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 March 31, 1996 Commission File Number 0-20574
_______________
THE CHEESECAKE FACTORY INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Delaware 51-0340466
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
26950 Agoura Road
Calabasas Hills, California 91301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 880-9323
_______________
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 ___
As of May 8, 1996, 10,862,108 shares of the registrant's Common Stock,
$.01 par value, were outstanding.
<PAGE>
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - March 31, 1996 and December 31, 1995.... 1
Consolidated Statements of Operations - Thirteen weeks ended
March 31, 1996 and April 2, 1995.................................... 2
Consolidated Statements of Cash Flows - Thirteen weeks ended
March 31, 1996 and April 2, 1995.................................... 3
Notes to Consolidated Financial Statements - March 31, 1996........... 4-5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 6-9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................ 10
Signatures.............................................................. 11
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1996 1995
____________ ____________
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,498,860 $10,077,713
Marketable securities 4,191,875 4,154,525
Accounts receivable 1,384,715 2,213,317
Other miscellaneous receivables 2,893,585 2,674,276
Due from affiliates, officers and employees 85,809 621,771
Inventories 2,979,655 2,711,805
Preopening expenses 5,684,211 6,103,182
Prepaid expenses 779,858 1,022,558
____________ ____________
Total current assets 24,498,568 29,579,147
____________ ____________
Property and equipment, net 58,365,273 54,445,425
____________ ____________
Other assets:
Marketable securities 2,802,461 2,768,427
Other miscellaneous receivables 2,987,684 3,129,901
Deferred income taxes 338,089 363,786
Other 2,387,024 1,479,876
____________ ____________
Total other assets 8,515,258 7,741,990
____________ ____________
Total assets $91,379,099 $91,766,562
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term obligations $ ----- $ -----
Accounts payable 6,104,476 9,312,877
Income taxes payable 912,015 75,296
Other accrued expenses 4,116,842 3,835,851
Deferred income taxes 2,336,328 2,336,328
____________ ____________
Total current liabilities 13,469,661 15,560,352
____________ ____________
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000
shares authorized, none issued and outstanding ----- -----
Common Stock, $.01 par value, 30,000,000
shares authorized; 10,856,008 and 10,853,508
issued and outstanding, respectively 108,560 108,535
Additional paid-in capital 54,145,718 54,112,418
Retained earnings 24,035,626 22,411,408
Marketable securities valuation account (380,466) (426,151)
____________ ____________
Total stockholders' equity 77,909,438 76,206,210
____________ ____________
Total liabilities and stockholders' equity $91,379,099 $91,766,562
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
1
<PAGE>
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen weeks Thirteen weeks
ended March 31, ended April 2,
1996 1995
_______________ _______________
<S> <C> <C>
Revenues:
Restaurant sales $31,110,969 $21,355,986
Bakery sales 4,269,029 3,613,663
_______________ _______________
Total revenues 35,379,998 24,969,649
_______________ _______________
Costs and expenses:
Cost of food, beverages and supplies 9,214,802 6,381,172
Bakery costs 1,786,756 1,421,073
Operating expenses:
Labor 10,850,700 7,763,496
Occupancy and other 5,215,251 3,677,578
General and administrative expenses 3,479,024 2,276,539
Depreciation and amortization expenses 2,507,510 1,191,995
_______________ _______________
Total costs and expenses 33,054,043 22,711,853
_______________ _______________
Income from operations 2,325,955 2,257,796
Interest income 120,467 382,750
Interest expense ----- -----
Other income (expense), net 14,517 9,162
_______________ _______________
Income before income taxes 2,460,939 2,649,708
Income tax provision 836,719 852,514
_______________ _______________
Net income $ 1,624,220 $ 1,797,194
=============== ===============
Net income per share:
Primary $ .15 $ .17
=============== ===============
Weighted average shares outstanding 10,941,118 10,629,684
=============== ===============
Fully diluted $ .15 $ .17
=============== ===============
Weighted average shares outstanding 11,147,788 10,835,558
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE>
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen weeks Thirteen weeks
ended March 31, ended April 2,
1996 1995
______________ ______________
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,624,220 $ 1,797,194
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 2,507,510 1,191,995
Loss on held-to-maturity securities ----- 330
Loss on available-for-sale securities ----- 9,640
Deferred income taxes ----- 146,238
Changes in assets and liabilities:
Accounts receivable 828,602 476,359
Other miscellaneous receivables (77,092) 588,404
Due from affiliates, officers and employees 535,962 (115)
Inventories (267,850) (122,253)
Preopening expenses (899,897) (815,492)
