<PAGE>
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 JUNE 30, 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 August 8, 1996, 10,910,958 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 - June 30, 1996 and
December 31, 1995.......................................... 1
Consolidated Statements of Operations - Thirteen weeks and
twenty-six weeks ended June 30, 1996 and July 2, 1995...... 2
Consolidated Statements of Cash Flows - Twenty-six weeks
ended June 30, 1996 and July 2, 1995. ..................... 3
Notes to Consolidated Financial Statements - June 30, 1996... 4-5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................... 6-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................... 11
Signatures........................................................... 12
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
ASSETS 1996 1995
----------- ------------
Current assets:
Cash and cash equivalents $ 8,327,451 $10,077,713
Marketable securities 4,244,850 4,154,525
Accounts receivable 2,073,946 2,213,317
Other miscellaneous receivables 2,885,421 2,674,276
Due from affiliates, officers and employees 139,873 621,771
Inventories 3,559,391 2,711,805
Preopening expenses 6,439,071 6,103,182
Prepaid expenses 1,089,423 1,022,558
----------- -----------
Total current assets 28,759,426 29,579,147
----------- -----------
Property and equipment, net 60,399,611 54,445,425
----------- -----------
Other assets:
Marketable securities 2,700,965 2,768,427
Other miscellaneous receivables 5,149,907 3,129,901
Deferred income taxes 319,322 363,786
Other 2,406,099 1,479,876
----------- -----------
Total other assets 10,576,293 7,741,990
----------- -----------
Total assets $99,735,330 $91,766,562
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank borrowings $ 3,000,000 $ --
Accounts payable 7,380,520 9,312,877
Income taxes payable 909,189 75,296
Other accrued expenses 5,409,122 3,835,851
Deferred income taxes 2,336,328 2,336,328
----------- -----------
Total current liabilities 19,035,159 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;
10,907,958 and 10,853,508 issued
and outstanding, respectively 109,079 108,535
Additional paid-in capital 54,840,365 54,112,418
Retained earnings 26,097,829 22,411,408
Marketable securities valuation account (347,102) (426,151)
----------- -----------
Total stockholders' equity 80,700,171 76,206,210
----------- -----------
Total liabilities and stockholders'
equity $99,735,330 $91,766,562
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS TWENTY-SIX WEEKS TWENTY-SIX WEEKS
ENDED JUNE 30, ENDED JULY 2, ENDED JUNE 30, ENDED JULY 2,
1996 1995 1996 1995
-------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues
Restaurant sales $33,745,418 $24,544,577 $64,856,387 $45,900,563
Bakery sales 5,464,878 3,952,524 9,733,907 7,566,187
----------- ----------- ----------- -----------
Total revenues 39,210,296 28,497,101 74,590,294 53,466,750
----------- ----------- ----------- -----------
Costs and expenses
Cost of food, beverages and
supplies 9,937,608 7,439,805 19,152,410 13,820,978
Bakery costs 2,293,841 1,635,204 4,080,597 3,056,277
Operating expenses:
Labor 12,599,066 8,609,502 23,449,766 16,372,998
Occupancy and other 5,520,062 3,978,875 10,735,313 7,656,453
General and administrative
expenses 3,435,051 2,546,450 6,914,075 4,822,989
Depreciation and amortization
expenses 2,586,479 1,400,081 5,093,989 2,592,076
----------- ----------- ----------- -----------
Total costs and expenses 36,372,107 25,609,917 69,426,150 48,321,771
----------- ----------- ----------- -----------
Income from operations 2,838,189 2,887,184 5,164,144 5,144,979
Interest income 135,156 328,014 255,623 710,765
Interest (expense) (18,271) 0 (18,271) 0
Other income 45,477 94,732 59,994 103,894
----------- ----------- ----------- -----------
Income before income taxes 3,000,551 3,309,930 5,461,490 5,959,638
Income tax provision 938,350 932,092 1,775,069 1,784,606
----------- ----------- ----------- -----------
Net income $ 2,062,201 $ 2,377,838 $ 3,686,421 $ 4,175,032
=========== =========== =========== ===========
Earnings per share:
Primary $ .19 $ .22 $ .34 $ .39
=========== =========== =========== ===========
Weighted average shares
outstanding 10,945,398 10,719,241 10,943,258 10,674,462
=========== =========== =========== ===========
Fully diluted $ .19 $ .22 $ .33 $ .38
=========== =========== =========== ===========
