<PAGE> 1
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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 March 30, 1997
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 No. 0-24502
ROCK BOTTOM RESTAURANTS, INC.
(Exact name of the registrant as specified in its charter)
DELAWARE 84-1265838
(State of incorporation) (I.R.S. Employer Identification No.)
248 CENTENNIAL PARKWAY, SUITE # 100,
LOUISVILLE, COLORADO 80027
(Address of principal executive offices) (Zip Code)
(303) 664-4000
(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 90 days.
Yes X No
--- ---
As of May 13, 1997, the Registrant had outstanding 7,914,783 shares of common
stock, par value $.01 per share.
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ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
THREE MONTHS ENDED MARCH 30, 1997
<TABLE>
<CAPTION>
Page
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets-
March 30, 1997 and December 29, 1996 3-4
Condensed Consolidated Statements of Operations-
Three Months Ended March 30, 1997 and March 31, 1996 5
Condensed Consolidated Statements of Cash Flows- 6
Three Months Ended March 30, 1997 and March 31, 1996
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signature page 16
</TABLE>
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ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 30, December 29,
ASSETS 1997 1996
------ -----------------------------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 743,567 $ -
Short-term investments - -
Accounts receivable 573,033 747,762
Accounts receivable affiliates 50,366 101,342
Preopening costs, net 2,685,479 2,552,185
Inventories 2,444,164 2,206,139
Prepaids and other current assets 1,641,028 1,253,124
--------------- --------------
Total current assets 8,137,637 6,860,552
--------------- --------------
PROPERTY AND EQUIPMENT:
Land 5,815,428 5,021,927
Buildings 3,653,660 3,653,660
Leasehold and building improvements 43,141,592 38,380,894
Furniture, fixtures and equipment 34,888,220 30,460,508
Construction-in-progress 5,780,836 4,700,360
Accumulated depreciation and amortization (11,540,504) (9,942,059)
--------------- --------------
Total property and equipment, net 81,739,232 72,275,290
--------------- --------------
INVESTMENT IN JOINT VENTURE, net 5,390,210 5,348,729
--------------- --------------
OTHER ASSETS 582,904 463,368
--------------- --------------
TOTAL ASSETS $ 95,849,983 $ 84,947,939
=============== ==============
</TABLE>
See accompanying notes.
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ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 30, December 29,
LIABILITIES 1997 1996
----------- ------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable-
Trade $ 3,261,880 $ 1,680,714
Construction projects 1,006,950 516,357
Affiliates - 9,483
Accrued payroll and payroll taxes 3,111,582 1,605,980
Accrued taxes other than income tax 863,485 1,027,920
Other accrued expenses 1,110,378 963,413
Current deferred income taxes 467,736 515,232
Current portion of long-term debt 570,769 575,199
Current portion of obligations under capital leases 598,323 697,992
------------- -------------
Total current liabilities 10,991,103 7,592,290
REVOLVING LINE OF CREDIT 15,200,000 8,500,000
LONG-TERM DEBT 2,482,328 2,488,420
OBLIGATIONS UNDER CAPITAL LEASES 596,799 673,987
DEFERRED INCOME TAXES 372,157 356,510
------------- -------------
Total liabilities 29,642,387 19,611,207
------------- -------------
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, 7,906,783 and 7,905,451 shares
issued and outstanding 79,068 79,055
Additional paid-in capital 56,785,390 56,774,747
Retained earnings 9,343,138 8,482,930
------------- -------------
Total stockholders' equity 66,207,596 65,336,732
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 95,849,983 $ 84,947,939
============= =============
</TABLE>
See accompanying notes.
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ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------
March 30, March 31,
1997 1996
---- ----
<S> <C> <C>
REVENUES:
Old Chicago restaurants $ 16,380,562 $ 12,340,022
Rock Bottom Restaurant & Brewery restaurants 16,311,577 11,172,005
------------- -------------
Total revenues 32,692,139 23,512,027
------------- -------------
OPERATING EXPENSES:
Cost of sales 8,095,116 5,757,453
Restaurant salaries and benefits 10,853,768 7,875,655
Operating expenses 6,772,764 5,020,854
Selling expenses 1,256,027 959,268
General and administrative 1,818,836 1,392,306
Depreciation and amortization 2,503,983 1,723,033
------------- -------------
Total operating expenses 31,300,494 22,728,569
------------- -------------
INCOME FROM OPERATIONS 1,391,645 783,458
Equity in joint venture earnings 75,000 -
Interest income 1,853 133,142
Interest expense (255,519) (72,781)
Other income (expense), net 3 (144)
------------- -------------
INCOME BEFORE TAXES 1,212,982 843,675
PROVISION FOR INCOME TAXES 352,774 261,539
------------- -------------
NET INCOME $ 860,208 $ 582,136
============= =============
NET INCOME PER SHARE $.11 $.08
=== ===
WEIGHTED AVERAGE SHARES OUTSTANDING 8,027,000 7,450,000
========= =========
</TABLE>
See accompanying notes.
