-----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, VjwXk856+O0UJpaY8gumwJuJtONQXUU/ZtU9HLCf3RteGWlSbBcrrOCN5TOvPhXp eQVxd515lAHkFtoN77l+zw== 0000950134-01-508600.txt : 20020410 0000950134-01-508600.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950134-01-508600 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EATERIES INC CENTRAL INDEX KEY: 0000796369 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 731230348 STATE OF INCORPORATION: OK FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14968 FILM NUMBER: 1789245 BUSINESS ADDRESS: STREET 1: 1220 S. SANTA FE AVENUE CITY: EDMOND STATE: OK ZIP: 73003 BUSINESS PHONE: 4057055000 MAIL ADDRESS: STREET 1: 1220 S. SANTA FE AVENUE CITY: EDMOND STATE: OK ZIP: 73003 10-Q 1 d92373e10-q.txt FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2001 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 September 30, 2001. 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 November 8, 2001, 2,961,065 common shares, $.002 par value, were outstanding. EATERIES, INC. AND SUBSIDIARIES FORM 10-Q INDEX
Page ---- Part I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets September 30, 2001 (unaudited) and December 31, 2000....................................... 4 Condensed Consolidated Statements of Operations (unaudited) Thirteen weeks ended September 30, 2001 and September 24, 2000.................................. 5 Thirty-nine weeks ended September 30, 2001 and September 24, 2000.................................. 6 Condensed Consolidated Statements of Cash Flows (unaudited) Thirty-nine weeks ended September 30, 2001 and September 24, 2000.................................. 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.............................. 24
2 PART I FINANCIAL INFORMATION 3 ITEM 1. FINANCIAL STATEMENTS. EATERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, 2001 2000 ------------ ------------ (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 466,982 $ 875,892 Receivables 1,813,553 1,256,523 Inventories 865,500 1,010,631 Other 598,346 1,585,384 ------------ ------------ Total current assets 3,744,381 4,728,430 PROPERTY AND EQUIPMENT 59,663,670 58,829,518 Less landlord finish-out allowances (19,121,000) (18,327,050) Less accumulated depreciation and amortization (18,431,547) (16,773,112) ------------ ------------ Net property and equipment 22,111,123 23,729,356 DEFERRED INCOME TAXES 2,139,477 1,585,885 GOODWILL 2,086,932 2,238,276 OTHER ASSETS, net 769,286 819,842 ------------ ------------ Total assets $ 30,851,199 $ 33,101,789 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 6,437,885 $ 8,540,398 Accrued liabilities 4,271,156 5,878,361 Current portion of long-term obligations 2,228,571 1,348,571 ------------ ------------ Total current liabilities 12,937,612 15,767,330 OTHER NONCURRENT LIABILITIES 1,286,793 795,677 LONG-TERM OBLIGATIONS, net of current portion 9,747,458 8,439,744 ------------ ------------ Total liabilities 23,971,863 25,002,751 COMMITMENTS STOCKHOLDERS' EQUITY: Preferred stock, none issued -- -- Common stock 8,965 8,937 Additional paid-in capital 10,290,697 10,264,218 Retained earnings 3,902,916 5,009,906 Treasury stock, at cost, 1,521,597 at September 30, 2001 and 1,454,097 at December 31, 2000 December 2000, respectively (7,323,242) (7,184,023) ------------ ------------ Total stockholders' equity 6,879,336 8,099,038 ------------ ------------ Total liabilities and stockholders' equity $ 30,851,199 $ 33,101,789 ============ ============
See notes to condensed consolidated financial statements. 4 EATERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Thirteen Weeks Ended September 30, September 24, 2001 2000 ------------ ------------ REVENUES: Food and beverage sales ............... $ 23,143,399 $ 24,718,674 Franchise fees and royalties .......... 200,772 222,732 Other income .......................... 214,696 127,286 ------------ ------------ 23,558,867 25,068,692 ------------ ------------ COSTS AND EXPENSES: Costs of sales ........................ 6,462,199 6,754,245 Operating expenses .................... 14,940,962 15,837,288 Pre-opening costs ..................... 99,000 27,000 General and administrative ............ 1,408,800 1,527,868 Depreciation and amortization ......... 1,055,687 1,018,990 Interest expense ...................... 250,532 264,361 ------------ ------------ 24,217,180 25,429,752 ------------ ------------ LOSS BEFORE INCOME TAXES ................... (658,313) (361,060) ------------ ------------ BENEFIT FROM INCOME TAXES .................. (190,508) (112,427) ------------ ------------ NET LOSS ................................... $ (467,805) $ (248,633) ============ ============ NET LOSS PER COMMON SHARE .................. $ (0.16) $ (0.08) ============ ============ NET LOSS PER COMMON SHARE ASSUMING DILUTION ........................ $ (0.16) $ (0.08) ============ ============
