UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission file number
JUNE 12, 2001 000-22753
------------- ---------
TOTAL ENTERTAINMENT RESTAURANT CORP.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 52-2016614
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
9300 EAST CENTRAL AVENUE
SUITE 100
WICHITA, KANSAS 67206
(Address of principal executive offices) (Zip code)
(316) 634-0505
(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.
CLASS Outstanding at July 23, 2001
COMMON STOCK, $.01 PAR VALUE 8,666,111 SHARES
TOTAL ENTERTAINMENT RESTAURANT CORP.
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION ------
-------------------------------
ITEM 1. CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED CONSOLIDATED BALANCE SHEETS AT
JUNE 12, 2001 AND DECEMBER 26, 2000 2
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE TWELVE WEEKS ENDED
JUNE 12, 2001 AND JUNE 13, 2000 3
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE TWENTY-FOUR WEEKS ENDED
JUNE 12, 2001 AND JUNE 13, 2000 4
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS FOR THE TWENTY-FOUR WEEKS ENDED
JUNE 12, 2001 AND JUNE 13, 2000 5
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 7
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK 12
PART II. OTHER INFORMATION
---------------------------
ITEM 2. CHANGES IN SECURITIES 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
-1-
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 12, 2001 December 26, 2000
-------------------- --------------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,851,394 $ 2,244,606
Inventories 1,110,311 1,028,975
Deferred income taxes 158,422 161,206
Other current assets 744,309 579,594
----------- -----------
Total current assets 4,864,436 4,014,381
Property and equipment:
Land 600,000 600,000
Buildings 670,629 670,629
Leasehold improvements 23,292,832 21,851,941
Equipment 14,095,869 13,397,524
Furniture and fixtures 3,396,670 3,265,386
----------- -----------
42,056,000 39,785,480
Less accumulated depreciation and amortization 10,661,134 9,022,781
----------- -----------
31,394,866 30,762,699
Other assets:
Goodwill, net of accumulated amortization 3,792,606 3,905,296
Deferred income taxes 1,012,337 1,059,839
Other assets 558,597 385,385
----------- -----------
Total other assets 5,363,540 5,350,520
----------- -----------
Total assets $41,622,842 $40,127,600
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable $ 1,976,791 $ 418,108
Accounts payable 1,779,345 3,520,542
Sales tax payable 648,803 442,297
Accrued payroll 620,285 775,012
Accrued payroll taxes 308,239 242,134
Accrued income taxes 1,074,413 1,009,592
Lease obligation for closed store 211,133 263,924
Other accrued liabilities 1,227,343 777,504
----------- -----------
Total current liabilities 7,846,352 7,449,113
Notes payable 11,273,209 11,561,892
Deferred revenue 130,291 129,549
Stockholders' equity:
Preferred stock - -
Common stock 86,661 87,414
Additional paid-in capital 17,134,948 17,301,511
Retained earnings 5,151,381 3,598,121
----------- -----------
Total stockholders' equity 22,372,990 20,987,046
----------- -----------
Total liabilities and stockholders' equity $41,622,842 $40,127,600
=========== ===========
See accompanying notes.
- 2 -
TOTAL ENTERTAINMENT RESTAURANT CORP.
Condensed Consolidated Statements of Operations
(UNAUDITED)
Twelve weeks Twelve weeks
ended ended
June 12,2001 June 13, 2000
--------------------- ----------------------
Sales:
Food and beverage $ 13,351,523 $ 10,789,539
Entertainment and other 1,373,505 1,216,684
------------ ------------
Total net sales 14,725,028 12,006,223
Costs and expenses:
Costs of sales 4,039,824 3,158,884
Entertainment and restaurant operating expenses 7,746,643 6,337,419
Depreciation and amortization 850,348 825,188
Preopening costs 299,064 7,855
------------ ------------
Entertainment and restaurant costs and expenses 12,935,879 10,329,346
------------ ------------
Entertainment and restaurant operating income 1,789,149 1,676,877
General and administrative expenses 910,645 903,851
Goodwill amortization 56,345 56,342
------------ ------------
Income from operations 822,159 716,684
Other income (expense):
Loss on disposal of assets (28,538) (6,042)
Other income, principally interest 154 -
Interest expense (223,199) (242,433)
------------ ------------
Income before provision for income taxes 570,576 468,209
Provision for income taxes 208,525 173,238
------------ ------------
Net income $ 362,051 $ 294,971
============ ============
Basic and diluted earnings per share $ 0.04 $ 0.03
============ ============
See accompanying notes.
