<PAGE>
FOR THE QUARTERLY PERIOD ENDED MARCH 30, 1997
COMMISSION FILE NUMBER 0-20574
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
------------------------
THE CHEESECAKE FACTORY INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 51-0340466
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
26950 AGOURA ROAD
CALABASAS HILLS, CALIFORNIA 91301
(Address of principal executive (Zip Code)
offices)
</TABLE>
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 April 30, 1997, 10,960,408 shares of the registrant's Common Stock,
$.01 par value, were outstanding.
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- --------------------------------------------------------------------------------
<PAGE>
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets--March 30, 1997 and December 29, 1996................ 1
Consolidated Statements of Operations--
Thirteen weeks ended March 30, 1997 and March 31, 1996......................... 2
Consolidated Statements of Cash Flows--
Thirteen weeks ended March 30, 1997 and March 31, 1996......................... 3
Notes to Consolidated Financial Statements--March 30, 1997....................... 4-5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations............................... 5-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................ 10
Item 6. Exhibits and Reports on Form 8-K................................................. 10
Signatures....................................................................... 11
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 30, DECEMBER 29,
1997 1996
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................................... $ 9,358,846 $ 8,535,960
Investments and marketable securities.......................................... 1,920,000 1,770,000
Accounts receivable............................................................ 2,069,138 2,383,138
Other receivables.............................................................. 2,405,192 2,310,096
Advances to officers and employees............................................. 89,531 188,361
Inventories.................................................................... 3,844,024 4,206,251
Preopening expenses............................................................ 6,530,639 6,228,938
Prepaid expenses............................................................... 1,687,622 1,777,696
-------------- --------------
Total current assets......................................................... 27,904,992 27,400,440
-------------- --------------
Property and equipment, net...................................................... 73,563,705 73,036,678
-------------- --------------
Other assets:
Marketable securities.......................................................... 285,500 295,700
Other receivables.............................................................. 6,455,346 4,805,437
Deferred income taxes.......................................................... 742,700 788,220
Other.......................................................................... 2,228,597 1,828,773
-------------- --------------
Total other assets........................................................... 9,712,143 7,718,130
-------------- --------------
Total assets............................................................... $ 111,180,840 $ 108,155,248
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 8,335,505 $ 8,909,100
Income taxes payable........................................................... 1,767,942 835,043
Other accrued expenses......................................................... 7,115,883 6,561,761
Deferred income taxes.......................................................... 2,337,131 2,337,131
-------------- --------------
Total current liabilities.................................................... 19,556,461 18,643,035
-------------- --------------
Long-term debt................................................................... 6,000,000 6,000,000
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; 10,960,408 and 10,939,608 issued and outstanding for 1997 and
1996, respectively........................................................... 109,604 109,396
Additional paid-in capital..................................................... 55,563,255 55,264,447
Retained earnings.............................................................. 30,046,728 28,323,050
Marketable securities valuation account........................................ (95,208) (184,680)
-------------- --------------
Total stockholders' equity................................................... 85,624,379 83,512,213
-------------- --------------
Total liabilities and stockholders equity.................................. $ 111,180,840 $ 108,155,248
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
1
<PAGE>
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS
ENDED MARCH 30, ENDED MARCH 31,
1997 1996
--------------- ---------------
<S> <C> <C>
Revenues
Restaurant sales............................................................. $ 40,891,425 $ 31,110,969
Bakery sales................................................................. 4,337,037 4,269,029
--------------- ---------------
Total revenues............................................................. 45,228,462 35,379,998
--------------- ---------------
Costs and expenses
Cost of food, beverages and supplies......................................... 11,829,141 9,214,802
Bakery costs................................................................. 1,761,067 1,786,756
Operating expenses:
Labor...................................................................... 14,620,766 10,850,700
Occupancy and other........................................................ 7,472,943 5,215,251
