<PAGE> 1
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Thirteen Weeks Ended July 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-28930
ROADHOUSE GRILL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 65-0367604
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2703-A GATEWAY DRIVE, POMPANO BEACH, FLORIDA 33069
-----------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number (954) 957-2600
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. Yes [X] No [ ]
The number of shares of the registrant's common stock outstanding as of
September 8, 2000 was 9,708,741.
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ROADHOUSE GRILL, INC.
FORM 10-Q
THIRTEEN WEEKS ENDED JULY 30, 2000
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of July 30, 2000 (unaudited)
and April 30, 2000............................................................... 1
Consolidated Statements of Income for the Thirteen
Weeks Ended July 30, 2000 and July 25, 1999 (unaudited) .......................... 2
Consolidated Statement of Changes in Shareholders'
Equity for the Thirteen Weeks Ended July 30, 2000 (unaudited) ................... 3
Consolidated Statements of Cash Flows for the Thirteen
Weeks Ended July 30, 2000 and July 25, 1999 (unaudited) .......................... 4
Notes to Consolidated Financial Statements............................................ 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......................................................... 7
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..................................................................... 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................................... 12
SIGNATURES ...................................................................................... 13
EXHIBIT INDEX
</TABLE>
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PART I
ITEM 1. FINANCIAL STATEMENTS
ROADHOUSE GRILL, INC.
CONSOLIDATED BALANCE SHEETS
July 30, 2000 and April 30, 2000
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
July 30, April 30,
2000 2000
-------------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................... $ 439 $ 378
Accounts receivable ..................................................... 1,006 1,026
Inventory ............................................................... 1,640 1,622
Deferred tax assets, net ................................................ 431 431
Prepaid expenses ........................................................ 2,177 2,127
-------- --------
Total current assets ................................................. 5,693 5,584
Note receivable ........................................................... -- 84
Property & equipment, net ................................................. 93,734 92,469
Intangible assets, net of accumulated amortization of $429 and $386
at July 30, 2000 and April 30, 2000, respectively ....................... 2,233 2,276
Deferred tax assets, net .................................................. 1,678 1,678
Other assets .............................................................. 3,423 3,221
-------- --------
Total assets ........................................................ $106,761 $105,312
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................ $ 8,132 $ 11,666
Accrued expenses ........................................................ 6,223 7,317
Current portion of long-term debt ....................................... 1,395 1,252
Current portion of capitalized lease obligations ........................ 1,474 1,280
-------- --------
Total current liabilities ........................................... 17,224 21,515
Long-term debt ............................................................ 28,335 24,409
Capitalized lease obligations ............................................. 7,243 5,199
-------- --------
Total liabilities .................................................... 52,802 51,123
Shareholders' equity:
Common stock $.03 par value. Authorized 30,000,000 shares;
issued and outstanding 9,708,741 shares as of
July 30, 2000 and April 30, 2000 ........................................ 291 291
Additional paid-in-capital ................................................ 50,039 50,039
Retained earnings ......................................................... 3,629 3,859
-------- --------
Total shareholders' equity .......................................... 53,959 54,189
Commitments and contingencies (Note 2) .................................... -- --
-------- --------
Total liabilities and shareholders' equity .......................... $106,761 $105,312
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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ROADHOUSE GRILL, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Thirteen Weeks Ended July 30, 2000 and July 25, 1999
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
--------------------------------
JULY 30, JULY 25,
2000 1999
----------- -----------
<S> <C> <C>
Total revenues ............................ $ 41,317 $ 35,232
Cost of restaurant sales:
Food and beverage ...................... 13,948 12,045
Labor and benefits ..................... 12,774 10,014
Occupancy and other .................... 8,288 6,879
Pre-opening expenses ................... 918 47
----------- -----------
Total cost of restaurant sales ......... 35,928 28,985
Depreciation and amortization ............. 2,401 2,012
General and administrative expenses ....... 2,686 2,134
----------- -----------
Total operating expenses ............... 41,015 33,131
----------- -----------
Operating income ....................... 302 2,101
Other expense:
Interest expense, net .................. 668 581
----------- -----------
Income (loss) before taxes and
cumulative effect of change
