<PAGE>
______________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File number 0-24502
ROCK BOTTOM RESTAURANTS, INC.
(Exact name of the registrant as specified in its charter)
Delaware 84-1265838
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
1050 Walnut Street
Suite # 402
Boulder, Colorado 80302
(Address of principal executive offices) (Zip Code)
(303) 417-4000
(Registrant's telephone number
including area code)
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 twelve 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
ninety days.
Yes X No
---- ----
As of August 12, 1996, the Registrant had outstanding 7,887,886 shares
of common stock, par value $.01 per share.
______________________________________________________________________
EXHIBIT INDEX IS ON PAGE 17.
<PAGE>
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
----------------------------------------------
INDEX TO FORM 10-Q
------------------
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets-
June 30, 1996 and December 31, 1995 3-4
Condensed Consolidated Statements of Operations-
Three Months and Six Months Ended
June 30, 1996 and June 25, 1995 5
Condensed Consolidated Statements of Cash Flows- 6
Six Months Ended June 30, 1996 and June 25,
1995
Notes to Condensed Consolidated
Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-14
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature page 16
-2-<PAGE>
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
----------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
------ ------------------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,064,440 3,555,341
Short-term investments - 7,790,442
Accounts receivable 597,781 481,458
Accounts receivable--affiliates 33,114 36,608
Preopening costs, net 2,104,747 2,019,284
Inventories 1,701,675 1,478,573
Prepaids and other current assets 780,876 818,752
----------- -----------
Total current assets 9,282,633 16,180,458
----------- -----------
PROPERTY AND EQUIPMENT:
Land 4,692,557 4,598,414
Buildings 3,653,660 3,144,716
Leasehold improvements 30,583,604 23,420,443
Furniture, fixtures and equipment 24,471,790 20,055,537
Construction-in-progress 1,338,522 1,601,059
Accumulated depreciation and amortization (7,293,109) (5,228,274)
----------- -----------
Total property and equipment, net 57,447,024 47,591,895
----------- -----------
OTHER ASSETS 407,942 396,438
----------- -----------
TOTAL ASSETS $ 67,137,599 $ 64,168,791
========== ==========
</TABLE>
See accompanying notes.
-3-<PAGE>
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
----------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
LIABILITIES 1996 1995
----------- -----------------------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable-
Trade $ 3,680,432 $ 1,965,035
Construction projects 688,325 1,038,148
Affiliates 18,631 22,105
Accrued payroll and payroll taxes 1,644,456 1,078,194
Accrued sales taxes 368,117 1,105,076
Other accrued expenses 1,310,235 942,613
Current portion of long-term debt 38,872 43,921
Current portion of obligations under capital leases 643,044 650,833
---------- ----------
Total current liabilities 8,392,112 6,845,925
LONG-TERM DEBT 580,447 596,793
OBLIGATIONS UNDER CAPITAL LEASES 698,861 1,016,482
DEFERRED INCOME TAXES 393,547 368,547
---------- ----------
Total liabilities 10,064,967 8,827,747
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value, 5,000,000 shares
authorized, none issued and outstanding - -
Common stock - $.01 par value, 15,000,000 shares
authorized, 7,378,815 and 7,345,482 issued
and outstanding 73,788 73,455
Additional paid-in capital 51,076,073 50,809,742
Retained earnings 5,922,771 4,457,847
---------- ----------
Total stockholders' equity 57,072,632 55,341,044
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 67,137,599 $ 64,168,791
========== ==========
</TABLE>
See accompanying notes.