General and administrative expenses.......................................... 4,291,313 3,479,024
Depreciation and amortization expenses....................................... 2,765,306 2,507,510
--------------- ---------------
Total costs and expenses................................................... 42,740,536 33,054,043
--------------- ---------------
Income from operations......................................................... 2,487,926 2,325,955
Interest income................................................................ 87,649 120,467
Interest (expense)............................................................. 0 --
Other income................................................................... 55,995 14,517
--------------- ---------------
Income before income taxes..................................................... 2,631,570 2,460,939
Income tax provision........................................................... 907,892 836,719
--------------- ---------------
Net income..................................................................... $ 1,723,678 $ 1,624,220
--------------- ---------------
--------------- ---------------
Earnings per share:
Primary...................................................................... $ .16 $ .15
--------------- ---------------
--------------- ---------------
Weighted average shares outstanding.......................................... 11,027,748 10,941,118
--------------- ---------------
--------------- ---------------
Fully diluted.................................................................. $ .16 $ .15
--------------- ---------------
--------------- ---------------
Weighted average shares outstanding............................................ 11,042,370 11,147,788
--------------- ---------------
--------------- ---------------
</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
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS
ENDED MARCH 30, ENDED MARCH 31,
1997 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................... $ 1,723,678 $ 1,624,220
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization.............................................. 2,765,306 2,507,510
Deferred income taxes...................................................... (4,808) --
Changes in assets and liabilities:
Accounts receivable...................................................... 314,000 828,602
Other receivables........................................................ (1,745,005) (77,092)
Due from affiliates, officers and employees.............................. 98,830 535,962
Inventories.............................................................. 362,227 (267,850)
Preopening expenses...................................................... (1,418,554) (899,897)
Prepaid expenses......................................................... (65,357) 119,063
Other.................................................................... (460,863) (919,582)
Accounts payable......................................................... (573,595) (3,208,401)
Income taxes payable..................................................... 932,899 836,719
Other accrued expenses................................................... 554,122 280,991
--------------- ---------------
Cash provided by operating activities.................................... 2,482,880 1,360,245
Cash flows from investing activities:
Additions to property and equipment.......................................... (1,959,010) (4,972,423)
--------------- ---------------
Cash used by investing activities........................................ (1,959,010) (4,972,423)
--------------- ---------------
Cash flows from financing activities:
Common stock issued.......................................................... 190 25
Proceeds from exercise of employee stock options............................. 298,826 33,300
--------------- ---------------
Cash provided by financing activities.................................... 299,016 33,325
--------------- ---------------
Net change in cash and cash equivalents........................................ 822,886 (3,578,853)
Cash and cash equivalents at beginning of period............................... 8,535,960 10,077,713
--------------- ---------------
Cash and cash equivalents at end of period..................................... $ 9,358,846 $ 6,498,860
--------------- ---------------
--------------- ---------------
Supplemental disclosures:
Interest paid................................................................ $ 91,144 $ --
--------------- ---------------
--------------- ---------------
Income taxes paid.............................................................. $ 7,000 $ --
--------------- ---------------
--------------- ---------------
</TABLE>
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
MARCH 30, 1997
(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
30, 1997 and March 31, 1996 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 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. The consolidated balance sheet data presented herein for
December 29, 1996 was derived from the Company's audited consolidated financial
statements for the fiscal year then ended. The preparation of financial
statements in accordance with generally accepted accounting principles requires
the Company's management to make certain estimates and assumptions for the
reporting periods covered by the financial statements. These estimates and
assumptions affect the reported amounts of assets, liabilities, revenues and
expenses. Actual amounts could differ from those estimates.
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 29, 1996.
