- --------------------------------------------------------------------------------
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 27, 1999
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 August 11, 1999, the Registrant had outstanding 8,169,525 shares of common
stock, par value $.01 per share.
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<PAGE>
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
THREE MONTHS AND SIX MONTHS ENDED JUNE 27, 1999
PAGE
PART I. FINANCIAL INFORMATION
Item 1.Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets-
June 27, 1999 and December 27, 1998 1-2
Condensed Consolidated Statements of Operations-
Three Months and Six Months Ended
June 27, 1999 and June 28, 1998 3
Condensed Consolidated Statements of Cash Flows- 4
Six Months Ended June 27, 1999 and June 28, 1998
Notes to Condensed Consolidated Financial Statements 5
Item 2.Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-18
PART II. OTHER INFORMATION
Item 6.Exhibits and Reports on Form 8-K 19
Signature page 20
<PAGE>
<TABLE>
<CAPTION>
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
Page 1 of 2
June 27, December 27,
ASSETS 1999 1998
------ ---------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents
$ (683,579) $ 449,496
Accounts receivable 472,496 605,823
Income taxes receivable -- 89,392
Inventories 2,209,901 2,532,074
Prepaids and other current assets 718,241 740,516
Current deferred income taxes, net 689,807 689,744
------------- -------------
Total current assets 3,406,866 5,107,045
------------- -------------
PROPERTY AND EQUIPMENT:
Land 3,644,645 5,527,087
Buildings and leasehold improvements 63,968,106 60,318,706
Furniture, fixtures and equipment 50,386,779 47,101,540
Construction-in-progress 3,654,881 5,624,740
Accumulated depreciation and amortization (28,141,030) (24,139,857)
------------- -------------
Total property and equipment, net 93,513,381 94,432,216
ASSETS HELD FOR DISPOSITION -- 1,542,127
OTHER ASSETS 159,522 210,139
DEFERRED INCOME TAXES, net 1,205,334 1,205,334
------------- -------------
TOTAL ASSETS $ 98,285,103 $ 102,496,861
============= =============
</TABLE>
See accompanying notes.
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<PAGE>
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
Page 2 of 2
<TABLE>
<CAPTION>
June 27, December 27,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
----------------------------------- ------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable-
Trade $ 2,850,489 $ 4,187,581
Construction projects 637,052 1,551,036
Accrued payroll and payroll taxes 2,043,574 2,451,729
Accrued taxes other than income tax 829,541 819,628
Other accrued expenses 3,621,453 2,958,702
Current portion of accrued restructuring charges 427,069 430,978
Current portion of long-term debt 127,630 179,184
Current portion of obligations under capital leases 326,387 224,825
Revolving line of credit 12,500,000 19,050,000
------------- -------------
Total current liabilities 23,363,195 31,853,663
LONG-TERM DEBT 2,132,434 2,195,349
OBLIGATIONS UNDER CAPITAL LEASES 5,271,027 2,255,905
ACCRUED RESTRUCTURING CHARGES 580,705 769,227
------------- -------------
Total liabilities 31,347,361 37,074,144
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, 8,140,755 shares outstanding 81,637 80,560
Additional paid-in capital 59,114,576 58,287,943
Retained earnings 8,388,931 7,789,248
Deferred compensation (647,402) (735,034)
------------- -------------
Total stockholders' equity 66,937,742 65,422,717
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 98,285,103 $ 102,496,861
============= =============
</TABLE>
See accompanying notes.
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<PAGE>
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 27, 1999 AND JUNE 28, 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -------------------------------
June 27, 1999 June 28, 1999 June 27, 1999 June 28, 1999
------------- ------------- ------------- -------------
(restated - (restated -
see notes) see notes)
REVENUES:
<S> <C> <C> <C> <C>
Old Chicago restaurants $ 19,582,648 $ 18,782,969 $ 37,941,327 $ 37,171,336
Brewery restaurants 25,267,363 21,260,608 47,748,732 41,466,496
------------ ------------ ------------ ------------
Total revenues 44,850,011 40,043,577 85,690,059 78,637,832
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Cost of sales 11,027,994 10,071,038 21,210,443 19,790,426
Restaurant salaries and benefits 15,144,122 13,450,340 28,986,738 26,269,265
Operating expenses 9,051,717 7,592,097 17,388,600 15,277,842
Selling expenses 1,504,037 1,261,260 2,748,167 2,534,842
General and administrative 2,646,054 2,486,033 5,478,562 5,124,407
Depreciation and amortization 2,453,421 2,241,943 4,630,062 4,410,910
Start-up costs 460,089 603,156 1,137,266 850,073
Other operating expenses, net 199,938 32,708 314,448 267,084
------------ ------------ ------------ ------------
Total operating expenses 42,487,372 37,738,575 81,894,286 74,524,849
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 2,362,639 2,305,002 3,795,773 4,112,983
Equity in joint venture earnings -- 125,000 -- 300,000
Interest income 1,948 14,586 3,130 15,598
Interest expense (343,876) (739,703) (857,051) (1,323,835)
Acquisition transaction costs (401,096) -- (1,386,069) --
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 1,619,615 1,704,885 1,555,783 3,104,746
Income tax expense 656,731 554,088 956,102 1,009,043
------------ ------------ ------------ ------------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 962,884 1,150,797 599,681 2,095,703
Cumulative effect of change in accounting
for start-up costs, net of income taxes
of $764,532 -- -- -- (1,250,037)
NET INCOME $ 962,884 $ 1,150,797 $ 599,681 $ 845,666
============ ============ ============ ============
BASIC NET INCOME PER COMMON SHARE:
Income (Loss) before cumulative effect of
accounting change $ .14 $ .26
============ ============
Cumulative effect of accounting change $ (.00) $ (.16)
============ ============
Basic Net Income Per Share $ .14 $ .10
============ ============
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 8,056,100 8,056,200
DILUTED NET LOSS PER COMMON SHARE:
Income (loss) before cumulative effect of
accounting change $ .14 $ .26
============ ============
Cumulative effect of accounting change ($ .00) ($ .16)
============ ============
Diluted net loss per share $ .14 $ .10
============ ============
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 8,056,100 8,056,200
</TABLE>
See accompanying notes.