See notes to condensed consolidated financial statements. 5 EATERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Thirty-nine Weeks Ended September 30, September 24, 2001 2000 ------------ ------------ REVENUES: Food and beverage sales ............... $ 72,046,461 $ 74,227,899 Franchise fees and royalties .......... 461,023 346,555 Other income .......................... 572,756 399,310 ------------ ------------ 73,080,240 74,973,763 ------------ ------------ COSTS AND EXPENSES: Costs of sales ........................ 19,859,208 20,282,692 Operating expenses .................... 46,207,056 46,347,334 Pre-opening costs ..................... 429,000 547,000 General and administrative ............ 4,328,541 4,260,934 Depreciation and amortization ......... 3,140,214 2,960,599 Interest expense ...................... 766,536 745,675 ------------ ------------ 74,730,555 75,144,233 ------------ ------------ LOSS BEFORE INCOME TAXES ................... (1,650,315) (170,470) BENEFIT FROM INCOME TAXES .................. (543,439) (64,779) ------------ ------------ NET LOSS ................................... $ (1,106,876) $ (105,691) ============ ============ NET LOSS PER COMMON SHARE .................. $ (0.37) $ (0.04) ============ ============ NET LOSS PER COMMON SHARE ASSUMING DILUTION ........................ $ (0.37) $ (0.04) ============ ============
See notes to condensed consolidated financial statements. 6 EATERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Thirty-nine Weeks Ended September 30, September 24, 2001 2000 ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: Cash flows from operating activities: Net loss ................................................................ $ (1,106,876) $ (105,691) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation & amortization .................................... 3,140,214 2,960,599 Benefit from income taxes ...................................... (543,439) (64,779) Deferred income taxes .......................................... (3,959) (4,700) (Increase) decrease in: Receivables .............................................. (557,030) 279,273 Inventories .............................................. 145,131 103,706 Prepaid and other ........................................ 987,038 (325,618) Increase (decrease) in: Accounts payable ......................................... (2,102,513) (1,215,730) Accrued liabilities ...................................... (1,607,205) (1,713,891) Other noncurrent liabilities ............................. 491,116 (35,571) ------------ ------------ Total adjustments ................................... (50,647) (16,711) ------------ ------------ Net cash used in operating activities ....................................... (1,157,523) (122,402) ------------ ------------ Cash flows from investing activities: Capital expenditures .................................................... (2,369,629) (6,060,271) Landlord allowances ..................................................... 731,000 1,410,390 Loss on sale of note receivable ......................................... 23,078 -- Payments received on notes receivable ................................... 12,269 1,753 Proceeds from sale of notes receivable .................................. 115,500 -- Proceeds from sale of restaurants ....................................... 252,107 -- Increase in other assets ................................................ (84,213) (88,977) ------------ ------------ Net cash used in investing activities ....................................... (1,319,888) (4,737,105) ------------ ------------ Cash flows from financing activities: Payments on long-term obligations ...................................... (1,044,286) (922,982) Borrowings on revolving of credit agreement ............................ 23,847,000 23,550,000 Payments on revolving credit agreement ................................. (20,615,000) (19,780,000) Proceeds from exercise of stock options ................................ 20,007 37,030 Purchases of treasury stock ............................................ (139,219) -- ------------ ------------ Net cash provided by financing activities ................................... 2,068,502 2,884,048 ------------ ------------ Net decrease in cash & cash equivalents ..................................... (408,910) (1,975,459) Cash and cash equivalents at beginning of period ............................ 875,892 2,243,332 ------------ ------------ Cash and cash equivalents at end of period .................................. $ 466,982 $ 267,873 ============ ============