NOTE B--MARKETABLE SECURITIES
Marketable securities, all classified as available for sale, consisted of
the following as of March 30, 1997:
<TABLE>
<CAPTION>
UNREALIZED BALANCE
CLASSIFICATION COST FAIR VALUE (LOSS) GAIN SHEET AMOUNT MATURITY
- ------------------------- ------------ ------------ ----------- ------------ -------------------------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Preferred stocks....... $ 2,010,000 $ 1,920,000 $ (90,000) $ 1,920,000 No maturity dates
OTHER ASSETS:
Corporate bonds........ $ 344,262 $ 285,500 $ (58,762) $ 285,500 February 1999 to April 2004
</TABLE>
NOTE C--NET INCOME PER SHARE
Net income per share calculations are based on the weighted average number
of common shares and common share equivalents outstanding during the thirteen
weeks ended March 30, 1997 and March 31, 1996. The primary net income per share
amount for each period is based on the weighted average number of shares
outstanding during each period, increased by the common equivalent shares
(vested and exercisable stock options) determined using the treasury stock
method. The fully diluted net income per share amount for each period is based
on the weighted average number of shares outstanding during each 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 each period. In
February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
4
<PAGE>
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 30, 1997
(UNAUDITED)
NOTE C--NET INCOME PER SHARE (CONTINUED)
"Accounting for Earnings Per Share", which will slightly change the calculation
of primary net income per share. The Company intends to adopt the provisions of
SFAS No. 128 when reporting the results of operations for the full fiscal year
ending December 28, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q under Item 2, "Management's Discussion
and Analysis of Financial Condition and Results of Operations", which are not
historical facts constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 and are intended to be
covered by the safe harbors created thereby. Forward-looking statements involve
known and unknown risks, uncertainties, and other factors which may cause the
actual results, performance, or achievements of The Cheesecake Factory
Incorporated and its subsidiaries to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties, and other factors
include, but are not necessarily limited to, the following: changes in general
economic conditions which affect consumer spending patterns for restaurant
dining occasions; increasing competition in the upscale casual dining segment of
the restaurant industry; adverse weather conditions which cause the temporary
underutilization of outdoor patio seating available at several of the Company's
restaurants; events which increase the cost to develop and/or delay the
development and opening of new restaurants; changes in the availability and/or
cost of raw materials, labor, and other resources necessary to operate the
Company's restaurants and bakery production facility; the success of operating
initiatives; depth of management; adverse publicity; technological difficulties
and suboptimal operating leverage associated with the Company's bakery
production facility; the Company's dependence on a single bakery production
facility; the Company's ability to obtain and retain large-account customers for
its bakery operations; changes in timing and/or scope of the dessert marketing
and promotional plans of large-account bakery customers which cause fluctuations
in bakery sales and operating results; the rate of growth of general and
administrative expenses associated with building a strengthened corporate
infrastructure to support the Company's expanded restaurant and bakery
operations; the availability, amount, type, and cost of capital for the Company
and the deployment of such capital; changes in, or any failure to comply with,
governmental regulations; the revaluation of any of the Company's assets; the
amount of, and any changes to, tax rates; adverse rulings, judgments or
settlements involving litigation or other legal matters; and other factors
referenced in this Form 10-Q and the Company's Form 10-K for the fiscal year
ended December 29, 1996.
GENERAL
The Company's revenues consist of sales from its restaurant operations and
sales to other foodservice operators and distributors from its bakery
operations. Certain costs and expenses relate only to restaurant sales (cost of
food, beverages and supplies) or only to bakery sales (bakery costs), while
other costs and expenses relate to both restaurant and bakery sales (operating
expenses including occupancy, general and administrative expenses, and
depreciation and amortization expenses). The Company analyzes its revenue, in
part, based on comparable restaurant sales which is defined to include the sales
of all restaurants open during the full period of all periods being compared.
Bakery sales can fluctuate from quarter to quarter based on the timing and
amount of orders from large-account bakery customers.
5
<PAGE>
RESULTS OF OPERATIONS
The following table presents for the thirteen-week periods ended March 30,
1997 and March 31, 1996 the Consolidated Statements of Operations of the Company
expressed as percentages of total revenues. The results of operations for the
thirteen weeks ended March 30, 1997 are not necessarily indicative of the
results to be expected for the full fiscal year.
