 25, 2000, the Company reported net income of $142,942 $.05 per common share; compared to a net loss of $(89,227) ($0.03) per common share; for the twenty-six weeks ended June 27, 1999. 14 15 REVENUES Company revenues for the thirteen and twenty-six week periods ended June 25, 2000, increased 8.3% and 8.6%, respectively, over the revenues reported for the same periods in 1999. The revenue increase relates primarily to increased food and beverage sales during the thirteen and twenty-six week periods in 2000. The number of Company restaurants operating at the end of each respective period and the number of operating months during each period were as follows:
Number of Average Monthly Operating Months Sales Per Unit ------------------------------ ---------------------------------- Period Number of Thirteen Twenty-six Thirteen Twenty-six Ended Units Open Weeks Weeks Weeks Weeks - ------------- ---------- -------- ---------------- -------- ----------------- Garfield's: June 25, 2000 50 148 295 $108,636 $111,302 June 27, 1999 46 141 285 $104,572 $105,995 Garcia's (1): June 25, 2000 16 46 89 $134,210 $137,833 June 27, 1999 15 45 86 $133,765 $146,076 ROMA: June 25, 2000 5 15 30 $136,027 $137,400 June 27, 1999 5 12 18 $144,913 $145,827
(1) Includes Carlos Murphy's for the period ended June 27, 1999 converted to a Garcia's in 2000. For the thirteen weeks ended June 25, 2000, average monthly sales per unit for Garfield's increased $4,064 or 3.9% versus the quarter ended June 27, 1999. Average monthly sales per unit for Garfield's increased by $5,307 or 5.0% for the twenty-six weeks ended June 25, 2000 versus the previous year's results. For the thirteen weeks ended June 25, 2000, average monthly sales per unit for Garcia's increased $445 or 0.3% versus the quarter ended June 27, 1999. Average monthly sales per unit for Garcia's decreased by $8,243 or 5.6% for the twenty-six weeks ended June 25, 2000 versus the previous year. This decrease is primarily due to sales decreases in the Phoenix, Arizona market resulting from a vendor contaminated food product problem and the related negative publicity. However, it should be noted the 1999 sales levels reflect deep discounted, heavily advertised promotions. The 2000 sales utilize full priced promotions without benefit of deep discount advertising support which had a more favorable affect on unit level profits. For the thirteen weeks ended June 25, 2000, average monthly sales per unit for ROMA decreased $8,886 or 6.1% versus the same period in 1999. Average monthly sales per unit for the twenty-six weeks ended June 25, 2000 for ROMA decreased by $8,427 or 5.8% versus the twenty-six weeks ended June 27, 1999. 15 16 Franchise fees and continuing royalties decreased to $123,823 during the twenty-six weeks ended June 25, 2000 versus $136,207 during the twenty-six weeks ended June 27, 1999. Other income for the twenty-six weeks ended June 25, 2000 was $272,023 as compared to the previous year's amount of $205,888. COSTS AND EXPENSES The following is a comparison of costs of sales and labor costs (excluding payroll taxes and fringe benefits) as a percentage of food and beverage sales at Company-owned restaurants:
Thirteen Weeks Ended Twenty-Six Weeks Ended -------------------- ---------------------- June 25, June 27, June 25, June 27, 2000 1999 2000 1999 ---- ---- ---- ---- Garfield's: Costs of sales ... 27.5% 28.0% 27.6% 27.9% Labor costs ...... 28.7% 29.5% 28.6% 28.9% ---- ---- ---- ---- Total .......... 56.2% 57.5% 56.2% 56.8% ==== ==== ==== ==== Garcia's: Cost of sales .... 26.1% 25.9% 25.6% 26.0% Labor costs ...... 30.8% 30.1% 30.6% 29.1% ---- ---- ---- ---- Total .......... 56.9% 56.0% 56.2% 55.1% ==== ==== ==== ==== ROMA Foods: Cost of sales .... 29.8% 30.3% 30.2% 30.2% Labor costs ...... 29.7% 30.2% 29.9% 29.9% ---- ---- ---- ---- Total .......... 59.5% 60.5% 60.1% 60.1% ==== ==== ==== ==== Total Company: Cost of sales .... 27.3% 27.6% 27.3% 27.5% Labor costs ...... 28.8% 29.6% 28.7% 29.0% ---- ---- ---- ---- Total .......... 56.1% 57.2% 56.0% 56.5% ==== ==== ==== ====
(1) Includes Carlos Murphy's for the period ended June 27, 1999 converted to a Garcia's in 2000. Restaurant pre-opening costs, which are expensed as incurred, were $311,000 and $183,000 for the quarters ended June 25, 2000 and June 27, 1999, respectively, and $520,000 and $282,000 for the twenty-six week periods ended June 25, 2000 and June 27, 1999, respectively. The Company plans to open three additional restaurants during the second half of 2000. The increase is due in large part to the new Garcia's Restaurant opened in Oklahoma City. The Company is testing a new prototype and expects subsequent pre-opening expenses to decrease. For the thirteen weeks ended June 25, 2000 depreciation and amortization expense increased to $986,515 (4.0% of food and beverage sales) compared to $878,932 (3.9% of food and beverage sales) in the thirteen weeks ended June 27, 1999. For the twenty-six weeks ended June 25, 2000 depreciation and amortization expense increased to $1,941,609 (3.9% of food and beverage sales) compared to $1,721,972 (3.8% of food and beverage sales) in the twenty-six weeks ended June 27, 1999. 