Weighted average shares
outstanding 11,124,854 10,879,863 11,136,321 10,877,506
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
TWENTY-SIX WEEKS TWENTY-SIX WEEKS
ENDED JUNE 30, ENDED JULY 2,
1996 1995
---------------- ----------------
Cash flows from operating activities:
Net income $ 3,686,421 $ 4,175,032
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 5,093,989 2,592,076
(Gain) loss on asset sale (4,500) --
Loss on held-to-maturity securities -- 330
Loss on available-for-sale securities 13,478 4,714
Deferred income taxes -- 329,417
Changes in assets and liabilities:
Accounts receivable 139,371 176,613
Other miscellaneous receivables (2,231,151) 617,811
Due from affiliates, officers
and employees 481,898 5,172
Inventories (847,586) (113,533)
Preopening expenses (2,983,164) (1,789,640)
Prepaid expenses (265,755) (780,439)
Other (1,046,830) (77,661)
Accounts payable (1,932,357) 1,247,317
Income taxes payable 833,893 389,665
Other accrued expenses 1,573,271 1,445,807
----------- ------------
Cash provided by operating activities 2,510,978 8,222,681
----------- ------------
Cash flows from investing activities:
Additions to property and equipment (8,081,403) (15,167,879)
Sale of property and equipment 4,500 --
Sales of held-to-maturity securities -- 2,569,082
Investments in available-for-sale
securities -- (1,124,287)
Sales of available-for-sale securities 87,172 4,026,832
----------- ------------
Cash used by investing activities (7,989,731) (9,696,252)
----------- ------------
Cash flows from financing activities:
Proceeds from short-term bank borrowings 3,000,000 --
Common stock issued 544 1,978
Proceeds from exercise of employee
stock options 727,947 2,409,871
----------- ------------
Cash provided by financing activities 3,728,491 2,411,849
----------- ------------
Net change in cash and cash equivalents (1,750,262) 938,278
Cash and cash equivalents at beginning of
period 10,077,713 397,753
----------- ------------
Cash and cash equivalents at end of period $ 8,327,451 $ 1,336,031
=========== ============
Supplemental disclosures:
Interest paid $ 18,116 $ --
=========== ============
Income taxes paid $ 941,176 $ 1,065,252
=========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of The
Cheesecake Factory Incorporated and Subsidiaries (the "Company") for the
thirteen weeks and twenty-six weeks ended June 30, 1996 and July 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 for the
thirteen weeks and twenty-six weeks ended June 30, 1996 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
June 30, 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
June 30, 1996
NOTE B - MARKETABLE SECURITIES
Marketable securities consisted of the following as of June 30, 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 $1,755,000 $(255,000) $1,755,000 No maturity dates
U.S. Treasury Notes 2,501,172 2,489,850 (11,322) 2,489,850 November 1996
-------------------------------------------------------
Total $4,511,172 $4,244,850 $(266,322) $4,244,850
=======================================================
Other assets:
Available-for-sale securities:
Corporate bonds $2,976,990 $2,700,965 $(276,025) $2,700,965 February 1998 to August 2013
-------------------------------------------------------
Total $2,976,990 $2,700,965 $(276,025) $2,700,965
=======================================================
</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 and twenty-six week periods ended June 30, 1996 and July 2,
1995. Primary net income per share amounts for the thirteen week and
twenty-six week periods ended June 30, 1996 are based on the weighted average
number of shares outstanding during the periods, 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 and twenty-six week periods ended June 30, 1996 are based on
the weighted average number of shares outstanding during the periods,
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 and
twenty-six week periods ended July 2, 1995 due to immateriality; therefore,
the amounts presented for those periods have 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 and the twenty-six
weeks ended June 30, 1996 and July 2, 1995 the Consolidated Statements of
Operations of the Company expressed as percentages of total revenues. The
results of operations for the first twenty-six weeks of fiscal 1996 are not
necessarily indicative of the results to be expected for the full fiscal year.