-4-<PAGE>
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
----------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- ------------------------
June 30, June 25, June 30, June 25,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Old Chicago restaurants $ 14,845,253 $ 9,446,221 $27,185,275 $18,009,974
Rock Bottom Restaurant & Brewery
restaurants 11,568,822 7,391,478 22,740,827 13,316,314
----------- ---------- ---------- ----------
Total revenues 26,414,075 16,837,699 49,926,102 31,326,288
----------- ---------- ---------- ----------
OPERATING EXPENSES:
Cost of sales 6,547,199 4,170,762 12,304,652 7,703,054
Restaurant salaries and benefits 8,669,006 5,667,402 16,544,661 10,477,595
Operating expenses 5,593,179 3,358,863 10,614,033 6,317,741
Selling expenses 993,749 541,119 1,953,017 1,052,668
General and administrative 1,550,712 1,094,653 2,943,018 2,095,645
Depreciation and amortization 1,785,586 879,400 3,508,619 1,617,732
----------- ---------- ---------- ----------
Total operating expenses 25,139,431 15,712,199 47,868,000 29,264,435
----------- ---------- ---------- ----------
INCOME FROM OPERATIONS 1,274,644 1,125,500 2,058,102 2,061,853
Interest expense 61,366 62,319 134,147 132,260
Interest income (66,737) (416,288) (199,879) (522,496)
Other (income) expense 624 (25,374) 768 (39,390)
----------- ---------- ---------- ----------
INCOME BEFORE TAXES 1,279,391 1,504,843 2,123,066 2,491,479
PROVISION FOR INCOME TAXES 396,603 519,171 658,142 888,173
----------- ---------- ---------- ----------
NET INCOME $ 882,788 $ 985,672 $ 1,464,924 $ 1,603,306
=========== ========== ========== ==========
NET INCOME PER SHARE $.12 $.13 $.20 $.24
=== === === ===
WEIGHTED AVERAGE
SHARES OUTSTANDING 7,519,000 7,700,142 7,513,000 6,811,215
========= ========= ========= =========
</TABLE>
See accompanying notes.
-5-<PAGE>
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
----------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 25, 1995
--------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
-------- --------
(Unaudited
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,464,924 $ 1,603,306
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 3,508,619 1,617,732
Gain on disposition of assets, net - (275)
Deferred income taxes 25,000 220,000
Increase in accounts receivable (116,323) (123,359)
Increase in inventories (223,102) (178,070)
Decrease in prepaids and other assets 26,372 33,526
Expenditures for preopening costs (1,529,247) (1,066,773)
(Decrease) increase in accounts payable 1,365,574 (1,198,761)
Increase in accrued expenses 196,925 184,300
----------- ----------
Net cash provided by operating activities 4,718,742 1,091,626
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (11,919,964) (11,648,740)
Advances to officers and affiliates, net 20 (94,946)
(Purchase) sale of short-term investments, net 7,790,442 (2,000,000)
----------- ----------
Net cash used in investing activities (4,129,502) (13,743,686)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (21,395) (44,954)
Repayments of capital lease obligations (325,410) (238,904)
Issuance of common stock, net of offering costs 266,664 33,732,685
----------- ----------
Net cash (used in) provided by financing activities (80,141) 33,448,827
----------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 509,099 20,796,767
CASH AND CASH EQUIVALENTS, beginning of period 3,555,341 5,113,675
----------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 4,064,440 $ 25,910,442
=========== ===========
</TABLE>
See accompanying notes.
-6-<PAGE>
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
JUNE 30, 1996
-------------
(Unaudited)
(1) UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
-----------------------------------------------------
The financial statements included herein have been prepared by
the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that the
disclosures included herein are adequate to make the information
presented not misleading. A description of the Company's
accounting policies and other financial information is included
in the audited consolidated financial statements as filed with
the Securities and Exchange Commission in the Company's Form 10-K
for the year ended December 31, 1995.
In the opinion of management, the accompanying unaudited
consolidated condensed financial statements contain all
adjustments necessary to present fairly the financial position of
the Company as of June 30, 1996, and the results of operations
and cash flows for the periods presented. All such adjustments
are of a normal recurring nature. The results of operations for
the three and six months ended June 30, 1996, are not necessarily
indicative of the results that may be achieved for a full fiscal
year and cannot be used to indicate financial performance for the
entire year.
(2) BANK FINANCINGS
---------------
On July 2, 1996, the Company closed its $20 million bank
revolving credit facility. Interest will accrue on the average
outstanding balance at either the prime rate or LIBOR plus 1.5%
and is payable quarterly. The facility converts to a three year
fully amortizing term loan after two years, or after three years
upon agreement of the parties. The loan includes customary
financial covenants and ratios, and restrictions on investments
and acquisitions.
On July 17, 1996, the Company closed on a $2.5 million first
mortgage on real property located in Chicago, Illinois. Interest
accrues at 9% with principal and interest payments due monthly,
based on a fifteen year amortization. Remaining unpaid principal
and interest are due five years from the date of closing.
