<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 SEPTEMBER 29, 1996
COMMISSION FILE NUMBER 0-20574
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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 ther past 90 days.
Yes X No
--- ---
As of November 8, 1996, 10,939,608 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
Consolidated Balance Sheets - September 29, 1996
and December 31, 1995................................... 1
Consolidated Statements of Operations - Thirteen weeks
and thirty-nine weeks ended September 29, 1996
and October 1, 1995..................................... 2
Consolidated Statements of Cash Flows - Thirty-nine weeks
ended September 29, 1996 and October 1, 1995............ 3
Notes to Consolidated Financial Statements -
September 29, 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
SEPTEMBER 29, DECEMBER 31,
ASSETS 1996 1995
------------ ------------
Current assets:
Cash and cash equivalents $ 9,539,465 $10,077,713
Marketable securities 4,223,135 4,154,525
Accounts receivable 2,428,966 2,213,317
Other miscellaneous receivables 2,438,484 2,674,276
Due from affiliates, officers and employees 139,873 621,771
Inventories 4,221,730 2,711,805
Preopening expenses 6,212,717 6,103,182
Prepaid expenses 1,748,557 1,022,558
------------ ------------
Total current assets 30,952,927 29,579,147
------------ ------------
Property and equipment, net 66,721,266 54,445,425
------------ ------------
Other assets:
Marketable securities 2,307,557 2,768,427
Other miscellaneous receivables 5,909,639 3,129,901
Deferred income taxes 303,073 363,786
Other 2,188,102 1,479,876
------------ ------------
Total other assets 10,708,371 7,741,990
------------ ------------
Total assets $108,382,564 $91,766,562
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,038,985 $ 9,312,877
Income taxes payable 514,907 75,296
Other accrued expenses 6,668,435 3,835,851
Deferred income taxes 2,336,328 2,336,328
------------ ------------
Total current liabilities 22,558,655 15,560,352
------------ ------------
Long Term Obligations 3,000,000 --
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; 10,939,608 and
10,853,508 issued and outstanding,
respectively 109,396 108,535
Additional paid-in capital 55,215,545 54,112,418
Retained earnings 27,817,184 22,411,408
Marketable securities valuation account (318,216) (426,151)
------------ ------------
Total stockholders' equity 82,823,909 76,206,210
------------ ------------
Total liabilities and $108,382,564 $91,766,562
stockholders' equity ------------ ------------
------------ ------------
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
THE CHEESECAKE FACTOR INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS THIRTY-NINE WEEKS THIRTY-NINE WEEKS
ENDED SEPTEMBER 29 ENDED OCTOBER 1, ENDED SEPTEMBER 29 ENDED OCTOBER 1,
1996 1995 1996 1995
----------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues
Restaurant sales $37,984,525 $25,467,244 $102,840,912 $71,367,807
Bakery sales 4,214,137 3,900,772 13,948,044 11,466,959
----------- ----------- ------------ -----------
Total revenues 42,198,662 29,368,016 116,788,956 82,834,766
----------- ----------- ------------ -----------
Costs and expenses
Cost of food, beverages and supplies 11,693,348 7,689,284 30,845,758 21,510,261
Bakery costs 1,969,119 1,620,507 6,049,716 4,676,784
Operating expenses:
Labor 13,287,959 9,255,214 36,737,725 25,628,212
Occupancy and other 6,442,845 4,010,781 17,178,158 11,667,234
General and administrative expenses 3,416,095 2,951,490 10,330,170 7,774,479
Depreciation and amortization expenses 3,008,246 1,352,189 8,102,235 3,944,265
----------- ----------- ------------ -----------
Total costs and expenses 39,817,612 26,879,465 109,243,762 75,201,235
----------- ----------- ------------ -----------
Income from operations 2,381,050 2,488,551 7,545,194 7,633,531
Interest income 161,593 262,956 417,216 973,721
Interest (expense) (74,609) -- (92,880) --
Other income 79,158 33,032 139,152 136,927
----------- ----------- ------------ -----------
Income before income taxes 2,547,192 2,784,539 8,008,682 8,744,179
Income tax provision 827,837 390,018 2,602,906 2,174,624
----------- ----------- ------------ -----------
Net income $ 1,719,355 $ 2,394,521 $ 5,405,776 $ 6,569,555
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Earnings per share:
Primary $ .16 $ .22 $ .49 $ .61
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Weighted average shares outstanding 10,953,489 10,852,990 10,946,668 10,758,553