<TABLE>
<CAPTION>
THIRTEEN THIRTEEN TWENTY-SIX TWENTY-SIX
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JUNE 30, JULY 2, JUNE 30, JULY 2,
1996 1995 1996 1995
-----------------------------------------------------------
% % % %
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales 86.1 86.1 87.0 85.8
Bakery sales 13.9 13.9 13.0 14.2
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
Costs and expenses:
Cost of food, beverages, and supplies 25.3 26.1 25.6 25.9
Bakery costs 5.9 5.7 5.5 5.7
Operating expenses:
Labor 32.1 30.2 31.4 30.6
Occupancy and other 14.1 14.0 14.5 14.3
General and administrative expenses 8.8 8.9 9.3 9.0
Depreciation and amortization
expenses 6.6 5.0 6.8 4.9
----- ----- ----- -----
Total costs and expenses 92.8 89.9 93.1 90.4
----- ----- ----- -----
Income from operations 7.2 10.1 6.9 9.6
Interest income 0.2 1.2 0.3 1.3
Interest expense -- -- -- --
Other income (expense), net 0.1 0.3 0.1 0.2
----- ----- ----- -----
Income before income taxes 7.5 11.6 7.3 11.1
Income tax provision 2.3 3.3 2.4 3.3
----- ----- ----- -----
Net income 5.2 8.3 4.9 7.8
===== ===== ===== =====
</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
6
<PAGE>
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 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 VS. PRIOR YEAR QUARTER
The Company's total revenues increased 38% to $39.2 million versus $28.5
million for the same quarter of the prior year. Restaurant sales increased
38% to $33.7 million versus $24.5 million for the quarter ended July 2, 1995.
This $9.2 million increase was attributable to a $1.5 million (6.3%) increase
in comparable restaurant sales for the quarter and $7.7 million from the
opening of new restaurants. Sales in comparable restaurants benefited from
generally favorable weather conditions (which enabled the effective
utilization of outdoor patio seating available at several of the restaurants)
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 38% to $5.5 million versus $3.9 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-account foodservice retailers and distributors.
Cost of food, beverages and supplies for the restaurants was $9.9 million
versus $7.4 million for the comparable quarter last year. The related
increase of $2.5 million was primarily attributable to new restaurant
openings. As a percentage of restaurant sales, these costs decreased
slightly to 29.5% in 1996 versus 30.3% for the same quarter of the prior year.
Bakery costs, which include raw materials, packaging, and other
production-related supplies, were $2.3 million versus $1.6 million for the
comparable quarter in 1995. The related increase of $0.7 million was
primarily attributable to the 38% increase in bakery sales for the quarter
ended June 30, 1996. As a percentage of bakery sales, bakery costs increased
to 42.0% in 1996 versus 41.4% for the comparable 1995 quarter. This increase
was principally due to slightly higher costs and usage of certain ingredients
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 believes that
the opportunity will exist to realize a gradual improvement in the operating
leverage of the new production facility.
Operating expenses, including labor and occupancy, increased to $18.1
million compared to $12.6 million for the comparable quarter of the prior
year. This increase of $5.5 million was principally attributable to the
opening of new restaurants, increased business activity in existing
operations, and the impact of the new bakery production facility. As a
percentage of total revenues, operating expenses increased to 46.2% for the
quarter ended June 30, 1996 versus 44.2% for the same quarter of the prior
year. This increase was principally attributable to new restaurant openings,
higher bakery labor costs associated with the transition to, and start up of,
the new production facility, and increased operating costs of a fixed and
semi-fixed nature associated with the estimated four-fold increase in
capacity with the new production facility. 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. Operating
expense comparisons will be unfavorable for the remainder of fiscal 1996
principally as a result of the increased fixed and semi-fixed costs
associated with the new bakery production facility.
7
<PAGE>
General and administrative expenses increased 35% to $3.4 million in 1996
versus $2.5 million for the comparable 1995 quarter. This increase of $0.9
million was principally attributable to variable selling and administrative
expenses associated with the 38% increase in total revenues for the quarter
ended June 30, 1996, as well as increased investments in the support
infrastructure for both the restaurants and the bakery. As a percentage of
total revenues, general and administrative expenses decreased slightly to
8.8% in 1996 versus 8.9% 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 85% to $2.6 million in 1996
versus $1.4 million for the comparable 1995 quarter. This increase of $1.2
million was attributable to higher restaurant preopening cost amortization
($0.6 million), higher depreciation and amortization expense related to the
new bakery production facility ($0.3 million), and increased depreciation
expense 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 the remainder of 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
additional restaurants.
As a percentage of revenues, interest income decreased 1.0 percentage
points to 0.2% for the quarter ended June 30, 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 32.5%, 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.
CURRENT YEAR-TO-DATE VS. PRIOR YEAR-TO-DATE
For the twenty-six weeks ended June 30, 1996, the Company's total
revenues increased 40% to $74.6 million versus $53.5 million for the same
period of the prior year. Restaurant sales increased 41% to $64.9 million
versus $45.9 million for the twenty-six weeks ended July 2, 1995. This $19.0
million increase was attributable to a $3.1 million (6.8%) increase in
comparable restaurant sales for the quarter and $15.9 million from the
opening of new restaurants.
