<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 28, 2000
COMMISSION FILE NUMBER 0-20574
------------------------
THE CHEESECAKE FACTORY INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 51-0340466
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
26950 AGOURA ROAD 91301
CALABASAS HILLS, CALIFORNIA (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (818) 871-3000
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
As of May 8, 2000, 20,403,888 shares of the registrant's Common Stock, $.01
par value, were outstanding.
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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 28, 2000 and
December 28, 1999......................................... 1
Consolidated Statements of Operations--Thirteen weeks ended
March 28, 2000 and March 30, 1999......................... 2
Consolidated Statements of Cash Flows--Thirteen weeks ended
March 28, 2000 and March 30, 1999......................... 3
Notes to Consolidated Financial Statements--March 28,
2000...................................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 6
Item 3. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 12
Signatures........................................................... 13
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 28, DECEMBER 28,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 25,783 $ 24,026
Investments and marketable securities..................... 20,965 21,686
Accounts receivable....................................... 3,352 5,333
Other receivables......................................... 3,815 6,760
Inventories............................................... 8,308 8,121
Prepaid expenses.......................................... 882 2,295
Deferred income taxes..................................... 260 257
-------- --------
Total current assets.................................... 63,365 68,478
-------- --------
Property and equipment, net................................. 141,570 135,512
-------- --------
Other assets:
Marketable securities..................................... 17,470 9,524
Other receivables......................................... 3,978 3,922
Trademarks................................................ 1,845 1,794
Other..................................................... 2,700 2,555
-------- --------
Total other assets...................................... 25,993 17,795
-------- --------
Total assets.......................................... $230,928 $221,785
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 11,960 $ 13,104
Income taxes payable...................................... 4,962 1,973
Other accrued expenses.................................... 15,724 17,859
-------- --------
Total current liabilities............................. 32,646 32,936
-------- --------
Deferred income taxes..................................... 3,276 3,276
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized; none issued and outstanding................. -- --
Junior participating cumulative preferred stock, $.01 par
value, 150,000 shares authorized; none issued and
outstanding............................................. -- --
Common Stock, $.01 par value, 30,000,000 shares
authorized; 20,671,663 and 20,409,863 issued for 2000
and 1999, respectively.................................. 207 204
Additional paid-in capital................................ 128,066 123,677
Retained earnings......................................... 73,579 67,612
Unrealized loss on available-for-sale securities.......... (119) (115)
Treasury stock, 326,000 and 295,500 shares at cost for
2000 and 1999, respectively............................. (6,727) (5,805)
-------- --------
Total stockholders' equity.............................. 195,006 185,573
-------- --------
Total liabilities and stockholders' equity............ $230,928 $221,785
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS
ENDED ENDED
MARCH 28, 2000 MARCH 30, 1999
--------------- ---------------
<S> <C> <C>
Revenues:
Restaurant sales.......................................... $89,465 $69,810
Third-party bakery sales.................................. 6,646 5,014
------- -------
Total revenues.......................................... 96,111 74,824
------- -------
Costs and expenses:
Restaurant cost of sales.................................. 22,560 18,115
Third-party bakery cost of sales.......................... 2,787 2,498
Labor expenses............................................ 29,694 23,157
Other operating costs and expenses........................ 21,444 16,952
General and administrative expenses....................... 6,810 4,955
Depreciation and amortization expenses.................... 3,103 2,412
Preopening costs.......................................... 1,105 1,702
------- -------
Total costs and expenses................................ 87,503 69,791
------- -------
Income from operations...................................... 8,608 5,033
Interest income, net........................................ 910 604
Other income, net........................................... 68 62
------- -------
Income before income taxes.................................. 9,586 5,699
Income tax provision........................................ 3,619 2,080
------- -------
Net income.................................................. $ 5,967 $ 3,619
======= =======
Net income per share:
Basic..................................................... $ 0.30 $ 0.18
Diluted................................................... $ 0.28 $ 0.18
Weighted average shares outstanding:
Basic..................................................... 20,184 19,913
Diluted................................................... 21,480 20,562
