-----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, HeVZafQanoU4P1ZzGsjvdWpvgJuRN3zWfje6xPrAw8tSebmixwIuju68GiSTdX80 4ttVKSCgCJKOdxNDpnCNxQ== 0000950134-97-008330.txt : 19971114 0000950134-97-008330.hdr.sgml : 19971114 ACCESSION NUMBER: 0000950134-97-008330 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970928 FILED AS OF DATE: 19971112 SROS: NASD 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: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14968 FILM NUMBER: 97714982 BUSINESS ADDRESS: STREET 1: 3240 W BRITTON RD STE 202 CITY: OKLAHOMA CITY STATE: OK ZIP: 73120 BUSINESS PHONE: 4057553607 10-Q 1 FINANCIAL DATA SCHEDULE 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 September 28, 1997. 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.) 3240 W. Britton Rd., Ste. 202, Oklahoma City, Oklahoma 73120 - -------------------------------------------- --------------------------------- (Address of principal executive offices) (Zip Code) (405) 755-3607 - ------------------------------------------------------------------------------- (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 10, 1997, 3,852,059 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 December 29, 1996 and September 28, 1997 (unaudited). . . . . . . . . . . . . 4 Condensed Consolidated Statements of Income (unaudited) Thirteen weeks ended September 29, 1996 and September 28, 1997 . . . . . . . . . . . . . . . . . 5 Thirty-nine weeks ended September 29, 1996 and September 28, 1997. . . . . . . . . . . . . . . . . . 6 Condensed Consolidated Statements of Cash Flows (unaudited) Thirty-nine weeks ended September 29, 1996 and September 28, 1997. . . . . . . . . . . . . . . . . . 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. . . . . . . . . . . . . 21 2 3 PART I FINANCIAL INFORMATION 3 4 ITEM 1. FINANCIAL STATEMENTS. EATERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
December 29, September 28, 1996 1997 ------------ ------------ (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 695,481 $ 773,759 Receivables 801,546 938,879 Deferred income taxes 387,000 683,000 Inventories 1,400,262 1,381,180 Other 209,929 330,335 ------------ ------------ Total current assets 3,494,218 4,107,153 ------------ ------------ PROPERTY AND EQUIPMENT 33,024,956 34,713,114 Less landlord finish-out allowances (13,896,522) (14,308,064) Less accumulated depreciation and amortization (5,444,896) (6,658,594) ------------ ------------ Net property and equipment 13,683,538 13,746,456 ------------ ------------ DEFERRED INCOME TAXES 975,000 518,000 OTHER ASSETS, net 555,945 717,081 ------------ ------------ $ 18,708,701 $ 19,088,690 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 4,359,571 $ 2,610,959 Accrued liabilities 2,562,336 2,381,525 Current portion of long-term obligations 28,308 28,093 ------------ ------------ Total current liabilities 6,950,215 5,020,577 ------------ ------------ OTHER NONCURRENT LIABILITIES 638,017 730,420 ------------ ------------ LONG-TERM OBLIGATIONS, net of current portion 1,470,715 3,315,000 ------------ ------------ COMMITMENTS STOCKHOLDERS' EQUITY: Preferred stock, none issued - - Common stock 8,287 8,411 Additional paid-in capital 9,340,519 9,437,653 Retained earnings 1,666,092 2,143,912 ------------ ------------ 11,014,898 11,589,976 Treasury stock, at cost, 282,761 shares at December 29, 1996 and 353,264 shares at September 28, 1997 (1,365,144) (1,567,283) ------------ ------------ Total stockholders' equity 9,649,754 10,022,693 ------------ ------------ $ 18,708,701 $ 19,088,690 ============ ============
See notes to condensed consolidated financial statements. 4 5 EATERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Thirteen Weeks Ended September 29, September 28, 1996 1997 ------------ ------------ REVENUES: Food and beverage sales $ 13,851,215 $ 14,580,114 Franchise fees and royalties 64,058 65,011 Other income 83,572 89,651 ------------ ------------ 13,998,845 14,734,776 ------------ ------------ COSTS AND EXPENSES: Costs of sales 4,226,479 4,111,161 Operating expenses 7,986,366 8,627,166 Pre-opening costs 230,000 92,000 General and administrative 869,832 939,556 Depreciation and amortization 480,772 578,497 Interest expense 51,042 68,074 ------------ ------------ 13,844,491 14,416,454 ------------ ------------ INCOME BEFORE INCOME TAXES 154,354 318,322 PROVISION FOR INCOME TAXES 45,000 93,000 ------------ ------------ NET INCOME $ 109,354 $ 225,322 ============ ============ WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES 4,086,807 4,018,968 ============ ============ NET INCOME PER SHARE $ 0.03 $ 0.06 ============ ============
