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
SEPTEMBER 4, 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 October 1, 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
SEPTEMBER 4, 2001 AND DECEMBER 26, 2000 2
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE TWELVE WEEKS ENDED
SEPTEMBER 4, 2001 AND SEPTEMBER 5, 2000 3
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE THIRTY-SIX WEEKS ENDED
SEPTEMBER 4, 2001 AND SEPTEMBER 5, 2000 4
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS FOR THE THIRTY-SIX WEEKS ENDED
SEPTEMBER 4, 2001 AND SEPTEMBER 5, 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 13
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 14
-1-
TOTAL ENTERTAINMENT RESTAURANT CORP.
Condensed Consolidated Balance Sheets
(Unaudited)
September 4, 2001 December 26, 2000
-------------------- --------------------
ASSETS
Current assets:
Cash and cash equivalents 2,325,332 2,244,606
Inventories 1,145,122 1,028,975
Deferred income taxes 231,638 161,206
Other current assets 858,578 579,594
------------ ------------
Total current assets 4,560,670 4,014,381
Property and equipment:
Land 600,000 600,000
Buildings 670,629 670,629
Leasehold improvements 24,322,947 21,851,941
Equipment 14,446,440 13,397,524
Furniture and fixtures 3,597,670 3,265,386
------------ ------------
43,637,686 39,785,480
Less accumulated depreciation and amortization 11,523,266 9,022,781
------------ ------------
32,114,420 30,762,699
Other assets:
Goodwill, net of accumulated amortization 3,736,260 3,905,296
Deferred income taxes 865,758 1,059,839
Other assets 550,305 385,385
------------ ------------
Total other assets 5,152,323 5,350,520
------------ ------------
Total assets $ 41,827,413 $ 40,127,600
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable $ 2,703,147 $ 418,108
Accounts payable 1,799,594 3,520,542
Sales tax payable 718,954 442,297
Accrued payroll 663,383 775,012
Accrued payroll taxes 259,112 242,134
Accrued income taxes 1,129,078 1,009,592
Lease obligation for closed store 184,737 263,924
Other accrued liabilities 1,391,213 777,504
------------ ------------
Total current liabilities 8,849,218 7,449,113
Notes payable 10,261,853 11,561,892
Deferred revenue 123,368 129,549
Stockholders' equity:
Preferred stock - -
Common stock 86,661 87,414
Additional paid-in capital 17,134,948 17,301,511
Retained earnings 5,371,365 3,598,121
------------ ------------
Total stockholders' equity 22,592,974 20,987,046
------------ ------------
Total liabilities and stockholders' equity $ 41,827,413 $ 40,127,600
============ ============
See accompanying notes.
- 2 -
TOTAL ENTERTAINMENT RESTAURANT CORP.
Condensed Consolidated Statements of Operations
(UNAUDITED)
Twelve Twelve
weeks ended weeks ended
September 4, 2001 September 5, 2000
--------------------- ----------------------
Sales:
Food and beverage $13,118,741 $10,136,403
Entertainment and other 1,431,944 1,146,264
------------ ------------
Total net sales 14,550,685 11,282,667
Costs and expenses:
Costs of sales 3,941,098 2,953,149
Entertainment and restaurant operating expenses 7,924,276 6,267,227
Depreciation and amortization 878,607 826,414
Preopening costs 298,595 22,715
------------ ------------
Entertainment and restaurant costs and expenses 13,042,576 10,069,505
------------ ------------
Entertainment and restaurant operating income 1,508,109 1,213,162
General and administrative expenses 897,368 851,318
Goodwill amortization 56,346 56,343
------------ ------------
Income from operations 554,395 305,501
Other income (expense):
Loss on disposal of assets (38,768) (23,247)
Other income, principally interest 1,263 -
Interest expense (186,870) (250,158)
------------ ------------
Income before provision for income taxes 330,020 32,096
Provision for income taxes 110,036 11,875
------------ ------------
Net income $ 219,984 $ 20,221
============ ============
Basic and diluted earnings per share $ 0.03 $ 0.00
============ ============
See accompanying notes.
- 3 -
TOTAL ENTERTAINMENT RESTAURANT CORP.