(3) JOINT VENTURE
-------------
On July 8, 1996 the Company acquired an indirect 50% equity
interest in Trolley Barn Brewery Inc. ("Trolley Barn"), effective
July 1, 1996, in exchange for approximately 452,000 shares of
the Company's $0.01 par value common stock. Trolley Barn
currently operates three brew pub restaurants in the Southeastern
United States under the name Big River Grille & Brewing Works.
In connection with the acquisition, the Company agreed to
certain licensing and development arrangements whereby Trolley
Barn may develop restaurants throughout the
-7-<PAGE>
Southeastern United States utilizing various names, including
Rock Bottom Restaurant & Brewery and Old Chicago.
The Company also received the right to purchase the remaining 50%
of Trolley Barn from the selling shareholders. The option is
exercisable at any time between four and six years after the
closing of the Trolley Barn acquisition, or upon a change in
control of the ownership of the 50% of Trolley Barn retained by
the selling shareholders.
-8-<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
- --------
The Company began operations in 1976 with the opening of an Old
Chicago restaurant in Boulder, Colorado, and as of June 30, 1996
operates eleven Rock Bottom Restaurant & Brewery restaurants and
thirty Old Chicago restaurants. The Company's plans include opening a
total of four Rock Bottom Restaurant & Brewery restaurants and ten Old
Chicago restaurants in 1996. New restaurants planned for 1996 are
scheduled to open as follows:
PROPOSED NEW RESTAURANT OPENING SCHEDULE
<TABLE>
<CAPTION>
(Actual) (Actual)
Qtr ended Qtr ended Qtr ended Qtr ended
3/31/96 6/30/96 9/29/96 12/29/96
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Old Chicago restaurants 4 3 1 2
Rock Bottom Restaurant & Brewery restaurants 0 1 2 1
-- - - -
Total restaurants 4 4 3 3
-- - - -
</TABLE>
The Old Chicago restaurants opened in the first quarter are
located in Madison, Wisconsin; Silverthorne and Grand Junction,
Colorado and Apple Valley, Minnesota. In the second quarter of 1996,
the Company opened Old Chicago restaurants in Salem, Oregon; Omaha,
Nebraska and Minnetonka, Minnesota. The three remaining Old Chicago
restaurants planned for 1996 are scheduled to open in Bettendorf,
Iowa; Columbia, Missouri, and Roseville, Minnesota.
During the second quarter, the first Rock Bottom Restaurant &
Brewery restaurant opened in Indianapolis. The three remaining Rock
Bottom Restaurant & Brewery restaurants to be opened during 1996 will
be located in Cincinnati, Seattle, and Bethesda, Maryland.
The Company has historically leased its facilities and plans to
lease sites for a majority of its future restaurant locations. There
can be no assurance, however, that the Company will be able to
identify suitable restaurant sites, purchase sites or obtain leases on
acceptable terms, or open new restaurants on anticipated dates.
During July 1996, the Company acquired an indirect 50% interest
in Trolley Barn Brewery, Inc. ("Trolley Barn") and agreed to certain
licensing and development arrangements pursuant to which Trolley Barn
would develop restaurants throughout the southeastern United States
utilizing various names, including Rock Bottom Restaurant & Brewery,
Old Chicago, and Big River Grille & Brewing Works. Failure of Trolley
Barn or any future joint venture partner to open restaurants or
conduct operations as anticipated could adversely affect the Company's
earnings and could hinder the Company's expansion.
Future operating results may also be adversely affected by costs
incurred by the Company in developing a significant number of new
restaurants over a relatively short period of time. New restaurants
also initially operate with below normal revenues and incur certain
increased costs in the process of achieving operational efficiencies.
Additionally, the Company operates in a highly/extremely
competitive environment. Competitive factors include price-value,
service, location, quality, selection and atmosphere. Many
competitors of the Company are well established and have substantially
greater financial and other resources than does the Company. Also,
the restaurant industry generally and the Company in particular is
affected by changes in consumer tastes, national, regional or local
economic conditions, demographic trends and traffic patterns.