See notes to condensed consolidated financial statements. 5 6 EATERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Thirty-nine Weeks Ended September 29, September 28, 1996 1997 ------------ ------------ REVENUES: Food and beverage sales $ 39,730,073 $ 42,136,103 Franchise fees and royalties 197,533 198,703 Other income 268,614 312,775 ------------ ------------ 40,196,220 42,647,581 ------------ ------------ COSTS AND EXPENSES: Costs of sales 12,143,784 11,989,724 Operating expenses 23,437,647 24,951,860 Pre-opening costs 504,000 266,000 General and administrative 2,665,845 2,927,616 Depreciation and amortization 1,353,600 1,652,646 Interest expense 118,564 183,915 ------------ ------------ 40,223,440 41,971,761 ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES (27,220) 675,820 PROVISION (BENEFIT) FOR INCOME TAXES (8,000) 198,000 ------------ ------------ NET INCOME (LOSS) $ (19,220) $ 477,820 ============ ============ WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES 3,954,108 4,019,128 ============ ============ NET INCOME (LOSS) PER SHARE $ (0.00) $ 0.12 ============ ============
See notes to condensed consolidated financial statements. 6 7 EATERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Thirty-nine Weeks Ended September 29, September 28, 1996 1997 ------------ ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: Cash flows from operating activities: Net income (loss) $ (19,220) $ 477,820 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation & amortization 1,353,600 1,652,646 Gain on sale of assets (3,271) (6,165) Common stock bonuses 7,741 8,600 Deferred income taxes (8,000) 198,000 (Increase) decrease in: Receivables (432,038) (267,055) Inventories 80,159 19,082 Other (41,084) (120,406) Increase (decrease) in: Accounts payable 1,515,188 (1,228,403) Accrued liabilities (475,615) (194,147) Other noncurrent liabilities 17,903 92,403 ------------ ----------- Total adjustments 2,014,583 154,555 ------------ ----------- Net cash provided by operating activities 1,995,363 632,375 ------------ ----------- Cash flows from investing activities: Capital expenditures (6,096,471) (2,949,271) Landlord allowances 2,601,074 1,225,408 Proceeds from sale of property and equipment 36,379 15,063 Increase in other assets (12,381) (18,677) ------------ ----------- Net cash used in investing activities (3,471,399) (1,727,477) ------------ ----------- Cash flows from financing activities: Payments on notes payable to vendor (13,139) - Payments on long-term obligations (18,710) (20,930) Borrowing under note payable - 115,000 Net borrowings under revolving credit agreement 1,900,000 1,750,000 Decrease in bank overdraft included in accounts payable - (520,209) Proceeds from sale of common stock 969 325 Proceeds from exercise of stock options 60,727 26,333 Payment of withholding tax liabilities related to acquisition of treasury stock - (17,224) Purchases of treasury stock - (159,915) ------------ ----------- Net cash provided by financing activities 1,929,847 1,173,380 ------------ ----------- Net increase in cash & cash equivalents 453,811 78,278 Cash and cash equivalents at beginning of period 1,001,954 695,481 ------------ ----------- Cash and cash equivalents at end of period $ 1,455,765 $ 773,759 ============ ===========
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. The Company changed its fiscal year-end in the first quarter of 1996 to a 52/53 week year ending on the last Sunday in December. As a result of this change, each of the Company's quarters will consist of thirteen weeks. In a 53 week fiscal year, the fourth quarter will include fourteen weeks. Operating results for thirteen and thirty-nine week periods ended September 28, 1997, are not necessarily indicative of the results that may be expected for the year ending December 28, 1997. 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 29, 1996. Note 2 - Balance Sheet Information Receivables are comprised of the following:
December 29, September 28, 1996 1997 ------------ ------------ Franchisees . . . . . . . . . . $ 53,685 $ 26,809 Insurance refunds . . . . . . . 164,219 356,157 Landlord finish-out allowances 188,866 50,000 Vendor rebates. . . . . . . . . 226,322 330,235 Other . . . . . . . . . . . . . 168,454 175,678 ------------ ------------ $ 801,546 $ 938,879 ============ ============
Accrued liabilities are comprised of the following:
December 29, September 28, 1996 1997 ------------ ------------ Compensation. . . . . . . . . . $ 1,388,058 $ 1,355,414 Taxes, other than income. . . . 456,681 428,201 Other . . . . . . . . . . . . . 717,597 597,910 ------------ ------------ $ 2,562,336 $ 2,381,525 ============ ============
8 9 Note 3 - Supplemental Cash Flow Information For the thirty-nine weeks ended September 29, 1996 and September 28, 1997, the Company had the following non-cash investing and financing activities:
Thirty-nine Weeks Ended September 29, September 28, 1996 1997 ------------ ------------ Net decrease in receivables for landlord finish-out allowances $ (568,538) $ (138,866) Increase in additional paid-in capital as a result of tax benefits from the exercise of non-qualified stock options 56,000 37,000 Acquisition of treasury stock upon exercise of stock options - 25,000 Sale of property and equipment in exchange for notes receivable - 160,000 Asset write-offs related to restaurant closures - 13,334
Note 4 - Provision for Restaurant Closures and Other Disposals During 1995, the Company approved and began the implementation of a plan to close four underperforming restaurants. In 1996, the Company identified two additional restaurants for closure. As of September 28, 1997, the Company has closed all six of these restaurants and has incurred all costs associated with these closures. Management expects the effect of closing these underperforming stores to result in improved margins and increased profitability in future periods. In the normal course of business, management performs a regular review of the strength of its operating assets. It is management's plan to continue to make such decisions to dispose of assets it considers in the best long-term interest of the Company's shareholders. Note 5 - Stock Put Agreements In April, 1997, the Company entered into stock put agreements with two of its executive officers (who also serve on the Company's Board of Directors). Under the agreements, in the event of the officer's death while an employee of the Company, their respective estate or other legal representative has the right (but not the obligation) to compel the Company to purchase all or part of the common stock owned by or under stock option agreements with the deceased officer or the members of their immediate families (i.e. spouse or children) or controlled by any of them through trusts, partnerships, corporations or other entities on the date of their death. The per share purchase price payable by the Company for common stock purchased under the agreements is the greater of the highest closing stock price during the 60 days preceding the officer's death or two times the 9 10 net book value per share as of the last day of the calendar month immediately preceding the officer's death. In any event, the total purchase price cannot exceed the proceeds payable to the Company from the key man life insurance policy maintained on the life of the respective officer. Note 6 - New Accounting Standards In March 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which requires the calculation of basic and diluted earnings per share (EPS). Basic 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. 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 common stock equivalents. The Statement is effective for periods ending after December 15, 1997, and the Company believes the effect on its EPS will be immaterial. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," which is effective for financial statements for periods beginning after December 15, 1997. The Company plans to adopt both of these accounting standards as of the first day of fiscal year 1998. SFAS No. 130 requires that all items required to be recognized under accounting standards as components of comprehensive income, consisting of both net income and those items that bypass the income statement and are reported in a balance within a separate component of stockholders' equity, be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company does not believe that comprehensive income will differ materially from net income. SFAS No. 131 establishes standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company does not anticipate the adoption of this new accounting standard will create additional business segment reporting requirements. Note 7 - Pending Acquisition In August, 1997, the Company announced that it had signed a letter of intent to purchase 17 Mexican restaurants from Famous Restaurants, Inc. for a purchase price of approximately $10 million plus the assumption of certain liabilities. The restaurants being acquired generated sales of approximately $32 million in 1996. The Company plans to finance the transaction primarily through a bank 10 11 loan. The Company has received an approved commitment from a bank for a $9.5 million acquisition loan as well as a $6 million line of credit to replace the Company's existing $5 million line of credit. As of the date of this report, the Company is continuing negotiations related to this acquisition and expects to conclude the transaction during the fourth quarter. 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 similar 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 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. In addition, the Company disclaims any intent or obligation to update those forward-looking statements. INTRODUCTION As of September 28, 1997, the Company owned and operated 43 and franchised eight Garfield's casual theme dinnerhouse restaurants. The Company currently has two additional Garfield's restaurants under development to be opened in 1998. As of September 28, 1997, the entire system includes 46 (43 Garfield's, two Pepperoni Grills and one test Casa Ole) Company-owned and eight franchised Garfield's restaurants. 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: 12 13