- 3 -
TOTAL ENTERTAINMENT RESTAURANT CORP.
Condensed Consolidated Statements of Operations
(UNAUDITED)
Twenty-four Twenty-four
weeks ended weeks ended
June 12, 2001 June 13, 2000
--------------------- ----------------------
Sales:
Food and beverage $ 28,258,028 $ 23,058,174
Entertainment and other 2,904,017 2,597,839
------------ ------------
Total net sales 31,162,045 25,656,013
Costs and expenses:
Costs of sales 8,490,651 6,702,564
Entertainment and restaurant operating expenses 15,771,621 12,768,590
Depreciation and amortization 1,666,747 1,662,663
Preopening costs 370,471 14,275
------------ ------------
Entertainment and restaurant costs and expenses 26,299,490 21,148,092
------------ ------------
Entertainment and restaurant operating income 4,862,555 4,507,921
General and administrative expenses 1,777,493 1,861,805
Goodwill amortization 112,690 112,687
------------ ------------
Income from operations 2,972,372 2,533,429
Other income (expense):
Loss on disposal of assets (51,828) (31,733)
Other income, principally interest 194 -
Interest expense (477,838) (491,716)
------------ ------------
Income before provision for income taxes 2,442,900 2,009,980
Provision for income taxes 889,640 743,693
------------ ------------
Net income $ 1,553,260 $ 1,266,287
============ ============
Basic and diluted earnings per share $ 0.18 $ 0.13
============ ============
See accompanying notes.
- 4 -
TOTAL ENTERTAINMENT RESTAURANT CORP.
Condensed Consolidated Statement of Cash Flows
(UNAUDITED)
Twenty-four Twenty-four
weeks ended weeks ended
June 12, 2000 June 13, 2000
----------------- -----------------
Cash flows from operating activities:
Net income $ 1,553,260 $ 1,266,287
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on disposal of assets 51,828 31,733
Depreciation and amortization 1,803,091 1,775,354
Deferred income taxes 50,286 64,167
Net change in operating assets and liabilities:
Change in operating assets (433,930) (178,695)
Change in operating liabilities (1,296,589) 108,713
----------- -----------
Net cash provided by operating activities 1,727,946 3,067,559
Cash flows from investing activities:
Purchases of property and equipment (2,243,942) (259,856)
Proceeds from disposal of assets 20,100 38,320
----------- -----------
Net cash used in investing activities (2,223,842) (221,536)
Cash flows from financing activities:
Proceeds from revolving note payable to bank 25,385,000 17,400,000
Payments of revolving note payable to bank (24,115,000) (19,955,000)
Purchases of common stock (167,316) (660,130)
----------- -----------
Net cash provided by (used in) financing activities 1,102,684 (3,215,130)
----------- -----------
Net increase (decrease) in cash and cash equivalents 606,788 (369,107)
Cash and cash equivalents at beginning of period 2,244,606 2,550,469
----------- -----------
Cash and cash equivalents at end of period $ 2,851,394 $ 2,181,362
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 433,703 $ 544,636
Cash paid for income taxes 773,993 858,664
Supplemental disclosure of non cash activity:
Additions to property and equipment in accounts
payable 135,887 -
See accompanying notes.
- 5 -
TOTAL ENTERTAINMENT RESTAURANT CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
-------------------------------------------------
The unaudited condensed consolidated financial statements have been
prepared by the Company, pursuant to the rules and regulations of the Securities
and Exchange Commission. The information furnished herein reflects all
adjustments (consisting of normal recurring accruals and adjustments) which are,
in the opinion of management, necessary to fairly present the operating results
for the respective periods. Certain information and footnote disclosures
normally presented in annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to such
rules and regulations. These financial statements should be read in conjunction
with the Company's audited consolidated financial statements in its 2000 Form
10-K. The results of the twelve weeks ended June 12, 2001 are not necessarily
indicative of the results to be expected for the full year ending December 25,
2001.