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<PAGE> 6
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 30, 1997 AND MARCH 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
--------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 860,208 $ 582,136
Adjustments to reconcile net income to net cash
provided by operating activities-
Equity in joint venture earnings (75,000) -
Depreciation and amortization 2,503,983 1,723,033
Loss on disposition of assets - -
Deferred income taxes (31,849) 25,000
Decrease in accounts receivable 174,729 75,040
Increase in inventories (238,025) (75,404)
(Increase ) decrease in prepaids and other assets (526,930) 244,126
Expenditures for preopening costs (985,823) (555,328)
Increase (decrease) in accounts payable 2,071,759 (1,107,762)
Increase (decrease) in accrued expenses 1,488,132 (144,574)
--------------- -----------
Net cash provided by operating activities 5,241,184 766,267
--------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (11,062,387) (5,171,392)
Advances to officers and affiliates, net 41,493 (4,064)
(Purchase) sale of short-term investments, net - 2,069,196
--------------- -----------
Net cash used in investing activities (11,020,894) (3,106,260)
--------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 6,700,000 -
Repayments of long-term debt (10,522) (10,561)
Repayments of capital lease obligations (176,857) (172,097)
Issuance of common stock, net of offering costs 10,656 218,664
--------------- -----------
Net cash provided by financing activities 6,523,277 36,006
--------------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 743,567 (2,303,987)
CASH AND CASH EQUIVALENTS, beginning of period - 3,555,341
--------------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 743,567 $ 1,251,354
=============== ===========
</TABLE>
See accompanying notes.
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<PAGE> 7
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 30, 1997
(Unaudited)
(1) UNAUDITED CONDENSED CONSOLIDATED 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 29, 1996.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position of the Company as of March 30, 1997
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 quarter ended March 30, 1997 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 REVOLVING CREDIT FACILITY
In February, 1997, the Company amended its bank revolving credit facility
(the "Credit Facility") to increase maximum borrowings available from $20
million to $25 million, and to amend certain covenants and financial
ratios. All other terms, conditions, and restrictions remained
substantially the same. The total amount outstanding under the Credit
Facility as of March 30, 1997, was $15.2 million.
(3) INVESTMENT IN JOINT VENTURE
In July 1996, the Company acquired an indirect 50% equity interest in
Trolley Barn Brewery, Inc. ("Trolley Barn") in exchange for 452,073 shares
of the Company's common stock. Trolley Barn currently operates four
brewery restaurants in the southeastern United States under the name Big
River Grille & Brewing Works. The Company's investment in Trolley Barn is
accounted for under the equity method. At closing, the investment in
joint venture carrying amount exceeded the Company's equity in Trolley
Barn's underlying net assets by approximately $4.5 million. This amount
represents goodwill at the date of acquisition and is being amortized over
35 years. Accumulated amortization at March 30, 1997 of $99,859 is netted
against the investment.
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<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY STATEMENT UNDER THE "SAFE HARBOR" PROVISION OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained in this report are not historical facts,
and are forward-looking statements that involve known and unknown risks and
uncertainties which may cause actual results or performance of the Company to
differ materially from such forward-looking statements. Such statements
include, among others;
o Restaurant expansion plans for 1997;
o Success of marketing programs to improve sales in certain Old
Chicago restaurants;
o Ability of the Company to compete effectively within the restaurant
industry;
o Completion of sale/leaseback transaction for real estate purchased
in the first quarter of 1997;
o Estimated capital expenditures during 1997;
o Ability to generate sufficient cash from operations to complete
financing of 1997 restaurant expansion.
Factors that could cause actual results to differ materially include,
among others: availability of suitable restaurant locations; availability of
financing on acceptable terms to fund future growth; increasing costs
associated with new restaurant construction, or delays in opening new
restaurants; ability to hire and train increasing numbers of restaurant
management, staff and other personnel for new restaurants; acceptance in new
markets; fluctuations in consumer demand and tastes including a decrease in
consumers' preference for higher quality, more flavorful beer; competitive
conditions in the Company's markets; general economic conditions; operating
restrictions and costs associated with governmental regulations; regulatory
limitations regarding common ownership of breweries and restaurants in certain
states; and other risks detailed in the Company's reports and other filings
under the Securities Exchange Act of 1934. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will
be achieved. In addition, the Company disclaims any intent or obligation to
update publicly these forward-looking statements, whether as a result of new
information, future events, or otherwise.
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<PAGE> 9
OVERVIEW
As of March 30, 1997, the Company operated 16 Rock Bottom Restaurant &
Brewery restaurants and 37 Old Chicago restaurants. The Company's 1997
expansion plans include opening a total of seven Old Chicago restaurants and
seven Rock Bottom Restaurant & Brewery restaurants. These restaurants are
currently scheduled to open as follows:
PROPOSED NEW RESTAURANT OPENING SCHEDULE
<TABLE>
<CAPTION>
(Actual)
Qtr. Ended Qtr. Ended Qtr. Ended Qtr. Ended Total
3/30/97 6/29/97 9/28/97 12/28/97 1997
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Old Chicago restaurants 2 3 1 1 7
Rock Bottom Restaurant & Brewery 2 3 1 1 7
restaurants
-- -- -- -- --
Total restaurants 4 6 2 2 14
== == == == ==
</TABLE>
Old Chicago restaurants opened in the first quarter of 1997 are
located in Boise, Idaho and Wichita, Kansas. Second quarter Old Chicago
restaurant openings include another location in Boise (opened April 28,
1997), Tucson, Arizona and Rockford, Illinois. First quarter Rock Bottom
Restaurant & Brewery restaurant openings occurred in Campbell, California near
San Jose, and in Milwaukee. Brewery restaurants scheduled to open
in the second quarter will be located in Fresno, California (opened April 14,
1997), Washington D.C. near the new sports arena, and in Long Beach,
California.