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED September 29, September 28, September 29, September 28, 1996 1997 1996 1997 ------------------------- --------------------------- Statements of Income Data: Revenues: Food and beverage sales . . . . 98.9% 99.0% 98.8% 98.8% Franchise fees and royalties . . 0.5% 0.4% 0.5% 0.5% Other income . . . . . . . . . . 0.6% 0.6% 0.7% 0.7% ------------------------- --------------------------- 100.0% 100.0% 100.0% 100.0% Costs and Expenses: Costs of sales (1) . . . . . . . 30.5% 28.2% 30.6% 28.5% Operating expenses(1). . . . . . 57.7% 59.2% 59.0% 59.2% Pre-opening costs (1). . . . . . 1.7% 0.6% 1.3% 0.6% General and administrative . . . 6.2% 6.4% 6.6% 6.9% Depreciation and amortization (1) 3.5% 4.0% 3.4% 3.9% Interest expense . . . . . . . . 0.4% 0.5% 0.3% 0.4% ------------------------- --------------------------- 98.9% 97.8% 100.1% 98.4% ------------------------- --------------------------- Income (loss) before income taxes . 1.1% 2.2% (0.1%) 1.6% Provision (benefit) for income taxes 0.3% 0.6% (0.0%) 0.5% ------------------------- --------------------------- Net income (loss) . . . . . . . . . 0.8% 1.5% (0.0%) 1.1% ========================= =========================== Selected Operating Data: (Dollars in thousands) System-wide sales: Company restaurants. . . . . . . $ 13,851 $ 14,580 $ 39,730 $ 42,136 Franchise restaurants. . . . . . 2,085 2,059 6,155 6,010 ------------------------- --------------------------- Total . . . . . . . . . . . . $ 15,936 $16,639 $ 45,885 $ 48,146 ========================= =========================== Number of restaurants (at end of period): Company restaurants. . . . . . . 44 46 Franchise restaurants. . . . . . 8 8 ------------------------- Total . . . . . . . . . . . . 52 54 =========================
(1) As a percentage of food and beverage sales. RESULTS OF OPERATIONS For the thirteen weeks ended September 28, 1997, the Company recorded net income of $225,000 ($.06 per share) on revenues of $14,735,000. This compares to net income of $109,000 ($.03 per share) for the thirteen weeks ended September 29, 1996, on revenues of $13,999,000. For the thirty-nine weeks ended September 28, 1997, the Company reported net income of $478,000 ($.12 per share) compared to a net loss of $(19,000) ($(.00) per share) for the thirty- nine weeks ended September 29, 1996. REVENUES Company revenues for the thirteen and thirty-nine weeks ended September 28, 1997 increased 5% and 6%, respectively, over the revenues reported for the same periods in 1996. The revenue increase relates primarily to increased food and beverage sales during the thirteen and thirty-nine week periods in 1997. 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: 13 14
Number of Average Monthly Operating Months Sales Per Unit ---------------------------- --------------------------- Period Number of Thirteen Thirty-nine Thirteen Thirty-nine Ended Units Open Weeks Weeks Weeks Weeks - ------------------- ---------- --------- ----------- --------- ----------- September 28, 1997 46 135 397 $ 108,000 $ 106,100 September 29, 1996 44 128 378 $ 108,200 $ 105,100
For the thirteen weeks ended September 28, 1997, average monthly sales per unit decreased $200 or 0.2% versus the quarter ended September 29, 1996. Average monthly sales per unit increased by $1,000 or 1.0% for the thirty-nine weeks ended September 28, 1997 versus the previous year's results. This year-to-date increase is comprised of a 5.3% increase during the first quarter of 1997 partially offset by a 1.2% decrease in the second quarter and the 0.2% decrease in the third quarter. Management believes average monthly sales per unit during the first quarter of 1997 increased due to the following reasons: The Company expanded its electronic advertising campaign into additional markets during the first quarter of 1997. Between July, 1996 and January, 1997, the Company has rolled out three new menu revisions which included selective modest price increases (inline with competitor pricing on comparable food selections) and introduced new higher-priced product