2. STOCK OPTIONS
-------------
During the twelve week period ended June 12, 2001, the Company granted to
certain key employees stock options for 7,500 shares of Common Stock at an
exercise price of $2.125 per share and cancelled options for 10,526 shares with
an exercise price of $4.75 per share pursuant to its 1997 Incentive and
Nonqualified Stock Option Plan
3. EARNINGS PER SHARE
------------------
Basic earnings per share amounts are computed based on the weighted
average number of shares actually outstanding. The number of weighted averaged
shares outstanding for the twelve week periods ended June 12, 2001 and June 13,
2000 were 8,666,111 and 9,451,591, respectively; the number of weighted averaged
shares outstanding for the twenty-four week periods ended June 12, 2001 and June
13, 2000 were 8,674,490 and 9,523,425, respectively.
For purposes of diluted computations, the number of shares that would be
issued from the exercise of stock options has been reduced by the number of
shares which could have been purchased from the proceeds at the average market
price of the Company's stock or the price of the Company's stock on the exercise
date if options were exercised during the period presented. The number of shares
resulting from this computation of diluted earnings per share for the twelve
weeks ended June 12, 2001 and June 13, 2000 were 8,693,211 and 9,456,731, and
for the twenty-four week periods ended June 12, 2001 and June 13, 2000 were
8,696,009 and 9,525,916, respectively.
-6-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANAYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto included elsewhere in this Form 10-Q.
As of June 12, 2001, the Company owned and operated 40 entertainment and
restaurant locations under the Fox and Hound English Pub & Grille ("Fox and
Hound"), Bailey's Sports Grille and Bailey's Pub & Grille ("Bailey's") brand
names. The Company's entertainment restaurant locations combine a comfortable
and inviting social gathering place, full menu and full-service bar,
state-of-the-art audio and video systems for sports and music entertainment,
traditional games of skill such as pocket billiards and a late-night dining
alternative, all in a single location. As of June 12, 2001, the Company owned
and operated 26 Fox and Hound units and 14 Bailey's units located in Alabama,
Arkansas, Georgia, Illinois, Indiana, Kansas, Louisiana, Michigan, Missouri,
Nebraska, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee and
Texas. As of June 13, 2000, the Company owned and operated 23 Fox and Hound
units and 12 Bailey's units.
The components of the Company's net sales are food and non-alcoholic
beverages, alcoholic beverages, and entertainment and other. For the twelve
weeks ended June 12, 2001, food and non-alcoholic beverages were 31.7% of total
sales, alcoholic beverages were 59.0% of total sales and entertainment and other
were 9.3% of total sales. For the twelve weeks ended June 13, 2000, food and
non-alcoholic beverages were 31.7% of total sales, alcoholic beverages were
58.2% of total sales and entertainment and other were 10.1% of total sales
Components of restaurant operating expenses include operating payroll and
fringe benefits, occupancy, advertising and promotion. These costs are generally
variable and will fluctuate with changes in sales volume and sales mix. All but
one of the Company's locations are leased and provide for a minimum annual rent,
with some leases calling for additional rent based on sales volume at the
particular location in excess of specified minimum levels.
General and administrative expenses include all corporate and
administrative functions that support existing operations and provide an
infrastructure to support future growth. Management, supervisory and staff
salaries, employee benefits, travel, information systems, training, rent and
office supplies as well as accounting services fees are major items of costs in
this category.