Condensed Consolidated Statements of Operations
(UNAUDITED)
Thirty-six Thirty-six
weeks ended weeks ended
September 4, 2001 September 5, 2000
--------------------- ----------------------
Sales:
Food and beverage $41,376,769 $33,194,577
Entertainment and other 4,335,961 3,744,102
------------ ------------
Total net sales 45,712,730 36,938,679
Costs and expenses:
Costs of sales 12,431,749 9,655,714
Entertainment and restaurant operating expenses 23,695,897 19,035,817
Depreciation and amortization 2,545,354 2,489,077
Preopening costs 669,066 36,990
------------ ------------
Entertainment and restaurant costs and expenses 39,342,066 31,217,598
------------ ------------
Entertainment and restaurant operating income 6,370,664 5,721,081
General and administrative expenses 2,674,861 2,713,123
Goodwill amortization 169,036 169,030
------------ ------------
Income from operations 3,526,767 2,838,928
Other income (expense):
Loss on disposal of assets (90,596) (54,980)
Other income, principally interest 1,457 -
Interest expense (664,708) (741,874)
------------ ------------
Income before provision for income taxes 2,772,920 2,042,074
Provision for income taxes 999,676 755,568
------------ ------------
Net income $ 1,773,244 $ 1,286,506
============ ============
Basic and diluted earnings per share $ 0.20 $ 0.14
============ ============
See accompanying notes.
- 4 -
TOTAL ENTERTAINMENT RESTAURANT CORP.
Condensed Consolidated Statement of Cash Flows
(UNAUDITED)
Thirty-six Thirty-six
weeks ended weeks ended
September 4, 2001 September15, 2000
--------------------- ---------------------
Cash flows from operating activities:
Net income $ 1,773,244 $ 1,286,506
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on disposal of assets 90,596 54,980
Depreciation and amortization 2,749,979 2,658,113
Deferred income taxes 123,649 81,251
Net change in operating assets and liabilities:
Change in operating assets (582,051) (323,161)
Change in operating liabilities (1,220,005) 259,873
----------- -----------
Net cash provided by operating activities 2,935,412 4,017,562
Cash flows from investing activities:
Purchases of property and equipment (3,705,670) (716,465)
Purchases of limited partnership interests - (100,000)
Proceeds from disposal of assets 33,300 58,645
----------- -----------
Net cash used in investing activities (3,672,370) (757,820)
Cash flows from financing activities:
Proceeds from revolving note payable to bank 32,530,000 25,190,000
Payments of revolving note payable to bank (31,545,000) (27,580,000)
Purchases of common stock (167,316) (831,130)
----------- -----------
Net cash provided by (used in) financing activities 817,684 (3,221,130)
----------- -----------
Net increase in cash and cash equivalents 80,726 38,612
Cash and cash equivalents at beginning of period 2,244,606 2,550,469
----------- -----------
Cash and cash equivalents at end of period $ 2,325,332 $ 2,589,081
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 571,373 $ 814,314
Cash paid for income taxes 756,000 860,664
Supplemental disclosure of non cash activity:
Additions to property and equipment in accounts
payable 328,890 -
See accompanying notes.
- 5 -
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 September 4, 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 September 4, 2001, the Company granted
to certain key employees stock options for 215,000 shares of Common Stock at
exercise prices ranging from $2.85 to $3.00 per share pursuant to its 1997
Incentive and Nonqualified Stock Option Plan. The Company granted to certain
non-employee Directors stock options for 6,000 shares of Common Stock at an
exercise price of $2.95 per share pursuant to its 1997 Directors 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 September 4, 2001 and
September 5, 2000 were 8,666,111 and 9,303,643, respectively; the number of
weighted averaged shares outstanding for the thirty-six week periods ended
September 4, 2001 and September 5, 2000 were 8,671,697 and 9,450,164,
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 September 4, 2001 and September 5, 2000 were 8,701,496 and
9,311,181, and for the thirty-six week periods ended September 4, 2001 and
September 5, 2000 were 8,696,688 and 9,453,544, respectively.
-6-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 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 September 4, 2001, the Company owned and operated 41 entertainment
and restaurant locations under the Fox and Hound English Pub & Grille and Fox
and Hound Smokehouse & Grille ("Fox and Hound"), and 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
September 4, 2001, the Company owned and operated 27 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 September 5, 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 September 4, 2001, food and non-alcoholic beverages were 31.7% of
total sales, alcoholic beverages were 58.5% of total sales and entertainment and
other were 9.8% of total sales. For the twelve weeks ended September 5, 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) THIRTY-SIX WEEKS ENDED(1)
--------------------- -------------------------
SEPTEMBER 4, SEPTEMBER 5, SEPTEMBER 4, SEPTEMBER 5,
2001 2000 2001 2000
-------- -------- -------- --------
OPERATING STATEMENT DATA:
Net sales 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Costs of sales....................................... 27.1 26.2 27.2 26.1
Restaurant operating expenses........................ 54.4 55.6 51.8 51.5
Depreciation and amortization........................ 6.0 7.3 5.6 6.8
Preopening costs..................................... 2.1 0.2 1.5 0.1
----- ----- ----- ------
Restaurant costs and expenses.................... 89.6 89.3 86.1 84.5
----- ----- ----- ------
Restaurant operating income.............................. 10.4 10.7 13.9 15.5
General and administrative expenses...................... 6.2 7.5 5.8 7.3
Goodwill amortization.................................... 0.4 0.5 0.4 0.5
----- ----- ----- ------
Income from operations................................... 3.8 2.7 7.7 7.7
Loss on disposal of assets............................... 0.2 0.2 0.2 0.2
Interest expense 1.3 2.2 1.4 2.0
----- ----- ----- ------
Income before provision for income taxes................. 2.3 0.3 6.1 5.5
Provision for income taxes 0.8 0.1 2.2 2.0
----- ----- ----- ------
Net income............................................... 1.5% 0.2% 3.9% 3.5%
RESTAURANT OPERATING DATA (DOLLARS IN THOUSANDS):
Annualized average weekly sales per location (2).........$ 1,567 $ 1,397 $ 1,686 $ 1,524
Number of restaurants at end of the period....................41 35 41 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 SEPTEMBER 4, 2001 COMPARED TO TWELVE WEEKS ENDED SEPTEMBER 5,
2000
Net sales increased $3,268,000 (29.0%) for the twelve weeks ended September
4, 2001 to $14,551,000 from $11,283,000 for the twelve weeks ended September 5,
2000. This increase is due to an increase in same store sales for units open
more than 18 months of 9.5% and sales resulting from the six units opened since
September 5, 2000.