-9-<PAGE>
CAUTIONARY STATEMENT UNDER THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Statements included herein which are not historical facts
contained in this report are forward looking statements that involve
risks and uncertainties that could cause actual results to differ
materially from such forward looking statements. Factors that could
cause actual results to differ materially include, among others: the
cost and availability of suitable restaurant locations, cost effective
and timely construction of new restaurants, regulatory limitations,
fluctuations in consumer demand, competitive factors, the Company's
ability to manage its operations during its rapid expansion,
competitive conditions in the Company's markets, general economic
conditions, the availability of financing on acceptable terms to fund
future growth and other risks detailed above and in the Company's Form
10-K, Form 10-Q and other filings under the Securities Exchange Act of
1934.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the
percentage relationship to restaurant revenues of certain income
statement data, and restaurant data:
<TABLE>
<CAPTION>
Percentage of Revenues
-----------------------------------------------------------
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 25, June 30, June 25,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Old Chicago restaurants................. 56.2% 56.1% 54.5% 57.5%
Rock Bottom Restaurant & Brewery
restaurants........................... 43.8 43.9 45.5 42.5
----- ----- ----- -----
Total revenues..................... 100.0 100.0 100.0 100.0
----- ----- ----- -----
OPERATING EXPENSES:
Cost of sales........................... 24.8 24.8 24.6 24.6
Restaurant salaries and benefits........ 32.8 33.7 33.1 33.4
Operating expenses...................... 21.2 19.9 21.3 20.2
Selling expenses........................ 3.8 3.2 3.9 3.3
General and administrative expenses..... 5.9 6.5 5.9 6.7
Depreciation and amortization........... 6.7 5.2 7.0 5.2
----- ----- ----- -----
Total operating expenses........... 95.2 93.3 95.8 93.4
----- ----- ----- -----
INCOME FROM OPERATIONS....................... 4.8 6.7 4.2 6.6
Interest expense........................ 0.2 0.4 0.3 0.4
Interest income......................... (0.3) (2.5) (0.4) (1.7)
Other (income) expense, net ............ --- (0.2) --- 0.1
----- ----- ----- -----
INCOME BEFORE TAXES.......................... 4.8 9.0 4.3 7.9
Provision for income taxes.............. 1.5 3.1 1.3 2.8
----- ----- ----- -----
NET INCOME................................... 3.3% 5.9% 3.0% 5.1%
----- ----- ----- -----
RESTAURANT DATA:
Restaurant operating weeks:
Old Chicago restaurants............... 376 223 703 423
Rock Bottom Restaurant & Brewery
restaurants......................... 132 83 262 148
----- ----- ----- -----
Total.............................. 508 306 965 571
----- ----- ----- -----
Restaurants open (end of period):
Old Chicago restaurants............... 30 18
Rock Bottom Restaurant & Brewery
restaurants......................... 11 7
--- ---
Total.............................. 41 25
=== ===
</TABLE>
-10-<PAGE>
REVENUES
Revenues increased 56.9% to $26.4 million in the quarter ended
June 30, 1996 from $16.8 million for the comparable quarter in 1995.
For the six months ended June 30, 1996, revenues increased $18.6
million (59.3%) to $49.9 million from $31.3 million for the comparable
period in 1995. These increases are due primarily to revenues
generated by the twelve new Old Chicago restaurants and four new Rock
Bottom Restaurant & Brewery restaurants that have opened since the end
of the second quarter of 1995. Additionally, comparable restaurant
sales for the second quarter of 1996 increased nearly one percent
after experiencing flat to downward-trending comparable restaurant
sales for several quarters.
Revenues from the Company's Rock Bottom Restaurant & Brewery
restaurants have increased as a percentage of total revenues to 45.5%
for the six months ended June 30, 1996 from 42.5% in the comparable
period of 1995. For the second quarter of 1996, the percentage of
revenues contributed by the Company's Rock Bottom Restaurant & Brewery
restaurants was flat compared to the same period in 1995, as the first
new Rock Bottom Restaurant & Brewery of 1996 was not opened until the
last week of the quarter.
COST OF SALES
Cost of sales, which consists of food, beverage, and supply
costs, increased 57.0% to $6.5 million in the second quarter of 1996
from $4.2 million in the second quarter of 1995, and remained flat as
a percentage of revenues at 24.8% for both the second quarters of 1996
and 1995. For the six months ended June 30, 1996 cost of sales
increased $4.6 million, to $12.3 million from $7.7 million in the
comparable period of 1995. Increases in the costs of certain of the
Company's key inventory items in the first and second quarters of
1996, including chicken and cheese, were offset by menu engineering
efforts that focused on low cost, high profit menu items, and
efficiencies in the kitchen. Based on recent price increases in
various commodities, particularly flour, chicken, butter, cheese and
other related dairy products, the Company expects that cost of sales
as a percentage of revenues might increase slightly.