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
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THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS
ENDED ENDED
MARCH 28, 2000 MARCH 30, 1999
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 5,967 $ 3,619
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization............................. 3,103 2,412
Deferred income taxes..................................... (3) --
Changes in assets and liabilities:
Accounts receivable....................................... 1,981 1,299
Other receivables......................................... 2,889 (992)
Inventories............................................... (187) (744)
Prepaid expenses.......................................... 1,413 (366)
Trademarks................................................ (70) (26)
Other..................................................... (211) (199)
Accounts payable.......................................... (1,144) 4,624
Income taxes payable...................................... 2,991 1,615
Other accrued expenses.................................... (2,135) 868
-------- --------
Cash provided by operating activities................... 14,594 12,110
-------- --------
Cash flows from investing activities:
Additions to property and equipment....................... (9,076) (11,698)
Investments in available-for-sale securities.............. (13,251) (11,319)
Sales of available-for-sale securities.................... 6,020 18,200
-------- --------
Cash used by investing activities....................... (16,307) (4,817)
-------- --------
Cash flows from financing activities:
Common stock issued....................................... 3 1
Proceeds from exercise of employee stock options.......... 4,389 1,084
Purchase of treasury stock................................ (922) --
-------- --------
Cash provided by financing activities................... 3,470 1,085
-------- --------
Net change in cash and cash equivalents..................... 1,757 8,378
Cash and cash equivalents at beginning of period............ 24,026 17,467
-------- --------
Cash and cash equivalents at end of period.................. $ 25,783 $ 25,845
======== ========
Supplemental disclosures:
Interest paid............................................. $ 6 $ --
======== ========
Income taxes paid......................................... $ 630 $ 436
======== ========
</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 28, 2000
(UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
The Cheesecake Factory Incorporated (referred to herein as the "Company" or in
the first person notations "we", "us" and "our") and its wholly owned
subsidiaries (The Cheesecake Factory Restaurants, Inc.; The Cheesecake Factory
Bakery Incorporated; The Houston Cheesecake Factory Corporation; and Grand Lux
Cafe LLC) for the thirteen weeks ended March 28, 2000 and 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 to a
fair statement of the financial condition, results of operations and cash flows
for the period. However, these results are not necessarily indicative of results
for any other interim period or for the full fiscal year. The consolidated
balance sheet data presented herein for December 28, 1999 was derived from our
audited consolidated financial statements for the fiscal year then ended, but
does not include all disclosures required by generally accepted accounting
principles. The preparation of financial statements in accordance with generally
accepted accounting principles requires us 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 these 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. We
believe 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 our Form 10-K for the fiscal year ended December 28,
1999.
NOTE B--INVESTMENTS AND MARKETABLE SECURITIES
Investments and marketable securities, all classified as available-for-sale,
consisted of the following as of March 28, 2000 (in thousands):
<TABLE>
<CAPTION>
BALANCE
UNREALIZED SHEET
CLASSIFICATION COST FAIR VALUE GAIN/(LOSS) AMOUNT MATURITY
- -------------- -------- ---------- ----------- -------- ----------------------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Available-for-sale securities:
Corporate debt securities.......... $19,915 $19,821 $ (94) $19,821 April 2000 to February 2001
U.S. Treasury securities........... 1,151 1,144 (7) 1,144 August 2000 to December 2000
------- ------- ----- -------
Total............................ $21,066 $20,965 $(101) $20,965
======= ======= ===== =======
OTHER ASSETS:
Available-for-sale securities:
Corporate debt securities.......... $16,792 $16,731 $ (61) $16,731 April 2001 to February 2003
U.S. Treasury securities........... 749 739 (10) 739 April 2001
------- ------- ----- -------
Total............................ $17,541 $17,470 $ (71) $17,470
======= ======= ===== =======
</TABLE>
4
<PAGE>
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 28, 2000
(UNAUDITED)
NOTE C--NET INCOME PER SHARE
In accordance with the provisions of SFAS No. 128, "Earnings Per Share",
basic earnings per share (EPS) is computed by dividing net income available to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted EPS includes the dilutive effect of potential stock
option exercises, calculated using the treasury stock method.
NOTE D--STOCK TRANSACTIONS
We are authorized to repurchase up to 750,000 shares of our common stock for
reissuance upon the exercise of stock options under the Company's current stock
option plans. As of March 28, 2000, we have repurchased 326,000 shares at a
total cost of approximately $6.7 million under this authorization. Share
repurchases occurred during both fiscal 1999 and 2000.