in accounting principle ......... (366) 1,520
Income tax expense (benefit) .............. (136) 334
----------- -----------
Income (loss) before
cumulative effect of
change in accounting principle .. (230) 1,186
Cumulative effect of change in
accounting principle (net of tax
benefit of $269) ........................ -- (953)
----------- -----------
Net income (loss) ......................... $ (230) $ 233
=========== ===========
Basic net income (loss) per common share:
Basic income (loss) before cumulative
effect of change in accounting
principle ............................. $ (0.02) $ 0.12
Cumulative effect of change in
accounting principle .................. -- (0.10)
----------- -----------
Basic net income (loss) per common
share ................................... $ (0.02) $ 0.02
=========== ===========
Diluted net income (loss) per common share:
Diluted income (loss) before
cumulative effect of change in
accounting principle .................. $ (0.02) $ 0.12
Cumulative effect of change in
accounting principle .................. -- (0.10)
----------- -----------
Diluted net income (loss) per common
share ................................ $ (0.02) $ 0.02
=========== ===========
Weighted-average common shares
outstanding .......................... 9,708,741 9,708,741
=========== ===========
Weighted-average common shares and
share equivalents outstanding -
assuming dilution .................... 9,708,741 9,874,688
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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ROADHOUSE GRILL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Thirteen Weeks Ended July 30, 2000
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------ PAID-IN- RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance April 30, 2000 9,708,741 $ 291 $ 50,039 $ 3,859 $ 54,189
Net loss ............. -- -- -- (230) (230)
--------- --------- --------- --------- ---------
Balance July 30, 2000 9,708,741 $ 291 $ 50,039 $ 3,629 $ 53,959
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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ROADHOUSE GRILL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Thirteen Weeks Ended July 30, 2000 and July 25, 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
JULY 30, JULY 25,
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) ......................................................... $ (230) $ 233
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization ........................................... 2,401 2,012
Cumulative effect of change in accounting principle ..................... -- 1,222
Deferred tax benefit .................................................... -- (269)
Changes in assets and liabilities:
(Increase) in accounts receivable ....................................... 20 (113)
(Increase) in inventory ................................................. (18) (38)
(Increase) in prepaid expense ........................................... (50) (182)
(Increase) in other assets .............................................. (232) (255)
Increase (decrease) in accounts payable ................................. (3,534) 277
(Decrease) in accrued expenses .......................................... (1,094) (879)
------- -------
Net cash provided by operating activities ............................. 2,737 2,008
Cash flows from investing activities
Payments for intangibles .................................................. -- (394)
Proceeds from payment on notes receivable ................................. 84 --
Proceeds from sale-leaseback transactions ................................. 2,564 5,583
Purchase of property and equipment ........................................ (3,593) (5,917)
------- -------
Net cash used in investing activities ................................. (945) (728)
Cash flows from financing activities
Proceeds from borrowings on long-term debt................................. 4,365 --
Repayments of long-term debt .............................................. (297) (266)
Payments on capital lease obligations ..................................... (326) (347)
------- -------
3,742
Net cash used in financing activities ................................. (613)
Increase (decrease) in cash and cash equivalents ............................. 61 667
Cash and cash equivalents at beginning of period ............................. 378 975
------- -------
Cash and cash equivalents at end of period ................................... $ 439 $ 1,642
======= =======
Supplementary disclosures:
Interest paid ............................................................. $ 806 $ 705
======= =======
Income taxes paid ......................................................... $ 408 $ 327
======= =======
Non-cash investing and financing activities:
During the thirteen weeks ended July 30, 2000, the Company entered into one
sale-leaseback transaction for real estate in the amount of $527,000.
</TABLE>
See accompanying notes to consolidated financial statements.
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ROADHOUSE GRILL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements of Roadhouse Grill, Inc. (the "Company") for
the thirteen weeks ended July 30, 2000 and July 25, 1999 are unaudited and
reflect all adjustments (consisting of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair presentation of the financial
statements for the interim periods. The financial statements should be read in
conjunction with the notes to consolidated financial statements included herein,
together with management's discussion and analysis of financial condition and
results of operations, contained in the Company's Annual Report on Form 10-K for
the fifty-three weeks ended April 30, 2000 ("fiscal year 2000").