16 17 The increase primarily relates to the increase in net assets subject to depreciation and amortization in 2000 versus 1999 because of the opening or acquisition of new restaurants, the remodel of existing restaurants, and the installation of new point-of-sale register systems in most Garcia's locations and certain Garfield's locations since 1999. For the thirteen weeks ended June 25, 2000 interest expense was $257,752 (1.0% of total revenues) versus $207,464 (0.9% of total revenues) for the thirteen weeks ended June 27, 1999. For the twenty-six week period ended June 25, 2000, interest expense increased to $481,314 (1.0% of total revenues) from $353,214 (.8% of total revenues) in the comparable 1999 period. The increase primarily related to the Company's accelerated construction schedule for the first half of 2000 on both new stores and remodels, which required borrowings on the line of credit. The slight decrease in cost of sales percentages for Garfield's during the thirteen and twenty-six week periods ended June 25, 2000 versus the 1999 comparable periods relates to continued consolidation of purchasing and further training of store level managers to reduce costs. Labor costs for Garfield's decreased to 28.7% from 29.5% for the thirteen weeks in the period this year versus the same period last year and to 28.6% of food and beverage sales during the twenty-six weeks ended June 25, 2000, versus 28.9% during the 1999 comparable period. This decrease is primarily due to new more efficient restaurant designs as well as a concerted effort to train store managers to more efficiently use labor. For the thirteen weeks ended June 25, 2000, operating expenses as a percentage of food and beverage sales decreased to 62.6% from 63.1% in the thirteen weeks ended June 27, 1999. For the twenty-six weeks ended June 25, 2000, operating expenses decreased to 61.6% of food and beverage sales versus 62.0% in the 1999 period. These decreases primarily relate to the addition of training to effect more operating efficiencies. During the thirteen and twenty-six week periods ended June 25, 2000 and June 27, 1999, general and administrative costs as a 17 18 percentage of total revenues decreased to 5.6% and 5.5% from 6.4% and 6.3%, respectively. The decrease primarily relates to increased sales and the Company's continued program of cost reduction and continued policy of rewarding employees for finding and implementing cost savings in all general and administrative expense. INCOME TAXES The Company's provision for income taxes was $47,648 during the first half of 2000 versus a benefit of $15,746 for the 1999 comparable period. The effective tax rates for the periods ended June 25, 2000 and June 27, 1999, are as follows:
Thirteen Weeks Twenty-Six Weeks -------------- ---------- June 25, June 27, June 25, June 28, -------- ------- -------- -------- 2000 1999 2000 1999 ---- ---- ---- ---- Effective income tax rates ... 20.0% 26.3% 25.0% 15.0%
EARNINGS PER SHARE Basic earnings per share ("EPS") includes no dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. The weighted-average common shares outstanding for the basic EPS calculation were 3,003,906 and 2,937,969 in the quarters ended June 25, 2000 and June 27, 1999, respectively, and 3,000,584 and 3,228,480 in the twenty-six weeks ended June 25, 2000 and June 27, 1999, respectively. Diluted EPS is computed by dividing net income available to common stockholders by the sum of the weighted-average number of common shares outstanding for the period plus dilutive common stock equivalents. The sum of the weighted-average common shares and common share equivalents for the diluted EPS calculation was 3,076,786 for the quarter ended June 25, 1999, and 4,233,017 for the twenty-six weeks ended June 27, 1999. Diluted EPS is not calculated for periods where the company had a net loss as the result would be antidilutive. IMPACT OF INFLATION The impact of inflation on the costs of food and beverage products, labor and real estate can affect the Company's operations. Over the past few years, inflation has had a lesser impact on the Company's operations due to the lower rates of inflation in the nation's economy and economic conditions in the Company's market area. 18 19 Management believes the Company has historically been able to pass on increased costs through certain selected menu price increases and increased productivity and purchasing efficiencies, but there can be no assurance that the Company will be able to do so in the future. Management anticipates that the average cost of restaurant real estate leases and construction costs could increase in the future which could affect the Company's ability to expand. In addition, mandated health care and an increase in the Federal or state minimum wages could significantly increase the Company's costs of doing business. Under the Company's policy of expensing pre-opening costs as incurred, income from operations, on an annual and quarterly basis, could be adversely affected during periods of restaurant development; however, the Company believes that its initial investment in the restaurant pre-opening costs yields a long-term benefit of increased operating income in subsequent periods. LIQUIDITY AND CAPITAL RESOURCES At June 25, 2000, the Company's current ratio was .37 to 1 compared to 0.40 to 1 at December 26, 1999. The Company's working capital was ($7,765,467) at June 25, 2000 versus ($8,320,417) at December 26, 1999. As is customary in the restaurant industry, the Company has operated with negative working capital and has not required large amounts of working capital. Historically, the Company has leased the majority