All remaining restaurant openings planned for 1997 are either under
construction or are in the permitting phase prior to construction. 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.
Future operating results may be adversely affected by costs associated
with developing a significant number of new restaurants over a relatively short
period of time. Additionally, new restaurants incur certain increased costs in
the process of achieving operational efficiencies during the first several
months of operation. Preopening costs, which are incurred prior to opening a
new restaurant but amortized over the first 12 months after opening, are one
example of these increased costs.
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<PAGE> 10
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage relationship to restaurant revenues of certain income statement data
and certain restaurant data:
<TABLE>
<CAPTION>
Percentage of Revenues
----------------------
Three Months Ended
------------------
March 30, March 31,
1997 1996
---- ----
<S> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Old Chicago restaurants..................................... 50.1% 52.5%
Rock Bottom Restaurant & Brewery restaurants................ 49.9 47.5
----- -----
Total revenues.................................... 100.0 100.0
----- -----
OPERATING EXPENSES:
Cost of sales............................................... 24.8 24.5
Restaurant salaries and benefits............................ 33.2 33.5
Operating expenses.......................................... 20.7 21.4
Selling expenses............................................ 3.8 4.1
General and administrative ................................. 5.5 5.9
Depreciation and amortization............................... 7.7 7.3
----- -----
Total operating expenses.......................... 95.7 96.7
----- -----
INCOME FROM OPERATIONS.......................................... 4.3 3.3
Equity in joint venture earnings 0.2 0.0
Interest income................................................. 0.0 0.6
Interest expense................................................ (0.8) (0.3)
Other (income) expense, net..................................... 0.0 0.0
----- -----
INCOME BEFORE TAXES............................................. 3.7 3.6
Provision for income taxes...................................... 1.1 1.1
----- -----
NET INCOME...................................................... 2.6% 2.5%
===== =====
RESTAURANT DATA:
Restaurants open (end of period):
Old Chicago restaurants..................................... 37 27
Rock Bottom Restaurant & Brewery restaurants................ 16 10
----- -----
Total............................................. 53 37
===== =====
Restaurant operating weeks:
Old Chicago restaurants..................................... 465 327
Rock Bottom Restaurant & Brewery restaurants................ 192 130
----- -----
Total............................................. 657 457
===== =====
</TABLE>
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<PAGE> 11
QUARTER ENDED MARCH 30, 1997 AS COMPARED TO QUARTER ENDED MARCH 31, 1996
Revenues. Revenues increased $9.2 million (39%) to $32.7 million in
the quarter ended March 30, 1997 from $23.5 million for the comparable quarter
in 1996. This increase is due primarily to revenues generated by the ten new
Old Chicago restaurants and six new Rock Bottom Restaurant & Brewery
restaurants that have opened since the end of the first quarter of 1996.
Additionally, comparable restaurant sales for the first quarter were up 2% for
the Company in total. When computing comparable restaurant sales, restaurants
open for at least six full quarters are compared from year to year.
Revenues from the Company's Rock Bottom Restaurant & Brewery
restaurants, as a percentage of total revenues, increased to 49.9% in the
quarter ended March 30, 1997 from 47.5% in the quarter ended March 31, 1996.
Although the Company opened only six Rock Bottom Restaurant & Brewery
restaurants during the last 12 months as compared to ten Old Chicago
restaurants, the brewery restaurants generate greater average weekly sales
("AWS") resulting in the increase to this percentage. The Company expects
revenues from the Rock Bottom Restaurant & Brewery restaurants to comprise an
even greater percentage of the Company's total revenues throughout 1997 as the
same number of brewery and Old Chicago restaurant openings are planned for
1997.
AWS for the Old Chicago restaurants during the first quarter of 1997
were $35,227 as compared to $37,737 during the first quarter of 1996. The
decrease in AWS of $2,510 (6.7%) is primarily due to two factors. First,
comparable restaurant sales were down 2.3% which reflects the impact of a very
competitive restaurant environment industry wide. This decrease is also
attributable to six restaurants that generate AWS below the Company's targeted
restaurant model. These restaurants, all of which were opened or selected for
opening during 1995, incurred AWS of $28,805 during the first quarter of 1997 as
compared to $33,345 during the first quarter of 1996, a 14% decrease. The
Company continues to implement various local marketing programs for these
restaurants to increase sales back to their previous levels. Although there can
be no assurance that such programs will impact sales as planned, these
restaurants have experienced a 9.5% increase in AWS since the fourth quarter of
1996, increasing from $26,300 to $28,805 in the first quarter of 1997.