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS
ENDED MARCH 30, ENDED MARCH 31,
1997 1996
--------------- ---------------
% %
<S> <C> <C>
Revenues:
Restaurant sales................................................................. 90.4 87.9
Bakery sales..................................................................... 9.6 12.1
----- -----
Total revenues................................................................. 100.0 100.0
----- -----
Costs and expenses:
Cost of food, beverages and supplies............................................. 26.2 26.0
Bakery costs..................................................................... 3.9 5.1
Operating expenses:
Labor.......................................................................... 32.3 30.7
Occupancy and other............................................................ 16.5 14.7
General and administrative expenses.............................................. 9.5 9.8
Depreciation and amortization expenses........................................... 6.1 7.1
----- -----
Total costs and expenses....................................................... 94.5 93.4
----- -----
Income from operations............................................................. 5.5 6.6
Interest income (expense), net..................................................... 0.2 0.3
Other income (expense), net........................................................ 0.1 --
----- -----
Income before income taxes......................................................... 5.8 6.9
Income tax provision............................................................... 2.0 2.3
----- -----
Net income......................................................................... 3.8 4.6
----- -----
----- -----
</TABLE>
THIRTEEN WEEKS ENDED MARCH 30, 1997 VERSUS MARCH 31, 1996
REVENUES
For the thirteen weeks ended March 30, 1997, the Company's total revenues
increased 28% to $45.2 million versus $35.4 million for the quarter ended March
31, 1996. Restaurant sales increased 31% to $40.9 million versus $31.1 million
for the same period of the prior year. This $9.8 million increase consisted of a
$1.9 million (6.6%) increase in comparable restaurant sales for the period, a
$0.7 million increase in the sales of the Boca Raton restaurant which included
the effect of a 125-seat addition during the period, and $7.2 million from the
openings of four new restaurants during the trailing 12 months ended March 30,
1997. The 6.6% increase in comparable restaurant sales for the thirteen weeks
ended March 30, 1997 was comprised of an estimated 3.9% increase in customer
counts and a 2.7% increase in the average guest check amount. Sales in
comparable restaurants benefited, in part, from the impact of an approximate
1.5% effective menu price increase that was taken in all restaurants during the
December 1996--January 1997 period.
Bakery sales increased 2% to $4.3 million for the thirteen weeks ended March
30, 1997. Higher sales of bakery products to certain warehouse club and
supermarket customers slightly offset lower sales to other foodservice operators
and distributors during the period. Bakery sales trends continued soft during
April 1997. The Company is in the final stages of negotiations with several
potential large-account bakery
6
<PAGE>
customers which, if successfully completed, have the potential to improve bakery
sales volumes during the second half of fiscal 1997.
COST OF FOOD, BEVERAGES AND SUPPLIES
During the thirteen weeks ended March 30, 1997, cost of food, beverages and
supplies for the restaurants was $11.8 million versus $9.2 million for the
comparable period last year. The related increase of $2.6 million was primarily
attributable to new restaurant openings. As a percentage of restaurant sales,
these costs decreased slightly to 28.9% versus 29.6% for the same period of the
prior year. During the thirteen weeks ended March 30, 1997, the Company
negotiated reductions in the costs of certain food, beverage and supply items
which have the potential to be reflected in slightly lower costs during the
remainder of fiscal 1997.
BAKERY COSTS
Bakery costs, which include ingredient, packaging and production supply
costs, were $1.8 million for the thirteen weeks ended March 30, 1997 versus
approximately the same amount for the comparable last year, as bakery sales
experienced an increase of only 2%. As a percentage of bakery sales, bakery
costs decreased slightly to 40.6% in 1997 versus 41.9% for the comparable period
in fiscal 1996.
OPERATING EXPENSES, INCLUDING OCCUPANCY
Operating expenses, which include all restaurant-level operating and
occupancy costs (labor, rent, laundry, repairs and maintenance, utilities,
outside services, and other operating expenses) and certain bakery operating
costs (direct labor and indirect production costs), increased 38% to $22.1
million for the thirteen weeks ended March 30, 1997 versus $16.1 million for the
same period of the prior fiscal year. This increase was principally attributable
to the 28% increase in total revenues for the thirteen weeks ended March 30,
1997 and higher labor and occupancy-related costs associated with the Company's
new bakery production facility. As a percentage of total revenues, operating
expenses were 48.8% for the thirteen weeks ended March 30, 1997 versus 45.4% for
the same period of fiscal 1996.
The Company incurred certain duplicative and inefficient labor and other
operating costs in connection with the transition to its new bakery production
facility during the first three quarters of fiscal 1996. Additionally,
management estimates that annualized occupancy-related costs for its bakery
operations, excluding depreciation and amortization, increased by approximately
$700,000 during fiscal 1996 as a result of the estimated four-fold increase in
production capacity offered by the new facility. While management believes that
measurable improvements were achieved in labor productivity and ingredient
yields in the new facility during the fourth quarter of fiscal 1996 and the
first quarter of fiscal 1997, operating expense comparisons on a
percentage-of-sales basis will likely remain unfavorable until bakery sales
volumes improve.