See notes to condensed consolidated financial statements. 7 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 thirty-nine week periods ended September 30, 2001, 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 31, 2000. Note 2 - Balance Sheet Information Receivables are comprised of the following:
September 30, December 31, 2001 2000 ------------ ----------- General ............................. $ 543,493 $ 282,083 Vendor Rebates ...................... 297,255 537,250 Franchisees ......................... 38,301 156,538 Banquets ............................ 56,226 90,037 Insurance refunds ................... 755,886 -- Other ............................... 122,392 190,615 ---------- ---------- $1,813,553 $1,256,523 ---------- ----------
Accrued liabilities are comprised of the following:
September 30, December 31, 2001 2000 ------------ ------------ Compensation ..................... $1,806,394 $2,771,954 Taxes, other than income ......... 804,134 1,081,659 Other ............................ 1,660,628 2,024,748 ---------- ---------- $4,271,156 $5,878,361 ========== ==========
8 Note 3 - Supplemental Cash Flow Information Interest of $777,389 and $748,025 was paid for the thirty-nine weeks ended September 30, 2001 and September 24, 2000, respectively. For the thirty-nine week periods ended September 30, 2001 and September 24, 2000, the Company had the following non-cash investing and financing activities:
Thirty-nine Weeks Ended September 30, September 24, 2001 2000 ------------- ------------- Increase in additional paid-in capital as a result of tax benefits from the exercise of non-qualified stock options ............ $ 6,496 $ 4,700 Asset write-offs related to restaurant closures ..................... $597,808 --
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 September 1997, an additional 200,000 shares were authorized for repurchase. In February 2001, the Company purchased 67,500 shares for $139,000. As of September 30, 2001, 197,762 shares had been repurchased under this plan for a total purchase price of approximately $695,000. No additional shares have been repurchased subsequent to September 30, 2001. Note 5 - Restaurant Acquisitions and Dispositions In December 2000, the Company sold two Bellini's Restaurante & Grill and one Tommy's Italian-American Restaurant back to their original owner, Tommy Byrd, for $500,000 and 63,628 shares of company stock. In January 2001, the company sold one Garcia's Mexican Restaurant location in Davie, FL resulting in a charge to the reserve for restaurant closure of approximately $88,000. In April 2001, the Company sold one Garcia's Mexican Restaurant located in Pleasant Hill, California resulting in a charge to the reserve for restaurant closure of approximately $250,000. Leases on four company-owned restaurants that expired in January, May and June 2001 were not renewed, resulting in the closing of the locations. A charge of approximately $241,500 was recorded to the reserve for restaurant closure during the first and second quarters of 2001. 9 In July 2001, the Company closed one under-performing Garfield's Restaurant & Pub in Anderson, SC. Note 6 - Earnings Per Share The following tables set forth the computation of basic and diluted EPS for the thirteen week and thirty-nine week periods ended September 30, 2001, and September 24, 2000. Diluted ESP is not calculated for periods where the company had a net loss as the results would be antidilutive:
Thirteen Weeks Ended ---------------------------- September 30, September 24, 2001 2000 ------------ ------------ Numerator: Net loss ................................................... $ (467,805) $ (248,633) ========== =========== Denominator: Denominator for basic EPS- weighted average shares outstanding .............................................. 2,959,351 3,010,811 Dilutive effect of nonqualified stock options .............. -- -- ---------- ----------- Denominator for diluted EPS .............................. 2,959,351 3,010,811 ========== =========== Basic EPS ........................................................ $ (0.16) $ (0.08) ========== =========== Diluted EPS ...................................................... $ (0.16) $ (0.08) ========== ===========