The Company operates on a fifty-two or fifty-three week fiscal year.
Each fiscal quarter consists of thirteen weeks, except in the case of a
fifty-three week year, in which case the fourth fiscal quarter consists of
fourteen weeks.
The results of operations for the thirteen weeks ended July 30, 2000
are not necessarily indicative of the results for the entire fiscal year ending
April 29, 2001.
Certain prior year balances have been reclassified to conform to the
current year presentation.
2. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings arising in the ordinary
course of business, many of which are covered by insurance. In the opinion of
management, disposition of these matters will not materially affect the
Company's financial condition.
Four restaurants were opened during the thirteen weeks ended July 30,
2000. As of July 30, 2000, construction was underway on seven sites which are
expected to open during the second and third quarters of fiscal year 2001. The
estimated aggregate cost to complete these restaurants is approximately $6.2
million. In addition, as of July 30, 2000, the Company had contracted to
purchase or lease two additional sites for new restaurant development.
3. PRE-OPENING COSTS
In April 1998, the AICPA Accounting Standards Executive Committee
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 defines start-up activities broadly
(including organizational costs) and requires that the cost of start-up
activities be expensed as incurred. SOP 98-5 amends provisions of a number of
existing SOP's and audit and accounting guides. SOP 98-5 is effective for fiscal
years beginning after December 15, 1998. In previous years, the Company's
accounting policy was to capitalize pre-opening costs and amortize them over a
one-year period. The Company adopted SOP 98-5 during the first quarter of fiscal
year 2000. The effect of initially applying the provisions of SOP 98-5 was
reported as a change in accounting principle at the beginning of the first
quarter of fiscal year 2000 in the amount of $953,000, net of income tax
benefit. Thereafter, all such costs have been expensed as incurred and are
included in "pre-opening expenses" within the accompanying statements of income.
4. NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".
This FASB statement was later amended by SFAS No. 137 "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133" and SFAS No. 138 "Accounting for Derivative Instruments and
Hedging Activities - an Amendment of FASB Statement No. 133". Among other
provisions, SFAS No. 133 and SFAS No. 138 establish accounting and reporting
standards for derivative instruments and hedging activities. They also require
that an entity recognizes all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS No. 133 and SFAS No. 138 are effective for financial statements for fiscal
years beginning after June 15, 2000. Management does not expect to have a
significant impact on its financial position or results of operations associated
with the adoption of SFAS No. 133 and SFAS No. 138.
On March 31, 2000, the FASB issued FASB Interpretation No. 44,
Accounting for Certain Transactions involving Stock Compensation - an
interpretation of APB Opinion No. 25 (FIN 44). This interpretation provides
guidance for issues that have arisen in applying APB Opinion No. 25, Accounting
for Stock Issued to Employees. FIN 44 applies prospectively to new awards,
exchanges of awards in a business combination, modifications to outstanding
awards, and changes in grantee status that occur on or after July 1, 2000,
except for the provisions related to repricings and the definition of an
employee which apply to awards issued after December 15, 1998. The provisions
related to modifications to fixed stock option awards to add a reload feature
are effective for awards modified after January 12, 2000. The implementation of
FIN 44 did not have a material impact on the Company's consolidated financial
statements and notes thereto.
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<PAGE> 8
5. LEASES
As of July 30, 2000, the Company has a sale-leaseback credit facility
available with Franchise Finance Corporation of America ("FFCA"). This credit
facility is available for development by the Company of new Roadhouse Grill
restaurants. The credit facility with FFCA expires in January 2001. The Company
is currently in negotiations with CNL Fund Advisors ("CNL") to secure additional
sale-leaseback credit facilities with them, as well as other lenders. While the
Company anticipates securing additional sale-leaseback credit facilities with
both FFCA and CNL upon expiration of the current agreements, there is no
assurance that the Company can, in fact, secure any credit facilities with FFCA,
CNL or any other lending institution. If the Company fails to obtain additional
capital through some type of financing, its expansion plans for fiscal year 2001
and beyond would be greatly reduced.