Prepaid expenses 119,063 633,393
Other (919,582) (246,084)
Accounts payable (3,208,401) (379,357)
Income taxes payable 836,719 563,377
Other accrued expenses 280,991 (316,607)
______________ ______________
Cash provided by operating activities 1,360,245 3,527,022
______________ ______________
Cash flows from investing activities:
Additions to property and equipment (4,972,423) (5,645,511)
Investments in held-to-maturity securities ----- -----
Sales of held-to-maturity securities ----- 1,547,878
Investments in available-for-sale securities ----- (643,287)
Sales of available-for-sale securities ----- 1,340,565
______________ ______________
Cash used by investing activities (4,972,423) (3,400,355)
______________ ______________
Cash flows from financing activities:
Common stock issued 25 437
Proceeds from exercise of employee stock options 33,300 338,425
______________ ______________
Cash provided by financing activities 33,325 338,862
______________ ______________
Net change in cash and cash equivalents (3,578,853) 465,529
Cash and cash equivalents at beginning of period 10,077,713 397,753
______________ ______________
Cash and cash equivalents at end of period $ 6,498,860 $ 863,282
============== ==============
Supplemental disclosures:
Interest paid $ ----- $ -----
============== ==============
Income taxes paid $ ----- $ 142,900
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated financial statements of The Cheesecake
Factory Incorporated and Subsidiaries (the "Company") for the thirteen weeks
ended March 31, 1996 and April 2, 1995 have been prepared in accordance with
generally accepted accounting principles, and with the instructions to Form
10-Q and Article 10 of Regulation S-X. The consolidated balance sheet
data presented herein for December 31, 1995 was derived from the Company's
audited consolidated financial statements for the fiscal year then ended.
The financial statements presented herein have not been audited by
independent public accountants, but include all material adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial condition,
results of operations and cash flows for such periods. However, these
results are not necessarily indicative of results for any other interim
period or for the full year.
Effective January 3, 1994, the Company adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". SFAS No.
115 requires the Company to report available-for-sale securities at fair
value, with unrealized gains and losses excluded from the earnings and
reported as a separate component of stockholders' equity until realized.
Debt securities that the Company expects to hold to maturity are classified
as held-to-maturity securities and reported at amortized cost. Debt and
equity securities not classified as either held-to-maturity securities or
trading securities (bought and held principally for the purpose of selling
those securities in the near term) are classified as available-for-sale
securities and reported at fair value. Fair value is determined by the most
recently traded price of the security at the balance sheet date, plus any
accrued interest. Net realized gains or losses are determined on the
specified identification cost method. Unrealized losses in market value on
available-for-sale securities are recognized, net of tax effect, in a
valuation allowance as a separate component of stockholders' equity. As of
March 31, 1996, all of the Company's investments in marketable securities
were classified as available-for-sale securities.
Certain information and footnote disclosures normally included in
financial statements in accordance with generally accepted accounting
principles have been omitted pursuant to requirements of the Securities and
Exchange Commission. Management believes that the disclosures included in
the accompanying interim financial statements and footnotes are adequate to
make the information not misleading, but should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Form 10-K for the fiscal year ended December 31, 1995.
4
<PAGE>
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
Note B - MARKETABLE SECURITIES
Marketable securities consisted of the following as of March 31, 1996:
<TABLE>
<CAPTION>
Unrealized Balance
(Loss) Sheet
Classification Cost Fair Value Gain Amount Maturity
_______________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Current assets:
Available-for-sale securities:
Preferred stocks and warrants $2,010,000 $1,707,500 $(302,500) $1,707,500 No maturity dates
U.S. Treasury Notes 2,501,172 2,484,375 (16,797) 2,484,375 November 1996
_________________________________________________
Total $4,511,172 $4,191,875 $(319,297) $4,191,875
=================================================
Other assets:
Available-for-sale securities:
Corporate bonds $3,077,641 $2,802,461 $(275,180) $2,802,461 February 1998 to August 2013
_________________________________________________
Total $3,077,641 $2,802,461 $(275,180) $2,802,461
=================================================
</TABLE>
NOTE C - NET INCOME PER SHARE
Net income per common share calculations are based on the weighted
average number of common shares and common share equivalents outstanding
during the thirteen week periods ended March 31, 1996 and April 2, 1995.