5
<PAGE>
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 WHICH ARE NOT HISTORICAL FACTS MAY
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. FORWARD-LOOKING STATEMENTS INVOLVE
KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE
ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY
DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR
IMPLIED BY FORWARD-LOOKING STATEMENTS. SUCH RISKS, UNCERTAINTIES, AND OTHER
FACTORS INCLUDE, BUT ARE NOT 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 IMPACT CUSTOMER
TRAFFIC AT THE COMPANY'S RESTAURANTS IN GENERAL AND WHICH CAUSE THE TEMPORARY
UNDERUTILIZATION OF OUTDOOR PATIO SEATING AVAILABLE AT SEVERAL OF THE COMPANY'S
RESTAURANTS; VARIOUS FACTORS WHICH INCREASE THE COST TO DEVELOP OR DELAY THE
DEVELOPMENT AND OPENING OF THE COMPANY'S NEW, HIGHLY CUSTOMIZED RESTAURANTS;
CHANGES IN THE AVAILABILITY AND/OR COST OF RAW MATERIALS, MANAGEMENT AND HOURLY
LABOR, AND OTHER RESOURCES NECESSARY TO OPERATE THE COMPANY'S RESTAURANTS AND
BAKERY PRODUCTION FACILITY; THE COMPANY'S ABILITY TO RAISE PRICES SUFFICIENTLY
TO OFFSET COST INCREASES; THE SUCCESS OF STRATEGIC AND OPERATING INITIATIVES,
INCLUDING BRAND EXTENSIONS AND NEW CONCEPTS; DEPTH OF MANAGEMENT; ADVERSE
PUBLICITY ABOUT THE COMPANY, ITS RESTAURANTS OR BAKERY PRODUCTS; THE COMPANY'S
DEPENDENCE ON A SINGLE BAKERY PRODUCTION FACILITY; THE COMPANY'S ABILITY TO
OBTAIN AND RETAIN THIRD-PARTY BAKERY CUSTOMERS WHICH CAUSE FLUCTUATIONS IN
THIRD-PARTY BAKERY SALES AND THE COMPANY'S CONSOLIDATED OPERATING RESULTS; THE
RATE OF GROWTH OF GENERAL AND ADMINISTRATIVE EXPENSES ASSOCIATED WITH BUILDING A
STRENGTHENED CORPORATE INFRASTRUCTURE TO SUPPORT THE COMPANY'S GROWING
OPERATIONS; RELATIONS BETWEEN THE COMPANY AND ITS EMPLOYEES; 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; AND OTHER FACTORS REFERENCED IN THIS FORM 10-Q AND THE COMPANY'S
FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE FISCAL YEAR
ENDED DECEMBER 28, 1999.
GENERAL
As of May 8, 2000, The Cheesecake Factory Incorporated (referred to herein
as the "Company" or in the first person notations of "we", "us" and "our")
operated 34 upscale, full-service, casual dining restaurants under The
Cheesecake Factory-Registered Trademark- name. We also operated Grand Lux
Cafe-Registered Trademark-, an upscale casual dining restaurant located in the
Venetian Resort-Hotel-Casino in Las Vegas, Nevada; two self-service, limited
menu "express" foodservice operations under The Cheesecake Factory
Express-Registered Trademark- name inside the DisneyQuest-TM- family
entertainment centers in Orlando, Florida and Chicago, Illinois; and a bakery
production facility. We also licensed three bakery cafes under The Cheesecake
Factory Bakery Cafe-TM- name to another foodservice operator.
Our revenues consist of sales from our restaurant operations and sales from
our bakery operations to third-party warehouse clubs, foodservice operators and
distributors. Sales and costs of sales are separately reported for restaurant
and third-party bakery activities. All other operating cost and expense
categories are reported on a combined basis for both restaurant and bakery
activities. Comparable restaurant sales include the sales of restaurants open
for the full period of each period being compared. New restaurants enter the
comparable sales base in their thirteenth month of operations.
The Company utilizes a 52/53-week fiscal year ending on the Sunday closest
to December 31 for financial reporting purposes. Fiscal 2000 will consist of 53
weeks and will end on Tuesday, January 2, 2001.
6
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the Consolidated
Statements of Operations of the Company expressed as percentages of total
revenues. The results of operations for the thirteen weeks ended March 28, 2000
are not necessarily indicative of the results to be expected for the full fiscal
year.