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Fully diluted $ .16 $ .22 $ .49 $ .60
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Weighted average shares outstanding 11,023,184 11,070,530 11,098,609 10,969,545
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
THE CHEESECAKE FACTOR INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS THIRTY-NINE WEEKS
ENDED SEPTEMBER 29, ENDED OCTOBER 1,
1996 1995
------------------ -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,405,776 $6,569,555
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 8,102,235 3,944,265
(Gain) loss on asset sale (9,250) --
Loss on held-to-maturity securities -- 38,052
Loss on available-for-sale securities 13,139 5,144
Deferred income taxes -- 528,796
Changes in assets and liabilities:
Accounts receivable (215,649) (546,717)
Income tax refunds receivable -- (216,871)
Other miscellaneous receivables (2,461,710) (361,941)
Due from affiliates, officers and employees 481,898 --
Inventories (1,347,729) (298,007)
Preopening expenses (4,416,315) (2,564,336)
Prepaid expenses (994,644) (739,460)
Deposits -- (71,135)
Other (922,384) (136,827)
Accounts payable 3,726,108 374,662
Income taxes payable 439,611 (49,325)
Other accrued expenses 2,832,584 1,049,357
----------- ------------
Cash provided by operating activities 10,633,670 7,525,212
----------- ------------
Cash flows from investing activities:
Additions to property and equipment (15,750,690) (24,109,309)
Sale of property and equipment 9,250 --
Sales of held-to-maturity securities -- 12,387,356
Investments in available-for-sale securities -- (1,124,287)
Sales of available-for-sale securities 465,534 4,492,595
----------- ------------
Cash used by investing activities (15,275,906) (8,353,645)
----------- ------------
Cash flows from financing activities:
Proceeds from short-term bank borrowings 3,000,000 --
Common stock issued 861 2,379
Proceeds from exercise of employee stock option 1,103,127 2,950,523
----------- ------------
Cash provided by financing activities 4,103,988 2,952,902
----------- ------------
Net change in cash and cash equivalents (538,248) 2,124,469
Cash and cash equivalents at beginning of period 10,077,713 397,753
----------- ------------
Cash and cash equivalents at end of period $9,539,465 $2,522,222
----------- ------------
----------- ------------
Supplemental disclosures:
Interest paid $78,489 $ --
----------- ------------
----------- ------------
Income taxes paid $2,163,295 $1,912,025
----------- ------------
----------- ------------
</TABLE>
The acccompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 29, 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 thirty-nine weeks ended September 29, 1996 and October 1,
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 thirty-nine weeks ended September 29, 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
specific 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
September 29, 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
September 29, 1996
NOTE B - MARKETABLE SECURITIES
Marketable securities consisted of the following as of September 29, 1996:
<TABLE>
<CAPTION>
UNREALIZED BALANCE
(LOSS) SHEET
CLASSIFICATION COST FAIR VALUE GAIN AMOUNT MATURITY
- -----------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C>
CURRENT ASSETS:
Available-for-sale securities:
Preferred stocks and warrants $2,010,000 $1,726,260 $ (283,740) $1,726,260 No maturity dates
U.S. Treasury Notes 2,501,172 2,496,875 (4,297) 2,496,875 November 1996
----------------------------------------------------------
Total $4,511,172 $4,223,135 $ (288,037) $4,223,135
----------------------------------------------------------
----------------------------------------------------------
OTHER ASSETS:
Available-for-sale securities:
Corporate bonds $2,516,732 $2,307,557 $ (209,175) $2,307,557 February 1998 to August 2013
----------------------------------------------------------
Total $2,516,732 $2,307,557 $ (209,175) $2,307,557
----------------------------------------------------------
----------------------------------------------------------
</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 thirty-nine week periods ended September 29, 1996 and October
1, 1995. Primary net income per share amounts 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 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.