selections that were featured in the Company's electronic and newspaper advertising campaigns. As a result of a change in the Company's fiscal year, the Company's 1996 fiscal year ended on December 29, 1996. This moved two of the Company's highest sales volume days (December 30 and 31) into the first quarter of 1997. As a result of the Company's strategy to close underperforming locations, the mix of restaurants open during the first quarter of 1997 represents a higher sales volume mix than was open during the first quarter of 1996. The second and third quarter decreases are primarily due to decreased liquor sales. Based on this decrease, a new liquor merchandising plan has been developed and implemented during the fourth quarter of 1997. Franchise fees and continuing royalties were $199,000 and $198,000 in the thirty-nine weeks ended September 28, 1997 and September 29, 1996, respectively. At September 28, 1997 and September 29, 1996, there were eight franchise restaurants in service. Subsequent to September 28, 1997, the Company signed an agreement for a new franchised Garfield's in Vincennes, IN. 14 15 Management expects this location to open during the second quarter of 1998. The Company has also notified an existing franchisee that the related franchise agreement had expired, but the franchise will be permitted to operate on a month-to-month basis pending further negotiations. Other income for the thirty-nine weeks ended September 28, 1997, was $313,000 (0.7% of total revenues) as compared to the previous year's amount of $269,000 (0.7% of total revenues). 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 29, September 28, September 29, September 28, 1996 1997 1996 1997 ------------ ------------ ------------ ------------ Costs of sales 30.5% 28.2% 30.6% 28.5% Labor costs 27.2% 27.8% 28.1% 27.4% ------------ ------------ ------------ ------------ Total 57.7% 56.0% 58.7% 55.9% ============ ============ ============ ============
The decrease in cost of sales percentages during the thirteen and thirty-nine week periods ended September 28, 1997, versus the 1996 comparable periods relates to continued menu development, increased vendor rebates and improved store-level food and beverage cost controls. The decrease in labor costs as a percentage of food and beverage sales during the thirteen and thirty-nine week periods ended September 28, 1997, versus the 1996 comparable periods primarily relates to a new scheduling program, a reduction in the average number of managers per store and continued refinement of restaurant operations resulting in reduced kitchen labor costs. Effective September 1, 1997, the Federal minimum wage increased from $4.75 per hour to $5.15 per hour. Management does not expect this increase to have a significant impact on labor costs. For the thirteen weeks ended September 28, 1997, operating expenses as a percentage of food and beverage sales increased to 59.2% from 57.7% in the 1996 thirteen week period. An increase was also experienced during the thirty-nine weeks ended September 28, 1997, during which operating expenses were 59.2%, as compared to the 1996 period level of 59.0%. Both 1997 period increases in operating expenses as a percent of sales are attributable to increased marketing and advertising costs and restaurant occupancy costs partially offset by lower labor costs (as previously explained). Restaurant pre-opening costs, which are expensed as incurred, were $92,000 and $230,000 for the thirteen weeks ended 15 16 September 28, 1997 and September 29, 1996, respectively, and $266,000 and $504,000 for the 1997 and 1996 thirty-nine week periods ended, respectively. Three restaurants were developed in the first thirty-nine weeks of 1997 while five restaurants were developed in the 1996 period. The Company plans to open no additional restaurants in 1997. 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. During the thirteen and thirty-nine week periods ended during September 28, 1997 and September 29, 1996, general and administrative costs as a percentage of total revenues increased to 6.4% and 6.9%, respectively, from 6.2% and 6.6%, respectively. These increases primarily relate to an increase in incentive compensation and severance costs. The higher absolute levels of general and administrative costs in 1997 as compared to 1996 amounts are related primarily to additional personnel costs and related costs of operating the expanding restaurant system. The Company anticipates that its costs of supervision and administration of Company and franchise stores will increase at a slower rate than revenue increases during the next few years. Depreciation and amortization expense increased for the first thirty-nine weeks of 1997 to $1,653,000 (3.9% of food