Thirty-nine Weeks Ended ---------------------------- September 30, September 24, 2001 2000 ------------ ------------ Numerator: Net loss ................................................... $(1,106,876) $ (105,691) =========== =========== Denominator: Denominator for basic EPS- weighted average shares outstanding .............................................. 2,960,690 3,008,596 Dilutive effect of nonqualified stock options .............. -- -- ----------- ----------- Denominator for diluted EPS .............................. 2,960,596 3,008,596 =========== =========== Basic EPS ........................................................ $ (0.37) $ (0.04) =========== =========== Diluted EPS ...................................................... $ (0.37) $ (0.04) =========== ===========
10 Note 7 - Accounting Pronouncements In July 2001, the Financial Accounting Standards Board issued SFAS No. 141 "Business Combinations," which establishes financial accounting and reporting for business combinations and supersedes APB Opinion No. 16, Business Combinations, and FASB Statement No. 38, Accounting for Preacquisition Contingencies of Purchased Enterprises. It requires that all business combinations within the scope of this Statement be accounted for using only the purchase method. The provisions of this Statement apply to all business combinations initiated after June 30, 2001, and also applies to all business combinations accounted for using the purchase method for which the date of acquisition is September 30, 2001, or later. The Company will adopt SFAS No. 141 effective September 30, 2001. To date, the Company has not engaged in a business combination. In July 2001, the Financial Accounting Standards Board issued SFAS No. 142 "Goodwill and Other Intangible Assets," which establishes financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, "Intangible Assets". It addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition, and after they have been initially recognized in the financial statements. The provisions of this Statement are effective starting with fiscal years beginning after December 15, 2001. The Company will adopt SFAS No. 142 effective fiscal year 2002. The Company has not yet determined the impact of implementing SFAS No. 142. 11 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 September 30, 2001, the Company owned and operated 67 (48 Garfield's, 17 Garcia's, two Pepperoni Grills) and six franchised Garfield's and one licensed Garcia's restaurants. The Company currently has just completed one Garfield's Restaurant in Alabama. In addition, the Company is working with franchisees on the development of restaurants located in Indiana, Florida, Nebraska and Nevada. As of the date of this report, the entire system includes 75 restaurants of which 68 are Company-owned. The Company has successfully initiated a national advertising campaign to seek prospective franchisees. The intention is to find candidates or organizations that have a substantial net worth, a proven track record in multi-unit food service, retail or hospitality, and an interest in developing and operating multiple casual dining restaurants. As of the date of this report, Franchise Agreements have been signed for 67 new Garfield's Restaurants. The Company's uniform franchise offering circular (called the UFOC that contains the franchise and development agreement) is registered nationally. 12 The Company's marketing strategies are focused 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. Key priorities for the remainder of 2001 include enhancing brand image along with developing menus that please the customer and improve the company bottom line at the same time. LEGAL PROCEEDINGS In 1999, the Company filed suit against one of its food purveyors in federal court. This suit stems from the receipt of contaminated food product that the Company management believes caused a food borne illness outbreak at the Company's Garcia's Mexican Restaurants in the Phoenix, AZ area in July of 1998. In August 2001, the food purveyor stipulated that it was liable and had supplied the contaminated food product causing the outbreak. Based on this event, the Company will be able to recover all of its legal and related litigation expenses. As of September 30, 2001, this amount is approximately $275,000 and is included in accounts receivable on the balance