-3-
<PAGE>
<TABLE>
<CAPTION>
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 27, 1999 AND JUNE 28, 1998
(Unaudited)
1999 1998
------------ ------------
(restated -
see notes)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 599,683 $ 845,666
Adjustments to reconcile net income to net
cash provided by operating activities-
Cumulative effect of accounting change -- 2,014,569
Equity in joint venture earnings -- (300,000)
Depreciation and amortization 4,630,062 4,410,910
Deferred income taxes (63) (814,532)
Amortization of deferred compensation, net
of cancellations 26,964 102,425
Net loss on disposition of assets 314,445 159,736
Decrease in receivables 222,719 772,100
Decrease in inventories 322,173 154,461
Decrease in prepaids and other assets 15,881 703,503
Decrease in accounts payable (2,251,076) (2,645,328)
Decrease in accrued restructuring costs (192,431) (492,381)
Increase in accrued expenses 264,509 496,879
------------ ------------
Net cash provided by operating activities 3,952,866 5,408,008
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (9,254,565) (10,006,770)
Proceeds from sale of property 6,790,696 2,000,000
Advances to officers and affiliates, net -- 1,185
------------ ------------
Net cash used in investing activities (2,463,869) (8,005,585)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit 16,000,000 17,250,000
Repayments of line of credit and long-term (22,664,469) (15,511,173)
debt
Proceeds from exercise of options 925,713 --
Borrowings under other financing 3,257,682 --
Repayments of capital lease obligations (140,998) (274,270)
------------ ------------
Net cash provided by (used in) financing (2,622,072) 1,464,557
activities
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (1,133,075) (1,133,020)
CASH AND CASH EQUIVALENTS, beginning of period 449,496 1,622,537
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ (683,579) $ 489,517
============ ============
</TABLE>
See accompanying notes.
-4-
<PAGE>
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 27, 1999
(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 27, 1998.
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 June 27, 1999
and the results of operations and cash flows for the periods presented. All
such adjustments, except for acquisition transaction costs, are of a normal
recurring nature. The results of operations for the three and six months
ended June 27, 1999 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) TRANSACTION WITH RB CAPITAL
On March 18, 1999, the Company entered into an Agreement and Plan of Merger
with RB Capital, Inc., a newly formed corporation organized by the
Company's Chairman of the Board, President and Chief Executive Officer, and
RBR Acquisition Corp., a wholly-owned subsidiary of RB Capital, whereby RB
Capital, through RBR Acquisition, will acquire the Company in a cash merger
with the Company as the surviving corporation. On July 23, 1999, the
Company's stockholders approved the acquisition in which the Company's
public stockholders will receive $10.00 in cash for every share of the
Company's common stock. Closing of the proposed transaction is subject to
the receipt by RB Capital of definitive financing, and other customary
conditions and regulatory approvals. Costs incurred by the Company in
connection with this transaction were $1,386,069 for the six months ended
June 27, 1999.
(3) PREOPENING AND START-UP COSTS
Prior to fiscal 1998, direct incremental costs incurred prior to opening
new restaurants were capitalized and amortized over a period of one year
after operations commenced. These costs consisted primarily of payroll,
employee recruiting and training, and initial opening expenses. During the
fourth quarter of 1998, the Company adopted the provisions of AICPA
Statement of Position No. 98-5, "Reporting on the Costs of Start-up
Activities" ("SOP 98-5"), which requires the Company to expense preopening
and other start-up expenses when incurred. Consequently, the results of
operations for the six months ended June 28, 1998, as previously reported
on Form 10-Q, have been restated to reflect the adoption of SOP 98-5 as if
occurring in the first quarter of 1998. As a result, income from operations
and net income (loss) have been restated from the previously reported
amounts by $656,590 (increase) and $806,862 (decrease),
-5-
<PAGE>
respectively, or $(.16) (decrease) per basic and diluted share.