and beverage sales) compared to $1,354,000 (3.4% of food and beverage sales) in 1996. The cost increase relates principally to the increase in net assets subject to depreciation and amortization in 1997 versus 1996 because of additional restaurants opened since October, 1996, and the remodeling of existing restaurants. During the quarter ended September 28, 1997, interest expense was $68,000 (0.5% of total revenues) versus $51,000 (0.4% of total revenues) for the quarter ended September 29, 1996. For the thirty-nine week period ended September 28, 1997, interest expense increased to $184,000 (0.4% of total revenues) from $119,000 (0.3% of total revenues) in the comparable 1996 period. These increases primarily relate to an increase in the average borrowing amount and a higher average interest rate under the Company's revolving credit agreement during 1997 versus 1996. INCOME TAXES The Company's provision for income taxes was $198,000 during the first thirty-nine weeks of 1997 versus a benefit for income taxes of $(8,000) for the 1996 comparable period. The effective tax rates for the periods are as follows: 16 17
Thirteen Weeks Thirty-nine Weeks --------------------- ---------------------- 1996 1997 1996 1997 ----- ----- ----- ----- Effective income tax rates 29.2% 29.2% 29.4% 29.3%
NET INCOME (LOSS) PER SHARE AMOUNTS Net income (loss) per share amounts are computed by dividing net income (loss) by the weighted average number of common and dilutive common equivalent shares outstanding during the period. Per share amounts are based on total outstanding shares plus the assumed exercise of all dilutive stock options and warrants. Common and common equivalent share amounts were 4,018,968 and 4,086,807 in the thirteen weeks ended September 28, 1997 and September 29, 1996, respectively, and 4,019,128 and 3,954,108 in the thirty-nine weeks ended September 28, 1997 and September 29, 1996, respectively. Under the treasury stock method of computation, outstanding stock options and warrants represented 161,407 and 242,256 dilutive common equivalent shares for the quarters ended September 28, 1997 and September 29, 1996, respectively. In March 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which requires the calculation of basic and diluted earnings per share (EPS). Basic 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. 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 common stock equivalents. The Statement is effective for periods ending after December 15, 1997, and the Company believes the effect on its EPS will be immaterial. 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. Management believes the Company has historically been able to pass on increased costs through certain selected menu price increases and has offset increased costs by 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 cost could increase in the future which could affect the Company's ability to expand. In addition, mandated health care could significantly increase the Company's 17 18 costs of doing business. LIQUIDITY AND CAPITAL RESOURCES At September 28, 1997, the Company's working capital ratio was .82 to 1 compared to .50 to 1 at December 29, 1996. The Company's working capital was $(913,000) at September 28, 1997, versus $(3,456,000) at December 29, 1996. 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 principally 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 28, 1997, the Company had net cash provided by operating activities of $632,000 as compared to net cash provided by operating activities of $1,995,000 during the comparable 1996 period. The Company planned to open three units (all of which have been opened as of September 28, 1997) during 1997 in restaurant locations leased in regional malls. 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 1997. In August, 1995, the Company entered into an agreement with a bank for a revolving line of credit for $3,000,000. In July, 1996, this line of credit was increased to $5,000,000 and the term was extended by one year to August, 1999. This revolver is unsecured, has a three year term and contains customary financial covenants. This credit facility provides the Company additional borrowing capacity to continue its expansion plans over the next several years. 