6. NET INCOME (LOSS) PER COMMON SHARE ("EPS")
Net income (loss) per share has been calculated and presented in
accordance with Statement of Financial Accounting Standards No. 128 "Earnings
per Share", which requires the Company to compute and present basic and diluted
earnings per share. Basic EPS excludes all dilution and is based upon the
weighted-average number of common shares outstanding during the year. Diluted
EPS reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
The following is a reconciliation of the numerators (net income/loss) and the
denominators (common shares outstanding) of the basic and diluted per share
computations for net income (loss):
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED JULY 30, 2000
--------------------------------------------
NET LOSS SHARES AMOUNT
-------- ------ ------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
BASIC EPS
Net loss available
to common shareholders .... $ (230) 9,708,741 $(0.02)
EFFECT OF DILUTIVE SECURITIES
Stock options ............... -- -- --
--------- --------- -----
DILUTED EPS ................. $ (230) 9,708,741 $(0.02)
========= ========= =====
</TABLE>
Options to purchase 821,296 shares of common stock at a weighted-average
exercise price of $5.22 per share were outstanding during the thirteen weeks
ended July 30, 2000. These options were not included in the computation of
diluted EPS because the Company recognized a loss during the quarter and
including such options would result in anti-dilutive EPS.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED JULY 25, 1999
-------------------------------------------
NET INCOME SHARES AMOUNT
---------- ------ ------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
BASIC EPS
Net income available
to common shareholders .... $ 233 9,708,741 $0.02
EFFECT OF DILUTIVE SECURITIES
Stock options ............... -- 165,947 --
--------- --------- -----
DILUTED EPS ................. $ 233 9,874,688 $0.02
========= ========= =====
</TABLE>
Options to purchase 148,130 shares of common stock at a weighted-average
exercise price of $6.82 per share were outstanding during the thirteen weeks
ended July 25, 1999. These options were not included in the computation of
diluted EPS because the options' exercise price was greater than the average
market price of the common shares. The options, which expire on varying dates,
were still outstanding as of July 25, 1999.
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<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and notes thereto, included elsewhere
in this Form 10-Q.
As of September 8, 2000, Roadhouse Grill, Inc. owns and operates 76
full-service casual dining restaurants under the name "Roadhouse Grill". In
addition, Roadhouse Grill, Inc. franchises seven full-service casual dining
restaurants. The Company was incorporated in October 1992 and opened the first
Company-owned restaurant in Pembroke Pines, Florida in March of 1993. Since
then, the Company has opened 75 additional restaurants in 12 states. Three
franchised locations are located in Kuala Lumpur, capital city of Malaysia; one
franchised location is located in Brasilia, Brazil; and three domestic
franchises are located in Las Vegas, Nevada.
On July 6, 2000, the Company entered into a joint venture agreement
with Cremonini S.p.A. ("Cremonini Group"), a leading publicly-traded Italian
conglomerate, specializing in the food service industry in Europe. The joint
venture agreement will allow the Cremonini Group to operate a minimum of 60
Roadhouse Grill restaurants in Italy, France, Spain, Great Britain and other
principal European countries by the year 2004. This joint venture agreement
requires no capital outlay by Roadhouse Grill, Inc. As of July 30, 2000, there
has been no activity associated with this joint venture.
The Company's revenues are derived primarily from the sale of food and
beverages. Sales of alcoholic beverages accounted for approximately 10.0% of
total revenues for the thirteen weeks ended July 30, 2000. Franchise and
management fees have accounted for less than 1.0% of the Company's total
revenues for all periods since its inception.
The Company's new restaurants can be expected to incur above-average
costs during the first few months of operation. In prior years, pre-opening
costs, such as employee recruiting and training costs and other initial expenses
incurred in connection with the opening of a new restaurant, were amortized over
a twelve-month period commencing with the first full accounting period that the
restaurant opened. The Company adopted the provisions of SOP 98-5 during the
first quarter of fiscal year 2000 and currently expenses all pre-opening costs
as incurred.
The average cash investment, excluding real estate costs and
pre-opening expenses, required to open each of the Roadhouse Grill restaurants
opened by the Company prior to July 30, 2000 was approximately $1.3 million. The
average real estate acquisition cost for the 14 restaurant sites owned by the
Company was approximately $902,000. The Company has obtained financing in
connection with the acquisition of its owned properties, which financing
generally has required a down payment of 10% of the purchase price. The average
annual occupancy cost for the restaurant sites leased by the Company is
approximately $113,000 per site. The Company expects that the average cash
investment required to open its prototype restaurants, including pre-opening
expenses but excluding real estate costs, will be between $1.2 million and $1.6
million, depending upon whether the Company converts an existing building or
constructs a new restaurant from the ground up.