sheet. The Company's legal counsel retained in this case was engaged on a contingency fee basis, thus the amount in accounts receivable could rise considerably depending on timing of future payments and collection of possible judgment. This suit continues to be litigated to determine the ultimate amount of damages to be awarded to the Company. Trial proceedings concluded in August 2001, however as of the date of this report, no judgment has been made and no related amounts have been recorded by the Company. The Company has other lawsuits pending but does not believe the outcome of the lawsuits, individually or collectively will materially impair the Company's financial and operational condition. SEPTEMBER 11 IMPACT While the ultimate impact of the September 11 terrorist attacks can never be fully quantified, the Company's performance had been positive through August and was building momentum in early September. However, performance suffered considerably in the immediate aftermath of September 11, with revenue declines in all our markets. Other events such as anthrax scares in various malls and the October 31 threat have also caused lost revenues. The Company cannot predict the future impact of these or any other forseen events. 13 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 THIRTY-NINE WEEKS ENDED ENDED September 30, September 24, September 30, September 24, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Statements of Operations Data: Revenues: Food and beverage sales ................... 98.2% 98.6% 98.6% 99.0% Franchise fees and royalties .............. 0.9% 0.9% 0.6% 0.5% Other income .............................. 0.9% 0.5% 0.8% 0.5% --------- --------- --------- --------- 100.0% 100.0% 100.0% 100.0% Costs and Expenses: Costs of sales (1) ........................ 27.9% 27.3% 27.6% 27.3% Operating expenses (1) .................... 64.6% 64.1% 64.1% 62.4% Pre-opening costs (1) ..................... 0.4% 0.1% 0.6% 0.7% General and administrative ................ 6.0% 6.2% 5.9% 5.7% Depreciation and amortization (1) ......... 4.6% 4.1% 4.4% 4.0% Interest expense .......................... 1.1% 1.1% 1.0% 1.0% --------- --------- --------- --------- 102.8% 101.4% 102.3% 100.2% Loss before income taxes ....................... (2.8)% (1.4)% (2.3)% (0.2)% Provision for income taxes ..................... (0.8)% (0.4)% (0.7)% (0.1)% --------- --------- --------- --------- Net loss ....................................... (2.0)% (1.0)% (1.5)% (0.1)% ========= ========= ========= ========= Selected Operating Data: (Dollars in thousands) System-wide sales: Company restaurants ....................... $ 23,143 $ 24,719 $ 72,046 $ 74,228 Franchise restaurants ..................... 2,326 1,760 7,084 5,881 --------- --------- --------- --------- Total ................................. $ 25,469 $ 26,479 $ 79,130 $ 80,109 ========= ========= ========= ========= Number of restaurants (at end of period): Company restaurants ....................... 67 71 Franchise restaurants ..................... 7 8 --------- --------- Total ................................. 74 79 ========= =========
(1) As a percentage of food and beverage sales. 14 RESULTS OF OPERATIONS For the quarter ended September 30, 2001, the Company recorded a net loss of $(467,805) $(0.16) per common share on revenues of $23,558,867. This compares to a net loss of $(248,633) $(0.08) per common share for the quarter ended September 24, 2000, on revenues of $25,168,692. For the thirty-nine weeks ended September 30, 2001, the Company reported net loss of $(1,106,876) $(0.37) per common share; compared to a net loss of $(105,691) $(0.04) per common share; for the thirty-nine weeks ended September 24, 2000. REVENUES Company revenues for the thirteen and thirty-nine week periods ended September 30, 2001, decreased 6.0% and 2.5%, respectively, over the revenues reported for the same periods in 2000. The revenue decrease relates primarily to the sale and closure of 6 restaurants during the thirteen and thirty-nine week ended in 2001 over the same period in 2000. The number of Company restaurants operating at the end of each respective period and the number of operating weeks during each period were as follows:
Number of Average Weekly Operating Weeks Sales Per Unit ---------------------------- ----------------------------- Period Number of Thirteen Thirty-nine Thirteen Thirty-nine Ended Units Open Weeks Weeks Weeks Weeks ------ ---------- -------- ----------- -------- ----------- Garfield's: September 30, 2001 48 624 1,883 $26,343 $26,924 September 24, 2000 50 650 1,929 $25,615 $25,653 Garcia's: September 30, 2001 16 202 614 $27,737 $29,581 September 24, 2000 16 208 591 $28,101 $30,647 ROMA: September 30, 2001 2 26 78 $34,389 $34,760 September 24, 2000 5 65 195 $30,439 $31,285