AWS for the Rock Bottom Restaurant & Brewery restaurants during the
first quarter were $84,956 as compared to $85,939 during the first quarter of
1996. Although comparable restaurant sales for the brewery restaurants were up
7% from 1996, only one third of this concept's total restaurants are included in
this analysis. The increase in comparable restaurant sales was offset by an
anticipated decrease in AWS for certain newer brewery restaurants that were
designed to operate at a slightly smaller capacity than certain of the Company's
previous restaurants. As the Company may continue to design certain of its new
brewery restaurants in the future with this reduced capacity, slight decreases
in AWS may continue to be experienced over time.
Cost of Sales. Cost of sales, which consists of food, beverage, and
merchandise costs, increased $2.3 million (40.6)% to $8.1 million in the first
quarter of 1997 from $5.8 million in the first quarter of 1996, and increased
as a percentage of revenues to 24.8% in the first quarter of 1997 as compared
to 24.5% in the first quarter of 1996. This variance is due primarily to
slight increases in certain commodity prices during the first quarter of 1997
(particularly beef and pork products), and to increases in food cost of sales
as a percentage of food revenues for recently opened brewery restaurants.
These restaurants typically incur significantly higher food costs of
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<PAGE> 12
sales during their first several months of operations due to the more complex
menu items. During the first quarter of 1997, there were a greater number of new
brewery restaurants in the mix than in the prior year.
Restaurant Salaries and Benefits. Restaurant salaries and benefits,
which consist of restaurant management and hourly employee wages, payroll
taxes, and group health insurance, increased $3.0 million (37.8%) to $10.9
million in the first quarter of 1997 from $7.9 million in the first quarter of
1996. Restaurant salaries and benefits decreased as a percentage of revenues
to 33.2% in 1997 compared to 33.5% in 1996. Similar to prior quarters, this
decrease is primarily due to a decrease in labor costs for the brewery
restaurants. Such decrease was the result of sophisticated labor scheduling
software implemented during the second quarter of 1996, as well as reductions
in management and kitchen labor due to more experienced restaurant
operators and the reengineering of menu items to reduce preparatory time. The
Company is also evaluating upgraded labor scheduling software for the Old
Chicago restaurants which would computerize some of the manual procedures now
performed. Selection and implementation of such software is anticipated for
later in 1997.
Operating Expenses. Operating expenses, which include occupancy
costs, utilities, repairs, maintenance and linen, increased $1.8 million
(34.9%) to $6.8 million in the first quarter of 1997 from $5.0 million for the
same period in 1996. As a percentage of revenues, such expenses decreased from
21.4% in the first quarter of 1996 to 20.7% in the same period of 1997. This
decrease was principally due to a reduction in 1997 insurance premium rates,
particularly workmen's compensation insurance, as well as a continued emphasis
on cost control measures in numerous areas of restaurant operations.
Selling Expenses. Selling expenses increased $.3 million (30.9%) to
$1.3 million in the first quarter of 1997 from $1.0 million for the same period
in 1996. As a percentage of revenues, such expenses decreased to 3.8% in the
first quarter of 1997 from 4.1% for the same period in 1996. The Company's
policy is to reward customers on special occasions with complimentary food or
beverages as a primary means of advertising. The decrease in selling expenses
as a percentage of revenues is due primarily to increased monitoring of the
amount of such complimentary food and beverages given to customers.
General and Administrative ("G&A"). G&A expenses increased $.4
million (30.6%) to $1.8 million in the first quarter of 1997 compared to $1.4
million in the first quarter of 1996, and decreased as a percentage of revenues
to 5.5% in the first quarter of 1997 from 5.9% for the same quarter in 1996.
The increase in amount primarily reflects personnel additions in the areas of
marketing, training, information systems, supervision, accounting, finance and
senior management due to the Company's continuing expansion program.
Additionally, G&A expense for the first quarter of 1997 includes the expense
associated with restricted stock awards made in February 1997 to the Company's
executive management team for bonuses earned in 1996. The decrease of .4% as a
percentage of revenues is due primarily to efficiencies gained in administering
a larger number of restaurants.
Depreciation and Amortization ("D&A"). D&A, including amortization of
preopening expenses, increased $.8 million (45.3%) to $2.5 million in the first
quarter of 1997 from $1.7 million for the comparable period in 1996. As a
percentage of revenues, depreciation expense and amortization of intangible
assets, other than preopening costs, was 4.9% during the first quarter of 1997
as compared to 4.1% in the comparable period of 1996. Preopening expense
amortization was
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<PAGE> 13
2.8% as a percentage of revenues in the first quarter of 1997 as compared to
3.2% in the comparable period of 1996.
The increase in depreciation expense and amortization of intangible
assets as a percentage of revenues is due primarily to decreases in AWS for the
Old Chicago group, increased depreciation expense associated with a greater
number of corporate assets resulting from the company's continued expansion
program, and increased amortization of intangible assets including goodwill
associated with the investment in joint venture. Amortization of preopening
expense as a percentage of revenues fluctuates with the number and type of
restaurants (Old Chicago or Rock Bottom Restaurant & Brewery) opened in any
given period. During the first quarter of 1997, preopening expense was being
amortized for approximately the same number and type of restaurants as in the
first quarter of 1996, while total sales were up 39%, resulting in the .4%
decrease in preopening expense amortization as a percentage of revenues.