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<PAGE> 10
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain
selected statements of operations data expressed as a percentage of total
revenues:
THIRTEEN WEEKS ENDED
--------------------------------
JULY 30, 2000 JULY 25, 1999
------------- -------------
Total revenues ....................... 100.0% 100.0%
Cost of restaurant sales:
Food and beverage ................. 33.8 34.1
Labor and benefits ................ 30.9 28.4
Occupancy and other ............... 20.1 19.6
Pre-opening expenses .............. 2.2 0.1
----- -----
Total cost of restaurant sales .... 87.0 82.2
Depreciation and amortization ........ 5.8 5.7
General and administrative ........... 6.5 6.1
----- -----
Total operating expenses .......... 99.3 94.0
----- -----
Operating income .................. 0.7 6.0
Other expense:
Interest expense, net ............. 1.6 1.6
Income (loss) before income taxes and
cumulative effect of change in
accounting principle ............... (0.9) 4.4
Income tax expense (benefit) ......... 0.3 0.9
----- -----
Income (loss) before cumulative effect
of change in accounting principle .. (0.6) 3.5
Cumulative effect of change in
accounting principle ............... 0.0 (2.7)
----- -----
Net income (loss) ................. (0.6)% 0.8%
===== =====
This Form 10-Q contains forward-looking statements, including
statements regarding, among other things (i) the Company's growth strategies,
(ii) anticipated trends in the economy and the restaurant industry and (iii) the
Company's future financing plans. In addition, when used in this Form 10-Q, the
words "believes," "anticipates," "expects" and similar words often are intended
to identify certain forward-looking statements. These forward-looking statements
are based largely on the Company's expectations and are subject to a number of
risks and uncertainties, many of which are beyond the Company's control. Actual
results could differ materially from these forward-looking statements as a
result of changes in trends in the economy and the restaurant industry,
reductions in the availability of financing, increases in interest rates and
other factors. In light of the foregoing, there is no assurance that the
forward-looking statements contained in this Form 10-Q will in fact prove
correct or occur. The Company does not undertake any obligation to revise these
forward-looking statements to reflect future events or circumstances.
THIRTEEN WEEKS ENDED JULY 30, 2000 ("FISCAL YEAR 2001 FIRST QUARTER") COMPARED
TO THIRTEEN WEEKS ENDED JULY 25, 1999 ("FISCAL YEAR 2000 FIRST QUARTER")
RESTAURANTS OPEN. At July 30, 2000 there were 76 Company-owned
restaurants open, including the North Palm Beach Roadhouse Grill restaurant
("North Palm"). On July 12, 1999, the Company terminated a licensing agreement
for the North Palm Beach restaurant and began operating the location as a
Company-owned restaurant. At July 25, 1999, there were 57 Company-owned
restaurants. This represents a 33.3% increase in the number of Company-owned
restaurants since July 25, 1999.
TOTAL REVENUES. Total revenues increased $6.1 million, or 17.3%, from
$35.2 million for the fiscal year 2000 first quarter to $41.3 million for the
fiscal year 2001 first quarter. This increase is primarily attributable to sales
generated at the 19 new restaurants opened by the Company since the end of the
fiscal year 2000 first quarter. Sales at comparable stores for the fiscal year
-8-
<PAGE> 11
2001 first quarter decreased 6.5% compared with sales in the fiscal year 2000
first quarter. The Company believes that this decrease is partially attributable
to reduced marketing and advertising expenditures in the fiscal year 2001 first
quarter as compared to the fiscal year 2000 first quarter. The Company has
recently launched a radio advertising campaign for several media-efficient
markets and plans to focus its marketing efforts in local store marketing
campaigns.