15 For the thirteen weeks ended September 30, 2001, average weekly sales per unit for Garfield's increased $728 or 2.8% versus the quarter ended September 24, 2000. Average weekly sales per unit for Garfield's increased by $1,271 or 5.0% for the thirty-nine weeks ended September 30, 2001 versus the previous year's results. The primary reason for the increase was due to increased advertising and value driven promotions. For the thirteen weeks ended September 30, 2001, average weekly sales per unit for Garcia's decreased $364 or 1.3% versus the quarter ended September 24, 2000. Average weekly sales per unit for Garcia's decreased by $1,066 or 3.5% for the thirty-nine weeks ended September 30, 2001 versus the previous year. This decrease is primarily due to lower average unit volumes in the new mall Garcia's. For the thirteen weeks ended September 30, 2001, average weekly sales per unit for ROMA increased $3,950 or 13.0% versus the same period in 2000. Average weekly sales per unit for the thirty-nine weeks ended September 30, 2001 for ROMA increased by $3,475 or 11.1% versus the thirty-nine weeks ended September 24, 2000. This increase is primarily due to the sale of the two Bellini's and one Tommy's restaurants at the end of the 2000. Franchise fees and continuing royalties increased to $461,023 during the thirty-nine weeks ended September 30, 2001 versus $346,555 during the thirty-nine weeks ended September 24, 2000. This increase is due to the Company signing additional franchise contracts during the first three quarters of 2001. Other income for the thirty-nine weeks ended September 30, 2001 was $572,756 as compared to the previous year's amount of $399,310. This increase is due primarily to the company collecting two insurance claims previously denied by the insurance company totaling approximately $120,000 for store related repairs already expensed that were reimbursed under the Company's property insurance coverage. 16 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 Thirty-nine Weeks Ended --------------------------- ------------------------------ September 30, September 24, September 30, September 24, 2001 2000 2001 2000 ------------ ------------- ------------- ------------- Garfield's: Costs of sales ........ 28.1% 27.4% 27.9% 27.6% Labor costs ........... 28.4% 28.7% 28.7% 28.6% ------ ------ ------ ------ Total ............... 56.5% 56.1% 56.6% 56.2% ====== ====== ====== ====== Garcia's: Cost of sales ......... 27.4% 26.5% 26.8% 25.9% Labor costs ........... 32.5% 31.8% 30.5% 31.0% ------ ------ ------ ------ Total ............... 59.9% 58.3% 57.3% 56.9% ====== ====== ====== ====== ROMA Foods: Cost of sales ......... 27.0% 29.4% 27.0% 29.9% Labor costs ........... 28.6% 30.5% 28.4% 30.1% ------ ------ ------ ------ Total ............... 55.6% 59.9% 55.4% 60.0% ====== ====== ====== ====== Total Company: Cost of sales ......... 27.9% 27.3% 27.6% 27.3% Labor costs ........... 29.5% 28.9% 29.1% 28.8% ------ ------ ------ ------ Total ............... 57.4% 56.2% 56.7% 56.1% ====== ====== ====== ======
Costs of sales as a percentage of food and beverage sales for Garfield's in the quarters ended September 30, 2001 and September 24, 2000 was 28.1% and 27.4% respectively. This increase is due to higher produce and meat costs in the quarter. Garcia's costs of sales as a percentage of food and beverage sales increased to 27.4% in the quarter ended September 30, 2001 versus 26.5% in the quarter ended September 24, 2000. This increase primarily relates to higher food cost in the four new mall-based restaurants along with the increased cost of cheese. Costs of sales as a percentage of food and beverage revenue for Roma Foods decreased to 27.0% for the second quarter ended September 30, 2001 compared to 29.4% for the quarter ended September 24, 2000. This decrease is primarily due to the Company only operating the two Pepperoni Grill's in second quarter, which has lower costs of sales as a percentage of food and beverage than the three stores sold in December 2000. 