Equity in Joint Venture Earnings. The 1997 equity in joint venture
earnings represents the Company's 50% equity interest in net after-tax earnings
of its investment in joint venture. See Note 3 of Notes to Condensed
Consolidated Financial Statements.
Interest Expense / Interest Income. Interest expense for the first
quarter of 1997 increased $182,738 from the first quarter of 1996.
Additionally, interest expense of approximately $119,000 was capitalized to
construction costs. The increase in interest expense is primarily attributable
to an increase in long-term debt of $17.6 million from the first quarter of
1996. Interest income primarily represents amounts earned from the temporary
investment of cash proceeds from the Company's follow-on offering in the first
quarter of 1995. Such proceeds were used for the construction of new
restaurants during 1996, resulting in the decrease to interest income during
1997.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents a summary of the Company's cash flows for
the three months ended March 30, 1997, and March 31, 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
1997 1996
----------------------------
<S> <C> <C>
Net cash provided by operating activities $ 5,241,184 $ 766,267
Net cash used in investing activities (11,020,894) (3,106,260)
Net cash provided by financing activities 6,523,277 36,006
Increase (decrease) in cash and cash equivalents 743,567 (2,303,987)
Cash and cash equivalents, end of period 743,567 1,251,354
</TABLE>
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 expansion over the last three years
principally through cash flow from operations, proceeds from public offerings,
borrowings on long-term debt and capital lease obligations. Net cash used in
investing activities during the first quarter of 1997 and 1996 included total
capital expenditures of $11.1 million and $5.2 million, respectively. Although
the Company opened the same number of total restaurants in each three-month
period, the first quarter of 1997 included two Rock Bottom Restaurant & Brewery
restaurants and two Old Chicago restaurants as compared to four Old Chicago
restaurants in the first quarter of 1996. Because the Rock Bottom Restaurant &
Brewery restaurants have a much greater
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<PAGE> 14
investment cost than Old Chicago restaurants, total capital expenditures
increased. Additionally, investing activities in 1996 included a $2.1 million
source of cash for short-term investments liquidated during that period.
Net cash provided by financing activities increased during the first
quarter of 1997 primarily due to $6.7 million in borrowings under the Company's
Credit Facility. During February 1997, the Company amended its Credit Facility
to increase the maximum borrowings available from $20 million to $25 million.
As of March 30, 1997, the Company had $15.2 million outstanding and $9.8 million
available under the amended Credit Facility.
The Company has purchased five Old Chicago restaurant sites and two Rock
Bottom Restaurant & Brewery sites and may purchase additional restaurant sites
in the future. An additional Rock Bottom Restaurant & Brewery site was
purchased during the first quarter of 1997, however the Company intends to enter
into a sale/leaseback transaction for this property during the second quarter of
1997.
The Company estimates that total capital expenditures for
1997, excluding preopening costs and real estate purchases, will be
approximately $29 million, of which the cost of new restaurants will be
approximately $23.5 million (including the two Rock Bottom Restaurant &
Brewery restaurants and two Old Chicago restaurants opened during the first
quarter). The remaining $5.5 million is the amount estimated for routine
capital expenditures and remodels of existing restaurants, and for other
corporate requirements.
The Company may continue to seek additional sources of debt or equity
financing for its continuing expansion, although there can be no assurance that
such funds will be available on favorable terms, if at all. The Company
believes that its existing cash balances, cash flow generated from operations
and funds available under the Credit Facility will be sufficient to satisfy its
currently anticipated cash needs for fiscal 1997. However, results of
operations may be affected by changes in consumer tastes, national, regional or
local economic conditions, demographic trends and traffic patterns, decreased
interest income and increased interest expense, among other factors. There can
also be no assurance that 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.
The Company does not have significant receivables or inventory and
receives trade credit based upon negotiated terms in purchasing food and
supplies.
- 14 -
<PAGE> 15
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,
but as the Company enters new markets, it may encounter different seasonal
patterns. In addition, quarterly results have been, and in the future are likely
to be, substantially affected by the timing of new restaurant openings.
Specifically, results of operations from new restaurants opening in the first or
fourth quarters will experience lower margins initially than new restaurants
opening in the second and third quarters. 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
Substantial increases in costs and expenses, particularly food,
supplies, labor (including changes in minimum wage rates) and operating
expenses, could have a significant impact on the Company's operating results to
the extent that such increases cannot be passed along to customers. The
Company does not believe that inflation has materially affected operating
results during the past three years.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.1 - Amendment to Loan Agreement between Norwest
Bank Colorado, National Association, First Security Bank
of Idaho, N.A., and West One Bank, Idaho to Rock Bottom
Restaurants, Inc., dated February 24, 1997
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by
this report.