of its restaurant locations and through a strategy of controlled growth financed its expansion from operating cash flow, proceeds from the sale of common stock and utilizing the Company's revolving line of credit. During the twenty-six weeks ended June 25, 2000, the Company had net cash provided by operating activities of $654,879 as compared to net cash provided by operating activities of $1,132,066 during the comparable 1999 period. The Company plans to open five units (two of which have already been opened as of June 25, 2000) during 2000 in restaurant locations leased in regional malls and in free-standing sites. The Company believes the cash generated from its operations and borrowing availability under its credit facility (described below), will be sufficient to satisfy the Company's net capital expenditures and working capital requirements during 2000. In February 1999, the Company entered into a senior credit facility with a bank in the aggregate amount of $14,600,000, of which a maximum of $6,000,000 is available to the Company under a revolving line of credit and $8,600,000 was available to the Company under a term loan. Certain proceeds of the term loan (approximately $5.4 million) were used to repurchase 1,056,200 shares of the Company's common stock (transaction described below). The balance of the proceeds under the term loan (approximately $3.2 million) and the initial proceeds under the revolving line of credit were used to retire indebtedness under the Company's existing loan agreement. As of June 25, 2000, the 19 20 Company had outstanding borrowings of approximately $5,500,000 of outstanding borrowings under the revolving line of credit. Outstanding borrowings under both the revolving line of credit and term loan bear interest at three-month LIBOR plus 1.75% (8.625% as of June 25, 2000). The interest rate is reset quarterly. There is no non-use fee related to either facility. The revolving line of credit has a two-year term with maturity in February 2001. In addition, the Company has received a commitment from its lender to extend the final maturity date to April, 2002. Accordingly the debt has been classified as long-term on the accompanying consolidated condensed balance sheet. Under the term loan, outstanding principal and interest are payable quarterly in the amount necessary to fully amortize the outstanding principal balance over a seven-year period, with a final maturity in February 2004. The term loan converts to a five-year amortization schedule if the Company's debt coverage ratio, as defined in the loan agreement, exceeds a certain level. In June 2000, the Company entered into an additional credit facility with a bank in the amount of $1,000,000 which is available to the Company under a revolving line of credit. As of June 25, 2000 the Company had no outstanding borrowings under the revolving line of credit. The credit facility bears interest at the prime rate of interest, which is set monthly. There is a one-quarter of a percent (.25%) non-use fee relate to this facility. The term of this loan is December 31, 2000. In November 1997, the Company entered into an interest rate swap agreement with a bank to hedge its risk exposure to potential increases in LIBOR. This agreement has a term of five years and an initial notional amount of $9,500,000. The notional amount declines quarterly over the life of the agreement on a seven-year amortization schedule assuming a fixed interest rate of 7.68%. Under the terms of the interest rate swap agreement, the Company pays interest quarterly on the notional amount at a fixed rate of 7.68%, and receives interest quarterly on the notional amount at a floating rate of three-month LIBOR plus 1.25%. In April 1997, the Company's Board of Directors authorized the repurchase of up to 200,000 shares of the Company's common stock. In July 1997, an additional 200,000 shares were authorized for repurchase. As of June 25, 2000, 130,262 shares had been repurchased under this plan for a total purchase price of approximately $556,000. No additional shares have been repurchased subsequent to June 25, 2000. In February 1999, the Company purchased 1,056,200 shares of its common stock from Astoria Capital Partners, L.P., Montavilla Partners, L.P., and MicroCap Partners L.P. ("Sellers") for a purchase price of $5.125 per share or an aggregate purchase price of $5,413,025. The shares purchased from the Sellers represented 26.7% of the outstanding common stock of the Company, prior to the transaction. The purchase price of these shares were financed through a term loan with a bank (described above). 20 21 PART II OTHER INFORMATION 21 22 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibit 27.1 - Financial Data Schedule. (b) No reports on Form 8-K were filed during the twenty-six weeks ended June 25, 2000. 22 23 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. EATERIES, INC. Registrant Date: August 9, 2000 By: /s/ BRADLEY L. GROW ------------------- Bradley L. Grow Vice President Chief Financial Officer 24 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27.1 - Financial Data Schedule.
EX-27.1 2 ex27-1.txt FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-2000 MAR-27-2000 JUN-25-2000 1,361 0 1,110 0 849 4,648 37,544 14,981 31,791 12,413 0 0 0 8 7,471 31,791 49,509 49,905 13,528 45,980 3,734 0 481 191 48 143 0 0 0 143 .05 .05
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