Costs of sales, primarily food and beverages, increased $988,000 (33.5%)
for the twelve weeks ended September 4, 2001 to $3,941,000 from $2,953,000 in
the twelve weeks ended September 5, 2000, and increased as a percentage of sales
to 27.1% from 26.2%. 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 $1,657,000
(26.4%) for the twelve weeks ended September 4, 2001 to $7,924,000 from
$6,267,000 in the twelve weeks ended September 5, 2000, and decreased as a
percentage of net sales to 54.4% from 55.6%. This
-8-
decrease is attributable to the effect of leveraging fixed expenses against
higher unit volumes, lower advertising costs, which were lower as a percent of
net sales by 0.3 percentage points (0.3pp) versus last year, lower premium TV
and live music (0.7pp lower than last year) offset by higher hourly labor costs
(0.4pp higher than last year) and higher unit managers' compensation (0.3pp
higher than last year).
Depreciation and amortization increased $53,000 (6.3%) for the twelve weeks
ended September 4, 2001 to $879,000 from $826,000 in the twelve weeks ended
September 5, 2000, and decreased as a percentage of sales to 6.0% from 7.3%.
This net increase is due principally to depreciation incurred during 2001 on six
units opened since September 5, 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 $276,000 for the twelve weeks ended September 4,
2001 to $299,000 from $23,000 in the twelve weeks ended September 5, 2000 and
increased as a percentage of net sales to 2.1% from 0.2%. This increase is
attributable to the costs incurred for one unit opened during the twelve weeks
ended September 4, 2001 and for units which have yet to open.
General and administrative expenses increased $46,000 (5.4%) for the twelve
weeks ended September 4, 2001 to $897,000 from $851,000 in the twelve weeks
ended September 5, 2000, and decreased as a percentage of sales to 6.2% from
7.5%.
Loss on disposal of assets was $39,000 for the twelve weeks ended September
4, 2001 and $23,000 for the twelve weeks ended September 5, 2000. The losses
reflect the disposal of certain video games for several units in both years.
Interest expense was $187,000 for the twelve weeks ended September 4, 2001
and $250,000 for the twelve weeks ended September 5, 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 33.3% for the twelve weeks ended
September 4, 2001 and 37.0% for the twelve weeks ended September 5, 2000.
THIRTY-SIX WEEKS ENDED SEPTEMBER 4, 2001 COMPARED TO THIRTY-SIX WEEKS ENDED
SEPTEMBER 5, 2000
Net sales increased $8,774,000 (23.8%) for the thirty-six weeks ended
September 4, 2001 to $45,713,000 from $36,939,000 for the thirty-six weeks ended
September 5, 2000. This increase is due to an increase in same store sales for
units open more than 18 months of 7.0% and sales resulting from the six units
opened since September 5, 2000.
Costs of sales, primarily food and beverages, increased $2,776,000 (28.8%)
for the thirty-six weeks ended September 4, 2001 to $12,432,000 from $9,656,000
in the thirty-six weeks ended September 5, 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 $4,660,000
(24.5%) for the thirty-six weeks
-9-
ended September 4, 2001 to $23,696,000 from $19,036,000 in the thirty-six weeks
ended September 5, 2000, and increased as a percentage of net sales to 51.8%
from 51.5%. This increase is attributable to higher hourly labor costs (0.4pp)
in the six new units opened since September 5, 2000, higher hourly labor costs
associated with a new menu implemented in the first quarter of 2001 (0.7pp
higher than last year) and higher utility costs (0.3pp higher than last year),
offset by lower advertising costs (0.2pp lower than last year), lower premium TV
and live music costs (0.4pp lower than last year), and the effect of leveraging
fixed expenses against higher unit volumes.