One of the Company's principal goals for fiscal 1997 is to more effectively
leverage the investment and fixed occupancy costs in the new production facility
with higher sales levels. The Company added two national salespeople and two
product development professionals to its bakery operations staff during the
first quarter of fiscal 1997. During the same period, the Company also hired a
senior concept development professional to manage the development of a bakery
cafe concept under "The Cheesecake Factory" brand name. The Company plans to
open its first two bakery cafe operations during the summer of 1997. If
successful, the bakery cafe concept could be more rapidly expanded and could
provide an additional source of sales and operating leverage for the production
facility.
7
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist of bakery selling and
administrative expenses (including product development and marketing expenses),
certain restaurant administrative expenses (principally credit card discounts
and property insurance), restaurant field supervision expenses (salaries and
expenses of regional vice presidents and area directors of operations), and
corporate support expenses (salaries and related fringe benefits; travel; and
other administrative expenses). General and administrative expenses increased to
$4.3 million for the thirteen weeks ended March 30, 1997 from $3.5 million for
the same period of fiscal 1996, an increase of $0.8 million or 23%. As a
percentage of total revenues, general and administrative expenses decreased
slightly to 9.5% for the thirteen weeks ended March 30, 1997 versus 9.8% for the
same period of fiscal 1996.
The Company plans to continue to strengthen its operational and corporate
infrastructure during fiscal 1997 to support its planned future growth. This
strengthening will likely result in a higher level of general and administrative
expenses during fiscal 1997. During the thirteen weeks ended March 30, 1997, the
Company added a regional vice president and three area directors of operations
to the field supervision staff for its restaurants. Additional professionals are
also planned for the Company's performance development and restaurant opening
teams. The Company also added personnel to the product development and marketing
staffs in its bakery operations. Additionally, the Company plans to aggressively
pursue new large-account customers for its bakery operations which will require
continuing investments in advertising and promotional programs. One of the
Company's principal objectives for fiscal 1997 is to more effectively leverage
its operational and corporate support infrastructure with higher sales volumes.
DEPRECIATION AND AMORTIZATION EXPENSES
Depreciation and amortization expenses increased to $2.8 million for the
thirteen weeks ended March 30, 1997 from $2.5 million for the thirteen weeks
ended March 31, 1996, an increase of $0.3 million or 10%. As a percentage of
total revenues, depreciation and amortization expenses were 6.1% for the
thirteen weeks ended March 30, 1997 versus 7.1% for the same period of the prior
year. The increase of $0.3 million for the thirteen weeks ended March 30, 1997
consisted of the following components: a $0.2 million decrease (to $1.1 million)
in restaurant preopening amortization; a $0.1 million increase (to $0.5 million)
in bakery depreciation and amortization; a $0.4 million increase (to $1.1
million) in restaurant depreciation; and a slight increase (to $0.1 million) in
corporate support-related depreciation. The increase in restaurant depreciation
was attributable to the opening of four new restaurants during the trailing 12
months ended March 30, 1997.
As a result of the highly customized and operationally complex nature of the
Company's restaurants, the restaurant preopening process is extensive and costly
relative to that of most chain restaurant operations. Preopening costs, which
often exceed $1 million per restaurant, include recruiting, training, relocation
and related costs for developing management and hourly staff for new
restaurants, as well as other costs directly related to the opening of new
restaurants. Preopening costs will vary from location to location depending on a
number of factors including, among others, the proximity of other established
Company restaurants, the size and layout of each location, and the relative
difficulty of the restaurant staffing and training process. 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. Total restaurant preopening amortization will vary from quarter to
quarter depending on the timing of restaurant openings and the number of newer
restaurants amortizing their preopening costs in a given quarter. Based on the
Company's planned fiscal 1997 openings of new restaurants (as of April 30,
1997), management believes that total preopening amortization for fiscal 1997
will likely be higher than the amount reported for fiscal 1996. During fiscal
1996, the Company reevaluated its restaurant preopening process with the
objective of reducing its timeframe, intensiveness, and overall cost. The
Company
8
<PAGE>
continues to review this process during fiscal 1997. However, there can be no
assurance that preopening costs will be reduced for future restaurants.