RESTAURANT SALARIES AND BENEFITS
Restaurant salaries and benefits, which consist of restaurant
management and hourly employee wages, payroll taxes, and group health
insurance, increased 53.0% to $8.7 million in the second quarter of
1996 from $5.7 million in the second quarter of 1995. For the six
months ended June 30, 1996 salaries and benefits increased $6.1
million to $16.5 million from $10.5 million in the comparable period
of 1995. Restaurant salaries and benefits have decreased as a
percentage of revenues to 32.8% in the second quarter of 1996 as
compared to 33.7% in the second quarter of 1995 and to 33.1% for the
six month period ended June 30,1996 from 33.4% for the comparable
period of 1995. The decreases are due to lower labor costs in the
bar, kitchen and dining room primarily because of sophisticated labor
scheduling systems installed in the Rock Bottom Restaurant & Brewery
restaurants. During the remainder of 1996, the Company expects to
implement similar labor scheduling systems in certain Old Chicago
restaurants.
Federal legislation currently awaiting presidential approval
proposes an increase of $.50 per hour in the minimum wage rate
effective October 1, 1996, with another increase of $.40 per hour
effective September 1, 1997. Such legislation would also increase the
Federal tip credit by the same amount, so that the federal minimum
wage paid to tipped employees would not be increased. Although the
Company has not yet quantified the impact of such legislation, a
majority of the Company's restaurants operate in states which allow
the tip credit, and most non-tipped employees are currently paid above
the proposed minimum wage rate.
-11-<PAGE>
OPERATING EXPENSES
Operating expenses, which include occupancy costs, utilities,
repairs, maintenance and linen, increased 66.5% to $5.6 million in the
second quarter of 1996 from $3.4 million for the same period in 1995.
For the six months ended June 30, 1996, operating expenses increased
$4.3 million to $10.6 million from $6.3 million in the comparable
period of 1995. As a percentage of revenues, such expenses increased
to 21.2% in the second quarter of 1996 from 19.9% for the same period
in 1995, and to 21.3% for the six month period ended June 30, 1996
from 20.2% for the comparable period in 1995. Higher property taxes
in certain of the Company's newer markets, and increases in general
insurance due to expanded coverage, are the primary reasons resulting
in this change.
SELLING EXPENSES
Selling expenses increased 83.6% to $1.0 million in the second
quarter of 1996 from $.5 million for the same period in 1995, and
increased 85.5% to $2.0 million for the six month period ending
June 30, 1996 from $1.1 million for the same period in 1995. As a
percentage of revenues, such expenses increased to 3.8% for the second
quarter in 1996 from 3.2% for the same period in 1995, and increased
to 3.9% for the six month period ending June 30, 1996 from 3.4% for
the comparable period in 1995. This increase is due largely to
expanded marketing support for both restaurant concepts. This
includes television advertising for the Old Chicago restaurants
operating in the Colorado front range market and radio advertising and
promotions in both Colorado and other Old Chicago markets. On the
brewery side, Rock Bottom Restaurant & Brewery restaurants are
allocating additional marketing funds to a central pool to be
utilized for more broad based advertising, such as in-flight airline
magazines. The Company has also hired an outside advertising agency
to provide consultation on these and other advertising programs.
GENERAL AND ADMINISTRATIVE ("G&A")
General and administrative expenses increased 41.7% to $1.6
million in the second quarter of 1996 compared to $1.1 million in the
second quarter of 1995, and increased 40.4% to $2.9 million for the
sixth month period ending June 30, 1996 from $2.1 million for the
comparable period in 1995. Increases are due to the Company's
continuing expansion program. However, G&A decreased as a percentage
of revenues to 5.9% in the second quarter of 1996 from 6.5% for the
same quarter in 1995, and to 5.9% for the six month period ending June
30, 1996 from 6.7% for the comparable period in 1995. Decreases are
due to efficiencies gained in administering a larger number of
restaurants. Additionally, the cost containment program initiated in
the first quarter of 1996 continues to contribute to reduced
administrative costs.