Depreciation and amortization increased $56,000 (2.3%) for the thirty-six
weeks ended September 4, 2001 to $2,545,000 from $2,489,000 in the thirty-six
weeks ended September 5, 2000, and decreased as a percentage of sales to 5.6%
from 6.8%. This increase is due to depreciation incurred during 2001 on six
units opened since September 5, 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 $632,000 for the thirty-six weeks ended
September 4, 2001 to $669,000 from $37,000 in the thirty-six weeks ended
September 5, 2000 and increased as a percentage of net sales to 1.5% from 0.1%.
This increase is attributable to the costs incurred for units opened during the
thirty-six weeks ended September 4, 2001 and for units which have yet to open.
General and administrative expenses decreased $38,000 (1.4%) for the
thirty-six weeks ended September 4, 2001 to $2,675,000 from $2,713,000 in the
thirty-six weeks ended September 5, 2000, and decreased as a percentage of sales
to 5.8% from 7.3%.
Loss on disposal of assets was $91,000 for the thirty-six weeks ended
September 4, 2001 and $55,000 for the thirty-six weeks ended September 5, 2000.
The losses reflect the disposal of certain video games for several units in both
years.
Interest expense was $665,000 for the thirty-six weeks ended September 4,
2001 and $742,000 for the thirty-six weeks ended September 5, 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 36.1% for the thirty-six weeks ended
September 4, 2001 and 37.0% for the thirty-six weeks ended September 5, 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
-10-
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 increased $854,000 to
$4,289,000 as of September 4, 2001 from $3,435,000 as of December 26, 2000. This
increase is attributable to an increase of $2,285,000 related to current portion
of notes payable at September 4, 2001 compared to the balance at December 26,
2000 offset by a decrease in accounts payable of $1,721,000 in accounts payable
at September 4, 2001 compared to December 26, 2000. The decrease in accounts
payable is primarily attributable to a decrease of $1,217,000 in property and
equipment additions included in accounts payable at September 4, 2001 compared
to 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 September 4, 2001 the
Company had borrowed $12,965,000 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 $2,935,000 in the thirty-six weeks ended
September 4, 2001 compared to $4,018,000 in the thirty-six weeks ended September
5, 2000. Purchases of property and equipment were $3,706,000 in 2001 compared to
$716,000 in 2000. Net advances of the revolving note payable to bank was
$985,000 for the thirty-six week period ending September 4, 2001 compared to net
payments of $2,390,000 for the thirty-six week period ending September 5, 2000.
The Company spent $167,000 to repurchase 75,300 shares of common stock in 2001
compared to $831,000 of common stock repurchases in 2000. At September 4, 2001,
the Company had $2,325,000 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. Three units have been opened in fiscal 2001,
four units are currently under construction and an additional three 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 $15.0 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
-11-
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.
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.
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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
6.29% for the twelve weeks ended September 4, 2001. The interest rate at
September 4, 2001 was 6.00%. The following table presents the quantitative
interest rate risks at September 4, 2001:
Principal Amount by Expected Maturity
-----------------------------------------------------------
(In thousands)
Fair
There- Value
(DOLLARS IN THOUSANDS) 2001 2002 2003 2004 2005 AFTER TOTAL 9/4/01
---------------------- ---- ---- ---- ---- ---- ----- ----- ------
Variable rate debt $481 $2,986 $3,170 $3,366 $2,962 $-- $12,965 $12,965
Average Interest Rate--
1/2% below prime 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%
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 September 4, 2001:
Number of Shares
Description of Sold/Issued/Subject Offering/Exercise
Date of Sale/Issuance Securities Issued to Options or Warrants Price Per Share
--------------------- ----------------- ---------------------- ---------------
June 27, 2001 Common Stock Options 7,500 $ 2.85
July 11, 2001 Common Stock Options 7,500 $ 3.00
July 17, 2001 Common Stock Options 3,000 $ 2.95
July 17, 2001 Common Stock Options 3,000 $ 2.95
July 24, 2001 Common Stock Options 80,000 $ 2.88
July 24, 2001 Common Stock Options 70,000 $ 2.88
July 24, 2001 Common Stock Options 50,000 $ 2.88
All of the above options were granted to certain key employees pursuant
to the 1997 Incentive and Nonqualified Stock Option Plan or to
non-employee directors pursuant to the Directors Stock Option Plan. The
options for employees have a vesting period of three to five years and a
life of ten years and the options for non-employee directors have a
vesting period of three years and a life of five 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.
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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 October 18, 2001 /s/ James K. Zielke
------------------------ ------------------------------------
James K. Zielke
Chief Financial Officer,
Secretary and Treasurer
(Duly Authorized Officer)
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