-7-
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated (i) the
percentages which certain items included in the Condensed Consolidated Statement
of Operations bear to net sales, and (ii) other selected operating data:
TWELVE WEEKS ENDED(1) TWENTY-FOUR WEEKS ENDED(1)
--------------------- --------------------------
JUNE 12, JUNE 13, JUNE 12, JUNE 13,
2001 2000 2001 2000
-------- -------- -------- --------
OPERATING STATEMENT DATA:
Net sales ............................................... 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Costs of sales....................................... 27.4 26.3 27.2 26.1
Restaurant operating expenses........................ 52.6 52.7 50.6 49.8
Depreciation and amortization........................ 5.8 6.9 5.4 6.5
Preopening costs..................................... 2.0 0.1 1.2 0.1
----- ----- ----- ------
Restaurant costs and expenses.................... 87.8 86.0 84.4 82.5
----- ----- ----- ------
Restaurant operating income.............................. 12.2 14.0 15.6 17.5
General and administrative expenses...................... 6.2 7.5 5.7 7.3
Goodwill amortization.................................... 0.4 0.5 0.4 0.4
----- ----- ----- ------
Income from operations................................... 5.6 6.0 9.5 9.8
Loss on disposal of assets............................... 0.2 0.1 0.2 0.1
Interest expense ........................................ 1.5 2.0 1.5 1.9
----- ----- ----- ------
Income before provision for income taxes................. 3.9 3.9 7.8 7.8
Provision for income taxes .............................. 1.4 1.4 2.8 2.9
----- ----- ----- ------
Net income............................................... 2.5% 2.5% 5.0% 4.9%
===== ===== ===== ======
RESTAURANT OPERATING DATA (DOLLARS IN THOUSANDS):
Annualized average weekly sales per location (2) ........ $ 1,626 $ 1,486 $1,748 $1,588
Number of restaurants at end of the period .............. 40 35 40 35
(1) The Company operates on a fifty-two or fifty-three week fiscal year ending
the last Tuesday in December. The fiscal quarters for the Company consist
of accounting periods of twelve, twelve, twelve and sixteen or seventeen
weeks, respectively.
(2) Annualized average weekly sales per location are computed by dividing net
sales for full weeks open during the period by the number of full weeks
open and multiplying the result by fifty-two.
TWELVE WEEKS ENDED JUNE 12, 2001 COMPARED TO TWELVE WEEKS ENDED JUNE 13, 2000
Net sales increased $2,719,000 (22.6%) for the twelve weeks ended June 12,
2001 to $14,725,000 from $12,006,000 for the twelve weeks ended June 13, 2000.
This increase is due to an increase in same store sales for units open more than
18 months of 5.5% and sales resulting from the five units opened since June 13,
2000.
Costs of sales, primarily food and beverages, increased $881,000 (27.9%)
for the twelve weeks ended June 12, 2001 to $4,040,000 from $3,159,000 in the
twelve weeks ended June 13, 2000, and increased as a percentage of sales to
27.4% from 26.3%. This increase as a percentage of sales is principally
attributable to higher food costs associated with a new menu implemented in the
first quarter of 2001 and an increase in certain raw product costs.
Entertainment and restaurant operating expenses increased $1,409,000
(22.2%) for the twelve weeks ended June 12, 2001 to $7,747,000 from $6,337,000
in the twelve weeks ended June 13, 2000, and decreased as a percentage of net
sales to 52.6% from 52.7%. This decrease is
-8-
attributable to leveraging fixed expenses against higher unit volumes offset by
higher hourly labor costs in the five new units opened since June 13, 2000,
higher hourly labor costs associated with a new menu implemented in the first
quarter of 2001 and higher utility costs.
Depreciation and amortization decreased $25,000 (3.0%) for the twelve weeks
ended June 12, 2001 to $850,000 from $825,000 in the twelve weeks ended June 13,
2000, and decreased as a percentage of sales to 5.8% from 6.9%. This net
decrease is due principally to depreciation in 2000 on assets in two units for
which an impairment charge was taken in the fourth quarter of 2000 and
depreciation in 2000 on certain assets with a two-year life which were added in
1998. No depreciation charge was incurred on these assets in 2001. This decrease
was offset by depreciation incurred during 2001 on five units which opened since
June 13, 2000.
Preopening costs increased to $291,000 for the twelve weeks ended June 12,
2001 to $299,000 from $8,000 in the twelve weeks ended June 13, 2000 and
increased as a percentage of net sales to 2.0% from 0.1%. This increase is
attributable to the costs incurred for units opened during the twelve weeks
ended June 12, 2001 and for units which have yet to open.
General and administrative expenses increased $7,000 (0.8%) for the twelve
weeks ended June 12, 2001 to $911,000 from $904,000 in the twelve weeks ended
June 13, 2000, and decreased as a percentage of sales to 6.2% from 7.5%.