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS
ENDED ENDED
MARCH 28, 2000 MARCH 30, 1999
--------------- ---------------
% %
<S> <C> <C>
Revenues:
Restaurant sales.......................................... 93.1 93.3
Third-party bakery sales.................................. 6.9 6.7
----- -----
Total revenues.......................................... 100.0 100.0
----- -----
Costs and expenses:
Restaurant cost of sales.................................. 23.5 24.2
Third-party bakery cost of sales.......................... 2.9 3.3
Labor expenses............................................ 30.9 31.0
Other operating costs and expenses........................ 22.3 22.7
General and administrative expenses....................... 7.1 6.6
Depreciation and amortization expenses.................... 3.2 3.2
Preopening costs.......................................... 1.1 2.3
----- -----
Total costs and expenses................................ 91.0 93.3
----- -----
Income from operations...................................... 9.0 6.7
Interest income, net........................................ 0.9 0.8
Other income, net........................................... 0.1 0.1
----- -----
Income before income taxes.................................. 10.0 7.6
Income tax provision........................................ 3.8 2.8
----- -----
Net income.................................................. 6.2 4.8
===== =====
</TABLE>
THIRTEEN WEEKS ENDED MARCH 28, 2000 COMPARED TO THIRTEEN WEEKS ENDED MARCH 30,
1999
REVENUES
For the thirteen weeks ended March 28, 2000, the Company's total revenues
increased 28% to $96.1 million compared to $74.8 million for the thirteen weeks
ended March 30, 1999. Restaurant sales increased $19.7 million or 28% to
$89.5 million compared to $69.8 million for the same period of the prior year.
The $19.7 million increase in restaurant sales consisted of a $3.4 million or
4.8% increase in comparable restaurant sales and a $16.3 million increase from
the openings of new restaurants. Sales in comparable restaurants benefited, in
part, from the impact of an effective menu price increase of approximately 1%
which was taken in January and February 2000.
Third-party bakery sales increased 33% to $6.6 million for the thirteen
weeks ended March 28, 2000 compared to $5.0 million for the same period of the
prior year. The increase was principally attributable to higher sales volumes to
foodservice operators and distributors. For the thirteen weeks ended March 28,
2000, sales to warehouse clubs comprised approximately 45% of total third-party
bakery sales versus approximately 60% for the same period of the prior year.
RESTAURANT COST OF SALES
During the thirteen weeks ended March 28, 2000, restaurant cost of sales
were $22.6 million compared to $18.1 million for the comparable period last
year. The related increase of $4.5 million was
7
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primarily attributable to new restaurant openings. As a percentage of restaurant
sales, these costs decreased slightly to 25.2% versus 26.0% for the same period
of the prior year, principally as a result of the benefit of menu price
increases and slightly lower produce, grocery and poultry costs that were
offset, in part, by slightly higher red meat and seafood costs.
The menu at our restaurants is one of the most diversified in the industry
and, accordingly, is not overly dependent on a single commodity. With respect to
newly opened restaurants, costs in this category will typically be higher than
normal during the first 90-120 days of operations until each restaurant staff
becomes more accustomed to optimally predicting, managing and servicing the high
sales volumes typically experienced by our restaurants.
THIRD-PARTY BAKERY COST OF SALES
Cost of sales for third-party bakery sales, which include ingredient,
packaging and production supply costs, were $2.8 million for the thirteen weeks
ended March 28, 2000 compared to $2.5 million for the same period of the prior
year. As a percentage of third-party bakery sales, bakery costs for the thirteen
weeks ended March 28, 2000 decreased to 41.9% compared to 49.8% for the
comparable period last year. This percentage decrease was primarily due to lower
costs for dairy-related commodities (principally cream cheese, whipped cream and
butter) coupled with a slight shift in the mix of sales to higher-margin
products. While we have taken steps to qualify multiple suppliers and enter into
a longer-term supply agreement for the majority of our cream cheese
requirements, there can be no assurance that future costs for cream cheese or
any commodities used in our bakery or restaurant operations will not fluctuate
due to market conditions beyond our control.
LABOR EXPENSES
Labor expenses, which include restaurant-level labor costs and bakery direct
production labor costs (including associated fringe benefits), were
$29.7 million for the thirteen weeks ended March 28, 2000 compared to
$23.2 million for the same period of the prior year. This increase was
principally due to the impact of new restaurant openings. As a percentage of
total revenues, labor expenses decreased slightly to 30.9% versus 31.0% for the
comparable period last year.
For newer restaurants, labor expenses will typically be higher than normal
during the first 90-120 days of operations until each restaurant's staff becomes
more accustomed to optimally predicting, managing and servicing the high sales
volumes typically experienced by our restaurants.
OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consist of restaurant-level occupancy and
other operating expenses (excluding food costs and labor expenses reported
separately) and bakery production overhead, selling and distribution expenses.