Primary net income per share amounts for the thirteen week period ended March
31, 1996 are based on the weighted average number of shares outstanding
during the period, increased by the common equivalent shares (vested and
exercisable stock options) determined using the treasury stock method. Fully
diluted net income per share amounts for the thirteen week period ended March
31, 1996 are based on the weighted average number of shares outstanding
during the period, increased by the common equivalent shares (vested and
exercisable stock options as well as nonvested and contingently exercisable
stock options) determined using the treasury stock method, utilizing the
higher of the average market price or ending market price for the Company's
common stock for the measurement period. The treasury stock method of
calculating dilutive common equivalent shares was not utilized for the
thirteen week period ended April 2, 1995 due to immateriality; therefore, the
amount presented for that period has not been restated.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following table presents for the thirteen weeks ended March 31,
1996 and April 2, 1995 the Consolidated Statements of Operations of the
Company expressed as percentages of total revenues. The results of
operations for the first thirteen weeks of fiscal 1996 are not necessarily
indicative of the results to be expected for the full fiscal year.
<TABLE>
<CAPTION>
Thirteen Thirteen
weeks ended weeks ended
March 31, April 2,
1996 1995
_____________________________
% %
<S> <C> <C>
Revenues:
Restaurant sales 87.9 85.5
Bakery sales 12.1 14.5
_____ _____
Total revenues 100.0 100.0
_____ _____
Costs and expenses:
Cost of food, beverages, and supplies 26.0 25.6
Bakery costs 5.1 5.7
Operating expenses:
Labor 30.7 31.1
Occupancy and other 14.7 14.7
General and administrative expenses 9.8 9.1
Depreciation and amortization expenses 7.1 4.8
_____ _____
Total costs and expenses 93.4 91.0
_____ _____
Income from operations 6.6 9.0
Interest income 0.3 1.6
Interest expense -.- -.-
Other income (expense), net -.- -.-
_____ _____
Income before income taxes 6.9 10.6
Income tax provision 2.3 3.4
_____ _____
Net income 4.6 7.2
===== =====
</TABLE>
General
The Company's revenues are derived from restaurant sales and bakery
sales to other restaurants and wholesalers/retailers. Certain expenses
relate to restaurant sales (cost of food, beverages and supplies) or to
bakery sales (bakery costs), while other expenses relate to both restaurant
and bakery sales (operating expenses including occupancy, general and
administrative expenses, and depreciation and amortization expenses).
Statements contained herein which are not historical facts are forward
looking statements. Important factors which could cause the Company's actual
results to differ materially from those projected in, or inferred by, forward
looking statements are (but are not necessarily limited to) the following:
the impact of increasing competition in the upscale casual dining segment of
the restaurant industry; changes in general economic conditions which impact
consumer spending for restaurant occasions; adverse weather conditions which
cause the underutilization of outdoor patio seating available at many of the
Company's restaurants; unforeseen events which increase the cost to develop
and/or delay the development and opening of new restaurants; unexpected
6
<PAGE>
increases in the cost of raw materials, labor, and other resources necessary
to operate both the restaurants and the bakery; technological difficulties
and duplicative/inefficient costs associated with the Company's transition
to, and its temporary underutilization of, its new bakery production
facility; the amount and rate of growth of general and administrative
expenses associated with building a strengthened corporate infrastructure to
support the expanded operations of both the restaurants and the bakery; the
availability, amount, type, and cost of financing for the Company and any
changes to that financing; the revaluation of any of the Company's assets
(and related expenses); and the amount of, and any changes to, tax rates.