FOOD AND BEVERAGE. Food and beverage costs increased $1.9 million to
$13.9 million in the fiscal year 2001 first quarter from $12.0 million in the
fiscal year 2000 first quarter. This increase is primarily attributable to 19
new restaurants opened by the Company since the end of the fiscal year 2000
first quarter. As a percentage of sales, food and beverage costs decreased by
0.3 percentage points to 33.8% for the fiscal year 2001 first quarter from 34.1%
for the fiscal year 2000 first quarter. The decrease is primarily due to the
Company's focus on expanding and regionalizing the distribution network that
delivers products and supplies to the Company's restaurants, resulting in better
logistics and lower costs. In addition, the Company has concentrated on
improving its operating procedures and increasing management review and
supervision.
LABOR AND BENEFITS. Labor and benefits costs increased $2.8 million to
$12.8 million in the fiscal year 2001 first quarter, or 27.6%, from $10.0
million in the fiscal year 2000 first quarter. The increase is primarily due to
the operation of 19 new restaurants opened since the end of the fiscal year 2000
first quarter. As a percentage of sales, labor and benefits costs increased 2.5%
to 30.9% for the fiscal year 2001 first quarter from 28.4% for the fiscal year
2000 first quarter. This increase is primarily due to above-average labor costs
typically associated with opening of new restaurants. During the first several
months that restaurants are open (commonly referred to as the "Honeymoon"
period), labor costs as well as other operating costs are higher than costs in
more mature restaurant operations. The Company opened four restaurants during
the fiscal year 2001 first quarter compared to no openings during the fiscal
year 2000 first quarter. In addition, during the first quarter of fiscal year
2001, the Company increased the number of hourly personnel at its restaurants in
order to continue to provide excellent customer service ("extreme service").
During the past two quarters, the Company has implemented an aggressive
recruiting campaign to attract talented restaurant managers. Due to the
competitive labor market, the Company has incurred higher management salaries.
OCCUPANCY AND OTHER. Occupancy and other costs increased $1.4 million
to $8.3 million in the fiscal year 2001 first quarter, or 20.5%, from $6.9
million in the fiscal year 2000 first quarter. The increase is primarily due to
the operation of 19 new restaurants opened since the end of the fiscal year 2000
first quarter. As a percentage of sales, occupancy and other costs increased by
0.5 percentage points from 19.6% for the fiscal year 2000 first quarter to 20.1%
for the fiscal year 2001 first quarter. The increase is primarily due to an
increase in equipment rental expense during the first quarter of fiscal year
2001 as compared to the first quarter of fiscal year 2000. During fiscal year
2000, the Company entered into sale-leaseback agreements to finance furniture
and equipment for new locations. These leases were recorded as operating leases
and no gain or loss was recorded on these transactions.
PRE-OPENING EXPENSES. Pre-opening expenses increased $871,000 to
$918,000 in the fiscal year 2001 first quarter, from $47,000 in the fiscal year
2000 first quarter. The increase is primarily due to opening four restaurants
during the fiscal year 2001 first quarter as compared to no restaurant openings
in the fiscal year 2000 first quarter. In addition, the Company has incurred
pre-opening costs associated with the seven restaurants that it plans to open
during the second and third quarter of fiscal year 2001. The amount recorded for
fiscal year 2001 first quarter represents actual pre-opening expenditures
associated with the restaurants that will be opened during the fiscal year 2001.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$400,000 to $2.4 million in the fiscal year 2001 first quarter, or 19.3%, from
$2.0 million in the fiscal year 2000 first quarter. The increase is primarily
due to the operation of 19 new restaurants opened since the end of the fiscal
year 2000 first quarter. As a percentage of sales, depreciation and amortization
was comparable for both periods presented.
GENERAL AND ADMINISTRATIVE. General and administrative costs increased
$600,000 to $2.7 million in the fiscal year 2001 first quarter, or 25.9%, from
$2.1 million in the fiscal year 2000 first quarter. The increase is primarily
the result of the Company's substantial recruiting efforts. The Company
currently has approximately 75 managers in various stages of training that will
be ready for the expected openings later this fiscal year. The Company plans to
continue to maintain a pool of managers that are trained according to the
Roadhouse Grill philosophy. As a percentage of sales, general and administrative
costs increased 0.4 percentage points from 6.1% for the fiscal year 2000 first
quarter to 6.5% for the fiscal year 2001 first quarter.