DEPRECIATION AND AMORTIZATION ("D&A")
D&A, including amortization of preopening expenses, increased to
$1.8 million in the second quarter of 1996 from $.9 million for the
comparable period in 1995, and increased to $3.5 million for the six
month period ending June 30, 1996 from $1.6 million for the comparable
period in 1995. As a percentage of revenues, such expenses increased
from 5.2% to 6.8% for the second quarter of 1996, and from 5.2% to
7.0% for the six month period ended June 30, 1996, as compared to the
same periods in 1995. The increases are attributable primarily to
opening 12 new restaurants since the end of the second quarter of
1995, and incurring the related expenses for depreciation and
preopening expense amortization. The increase in the percentage is
primarily due to restaurants that opened since the second quarter of
1995. These restuarants have experienced greater D&A
-12-<PAGE>
costs as a percentage of revenues due to higher total investment costs
and preopening expenses not yet fully amortized.
INTEREST INCOME
Interest income primarily represents amounts earned from the
temporary investment of proceeds from the Company's follow-on
offering. Cash proceeds from this offering, received late in the
first quarter of 1995, generated significant interest income in the
second quarter of 1995. Funds have been used to build new
restaurants, resulting in less interest income in the second quarter
of 1996.
PROVISION FOR INCOME TAXES
The estimated tax rate for the first and second quarters of 1996
has decreased to 31% from 37.4% in the first quarter of 1995 and 34.5%
in the second quarter of 1995. This change is primarily due to
increased FICA tax credits that are estimated to be available for
1996.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had approximately $4.1 million in
cash and cash equivalents, and long term debt, including capital lease
obligations, of $2.0 million. Subsequent to June 30 1996, the Company
closed its $20 million revolving line of credit facility and borrowed
$2.5 million from a bank for a first mortgage on real property located
in Chicago. As of August 9, 1996, no amounts are outstanding under
the revolving facility and $2,500,000 is outstanding on the mortgage.
The Company may continue to seek additional sources of debt or equity
capital including equipment financing, although there can be no
assurance that such funds will be available on favorable terms, if at
all. Although the Company believes that its existing cash balances,
cash flow generated from operations, revolving credit proceeds,
mortgage financing and other potential financing sources will be
sufficient to satisfy its cash needs through 1997, results of
operations may be affected by decreased interest income and increased
interest expense. The Company does not have significant receivables
or inventory and receives trade credit based upon negotiated terms in
purchasing food and supplies.
The Company requires capital principally for the development and
construction of new restaurants and for capital expenditures at
existing restaurants. The Company has financed its recent expansion
through cash flow from operations, proceeds from its public offerings
and capital lease obligations. Net cash flow from operations has
increased to $4,718,742 for the six months ended June 30, 1996 as
compared to $1,091,626 for the six months ended June 25, 1995,
primarily due to an increase in net income before depreciation and
amortization.
The Company estimates that total capital expenditures for 1996,
excluding preopening costs, will be approximately $21 million, of
which the cost of new restaurants will be approximately $19 million.
Of the $21 million budgeted for capital expenditures in 1996, $10.4
million was spent during the first six months of 1996 on the
development of new restaurants, and $1.5 million was spent on existing
restaurants. There can be no assurance that these budgeted capital
expenditures will be sufficient for current development plans or that
the costs of acquiring sites and opening new restaurants will not
increase in the future.
-13-<PAGE>
SEASONALITY AND QUARTERLY RESULTS
The Company's sales and earnings fluctuate seasonally.
Historically, the Company's highest earnings have occurred in the
second and third quarters. In addition, quarterly results have been,
and in the future are likely to be, substantially affected by the
timing of new restaurant openings. Because of the seasonality of the
Company's business and the impact of new restaurant openings, results
in any quarter are not necessarily indicative of the results that may
be achieved for a full fiscal year and cannot be used to indicate
financial performance for the entire year.
IMPACT OF INFLATION
Although the Company does not believe inflation has materially
affected operating results during the past three years, inflationary
pressures could result in substantial increases in costs and expenses,
particularly food, supplies, labor and operating expenses.