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 thirty-nine
weeks ended September 29, 1996 and October 1, 1995 the Consolidated Statements
of Operations of the Company expressed as percentages of total revenues. The
results of operations for the first thirty-nine weeks of fiscal 1996 are not
necessarily indicative of the results to be expected for the full fiscal year.
<TABLE>
<CAPTION>
Thirteen Thirteen Thirty-nine Thirty-nine
weeks ended weeks ended weeks ended weeks ended
September 29, October 1, September 29, October 1,
1996 1995 1996 1995
-------------------------------------------------------------
<S> <C> <C> <C> <C>
% % % %
Revenues:
Restaurant sales 90.0 86.7 88.1 86.2
Bakery sales 10.0 13.3 11.9 13.8
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
Costs and expenses:
Cost of food, beverages, and supplies 27.7 26.2 26.4 26.0
Bakery costs 4.7 5.5 5.2 5.6
Operating expenses:
Labor 31.5 31.5 31.5 30.9
Occupancy and other 15.3 13.7 14.7 14.1
General and administrative expenses 8.1 10.0 8.8 9.4
Depreciation and amortization
expenses 7.1 4.6 6.9 4.8
----- ----- ----- -----
Total costs and expenses 94.4 91.5 93.5 90.8
----- ----- ----- -----
Income from operations 5.6 8.5 6.5 9.2
Interest income 0.4 0.9 0.4 1.2
Interest (expense) (0.2) --.-- (0.1) --.--
Other income (expense), net 0.2 0.1 0.1 0.1
----- ----- ----- -----
Income before income taxes 6.0 9.5 6.9 10.5
Income tax provision 2.0 1.3 2.2 2.6
----- ----- ----- -----
Net income 4.0 8.2 4.7 7.9
----- ----- ----- -----
----- ----- ----- -----
</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 both labor and 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
increases in the cost of raw materials,
6
<PAGE>
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 (including the effect of estimated tax credits thereto).
RESULTS OF OPERATIONS
CURRENT YEAR QUARTER VS. PRIOR YEAR QUARTER
The Company's total revenues increased 44% to $42.2 million versus $29.4
million for the same quarter of the prior year. Restaurant sales increased 49%
to $38.0 million versus $25.5 million for the quarter ended October 1, 1995.
This $12.5 million increase was attributable to a $0.7 million (3.0%) increase
in comparable restaurant sales for the quarter and $11.8 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 8% to $4.2 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 $11.7 million
versus $7.7 million for the comparable quarter last year. The related increase
of $4.0 million was primarily attributable to new restaurant openings. As a
percentage of restaurant sales, these costs increased slightly to 30.8% in 1996
versus 30.2% for the same quarter of the prior year due principally to higher
costs for poultry and dairy-related commodities.
Bakery costs, which include raw materials, packaging, and other
production-related supplies, were $2.0 million versus $1.6 million for the
comparable quarter in 1995. The related increase of $0.4 million was primarily
attributable to the 8% increase in bakery sales for the quarter ended September
29, 1996 and sharply higher costs for dairy-related commodities used in the
production of bakery products during the quarter. As a percentage of bakery
sales, bakery costs increased to 46.7% in 1996 versus 41.6% for the comparable
1995 quarter. Substantially all of this increase was attributable to higher
costs for dairy-related commodities (cream cheese, whipped cream, and butter)
which, in turn, reflect the increase in the general level of those costs across
the country. During the quarter ended September 29, 1996, costs for dairy-
related commodities represented approximately 18% of bakery sales versus
approximately 13% for the same quarter of the prior year. The Company's
aggregate cost for dairy-related commodities generally stabilized during October
1996. However, there can be no assurance that the costs of these commodities
will not rise further due to market conditions beyond the Company's control.
Prices were increased by an average of 5% for many of the Company's bakery
products during September 1996 in an attempt to partially offset the higher
commodity costs.