Results of Operations
Current Year Quarter v. Prior Year Quarter
The Company's total revenues increased 42% to $35.4 million versus
$25.0 million for the same quarter of the prior year. Restaurant sales
increased 46% to $31.1 million versus $21.4 million for the quarter ended
April 2, 1995. This $9.7 million increase sales was attributable to a $1.5
million (7.3%) increase in comparable restaurant sales for the quarter and
$8.2 million from the opening of new restaurants. The 7.3% increase in
comparable restaurant sales was comprised of a 1.2% increase in customer count
coupled with a 6.1% increase in the average guest check amount. Sales in
comparable restaurants benefited from favorable weather comparisons in the
Company's Southern California market (where six of the Company's 14 restaurants
are located and where rainy weather impacted sales during the same quarter of
the prior year) and the impact of an approximate 2.5% effective menu price
increase that was taken in all restaurants during the December 1995 - January
1996 period.
Bakery sales increased 18% to $4.3 million versus $3.6 million for the
same quarter in the prior year. This increase was principally attributable
to increased wholesale sales to supermarkets, warehouse clubs, and other
large foodservice retailers and distributors.
Cost of food, beverages and supplies for the restaurants was $9.2
million versus $6.4 million for the comparable quarter last year. The
related increase of $2.8 million was primarily attributable to new
restaurant openings. As a percentage of restaurant sales, these costs
decreased slightly to 29.6% in 1996 versus 29.9% for the same quarter of the
prior year.
Bakery costs, which include raw materials, packaging, and other
production-related supplies, were $1.8 million versus $1.4 million for the
comparable quarter in 1995. The related increase of $0.4 million was
primarily attributable to the 18% increase in bakery sales for the quarter
ended March 31, 1996. As a percentage of bakery sales, bakery costs
increased to 41.9% in 1996 versus 39.3% for the comparable 1995 period. This
increase was principally due to slightly higher costs for certain commodities
(particularly flour and chocolate) and lower profit margins realized on sales
to certain large customers, particularly supermarkets and warehouse clubs.
During fiscal 1996, the Company will experience certain inefficient
production costs associated with the transition of its production operations
to its new production facility. However, once the transition is fully
completed, the Company expects to realize a gradual improvement in its
production operating leverage.
Operating expenses, including labor and occupancy, increased to $16.1
million compared $11.4 million for the comparable quarter of the prior year.
This increase of $4.7 million was principally attributable to the opening of
new restaurants and increased business activity in existing operations. As a
percentage of total revenues, operating expenses decreased slightly to 45.4%
for the quarter ended March 31, 1996 versus 45.8% in the same quarter of the
prior year. Operating expenses principally consist of labor (and related
fringe benefits), rent (and associated occupancy costs), laundry, maintenance
and cleaning, utilities, repairs, and other operating expenses for both the
restaurants and the bakery. With respect to bakery operations, the Company
will experience increased fixed and semi-fixed operating costs during fiscal
1996 which are attributable to the transition of bakery production operations
to the new production facility, which has four to five times the productive
capacity of the former facility.
7
<PAGE>
General and administrative expenses increased 53% to $3.5 million in 1996
versus $2.3 million for the comparable 1995 quarter. This increase of $1.2
million was principally attributable to variable selling and administrative
expenses associated with the 46% increase in total revenues for the quarter
ended March 31, 1996, as well as increased investments in the corporate support
infrastructure for both the restaurants and the bakery. As a percentage of
total revenues, general and administrative expenses increased to 9.8% in 1996
versus 9.1% in 1995. General and administrative expenses principally consist
of bakery product development and promotional/administrative expenses,
certain restaurant administrative expenses (credit card discounts, insurance,
and other administrative expenses), restaurant supervision costs, and corporate
support expenses. The Company plans to continue to strengthen its restaurant
and bakery support infrastructures during fiscal 1996. Additionally, the
Company plans to aggressively pursue additional national accounts business for
its new bakery production facility, which will involve continuing investments
in product development and promotional programs.
Depreciation and amortization increased 110% to $2.5 million in 1996
versus $1.2 million for the comparable 1994 quarter. This increase of $1.3
million was attributable to higher preopening cost amortization ($0.8
million), higher depreciation expense related to the new bakery production
facility ($0.2 million), and higher depreciation related to four additional
restaurants in operation, exclusive of preopening cost amortization ($0.3
million). The Company defers preopening costs until the opening of new
restaurants and then amortizes the deferred costs over the 12-month period
immediately following the respective openings. During fiscal 1996,
preopening cost amortization comparisons versus the respective amounts for
fiscal 1995 will continue to be unfavorable, as the Company will be
simultaneously amortizing the preopening costs associated with four
restaurants which opened during fiscal 1995 in addition to those associated
with the planned fiscal 1996 openings of four to five additional restaurants.