Other operating costs and expenses increased 27% to $21.4 million for the
thirteen weeks ended March 28, 2000 compared to $17.0 million for the same
period of the prior year. This increase was principally attributable to new
restaurant openings. As a percentage of total revenues, occupancy and other
expenses decreased slightly to 22.3% for the thirteen weeks ended March 28, 2000
versus 22.7% for the same period of fiscal 1999. This slight percentage decrease
was primarily attributable to the leveraging of the fixed component of these
costs with higher revenues.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist of restaurant support expenses
(field supervision, manager recruitment and training, relocation and other
related expenses), bakery administrative expenses, and corporate support and
governance expenses. General and administrative expenses increased to
$6.8 million for the thirteen weeks ended March 28, 2000 compared to
$5.0 million for the same period of fiscal 1999, an increase of $1.8 million or
37%. As a percentage of total revenues, general and administrative expenses
8
<PAGE>
increased to 7.1% for the thirteen weeks ended March 28, 2000 compared to 6.6%
for the same period of the prior year. This increase was principally
attributable to budgeted employee additions to our field supervision, restaurant
opening and corporate support infrastructure in order to support our planned
future growth, and increases to our group health insurance and uncollectible
third-party bakery receivables reserves. We intend to continue strengthening our
operational support infrastructure during fiscal 2000, which will likely
generate a higher absolute amount of general and administrative expenses for the
fiscal year.
DEPRECIATION AND AMORTIZATION EXPENSES
Depreciation and amortization expenses were $3.1 million for the thirteen
weeks ended March 28, 2000 compared to $2.4 million for the thirteen weeks ended
March 30, 1999. As a percentage of total revenues, depreciation and amortization
expenses were 3.2% for both periods. The increase of $0.7 million for the
thirteen weeks ended March 28, 2000 primarily consisted of higher restaurant
depreciation expense which was principally due to the openings of new
restaurants.
PREOPENING COSTS
Incurred preopening costs were $1.1 million for the thirteen weeks ended
March 28, 2000 compared to $1.7 million for the same period of the prior year.
We opened one full-service restaurant during the thirteen weeks ended March 28,
2000, compared to two restaurant openings for the same period of the prior year.
Preopening costs include incremental, out-of-pocket costs which are not
otherwise capitalizable that are directly incurred to open new restaurants.
Preopening costs primarily include, but are not limited to, the cost of
recruiting and training the hourly staff for each new restaurant; the cost to
relocate and pay assigned restaurant management staff during the 45-day period
prior to opening; and the cost of practice cooking and service activities. As a
result of the highly customized and operationally complex nature of our
restaurants, the restaurant preopening process is significantly more extensive
and costly relative to that of other chain restaurant operations. Preopening
costs will vary from location to location depending on a number of factors
including, but not limited to, the proximity of other established Company
restaurants; the size and physical layout of each location; and the relative
difficulty of the restaurant staffing and training process. Preopening costs
will fluctuate from period to period based on the number and timing of
restaurant openings and the specific preopening costs incurred for each
restaurant, and the fluctuations could be significant. Based on our current
growth objectives for fiscal 2000 and 2001, preopening costs for each of those
years will likely exceed the respective amount of preopening costs for the
applicable prior year.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth a summary of the Company's key liquidity
measurements for the thirteen-week periods ended March 28, 2000, and
December 28, 1999.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------
MARCH 28, DECEMBER 28,
2000 1999
--------- ------------
(DOLLAR AMOUNTS IN
MILLIONS)
<S> <C> <C>
Cash and marketable securities on hand, end of
period.............................................. $ 64.2 $ 55.2
Net working capital, end of period.................... $ 30.7 $ 35.5
Current ratio, end of period.......................... 1.9:1 2.1:1
Long-term debt, end of period......................... -- --
Cash provided by operations........................... $ 14.6 $ 11.0
Capital expenditures.................................. $ 9.1 $ 9.5
</TABLE>
9
<PAGE>
As of March 28, 2000, our balance of cash and marketable securities on hand
increased by $9.0 million to $64.2 million compared to the respective amount as
of December 28, 1999. This increase was primarily attributable to increased cash
flow from operations and proceeds from the exercise of employee stock options.
Net working capital of $30.7 million as of March 28, 2000 was $4.8 million less
than the respective amount for December 28, 1999, due principally to the
collection of receivables classified as current assets and the subsequent
investment of those proceeds and other cash and cash equivalents into marketable
securities classified as other assets.
As of May 8, 2000, there were no borrowings outstanding under the Company's
$25 million revolving credit and term loan facility (the "Credit Facility").