- 15 -
<PAGE> 16
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)
May 13, 1997 By: William S. Hoppa
-------------------------------
William S. Hoppa
Executive Vice President and
Chief financial Officer
(Principal Financial Officer)
- 16 -
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
10.1 Amendment to Loan Agreement between Norwest Bank
Colorado, National Association, First Security Bank
of Idaho, N.A., and West One Bank, Idaho to Rock Bottom
Restaurants, Inc., dated February 24, 1997
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
AMENDMENT TO LOAN AGREEMENT
THIS AMENDMENT TO LOAN AGREEMENT (this "Amendment") executed February
24, 1997 is among ROCK BOTTOM RESTAURANTS, INC, a Delaware corporation
("Borrower"), the LENDERS (as such term is defined in the Loan Agreement
described below) and NORWEST BANK COLORADO, NATIONAL ASSOCIATION, a national
banking association, as agent for the Lenders ("Agent").
RECITALS
A. Borrower, the Lenders and the Agent are parties to the Loan
Agreement, dated as of July 2, 1996 (as amended, and as it may hereafter be
amended, restated or supplemented from time to time, the "Loan Agreement"),
providing for a revolving line of credit Loan from the Lenders to the Borrower
in the original maximum amount of $20,000,000. Capitalized terms that are used
but not defined herein have the meanings set forth in the Loan Agreement.
B. Borrower has requested and the Lenders have agreed to increase
the Maximum Loan Amount to $25,000,000, subject to the terms and conditions set
forth herein.
AGREEMENT
IN CONSIDERATION of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Borrower, the Lenders and the Agent agree as follows:
1. Amendments to Loan Agreement.
a. The following definitions in Section 1.1 of the Loan
Agreement are hereby amended and restated in their
entirety to read as follows:
i. "Maximum Loan Amount" means $25,000,000.
ii. "Notes" means the promissory notes made by
Borrower and evidencing the Loan, as they may
be amended, restated, extended or
supplemented from time to time and all notes
given in substitution therefor, including
without limitation : (a) the Promissory Note
from Borrower payable to Norwest dated July
2, 1996, as amended by the Amendment to
Promissory Note dated February 24, 1997, in
the amended principal amount of $10,000,000,
evidencing Norwest's Percentage Interest of
the Loan, (b) the Promissory Note from
Borrower payable to First Security dated July
2, 1996, as amended by the Amendment to
Promissory Note dated February 24, 1997, in
the amended amount of $7,500,000, evidencing
First Security's Percentage Interest of
<PAGE> 2
the Loan, and (c) the Promissory Note from
Borrower payable to West One dated July 2,
1996, as amended by the Amendment to
Promissory Note dated February 24, 1997, in
the amended principal amount of $7,500,000,
evidencing West One's Percentage Interest of
the Loan and any promissory note given to any
other Person that becomes a Lender after the
date hereof, together with any and all
renewals, extensions, amendments and changes
of, or substitutions for such notes.
b. The definition of "Consolidated" in Section 1.1 of
the Loan Agreement is amended by adding the following
sentence at the end of such definition;
In addition, to the extent that Borrower's equity
investment in Big River or any financial results of
Big River are reflected on Borrower's Financial
Statement, Consolidated shall also include Borrower's
equity investment in Big River and such results of
Big River reflected on Borrower's Financial
Statement.
c. Section 2.1(g)(i) of the Loan Agreement is amended
and restated in its entirety to read as follows:
(g) Request for Advance under the Loan
(i) Each request for an Advance under
the Loan must be substantially in the form of the Request for
Advance (subject to modifications approved by Agent) and
submitted to the Agent on or before 11:00 a.m. Denver,
Colorado time on (A) the Business Day such Advance is
requested to be made if such Advance is a Base Rate Advance,
or (B) three Business Days preceding the date such Advance is
requested to be made if such Advance is a LIBOR Rate Advance.
Upon receipt of a Request for Advance, the Agent shall
promptly provide a notice thereof to each Lender. If all
conditions precedent to each Advance have been met, not later
than 2:00 p.m. Denver time on the Business Day such Advance
was requested with respect to each Base Rate Advance and noon
Denver time on the third Business Day with respect to each
LIBOR Rate Advance, each Lender shall make available to the
Agent in immediately available funds the amount of such
Lender's Percentage Interest of the amount specified in the
Request for Advance; provided, however, that the Lenders shall
not be obligated to make any Advance to Borrower that would
result in the aggregate unpaid principal balance outstanding
under the Loan exceeding the Maximum Loan Amount.
d. Section 2.1(i) of the Loan Agreement is hereby
amended by substituting the figure $25,000 for the
figure $20,000 in the description of the extension
fee required in connection with any exercise by
Borrower of the Extension.
2
<PAGE> 3
e. Sections 6.11(a) and (c) of the Loan Agreement
(Financing Covenants) are hereby amended and restated
in their entirety to read as follows:
(a) Funded Debt to Operating Cash Flow.
Borrower shall maintain a ratio of Funded Debt to Operating
Cash Flow (determined on a Consolidated basis) of less than or
equal to 1.65 to 1, calculated at the end of each Fiscal
Quarter and based on such Fiscal Quarter and the three
immediately preceding Fiscal Quarters.