17 Labor costs for Garfield's decreased to 28.4% of food and beverage sales during the quarter ended September 30, 2001, versus 28.7% during the 2000 comparable period. This decrease is due to higher check averages in the quarter. Garcia's labor costs increased to 32.5% of food and beverage sales during the quarter ended September 30, 2001, versus 31.8% in the quarter ended September 24, 2000. This increase is due to the four new mall-bases restaurants operating at lower sales volumes compared to the free standing restaurants. Labor cost in Roma Foods decreased to 28.6% during the quarter ended September 30, 2001 versus 30.5% during the 2000 comparable period. This decrease was due to the sale of the two Bellini's and Tommy's Restaurants in the fourth quarter of 2000. For the thirteen weeks ended September 30, 2001, operating expenses as a percentage of food and beverage sales increased to 64.6% from 64.1% in the thirteen weeks ended September 24, 2000. For the thirty-nine weeks ended September 30, 2001, operating expenses increased to 64.1% of food and beverage sales versus 62.4% in the 2000 period. These increases primarily relate to increased utilities and marketing costs. Restaurant pre-opening costs, which are expensed as incurred, were $99,000 and $27,000 for the quarters ended September 30, 2001 and September 24, 2000, respectively, and $429,000 and $547,000 for the thirty-nine week periods ended September 30, 2001 and September 24, 2000, respectively. The Company plans to open one additional restaurant during the fourth quarter of 2001. During the thirteen and thirty-nine week periods ended September 30, 2001 and September 24, 2000, general and administrative costs as a percentage of total revenues changed to 6.0% and 5.9% from 6.2% and 5.7%, respectively. For the thirteen weeks ended September 30, 2001 depreciation and amortization expense increased to $1,055,687 (4.6% of food and beverage sales) compared to $1,018,990 (4.1% of food and beverage sales) in the thirteen weeks ended September 24, 2000. For the thirty-nine weeks ended September 30, 2001 depreciation and amortization expense increased to $3,140,214 (4.4% of food and beverage sales) compared to $2,960,599 (4.0% of food and beverage sales) in the thirty-nine weeks ended September 24, 2000. The increase primarily relates to the increase in net assets subject to depreciation and amortization in 2001 versus 2000 due to the opening or acquisition of new restaurants, and the remodel of existing restaurants. 18 For the thirteen weeks ended September 30, 2001 interest expense was $250,532 (1.1% of total revenues) versus $264,361(1.1% of total revenues) for the thirteen weeks ended September 24, 2000. For the thirty-nine week period ended September 30, 2001, interest expense increased to $766,536 (1.0% of total revenues) from $745,675 (1.0% of total revenues) in the comparable 2000 period. The increase primarily related to the Company's accelerated construction schedule for the first three quarters of 2001 on both new stores and remodels, which required borrowings on the line of credit. INCOME TAXES The Company's benefit from income taxes was $543,439 during the first three quarters of 2001 versus a benefit of $64,779 for the 2000 comparable period. The effective tax rates for the periods ended September 30, 2001 and September 24, 2000, are as follows:
Thirteen Weeks Thirty-nine Weeks ------------------------------ --------------------------------- September 30, September 24, September 30, September 24, ------------- ------------- ------------- -------------- 2001 2000 2001 2000 ------------- ------------- ------------- -------------- Effective income tax rates.................... (29.0)% (31.0)% (32.9)% (38.0)%
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 2,959,351 and 3,010,811 in the quarters ended September 30, 2001 and September 24, 2000, respectively, and 2,960,596 and 3,008,596 in the thirty-nine weeks ended September 30, 2001 and September 24, 2000, 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 2,959,351 and 3,010,811 in the quarters ended September 30, 2001 and September 24, 2000, respectively, and 2,960,596 and 3,008,596 in the thirty-nine weeks ended September 30, 2001 and September 24, 2000, respectively. Diluted EPS is not calculated for periods where the Company had a net loss as the result would be antidilutive. 19 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 the economic conditions in the Company's market areas. 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, however there can be no assurance that the Company will be able to do so in the future. Market conditions will determine the Company's ability to pass through such additional costs and expenses. 