During the thirty-nine weeks ended September 29, 1996, the Company
experienced (and continues to experience) certain inefficient and duplicative
production costs associated with the transition of its bakery production
operations to its new production facility which commenced initial operations in
December 1995. Additionally, the estimated four-fold increase in capacity
offered by the new facility has generated an annualized increase of
approximately $2 million in the aggregate level of fixed and semi-fixed costs
(depreciation, amortization, and other occupancy-related costs) for the
Company's bakery operations. The new production facility represents a longer-
term strategic investment to support the planned future growth of the Company's
restaurant and bakery operations. All bakery production operations have now
been fully transferred to the new facility, and the Company continues to refine
its production processes in order to improve the overall efficiency of the new
facility. The Company believes that the opportunity exists to realize a gradual
improvement in the operating leverage of the new production facility during
fiscal 1997.
7
<PAGE>
Operating expenses, including labor and occupancy, increased to $19.7
million compared to $13.3 million for the comparable quarter of the prior year.
This increase of $6.4 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 46.8% for the quarter ended
September 29, 1996 versus 45.2% 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 likely
be unfavorable for the remainder of fiscal 1996 and the first quarter of fiscal
1997 principally as a result of the increased fixed and semi-fixed costs
associated with the new bakery production facility.
General and administrative expenses increased 16% to $3.4 million in 1996
versus $3.0 million for the comparable 1995 quarter. This increase of $0.4
million was principally attributable to variable selling and administrative
expenses associated with the 44% increase in total revenues for the quarter
ended September 29, 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 to 8.1% in 1996
versus 10.0% 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 infrastructure during the remainder of fiscal 1996 and fiscal 1997.
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 123% to $3.0 million in 1996
versus $1.4 million for the comparable 1995 quarter. This increase of $1.6
million was attributable to higher restaurant preopening cost amortization ($1.0
million), higher depreciation and amortization expense related to the new bakery
production facility ($0.3 million), and increased depreciation expense related
to 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 likely continue to be unfavorable, as
the Company will be concurrently amortizing the preopening costs associated with
five restaurants (out of a total of 17 restaurants open). Preopening costs for
the Company's highly customized and operationally complex restaurants vary from
location to location, depending upon a number of factors including (but not
limited to) the proximity of other Company restaurants, the size and footprint
of each site, and the restaurant staffing and training process. Total
preopening cost amortization will vary from quarter to quarter, depending on the
timing of restaurant openings and the number of restaurants amortizing their
preopening costs in a given quarter. During the first half of fiscal 1996, the
Company reengineered its restaurant preopening process with the objective of
reducing its timeframe, complexity, and overall cost. However, there can be no
assurance that preopening costs will be reduced for future restaurants.
As a percentage of revenues, interest income decreased 0.5 percentage
points to 0.4% for the quarter ended September 29, 1996. This reduction was
attributable to lower levels of investments in marketable securities on hand,
reflecting the Company's 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. The cumulative effect of these anticipated
credits for fiscal 1995 was recorded in the income tax provision for the quarter
ended October 1, 1995 when it became evident that the new bakery production
facility would commence initial operations by fiscal year-end. As a result, the
14% effective tax rate for the quarter ended October 1, 1995 was unusually low.
Similar tax credits have been contemplated in the effective tax rate for fiscal
1996, but at lesser amounts.
8
<PAGE>
CURRENT YEAR-TO-DATE VS. PRIOR YEAR-TO-DATE
For the thirty-nine weeks ended September 29, 1996, the Company's total
revenues increased 41% to $116.8 million versus $82.8 million for the same
period of the prior year. Restaurant sales increased 44% to $102.8 million
versus $71.4 million for the thirty-nine weeks ended October 1, 1995. This
$31.4 million increase was attributable to a $3.8 million (5.4%) increase in
comparable restaurant sales for the period and $27.6 million from the opening
of new restaurants.
Bakery sales increased 22% to $13.9 million versus $11.5 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 $30.8 million
versus $21.5 million for the comparable period last year. The related increase
of $9.3 million was primarily attributable to new restaurant openings. As a
percentage of restaurant sales, these costs decreased slightly to 30.0% 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 $6.0 million versus $4.7 million for the
comparable period in 1995. The related increase of $1.3 million was primarily
attributable to the 22% increase in bakery sales for the thirty-nine weeks ended
September 29, 1996. As a percentage of bakery sales, bakery costs increased to
43.4% in 1996 versus 40.8% for the comparable 1995 period. This increase was
principally due to higher dairy-related ingredient costs in the September 1996
quarter and lower profit margins realized on incremental sales to certain large
customers, particularly warehouse clubs.