(c) Total Liabilities to Tangible Net Worth. The
ratio of Borrower's Total Liabilities to Tangible Net Worth
calculated at the end of each Fiscal Quarter shall not exceed
.60 to 1 at any time during the term of the Loan.
f. Article 6 (Affirmative Covenants) of the Loan
Agreement is hereby amended by adding a new Section
6.17 to read as follows:
6.17 Opening of Additional Facilities. Within ten days
after the opening of any new restaurant or similar facility by
Borrower or any Subsidiary, Borrower shall notify Agent in
writing of such opening.
g. Section 7.4 of the Loan Agreement (Negative
Covenants) is hereby amended and restated in its
entirety to read as follow:
7.4 Capital Expenditures. Make or incur any capital
expenditures (as such term is defined in accordance with
GAAP), exceeding the aggregate limit of $35,000,000 during any
Fiscal Year, beginning with the Fiscal Year ended December 29,
1996.
h. Notices. The address for notice to Borrower or any
Subsidiary pursuant to Section 12.2 of the Loan
Agreement is hereby changed to the following address:
Rock Bottom Restaurants, Inc.
248 Centennial Parkway, Suite 100
Louisville, Colorado 80027
i. Exhibit D to the Loan Agreement is hereby replaced
with Exhibit D attached hereto and incorporated
herein by this reference and Exhibit D attached
hereto is substituted in place of Exhibit D attached
to the Loan Agreement as locations where the
Collateral is located. Borrower hereby represents,
warrants and certifies that (a) each Subsidiary set
forth on Exhibit D (as amended by this Amendment)
conducts operations only at the locations set forth
below such Subsidiary's name on Exhibit D (as amended
by this Amendment) and Borrower or such Subsidiary
own all of the Collateral located at such location,
(b) the Collateral is not located in any
3
<PAGE> 4
location, and neither Borrower nor any Subsidiary
conducts any operations in any location other than
those listed on Exhibit D of the Loan Agreement (as
amended by this Amendment), and (c) Borrower leases
and does not own, directly or indirectly, any of the
locations described on Exhibit D other than the Fee
Properties.
j. Exhibit E to the Loan Agreement is hereby replaced
with Exhibit E attached hereto and Exhibit E attached
hereto is substituted in place of Exhibit E attached
to the Loan Agreement.
k. Exhibit F to the Loan Agreement is hereby replaced
with Exhibit F attached hereto and Exhibit F attached
hereto is substituted in place of Exhibit F attached
to the Loan Agreement.
2. Conditions Precedent. All of Lenders' obligations
under this Amendment are conditioned upon and subject to satisfaction of all of
the following conditions precedent in a manner acceptable to Agent on or before
February 28, 1997:
a. Borrower shall pay to Agent, as agent for
Lenders, a restructure fee in the amount of $10,000.
b. Borrower or the Subsidiaries, as the case may
be, shall have executed and delivered this Amendment, and any and all
amendments to the Note and the other Loan Documents or any other documents
required by Lenders, to give effect to the amendments effected by this
Amendment;
c. Borrower shall have delivered to Agent, as
agent for the Lenders, an opinion of counsel with respect to the loan
modifications effected by this Amendment and the amendments executed concurrent
herewith, which opinion must be acceptable in form and substance to Agent, in
Agent's reasonable discretion;
d. Borrower shall pay all Loan Expenses incurred
by the Agent in connection with the transactions contemplated by this
Amendment; and
e. As of the date of this Amendment, and as of
the Effective Date, there was and is no Default or Unmatured Event of Default.
f. Borrower shall cause Stewart Title Company to
deliver to Lender endorsements to each of the title insurance policies issued
in connection with the original closing of the Loan (other than for the
property located in the State of Texas), which title insurance endorsements
shall insure that there has been no adverse change in the status of title to
any real property securing the Loan (other than for the property located in the
State of Texas) since July 2, 1996, and shall insure that the Deeds of Trust,
as modified by the Amendments to Deeds of Trust being delivered simultaneously
herewith, remain in effect as first priority liens against
4
<PAGE> 5
each of the parcels of real property encumbered by such Deeds of Trust (subject
to Permitted Liens).
g. Within thirty (30) days of the date hereof,
Borrower shall provide to Lender (a) an amendment to the UCC Financing
Statement executed by Lakeside Bank releasing any collateral other than the
collateral located at One West Grand Avenue in Chicago, Illinois, (b) a
Landlord Subordination executed by Management, Inc. in connection with
Borrower's Nebraska operation and a Landlord Subordination executed by Dulcet
LLC in connection with Borrower's Iowa operation.
h. Within fifteen (15) days of the date hereof,
Borrower shall (a) execute a Deed of Trust for the benefit of Lender
(substantially identical to the Deeds of Trust previously executed by Borrower)
encumbering the property known as Lot 4, Block 1 Centennial Promenade, Filing
No. 2, in Arapahoe County, Colorado, and (b) cause North American Title Company
to deliver to Lender a lender's title insurance policy insuring that the Deed
of Trust creates a valid, perfected first priority lien on such property
subject only to those exceptions as may be reasonably acceptable to Lender; at
which time such property shall constitute Fee Property for purposes of the Loan
Agreement, and such property may, in the future, be released in accordance with
Section 4.2 of the Loan Agreement.