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 September 28, 1997, 55,100 shares had been repurchased under this plan for a total purchase price of approximately $160,000. No additional shares have been repurchased subsequent to September 28, 1997. RECENT EVENT In August, 1997, the Company announced that it had signed a letter of intent to purchase 17 Mexican restaurants from Famous Restaurants, Inc. for a purchase price of approximately $10 million plus the assumption of certain liabilities. The restaurants being acquired generated sales of approximately $32 million in 1996. The Company plans to finance the transaction primarily through a bank 18 19 loan. The Company has received an approved commitment from a bank for a $9.5 million acquisition loan as well as a $6 million line of credit to replace the Company's existing $5 million line of credit. As of the date of this report, the Company is continuing negotiations related to this acquisition and expects to conclude the transaction during the fourth quarter. 19 20 PART II OTHER INFORMATION 20 21 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibit 11.1 - Computation of Net Income Per Share. Exhibit 27.1 - Financial Data Schedule. (b) No reports on Form 8-K were filed during the thirteen weeks ended September 28, 1997. 21 22 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 10, 1997 By: /s/ COREY GABLE ------------------------- Corey Gable Vice President/Treasurer Chief Financial and Accounting Officer 22 23 INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION 11.1 Computation of Net Income Per Share 27.1 Financial Data Schedule EX-11.1 2 COMPUTATION OF NET INCOME PER SHARE 1 Exhibit 11.1 EATERIES, INC. AND SUBSIDIARIES COMPUTATION OF NET INCOME PER SHARE
1997 QUARTER ENDED March 30 June 29 September 28 ---------- ---------- ---------- Shares for net income per share computation: Weighted average shares: Common shares outstanding from beginning of period . . . . . . . . 3,860,630 3,867,330 3,907,336 Common shares issued upon: Exercise of stock options . . . . . . 2,637 39,852 - Common stock bonuses. . . . . . . . . - 1,879 - Treasury shares acquired . . . . . . . - (11,213) (49,775) ---------- ---------- ---------- 3,863,267 3,897,848 3,857,561 Common stock equivalents: Shares issuable upon exercise of options . . . . . . . 556,983 133,651 743,651 Assumed repurchase of outstanding shares up to 20% limitation (based on average market price for the quarter) (336,646) (76,688) (582,244) ---------- ---------- ---------- 220,337 56,963 161,407 ---------- ---------- ---------- Total shares . . . . . . . . . 4,083,604 3,954,811 4,018,968 ========== ========== ========== Net income . . . . . . . . . . . . . . . . $ 228,808 $ 23,690 $ 225,322 ========== ========== ========== Net income per share . . . . . . . . . . . $ 0.06 $ 0.01 $ 0.06 ========== ========== ==========
Thirty-nine Weeks Ended September 28, 1997 -------------- Net income (sum of three quarters above) . . . . . . . . . . . . . $ 477,820 ========== Weighted average number of common and common equivalent shares (average of three quarters above). . . . . . . 4,019,128 ========== Net income per share . . . . . . . . . . . . . . . . . . . . . . . $ 0.12 ==========
2 Exhibit 11.1 EATERIES, INC. AND SUBSIDIARIES COMPUTATION OF NET INCOME PER SHARE
1996 QUARTER ENDED March 31 Jun30 September 29 ---------- ----------- ---------- Shares for net income per share computation: Weighted average shares: Common shares outstanding from beginning of period. . . . . . . . 3,745,095 3,842,258 3,843,908 Common shares issued upon: Exercise of stock options. . . . . . 62,996 - - Sale of common stock . . . . . . . . - 198 50 Common stock bonuses . . . . . . . . - 948 593 ---------- ----------- ---------- 3,808,091 3,843,404 3,844,551 Common stock equivalents (unless anti-dilutive): Shares issuable upon exercise of options (dilutive) . . . . . . . . 761,983 - 864,483 Assumed repurchase of outstanding shares up to 20% limitation (based on average market price for the quarter) (637,961) - (622,227) ---------- ----------- ---------- 124,022 - 242,256 ---------- ---------- ---------- Total shares . . . . . . . . . . 3,932,113 3,843,404 4,086,807 ========== ========== ========== Net income (loss). . . . . . . . . . . . . $ 37,279 $ (165,853) $ 109,354 ========== ========== ========== Net income (loss) per share. . . . . . . . $ 0.01 $ (0.04) $ 0.03 ========== ========== ==========
Thirty-nine Weeks Ended September 29, 1996 ------------- Net loss (sum of three quarters above). . . . . . . . . . . . . . . $ (19,220) ========== Weighted average number of common and common equivalent shares (average of three quarters above) . . . . . . . 3,954,108 ========== Net loss per share. . . . . . . . . . . . . . . . . . . . . . . . . $ (0.00) ==========
EX-27.1 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 27, 1997 AND THE CONDENSED CONSOLIDATED STATEMENT FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS 1,000 9-MOS DEC-28-1997 DEC-30-1996 SEP-28-1997 774 0 939 0 1,381 4,107 20,405 6,659 19,089 5,021 3,315 0 0 8 10,014 19,089 42,136 42,648 11,990 38,594 3,378 0 184 676 198 478 0 0 0 478 0.12 0.12
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