Operating expenses, including labor and occupancy, increased to $53.9
million compared to $37.3 million for the comparable period of the prior year.
This increase of $16.6 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 thirty-nine weeks ended
September 29, 1996 versus 45.0% 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 33% to $10.3 million in 1996
versus $7.8 million for the comparable 1995 period. This increase of $2.5
million was principally attributable to variable selling and administrative
expenses associated with the 41% increase in total revenues for the thirty-nine
weeks ended September 29, 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 9.4% in 1995.
Depreciation and amortization increased 105% to $8.1 million in 1996
versus $3.9 million for the comparable 1995 period. This increase of $4.2
million was attributable to higher preopening cost amortization ($2.5 million),
higher depreciation and amortization expense related to the new bakery
production facility ($0.8 million), and increased depreciation expense related
to additional restaurants in operation, exclusive of preopening cost
amortization ($0.9 million).
As a percentage of revenues, interest income decreased 0.8 percentage
points to 0.4% for the thirty-nine weeks ended September 29, 1996. This
reduction was attributable to lower levels of investments in marketable
securities on hand, reflecting the Company's capital expenditure activity for
new restaurants and the new bakery facility.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Following is a summary of the Company's key liquidity measurements for the
thirty-nine week periods ended September 29, 1996 and October 1, 1995:
Thirty-nine Week Periods Ended
------------------------------
September 29, October 1,
1996 1995
---- ----
(dollar amounts in millions)
Cash and marketable securities
on hand, end of period $16.1 $17.2
Cash provided by operations $10.6 $ 7.5
Capital expenditures $15.8 $24.1
Net working capital, end of period $ 8.4 $11.7
Bank borrowings outstanding, end of period $ 3.0 $ ---
Current ratio, end of period 1.4:1 2.1:1
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 three new restaurants
and significantly expand the size of an existing restaurant which will require a
total capital expenditure of approximately $17 - $18 million (excluding landlord
construction contributions). Additionally, capital expenditures of
approximately $2 - $3 million will be required to fully complete the new bakery
production facility. An additional $1 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 revolving credit facility. This facility, which
was initially established in February 1996, was amended effective October 1,
1996 to, among other things, increase the maximum amount borrowable by the
Company from $10 million to $15 million and to add a term loan conversion
option. As a result of the Company's intent and ability to refinance borrowings
under this facility on a long-term basis, the $3 million of borrowings
outstanding under the facility as of September 29, 1996 have been classified as
a long-term obligation.
The Company currently estimates that capital expenditures for fiscal 1997
will be in the range of $25 million and believes that this amount can be
financed through a combination of cash and marketable securities on hand, cash
provided by operations, anticipated landlord construction contributions, and
drawdowns on the revolving credit facility. The Company is currently evaluating
its options to raise additional debt and/or equity capital to finance its
planned restaurant expansion in fiscal 1998 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: November 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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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> SEP-29-1996
<CASH> 9,539,465
<SECURITIES> 4,223,135
<RECEIVABLES> 4,867,450
<ALLOWANCES> 0
<INVENTORY> 4,221,730
<CURRENT-ASSETS> 30,952,927
<PP&E> 82,308,566
<DEPRECIATION> 15,587,300
<TOTAL-ASSETS> 108,382,564
<CURRENT-LIABILITIES> 22,558,655
<BONDS> 0
0
0
<COMMON> 109,936
<OTHER-SE> 82,714,513
<TOTAL-LIABILITY-AND-EQUITY> 108,382,564
<SALES> 116,788,956
<TOTAL-REVENUES> 116,788,956
<CGS> 36,895,474
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<OTHER-EXPENSES> 72,348,288
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 92,880
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<INCOME-TAX> 2,602,906
<INCOME-CONTINUING> 5,405,776
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<NET-INCOME> 5,405,776
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