Loss on disposal of assets was $29,000 for the twelve weeks ended June 12,
2001 and $6,000 for the twelve weeks ended June 13, 2000. The losses reflect the
disposal of certain video games for several units in both years.
Interest expense was $223,000 for the twelve weeks ended June 12, 2001 and
$242,000 for the twelve weeks ended June 13, 2000. This decrease is due to a
lower interest rate applicable to the revolving note payable in the current year
compared with the prior year offset by a higher average balance on the revolving
note payable during the current year compared with the prior year.
The effective income tax rate was 36.5% for the twelve weeks ended June 12,
2001 and 37.0% for the twelve weeks ended June 13, 2000.
TWENTY-FOUR WEEKS ENDED JUNE 12, 2001 COMPARED TO TWENTY-FOUR WEEKS ENDED
JUNE 13, 2000
Net sales increased $5,506,000 (21.5%) for the twenty-four weeks ended June
12, 2001 to $31,162,000 from $25,656,000 for the twenty-four weeks ended June
13, 2000. This increase is due to an increase in same store sales for units open
more than 18 months of 5.8% and sales resulting from the five units opened since
June 13, 2000.
Costs of sales, primarily food and beverages, increased $1,788,000 (26.7%)
for the twenty-four weeks ended June 12, 2001 to $8,491,000 from $6,703,000 in
the twenty-four weeks ended June 13, 2000, and increased as a percentage of
sales to 27.2% from 26.1%. This increase as a percentage of sales is principally
attributable to higher food costs associated with a new menu implemented in the
first quarter of 2001 and an increase in certain raw product costs.
Entertainment and restaurant operating expenses increased $3,003,000
(23.5%) for the twenty-four weeks ended June 12, 2001 to $15,772,000 from
$12,769,000 in the twenty-four weeks ended June 13, 2000, and increased as a
percentage of net sales to 50.6% from 49.8%. This increase is attributable to
higher hourly labor costs in the five new units opened since June 13, 2000,
higher hourly labor costs associated with a new menu implemented in the first
quarter of 2001 and higher utility costs offset by leveraging fixed expenses
against higher unit volumes.
-9-
Depreciation and amortization increased $4,000 (0.2%) for the twenty-four
weeks ended June 12, 2001 to $1,667,000 from $1,663,000 in the twenty-four weeks
ended June 13, 2000, and decreased as a percentage of sales to 5.4% from 6.5%.
This increase is due to depreciation incurred during 2001 on five units opened
since June 13, 2000 offset by depreciation in 2000 on assets in two units for
which an impairment charge was taken in the fourth quarter of 2000 and
depreciation in 2000 on certain assets with a two-year life which were added in
1998. No depreciation charge was incurred on these assets in 2001.
Preopening costs increased $356,000 for the twenty-four weeks ended June
12, 2001 to $370,000 from $14,000 in the twenty-four weeks ended June 13, 2000
and increased as a percentage of net sales to 1.2% from 0.1%. This increase is
attributable to the costs incurred for units opened during the twenty-four weeks
ended June 12, 2001 and for units which have yet to open.
General and administrative expenses decreased $84,000 (4.5%) for the
twenty-four weeks ended June 12, 2001 to $1,778,000 from $1,862,000 in the
twenty-four weeks ended June 13, 2000, and decreased as a percentage of sales to
5.7% from 7.3%. This decrease is attributable primarily to the realignment of
certain executive office positions during 2000
Loss on disposal of assets was $52,000 for the twenty-four weeks ended June
12, 2001 and $32,000 for the twenty-four weeks ended June 13, 2000. The losses
reflect the disposal of certain video games for several units in both years.
Interest expense was $478,000 for the twenty-four weeks ended June 12, 2001
and $492,000 for the twenty-four weeks ended June 13, 2000. This decrease is due
to a lower interest rate applicable to the revolving note payable in the current
year compared with the prior year offset by a higher average balance on the
revolving note payable during the current year compared with the prior year.
The effective income tax rate was 36.4% for the twenty-four weeks ended
June 12, 2001 and 37.0% for the twenty-four weeks ended June 13, 2000.