Bakery sales increased 29% to $9.7 million versus $7.6 million for the
same period of the prior year. This increase was principally attributable to
increased wholesale sales to supermarkets, warehouse clubs, and other
large-account foodservice retailers and distributors.
Cost of food, beverages and supplies for the restaurants was $19.2
million versus $13.8 million for the comparable quarter last year. The
related increase of $5.4 million was primarily attributable to new
restaurant openings. As a percentage of restaurant sales, these costs
decreased slightly to 29.5% in 1996 versus 30.1% for the same period of the
prior year.
Bakery costs, which include raw materials, packaging, and other
production-related supplies, were $4.1 million versus $3.1 million for the
comparable period in 1995. The related increase of $1.0 million was
primarily attributable to the 29% increase in bakery sales for the twenty-six
weeks ended June 30, 1996. As a percentage of bakery sales, bakery costs
increased to 41.9% in 1996 versus 40.4% for the comparable 1995 period. This
increase was principally due to slightly higher costs and usage of certain
ingredients and lower profit margins realized on sales to certain large
customers, particularly supermarkets and warehouse clubs.
8
<PAGE>
Operating expenses, including labor and occupancy, increased to $34.2
million compared to $24.0 million for the comparable period of the prior
year. This increase of $10.2 million was principally attributable to the
opening of new restaurants, increased business activity in existing
operations, and the impact of the new bakery production facility. As a
percentage of total revenues, operating expenses increased to 45.8% for the
twenty-six weeks ended June 30, 1996 versus 44.9% for the same period of the
prior year. This increase was principally attributable to new restaurant
openings, higher bakery labor costs associated with the transition to, and
start up of, the new production facility, and increased operating costs of a
fixed and semi-fixed nature associated with the estimated four-fold increase
in capacity with the new production facility.
General and administrative expenses increased 43% to $6.9 million in 1996
versus $4.8 million for the comparable 1995 period. This increase of $2.1
million was principally attributable to variable selling and administrative
expenses associated with the 40% increase in total revenues for the
twenty-six weeks ended June 30, 1996, as well as increased investments in the
support infrastructure for both the restaurants and the bakery. As a
percentage of total revenues, general and administrative expenses increased
slightly to 9.3% in 1996 versus 9.0% in 1995.
Depreciation and amortization increased 97% to $5.1 million in 1996
versus $2.6 million for the comparable 1995 period. This increase of $2.5
million was attributable to higher preopening cost amortization ($1.4
million), higher depreciation and amortization expense related to the new
bakery production facility ($0.5 million), and increased depreciation expense
related to four additional restaurants in operation, exclusive of preopening
cost amortization ($0.6 million).
As a percentage of revenues, interest income decreased 1.0 percentage
points to 0.3% for the twenty-six weeks ended June 30, 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.
LIQUIDITY AND CAPITAL RESOURCES
Following is a summary of the Company's key liquidity measurements for
the twenty-six week periods ended June 30, 1996, December 31, 1995, and
July 2, 1995:
TWENTY-SIX WEEK PERIODS ENDED
-------------------------------------
JUNE 30, DECEMBER 31, JULY 2,
1996 1995 1995
-------- ------------ -------
(DOLLAR AMOUNTS IN MILLIONS)
Cash and marketable securities
on hand, end of period $15.3 $17.0 $26.3
Cash provided by operations $ 2.5 $ 4.6 $ 8.2
Capital expenditures $ 8.1 $14.2 $15.2
Net working capital, end of period $ 9.7 $14.0 $ 7.5
Current ratio, end of period 1.5:1 1.9:1 1.6:1
9
<PAGE>
During the trailing twelve months ended June 30, 1996, the Company's
total amount of cash and marketable securities on hand decreased by $11.0
million to $15.3 million. This decrease was principally due to capital
expenditures for new restaurants and the new bakery production facility which
totaled $22.3 million during the same period.
The Company will require additional capital resources 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 new restaurants which will require a total capital expenditure
of approximately $18 million (excluding landlord construction
contributions). 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-$22 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. As of June 30, 1996, $3.0
million had been borrowed under the revolving credit facility. The Company
and the financial institution providing the revolving credit facility have
executed a letter of intent to amend the facility to, among other things,
increase the maximum amount borrowable by the Company to $15 million and to
add a term loan conversion feature. 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.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. None.
(b) Reports on Form 8-K. None.
11
<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: August 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
12
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<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> JUN-30-1996
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<SECURITIES> 4,244,850
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