TOTAL OTHER EXPENSE. Total other expense increased $107,000 in expense
to $688,000 in the fiscal year 2001 first quarter, or 18.4%, from $581,000 in
the fiscal year 2000 first quarter. The increase is primarily due to additional
interest expense on additional debt incurred due to the development and opening
of 19 new restaurants since the end of the fiscal year 2000 first quarter. As a
percentage of sales, total other expense was comparable for both periods
presented.
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<PAGE> 12
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. During the first
quarter of fiscal year 2000, the Company adopted the provisions of SOP 98-5. The
Company recorded an expense of $953,000 (net of tax benefit) related to the
adoption of SOP 98-5. The Company's policy, effective at the beginning of the
fiscal year 2000 first quarter, has been to expense all pre-opening costs as
incurred, as required by SOP 98-5.
INCOME TAXES (BENEFIT). In the prior years, the Company maintained a
valuation allowance that offset a portion of its net deferred tax assets. Based
on the Company's recent history of operating profits, management reversed 100%
of its valuation allowance into income during fiscal year 2000. The reduction in
income taxes caused by the reversal of the valuation allowance was offset by
increased taxable income during fiscal year 2000. Management believes that it
is more likely than not that all of its deferred tax assets will be realized in
the future.
During the first quarter of fiscal year 2001, the Company recognized an
income tax benefit of $136,000 associated with the Company's fiscal year 2001
first quarter loss. The Company incurred income tax expense of $334,000 in the
fiscal year 2000 first quarter, representing state income tax and alternative
minimum tax.
ADOPTION OF NEW ACCOUNTING STANDARDS
In April 1998, the AICPA Accounting Standards Executive Committee
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 defines start-up activities broadly
(including organizational costs) and requires that the cost of start-up
activities be expensed as incurred. SOP 98-5 amends provisions of a number of
existing SOP's and audit and accounting guides. SOP 98-5 is effective for fiscal
years beginning after December 15, 1998. In previous years, the Company's
accounting policy was to capitalize pre-opening costs and amortize them over a
one-year period. The Company adopted SOP 98-5 during the first quarter of fiscal
year 2000. The effect of initially applying the provisions of SOP 98-5 was
reported as a change in accounting principle at the beginning of the first
quarter of fiscal year 2000 in the amount of $953,000, net of income tax
benefit. Thereafter, all such costs have been expensed as incurred and are
included in "pre-opening expenses" within the accompanying statements of income.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".
This FASB statement was later amended by SFAS No. 137 "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133" and SFAS No. 138 "Accounting for Derivative Instruments and
Hedging Activities - an Amendment of FASB Statement No. 133". Among other
provisions, SFAS No. 133 and SFAS No. 138 establish accounting and reporting
standards for derivative instruments and hedging activities. They also require
that an entity recognizes all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS No. 133 and SFAS No. 138 are effective for financial statements for fiscal
years beginning after June 15, 2000. Management does not expect to have a
significant impact on its financial position or results of operations associated
with the adoption of SFAS No. 133 and SFAS No. 138.
On March 31, 2000, the FASB issued FASB Interpretation No. 44,
Accounting for Certain Transactions involving Stock Compensation - an
interpretation of APB Opinion No. 25 (FIN 44). This interpretation provides
guidance for issues that have arisen in applying APB Opinion No. 25, Accounting
for Stock Issued to Employees. FIN 44 applies prospectively to new awards,
exchanges of awards in a business combination, modifications to outstanding
awards, and changes in grantee status that occur on or after July 1, 2000,
except for the provisions related to repricings and the definition of an
employee which apply to awards issued after December 15, 1998. The provisions
related to modifications to fixed stock option awards to add a reload feature
are effective for awards modified after January 12, 2000. The implementation of
FIN 44 did not have a material impact on the Company's consolidated financial
statements and notes thereto.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital principally for the opening of new
restaurants and has financed its requirements through the private placement of
common stock, an Initial Public Offering, bank loans, leasing facilities and
loans from certain private parties, including present and former shareholders of
the Company.