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 as well as substantial increases in utility costs experienced by the Company. Due to accounting standards requiring 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 September 30, 2001, the Company's current ratio was .29 to 1 compared to 0.30 to 1 at December 31, 2000. The Company's working capital was $(9,193,000) at September 30, 2001 versus $(11,039,000) at December 31, 2000. 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 thirty-nine weeks ended September 30, 2001, the Company had net cash used in operating activities of $1,157,523 as compared to $122,402 during the comparable 2000 period. 20 During 2001, as of the date of this report, the Company opened two Garfield's and two Garcia's. The Company believes the cash generated from its operations and borrowing availability under it's credit facility (described below), will be sufficient to satisfy the Company's net capital expenditures and working capital requirements during 2001. 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 September 30, 2001, the Company had outstanding borrowings of approximately $5,732,000 under the revolving line of credit. Outstanding borrowings under term loan bear interest at three-month LIBOR plus 2.50% (6.03% as of September 30, 2001). Outstanding borrowings under the revolving line of credit bear interest at the greater of three month LIBOR plus 2.5% or 5.0% (6.03% at September 30, 2001). The interest rate is reset quarterly. There is no non-use fee related to either facility. The Company amended its revolving credit facility as of October 31, 2001, extending the maturity of the revolving line of credit to March 31, 2003. 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. Additionally, the floating interest rate on both facilities is subject to changes in the Company's ratio of total loans and capital leases to net worth. Under the terms of these notes, the Company's maximum floating rate is three-month LIBOR plus 2.50%. Borrowings under this loan agreement are unsecured. The loan agreement contains certain financial covenants and restrictions. As of the date of this report, the Company is in compliance with these covenants and restrictions. The revolving credit facility included in this loan agreement provides the Company adequate borrowing capacity to continue its expansion plans for Garfield's and Garcia's for the next two years. 21 In March 2001, the Company entered into an additional credit facility with a bank in the amount of $1,000,000 that is available to the Company under a revolving line of credit. As of September 30, 2001 the Company had outstanding borrowings of $1,000,000 under the revolving line of credit. The credit facility bears interest at the greater of the prime rate of interest or 5.0% (5.0% at September 30, 2001), and is set monthly. There is a one-quarter of a percent (.25%) non-use fee relate to this facility. This credit facility was amended as of October 31, 2001 and matures on March 31, 2002. On October 31, 2001, the Company entered into an additional credit facility with a bank in the amount of $500,000 that is available to the Company under a revolving line of credit. The credit facility bears interest at the greater of the prime rate of interest or 5.0% (5.0% at September 30, 2001), and is set monthly. There is a one-quarter of a percent (.25%) non-use fee relate to this facility. This credit facility was amended as of October 31, 2001 and matures on December 31, 2001. No borrowings were outstanding under this line of credit were outstanding as of the date of this report. 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%. The notional amount as of September 30, 2001 was $5,040,121. The unrealized gains for the periods ended September 30, 2001 and September 24, 2000 were immaterial. 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 September 30997, an additional 200,000 shares were authorized for repurchase. As of September 30, 2001, 197,762 shares had been repurchased under this plan for a total purchase price of approximately $695,000. No additional shares have been repurchased subsequent to September 30, 2001. 22 PART II OTHER INFORMATION 23 Item 6. Exhibits and Reports on Form 8-K. (a) No reports on Form 8-K were filed during the thirty-nine weeks ended September 30, 2001. 24 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: November 8, 2001 By: /s/ BRADLEY L. GROW ------------------------ Bradley L. Grow Vice President Chief Financial Officer 25 -----END PRIVACY-ENHANCED MESSAGE-----