QUARTERLY FLUCTUATIONS, SEASONALITY AND INFLATION
The timing of new unit openings will result in significant fluctuations in
quarterly results. The Company expects seasonality to be a factor in the results
of its business in the future due to expected lower second and third quarter
revenues due to the summer season. The primary inflationary factors affecting
the Company's operations include food, liquor and labor costs. A large number of
the Company's restaurant personnel are tipped employees who are paid at the
federal subminimum wage level; therefore, future subminimum wage changes will
have a significant effect on labor costs. As costs of food and labor have
increased, the Company has historically been able to offset these increases
through economies of scale, improved operating procedures and menu price
changes; however, short-term fluctuations in raw product pricing may have an
impact on the Company's costs of food. To date, inflation has not had a material
impact on operating margins.
LIQUIDITY AND CAPITAL RESOURCES
As is customary in the restaurant industry, the Company operates with
negative working capital. Negative working capital decreased $453,000 to
$2,982,000 as of June 12, 2001 from $3,435,000 as of December 26, 2000. This
decrease is attributable to a decrease in accounts
-10-
payable related to new unit expansion including a decrease of $1,410,000 in
property and equipment additions included in accounts payable at June 12, 2001
compared to December 26, 2000. Cash increased $607,000 offset by an increase of
$1,559,000 related to current portion of notes payable at June 12, 2001 compared
to the balance at December 26, 2000. The Company does not have significant
receivables or inventory and receives trade credit based upon negotiated terms
in purchasing food and supplies. Because funds available from cash sales are not
needed immediately to pay for food and supplies, or to finance inventory, they
may be considered as a source of financing for noncurrent capital expenditures.
On September 1, 1998 the Company entered into a loan agreement with Intrust
Bank, N.A. (the "Facility") which provides for a line of credit of $20,000,000
subject to certain limitations based on earnings before interest, taxes,
depreciation and amortization of the past fifty-two weeks. The Facility requires
monthly payments of interest only until November 1, 2001, at which time equal
monthly installments of principal and interest are required as necessary to
fully amortize the outstanding indebtedness plus future interest over a period
of four years. Interest is accrued at 1/2% below the prime rate as published in
THE WALL STREET JOURNAL. Proceeds from the Facility are being used for
restaurant development and stock repurchases. As of June 12, 2001 the Company
had borrowed $13,250,000 under the Facility. The Company is in compliance with
all debt covenants. The Company is currently in negotiations with Intrust Bank,
N.A. to extend the requirement to begin monthly installments of principal and
interest from November 1, 2001 until November 1, 2003. However, no binding
extension has been reached to date.
Cash flows from operations were $1,728,000 in the twenty-four weeks ended
June 12, 2001 compared to $3,068,000 in the twenty-four weeks ended June 13,
2000. Purchases of property and equipment were $2,244,000 in 2001 compared to
$260,000 in 2000. Net advances of the revolving note payable to bank was
$1,270,000 for the twenty-four week period ending June 12, 2001 compared to net
payments of $2,555,000 for the twenty-four week period ending June 13, 2000. The
Company spent $167,000 to repurchase 75,300 shares of common stock in 2001
compared to $660,000 of common stock repurchases in 2000. At June 12, 2001, the
Company had $2,851,000 in cash and cash equivalents.
The Company intends to open up to seven new locations in 2001 and between
seven and ten locations in 2002. Two units have been opened since March 20,
2001, one unit is currently under construction and an additional seven leases
have been executed. The Company is currently evaluating locations in markets
familiar to its management team. However, the number of locations actually
opened and the timing thereof may vary depending upon the ability of the Company
to locate suitable sites and negotiate favorable leases. The Company expects to
expend approximately $10.0 to $13.0 million to open new locations over the next
twelve months.