As a percentage of revenues, interest income decreased 1.3 percentage
points to 0.3% for the quarter ended March 31, 1996. This reduction was
attributable to lower levels of investments in marketable securities on hand,
reflecting the Company's increased capital expenditure activity for new
restaurants and the new bakery facility. The Company currently expects its
effective tax rate for fiscal 1996 to be approximately 34%, which will be
significantly higher than the 26.2% effective tax rate for fiscal 1995. The
lower effective tax rate for fiscal 1995 principally reflected the impact of
significant research and state investment tax credits associated with the
development and construction of the new bakery production facility.
Liquidity and Capital Resources
Following is a summary of the Company's key liquidity measurements for
the thirteen week periods ended March 31, 1996, December 31, 1995, and April
2, 1995:
<TABLE>
<CAPTION>
Thirteen Week Periods Ended
___________________________
March 31, December 31, April 2,
1996 1995 1995
____ ____ ____
(dollar amounts in millions)
____________________________
<S> <C> <C> <C>
Cash and marketable securities
on hand, end of period $13.5 $17.0 $28.7
Cash provided by operations $ 1.4 $ 5.3 $ 3.5
Capital expenditures $ 5.0 $ 5.3 $ 5.6
Net working capital, end of period $11.0 $14.0 $ 9.5
Current ratio, end of period 1.8:1 1.9:1 2.1:1
</TABLE>
8
<PAGE>
During the trailing twelve months ended March 31, 1996, the Company's
total amount of cash and marketable securities on hand decreased by $15.2
million to $13.5 million. This decrease was principally due to capital
expenditures for new restaurants and the new bakery production facility which
totaled $28.8 million during the same period.
The Company requires capital primarily for the development and
construction of new restaurants. The Company has historically leased the
land and building shells for its restaurants; however, the Company has
expended cash for leasehold improvements and fixtures, furnishings, and
equipment. During fiscal 1996, the Company plans to open four to five new
restaurants which will require total capital expenditures of approximately
$18-$19 million. Additionally, capital expenditures of approximately $1-$2
million will be required to fully complete the new bakery production
facility. An additional $1-$2 million of maintenance-related capital
expenditures will also be required during fiscal 1996. Total anticipated
capital expenditures of $20-$23 million for fiscal 1996 are expected to be
financed through a combination of cash and marketable securities on hand,
cash provided by operations, landlord construction contributions (when
available), and drawdowns on the Company's $10 million revolving credit
facility which was established in February 1996. During fiscal 1996, the
Company will seek to obtain additional debt and/or equity capital to finance
its planned restaurant expansion in fiscal 1997 and thereafter. The Company
may seek other sources of financing, including equipment financing or the
sale/leaseback of assets comprising its headquarters and bakery production
facility. There can be no assurance that any additional financing will be
available on favorable terms, if at all.
9
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. None.
(b) Reports on Form 8-K. None.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE CHEESECAKE FACTORY
INCORPORATED
Date: May 8, 1996 By: /s/ DAVID M. OVERTON
David M. Overton
Chairman of the Board, President,
Chief Executive and Operating Officer
By: /s/ GERALD W. DEITCHLE
Gerald W. Deitchle
Senior Vice President and
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> MAR-31-1996
<CASH> 6498860
<SECURITIES> 4191875
<RECEIVABLES> 4278300
<ALLOWANCES> 0
<INVENTORY> 2979655
<CURRENT-ASSETS> 24498568
<PP&E> 71717515
<DEPRECIATION> 13352242
<TOTAL-ASSETS> 91379099
<CURRENT-LIABILITIES> 13469661
<BONDS> 0
0
0
<COMMON> 108560
<OTHER-SE> 77800878
<TOTAL-LIABILITY-AND-EQUITY> 91379099
<SALES> 35379998
<TOTAL-REVENUES> 35379998
<CGS> 11001558
<TOTAL-COSTS> 11001558
<OTHER-EXPENSES> 22052485
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2460939
<INCOME-TAX> 836719
<INCOME-CONTINUING> 1624220
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1624220
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