Borrowings under the Credit Facility will bear interest at variable rates based,
at our option, on either the prime rate of interest, the lending institution's
cost of funds rate plus 0.75% or the applicable LIBOR rate plus 0.75%. The
Credit Facility expires on May 31, 2002. On that date, a maximum of $25 million
of any borrowings outstanding under the Credit Facility automatically convert
into a four-year term loan, payable in equal quarterly installments at interest
rates of 0.5% higher than the applicable revolving credit rates. The Credit
Facility is not collateralized and requires us to maintain certain financial
ratios and to observe certain restrictive covenants with respect to the conduct
of its operations, with which we are currently in compliance.
During fiscal 1999, our total capital expenditures were $38.6 million, most
of which were related to our restaurant operations. For fiscal 2000, we
currently estimate our total capital expenditure requirement to range between
$33-$38 million, excluding approximately $7-$8 million of expected
noncapitalizable restaurant preopening costs and net of agreed-upon landlord
construction contributions. This estimate contemplates as many as nine new
restaurants to be opened during fiscal 2000 and also provides for an anticipated
increase in construction-in-progress disbursements for anticipated fiscal 2001
openings. We generally lease the land and building shells for our restaurant
locations and expend cash for leasehold improvements and furnishings, fixtures
and equipment. Our primary expansion objective is to increase our total
restaurant productive square feet at least 25% during fiscal 2000 and 2001.
Based on our current expansion objectives and opportunities, we believe that
our cash and short-term investments on hand, coupled with expected cash provided
by operations, available borrowings under our Credit Facility and expected
landlord construction contributions should be sufficient to finance our planned
capital expenditures and other operating activities through fiscal 2001. We may
seek additional funds to finance our growth in the future. However, there can be
no assurance that such funds will be available when needed or be available on
terms acceptable to us.
We are also authorized to repurchase up to 750,000 shares of our common
stock for reissuance upon the exercise of stock options under our current stock
option plans. A source of funding for share repurchases will be the proceeds
from the exercise of stock options. Shares may be repurchased in the open market
or through privately negotiated transactions at times and prices considered
appropriate by us. Under this authorization, we have repurchased 326,000 shares
at a total cost of approximately $6.7 million as of March 28, 2000. Share
repurchases occurred during both fiscal 1999 and 2000.
YEAR 2000 READINESS
To address the year 2000 issue, we began to formulate a plan during fiscal
1998 to assess, remediate and test all mission-critical internal computer
systems and processes. Our plan also includes an assessment of the readiness of
key suppliers of mission-critical goods and services to our restaurant and
bakery operations. All phases of our year 2000 readiness plan were completed as
scheduled. To date, we have not experienced any year 2000 issues with respect to
our internal computer systems and key supplies, and did not experience any loss
of revenues as a result of the issue. Our total costs to address the year 2000
issue were not material, and any additional costs are expected to be minimal.
Although we have not experienced any year 2000 issues to date and believe that
is unlikely that any such issues will arise in the future, there
10
<PAGE>
can be no assurance that unforeseen year 2000 issues will not arise in the
future and adversely affect our results of operations, liquidity and financial
position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on
funded debt. This exposure relates to our $25 million revolving credit and term
loan facility (the "Credit Facility"). There were no borrowings outstanding
under the Credit Facility during the first quarter of 2000. Borrowings under the
Credit Facility bear interest at variable rates based on either the prime rate
of interest, the lending institution's cost of funds plus 0.75% or LIBOR plus
0.75%. A hypothetical 1% interest rate change would not have a material impact
on our results of operations.
A change in market prices also exposes us to market risk related to our
investments in marketable securities. As of March 28, 2000, we held
$38.4 million in marketable securities. A hypothetical 10% decline in the market
value of those securities would result in a $3.8 million unrealized loss and a
corresponding decline in their fair value of a like amount. This hypothetical
decline would not affect cash flow from operations and would not have an impact
on net income until the securities were disposed of.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. None.
(b) Reports on Form 8-K. None.
12
<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.
<TABLE>
<S> <C> <C>
THE CHEESECAKE FACTORY INCORPORATED
Date: May 12, 2000 By: /s/ DAVID M. OVERTON
----------------------------------------------
David M. Overton
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
By: /s/ GERALD W. DEITCHLE
----------------------------------------------
Gerald W. Deitchle
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
</TABLE>
13
<TABLE> <S> <C>
<PAGE>
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<PERIOD-END> MAR-28-2000
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