Assuming the requirement to begin principal and interest payments on the
Facility is deferred until November 1, 2003, the Company believes the funds
available from the Facility and its cash flow from operations will be sufficient
to satisfy its working capital and capital expenditure requirements for at least
the next twelve months. There can be no assurance, however, that the Company
will successfully defer the principal payment requirements of its Facility or
that changes in the Company's operating plans, the acceleration or modification
of the Company's expansion plans, lower than anticipated revenues, increased
expenses, stock repurchases, potential acquisitions or other events will not
cause the Company to seek additional financing sooner than anticipated, prevent
the Company from achieving the goals of its expansion strategy or prevent any
newly opened locations from operating profitably. There can be no assurance that
additional financing will be available on terms acceptable to the Company or at
all.
-11-
NEW ACCOUNTING PRONOUNCEMENT
In July, 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 142, Goodwill and Other Intangible Assets.
Statement No. 142 requires that goodwill no longer be amortized to
earnings, but instead be reviewed for impairment. The amortization of goodwill
ceases upon adoption of the Statement, which for most companies, will be January
1, 2002. The Company is currently recording goodwill amortization expense of
$244,163 per year. Such amortization expense will no longer be recorded upon
adoption of this statement.
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and, therefore, there
can be no assurance that the forward-looking statements included in this report
will prove to be accurate. Factors that could cause actual results to differ
from the results discussed in the forward-looking statements include, but are
not limited to, potential increases in food and liquor costs, competition and
the inability to find suitable new locations. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will be
achieved.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
INTEREST RATE RISK
The Company's Facility has a variable rate which is directly affected by
changes in U.S. interest rates. The average interest rate of the Facility was
7.24% for the twelve weeks ended June 12, 2001. The interest rate at June 12,
2001 was 6.50%. The following table presents the quantitative interest rate
risks at June 12, 2001:
Principal Amount by Expected Maturity
---------------------------------------------------------------------
(In thousands)
Fair
There- Value
(dollars in thousands) 2001 2002 2003 2004 2005 after Total 6/12/01
---------------------- ---- ---- ---- ---- ---- ----- ----- -------
Variable rate debt $486 $3,030 $3,233 $3,450 $3,051 $-- $13,250 $13,250
Average Interest Rate--
1/2% below prime 6.50% 6.50% 6.50% 6.50% 6.50% 6.50%
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PART II. OTHER INFORMATION
---------------------------
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------
Securities Sold
---------------
(c) The following unregistered securities were issued by the Company during
the twelve weeks ended June 12, 2001:
Number of Shares
Description of Sold/Issued/Subject Offering/Exercise
Date of Sale/Issuance Securities Issued to Options or Warrants Price Per Share
--------------------- ----------------- ---------------------- ---------------
April 3, 2001 Common Stock Options 7,500 $ 2.125
All of the above options were granted to certain key employees pursuant
to the 1997 Incentive and Nonqualified Stock Option Plan. The options for
employees have a vesting period of five years and a life of ten years.
The issuance of these securities is claimed to be exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as
amended, as transactions by an issuer not involving a public offering.
There were no underwriting discounts or commissions paid in connection
with the issuance of any of these securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
-----------------------------------------------
On May 16, 2001, the Company held its Annual Meeting of Stockholders (the
"Meeting"). At the Meeting, the stockholders elected Dennis L. Thompson, Stephen
P. Hartnett, and Thomas A. Hager to the Board of Directors to serve until the
2004 Annual Meeting of Stockholders and until their successors have been duly
elected and qualified. As to the new elected Directors, there were 7,331,189
votes "For" and 3,100 votes "Withheld" for Dennis L. Thompson and 7,331,189
votes "For" and 3,100 votes "Withheld" for Stephen P. Hartnett and 7,331,189
votes "For" and 3,100 votes "Withheld" for Thomas A. Hager.
In addition, the stockholders ratified the appointment of KPMG LLP as the
Company's independent auditors for the year ending December 25, 2001. As to the
ratification of auditors, there were 7,333,939 votes "For" and 100 votes
"Against"; 250 votes "Abstained."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Exhibits
None
Reports on Form 8-K
None
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TOTAL ENTERTAINMENT RESTAURANT CORP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
TOTAL ENTERTAINMENT RESTAURANT CORP.
(Registrant)
Date July 26, 2001 /s/ James K. Zielke
---------------------- ---------------------
James K. Zielke
Chief Financial Officer,
Secretary and Treasurer
(Duly Authorized Officer)
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