3. Further Assurances. Borrower shall execute all
documents and instruments and take all actions or cause any other party to
execute all documents and instruments and take all actions as the Agent may
reasonably require to effect the transactions contemplated by this Amendment.
4. Representations and Warranties. Borrower hereby
certifies to the Lenders that as of the date of this Amendment (taking into
consideration the transactions contemplated by this Amendment), all of
Borrower's representations and warranties contained in the Loan Documents are
true, accurate and complete in all material respects, and no Event of Default
or Unmatured Event of Default has occurred under any Loan Document (as amended
concurrent herewith). Without limiting the generality of the foregoing,
Borrower represents and warrants to the Lenders that the execution and delivery
of this Amendment has been authorized by all necessary action on the part of
Borrower, that each person executing this Amendment on behalf of Borrower is
duly authorized to do so, and that this Amendment constitutes the legal, valid,
binding and enforceable obligation of Borrower (subject to the same limitations
of enforceability as set forth in the Loan Agreement).
5. Loan Documents.
a. The Lenders, the Agent, and the Borrower
agree that all of the Loan Documents shall be amended to reflect the amendments
set forth herein.
b. All references in any document to the Loan
Agreement hereafter refer to the Loan Agreement as amended pursuant to this
Amendment.
5
<PAGE> 6
c. All references in the Loan Agreement to the
Loan Documents, or any particular Loan Document, hereby refer to such Loan
Documents as amended pursuant to the amendments executed concurrent herewith.
6. Continuation of the Loan Agreement Except as
specified in this Amendment, the provisions of the Loan Agreement remain in
full force and effect, and if there is a conflict between the terms of this
Amendment and those of the Loan Agreement, the terms of this Amendment control.
7. Miscellaneous.
a. This Amendment shall be governed by and
construed under the laws of the State of Colorado and shall be binding upon and
inure to the benefit of the parties hereto and their successors and permissible
assigns.
b. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
c. This Amendment and all documents to be
executed and delivered hereunder may be delivered in the form of a facsimile
copy, subsequently confirmed by delivery of the originally executed document.
d. Time is of the essence hereof with respect to
the dates, terms and conditions of this Amendment and the documents to be
delivered pursuant hereto.
e. This Amendment constitutes the entire
agreement between Borrower, the Agent, and the Lenders concerning the subject
matter of this Amendment. This Amendment may not be amended or modified
orally, but only by a written agreement executed by Borrower, the Agent and
the Lenders and designated as an amendment or modification of the Loan
Agreement.
f. If any provision of this Amendment is held to
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions of this Amendment shall not be impaired thereby.
g. The section headings herein are for
convenience only and shall not affect the construction hereof.
h. Execution of this Amendment is not intended
to and shall not constitute a waiver by the Lenders of any Event of Default or
Unmatured Event of Default.
6
<PAGE> 7
EXECUTED as of the date first set forth above.
LENDERS: NORWEST BANK COLORADO, NATIONAL ASSOCIATION,
- -------
a national banking association
By: /s/ KAREN I. HARDY
-------------------------------------------
Karen I. Hardy
Vice President
FIRST SECURITY BANK, N.A., a
national banking association (f/k/a First
Security Bank of Idaho, N.A.)
By: /s/ MARY MONROE
-------------------------------------------
Mary Monroe
Vice President
U.S. BANK OF IDAHO (f/k/a West One Bank,
Idaho)
By: /s/ JAMES HENKEN
-------------------------------------------
James Henken
Vice President
AGENT: NORWEST BANK COLORADO, NATIONAL ASSOCIATION,
- ----- a national banking association
By: /s/ KAREN I. HARDY
-------------------------------------------
Karen I. Hardy
Vice President
BORROWER: ROCK BOTTOM RESTAURANTS, INC., a
- --------- Delaware corporation
By: /s/ WILLIAM S. HOPPE
-------------------------------------------
William S. Hoppe
Vice President
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S INTERIM UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> MAR-30-1997
<CASH> 743,567
<SECURITIES> 0
<RECEIVABLES> 623,399
<ALLOWANCES> 0
<INVENTORY> 2,444,164
<CURRENT-ASSETS> 8,137,637
<PP&E> 93,279,736
<DEPRECIATION> (11,540,504)
<TOTAL-ASSETS> 95,849,983
<CURRENT-LIABILITIES> 10,991,103
<BONDS> 18,253,097
0
0
<COMMON> 79,068
<OTHER-SE> 56,785,390
<TOTAL-LIABILITY-AND-EQUITY> 95,849,983
<SALES> 32,692,139
<TOTAL-REVENUES> 32,692,139
<CGS> 8,095,116
<TOTAL-COSTS> 31,300,494
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 255,519
<INCOME-PRETAX> 1,212,982
<INCOME-TAX> 352,774
<INCOME-CONTINUING> 860,208
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 860,208
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