Additionally, the federal legislation awaiting presidential approval
to increase minimum wage rates has the potential to impact all aspects
of the Company's business because of higher labor rates experienced by
its suppliers and vendors. These labor rates could translate into
higher costs for goods and services purchased by the Company. All
such increases in costs and expenses could have a significant impact
on the Company's operating results to the extent that such increases
cannot be passed along to customers.
-14-<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Stockholders was held on
June 24, 1996.
(b) See (c) below.
(c) Three proposals were submitted for approval, which were
passed with voting results as follows:
(1) Both of the Company's nominees for directors were
reelected to serve until the Annual Meeting of
Stockholders in 1997, based on the following
tabulations:
For Withhold
--- --------
Thomas A Moxcey: 6,465,175 144,465
Mary C. Hacking: 6,463,976 145,664
(2) The appointment of Arthur Andersen LLP as the Company's
independent auditors was approved as follows:
For: 6,586,237 Abstain: 11,559
Against: 11,746 Not Voted: 98
(3) The amendment to the Rock Bottom Restaurants, Inc.
Equity Incentive Plan was approved as follows:
For: 5,379,635 Abstain: 20,629
Against: 1,140,082 Not Voted: 69,294
(d) None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
10 Executive Bonus Plan
27 Financial Data Schedule
(b) Reports on Form 8-K
A current report on Form 8-K dated July 2, 1996 was filed to
report two Item 5 transactions: the closing of a $20 million
revolving credit facility with Norwest Bank, and the
execution of a Stock Purchase Agreement between the Company,
Trolley Barn, TBB Acquisition Group, Inc., TBB Holding
Company, and the TBB shareholders.
-15-<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.
ROCK BOTTOM RESTAURANTS, INC.
(Registrant)
August 12, 1996 By: WILLIAM S. HOPPE
-----------------------------
William S. Hoppe
Chief Financial Officer and
Vice President
(Principal Financial Officer)
-16-<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
10 Executive Bonus Plan
27 Financial Data Schedule
-17-
EXHIBIT 10
EXECUTIVE BONUS PLAN
The Company's Executive Bonus Plan is intended to enhance the
alignment of the creation of value for stockholders with incentives
paid to management, through payment of bonuses primarily with equity
rather than cash. Under the plan, the executive management group will
receive a bonus equal to a percentage of their yearly salary, which
generally will be paid in restricted stock. The bonus will be awarded
by the Compensation Committee of the Board of Directors (the
"Committee") only if certain annual target financial goals are met.
The Chairman and CEO are eligible to receive up to 100% of their
base salary as a bonus, and the executive officers are eligible to
receive up to 70% of their base salary as a bonus. An additional award
of restricted stock, from 5% to 25% of base salary, may be made if
annual target financial goals are exceeded.
The restricted stock granted shall vest, and trading restrictions
on those shares shall lapse, three years from the date of issuance, as
long as the executive continues to be an employee of the company. In
the event of a change of control, as defined in the Rock Bottom
Restaurant, Inc. Equity Incentive Plan, all unvested shares shall vest
immediately, and trading restrictions on those shares shall lapse
immediately. The Committee has the discretion to accelerate the
vesting of unvested shares. The bonus plan was approved by the
Company's Board of Directors in April 1996 and is effective beginning
with the 1996 fiscal year.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S INTERIM UNAUDITED FINANCIAL STATEMENTS FOR THE SIX
MONTHS ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,064,440
<SECURITIES> 0
<RECEIVABLES> 597,781
<ALLOWANCES> 0
<INVENTORY> 1,701,675
<CURRENT-ASSETS> 9,282,633
<PP&E> 64,740,133
<DEPRECIATION> (7,293,109)
<TOTAL-ASSETS> 67,137,599
<CURRENT-LIABILITIES> 8,392,112
<BONDS> 0
0
0
<COMMON> 73,788
<OTHER-SE> 56,998,844
<TOTAL-LIABILITY-AND-EQUITY> 67,137,599
<SALES> 49,926,102
<TOTAL-REVENUES> 49,926,102
<CGS> 12,304,652
<TOTAL-COSTS> 47,868,000
<OTHER-EXPENSES> 768
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134,147
<INCOME-PRETAX> 2,123,066
<INCOME-TAX> 658,142
<INCOME-CONTINUING> 1,464,924
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,464,924
<EPS-PRIMARY> .20
<EPS-DILUTED> 0
</TABLE>