As of July 30, 2000, the Company has a sale-leaseback credit facility
available with Franchise Finance Corporation of America ("FFCA"). This credit
facility is available for development by the Company of new Roadhouse Grill
restaurants. The credit facility with FFCA expires in January 2001. The Company
is currently in negotiations with CNL Fund Advisors ("CNL") to secure additional
sale-leaseback credit facilities with them, as well as other lenders. While the
Company anticipates securing additional sale-leaseback credit facilities with
both FFCA and CNL upon expiration of the current agreements, there is no
assurance that the Company can, in fact, secure any credit facilities with FFCA,
CNL or any other lending institution. If the Company fails to obtain additional
capital through some type of financing, its expansion plans for fiscal year 2001
and beyond would be greatly reduced.
The Company's capital expenditures aggregated approximately $2.5
million for the thirteen weeks ended July 30, 2000 and $5.9 million for the
thirteen weeks ended July 25, 1999, substantially all of which were used to open
Roadhouse Grill restaurants.
The Company anticipates that it may require additional debt or equity
financing in order to continue to open new restaurants. There can be no
guarantee or assurance financing will be available on terms acceptable to the
Company, if at all. In the event the Company is unable to secure additional
financing sufficient to support continued growth, the Company's operating and
financial plans would require revision.
As is common in the restaurant industry, the Company has generally
operated with negative working capital ($11.5 million at July 30, 2000). The
Company does not have significant receivables or inventory and receives trade
credit on its purchases of food and supplies.
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<PAGE> 13
SEASONALITY AND QUARTERLY RESULTS
The Company's sales and earnings fluctuate seasonally. The Company's
highest earnings are expected to occur in the third and fourth fiscal quarters.
The fiscal year ends on the last Sunday in April and consists of four thirteen
week quarters (except in the case of a fifty-three week year in which the fourth
quarter consists of fourteen weeks) structured as follows:
o 1st Quarter - May, June, July
o 2nd Quarter - August, September, October
o 3rd Quarter - November, December, January
o 4th Quarter - February, March, April
IMPACT OF INFLATION
The Company does not believe that inflation has materially affected its
results of operations during the past five fiscal years. Substantial increases
in costs and expenses, particularly food, supplies, labor and operating expenses
could have a significant impact on the Company's operating results to the extent
that such increases cannot be passed along to customers.
EMPLOYEES
The Company competes with other companies for qualified personnel,
especially management. A shortage of qualified personnel could materially affect
the Company. The Company has not experienced a shortage of qualified personnel
to date and believes that the risk of a shortage is minimal.
SITE LOCATION
The Company competes in the marketplace for qualified restaurant
locations. There is no assurance that the Company can find enough qualified
sites to continue its expansion plans.
CONSUMER TASTE
The restaurant industry is highly competitive and subject to changes in
consumer tastes. The Company believes that it has the ability to respond quickly
to changing taste and preferences because of its flexible format and trade name.
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<PAGE> 14
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal actions arising in the normal
course of business. While the resolution of any such action may have an impact
on the financial results for the period in which it is resolved, the Company
believes that the ultimate disposition of these matters will not, in the
aggregate, have a material adverse effect upon its business or financial
position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The Exhibits listed on the accompanying Exhibit Index are filed with or
incorporated by reference in this report.
(b) The Company filed no reports on Form 8-K during the period covered by this
Form 10-Q.
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<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf on September 13, 2000, by the undersigned, thereunto duly authorized.
ROADHOUSE GRILL, INC.
(Registrant)
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ AYMAN SABI President, Chief Executive Officer September 13, 2000
-------------------- and Director ------------------
Ayman Sabi (Principal Executive Officer)
/s/ HARRY ROSENFELD Interim Chief Financial Officer September 13, 2000
-------------------- (Principal Financial Officer ------------------
Harry Rosenfeld and Principal Accounting Officer)
</TABLE>
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<PAGE> 16
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.1 Roadhouse Grill, Inc. 1998 Omnibus Stock Option Plan as approved by
shareholders on December 9, 1998.
10.2 Amendment to increase the number of shares available under the Company's
1998 Omnibus Stock Option Plan as approved by shareholders on
November 4, 1999.
10.3 Joint venture agreement dated July 6, 2000 by and between Cremonini,
S.p.A. and the Company.
21.0 Subsidiaries of the Registrant.
27 Financial Data Schedule.