LIQUIDITY AND CAPITAL RESOURCES
Following is a summary of the Company's liquidity measurements for the
thirteen weeks ended March 30, 1997, December 29, 1996 and March 31, 1996:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
---------------------------------------
MARCH 30, DECEMBER 29, MARCH 31,
1997 1996 1996
----------- ------------- -----------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
Cash and marketable securities on hand, end of period....................... $ 11.6 $ 10.6 $ 13.5
Net working capital, end of period.......................................... $ 8.3 $ 8.8 $ 11.0
Current ratio, end of period................................................ 1.4:1 1.5:1 1.8:1
Long-term debt, end of period............................................... $ 6.0 $ 6.0 --
Cash provided (used) by operations.......................................... $ 2.5 $ (1.1) $ 1.4
Capital expenditures........................................................ $ 2.0 $ 7.5 $ 5.0
</TABLE>
During the thirteen weeks ended March 30, 1997, the Company's total amount
of cash on hand and marketable securities increased by $1.0 million to $11.6
million versus $10.6 million as of December 29, 1996. The Company's net working
capital position decreased slightly by $0.5 million during the period to $8.3
million as of March 30, 1997. It is not uncommon for operators in the restaurant
industry to maintain a minimal or slightly negative net working capital position
as the restaurant business receives substantially immediate payment for sales
while payment terms to suppliers for inventories and related items are typically
15 to 30 days. The Company did not borrow additional funds under its revolving
credit and term loan facility during the thirteen weeks ended March 30, 1997.
However, the Company expects to increase its borrowings under that facility as
necessary during the remainder of fiscal 1997 to fund planned capital
expenditures.
During the thirteen weeks ended March 30, 1997, the Company's total capital
expenditures were $2.0 million, substantially all of which were related to its
restaurant operations. For fiscal 1997, the Company estimates that its total
capital expenditure requirement will be approximately $28 million, excluding
restaurant preopening expenses. This estimate includes approximately $25 million
(net of expected landlord construction contributions) to open as many as six new
restaurants and to provide for an increase in construction-in-progress
disbursements for anticipated fiscal 1998 openings. The Company has historically
leased the land and building shells for its restaurant locations; however, the
Company has expended cash for leasehold improvements and furnishings, fixtures,
and equipment for the locations. The remaining estimated capital expenditures
for fiscal 1997 consist of approximately $1 million for the bakery cafe concept
and approximately $2 million for maintenance-related expenditures for the
Company's existing restaurants, bakery, and corporate center.
The Company's planned capital expenditures for fiscal 1997 are expected to
be financed through a combination of cash provided by operations, cash and
marketable securities on hand, landlord construction contributions (when
available), and drawdowns on the Company's revolving credit and term loan
facility. In March 1997, the Company's existing revolving credit and term loan
facility was amended to, among other things, increase the maximum amount
available to the Company under the facility from $15 million to $25 million.
During fiscal 1997, the Company may seek to obtain additional debt and/or equity
capital to finance its anticipated restaurant expansion in 1998 and thereafter.
The Company may also 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 suitable terms, if at all.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 13, 1997, a New Mexico corporation named Cheesecake Factory,
Inc. brought suit in the U.S. District Court of New Mexico against the Company,
its subsidiaries and certain of its bakery customers alleging trademark, service
mark, and trade name infringements and wrongful registration with respect to the
Company's incontestable registration and use of "The Cheesecake Factory" name.
On May 9, 1997, the Court determined that it would not issue a preliminary
injunction relating to the Company's sale of bakery products under "The
Cheesecake Factory" name in the state of Texas, where the Company's sale of
bakery products under that name is substantial and where it currently operates
one restaurant with the intent of operating others under that name. At the same
time, the Court found that the plaintiff had used "The Cheesecake Factory" name
in the state of New Mexico prior to the Company's registration of that name and
prior to the Company's sale of bakery products under that name in that state.
Accordingly, the court issued a preliminary injunction preventing the Company
from selling bakery products under "The Cheesecake Factory" name in the state of
New Mexico. Historically, sales of the Company's bakery products under "The
Cheesecake Factory" name in the state of New Mexico have been de minimus (less
than 1% of its total bakery product sales on an annual basis). The preliminary
injunction is not a final order as to either Texas or New Mexico. The case has
been set for trial commencing September 8, 1997.
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
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
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Date: May 14, 1997
11
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