Additionally, the charge for the cumulative effect of an accounting change
of $1,250,037 (net of income taxes of $764,532) included a write-off of
previously capitalized preopening costs of $1,250,253 and other capitalized
start-up costs of $494,316.
(4) EARNINGS PER SHARE
During the three and six months ended June 27, 1999, 137,679 and 145,333
stock options were included in the calculation of diluted net income per
share.
(5) COMPREHENSIVE INCOME
Comprehensive income, as defined, includes all changes in equity (net
assets) during a period from non-owner sources. For the three months and
six months ended June 27, 1999 and June 28, 1998, the Company's net income
equaled its comprehensive income.
(6) ASSETS HELD FOR DISPOSITION
Assets held for disposition represents the net book value of property and
equipment held for sale or disposition. Included in this amount at December
27, 1998 is $1,234,482 related to land, building and improvements for the
Old Chicago restaurant in Salem, Oregon, which was closed in July 1998, and
$307,645 for a parking lot located in Houston, Texas. During April 1999,
the Company closed on the sale of the property located in Salem, Oregon,
and used net proceeds of approximately $1.2 million to pay down the
revolving credit facility. During May 1999, the Company closed on the sale
of the property located in Houston, Texas and used the net proceeds of
approximately $264,000 to pay down the revolving credit facility.
(7) REVOLVING LINE OF CREDIT
The Company's $40 million bank revolving credit facility (the "Credit
Facility") had an original maturity date of July 27, 1999. During the first
quarter of 1999, the Company began negotiations with the lender to extend
the maturity date to July 2000. On April 1, 1999, the Company executed a
fourth amendment to its Credit Facility primarily to revise certain
covenant calculations to reflect adoption of SOP 98-5 and to permit the
execution of the merger agreement with RB Capital. On July 27, 1999, the
Company signed a fifth amendment to its Credit Facility extending the
maturity to July 29, 2000 and reducing the Credit Facility to $30 million.
(8) RECLASSIFICATIONS
Certain amounts in the accompanying 1998 financial statements have been
reclassified to conform to the current period presentation.
(9) NEW PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"),
which provides guidance on accounting for the cost of such software. The
Company adopted SOP 98-1 effective December 28, 1998, the first day of its
1999 fiscal year. Adoption did not have a material effect on the Company's
financial statements.
-6-
<PAGE>
(10) SALE LEASEBACK TRANSACTIONS
During April 1999, the Company sold the land and building for the two
brewery restaurants in Warrenville, Illinois and Phoenix, Arizona for
approximately $5.5 million then leased the properties back under long-term
lease agreements. Proceeds from the sales allocable to the buildings of
approximately $3.2 million will be accounted for as financings and reported
as long-term obligations. As a result, the total cost of the buildings will
continue to be included in property and equipment and depreciated over the
terms of the related leases. The sale of the Warrenville property was to a
partnership in which one of the Company's directors has an interest, and
the related lease agreement contains terms that are no less favorable than
could be obtained from an unrelated party.
During May, 1999, the Company closed on the sale of the land and building
for three Old Chicago restaurants located in Colorado, and executed
long-term agreements to lease back each property.
Net proceeds received from all sale transactions were used to pay down the
Credit Facility.
-7-
<PAGE>
(11) SEGMENT INFORMATION
The Company operates in two segments: Brewery and Old Chicago restaurant
segments. Management has chosen to organize the Company around these
segments based on differences in the menus, production element (microbrewed
beer) associated with the Brewery restaurants, operating margins, and
expected return on investment. The following provides information on the
Company's segments as of and for each of the three and six months ended
June 27, 1999 and June 28, 1998:
Three Months Ended Three Months Ended
------------------ ------------------
June 27, 1999 June 28, 1998
------------- -------------
Brewery Old Chicago Brewery Old Chicago
------- ----------- ------- -----------
Sales $25,267,363 $19,582,648 $21,260,608 $18,782,969
Net operating $ 2,863,025 $ 2,505,602 $ 2,974,319 $ 2,045,162
contribution
Identifiable assets $65,110,156 $29,101,609 $60,982,286 $35,107,857
Six Months Ended Six Months Ended
------------------ ------------------
June 27, 1999 June 28, 1998
------------- -------------
Brewery Old Chicago Brewery Old Chicago
------- ----------- ------- -----------
Sales $47,748,732 $37,941,327 $41,466,496 $37,171,336
Net operating $ 5,348,543 $ 4,555,172 $ 5,420,555 $ 4,182,162
contribution
Identifiable assets $65,110,156 $29,101,609 $60,982,286 $35,107,857
Net operating contribution represents sales less direct and indirect
operating expenses, including depreciation and amortization and excluding
corporate overhead and corporate activities. Additionally, the increase in
brewery identifiable assets from $61,864,568 at December 27, 1998 to
$65,110,156 at June 27, 1999 is due primarily to capital expenditures for
new restaurants offset by property and equipment sold.
-8-
<PAGE>
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
statements regarding:
o Restaurant expansion plans for 1999 and 2000;
o Repositioning the brewery concept to improve operations;
o Ability of the Company to compete effectively within the
restaurant industry;
o Impact of SOP 98-5 on future quarterly earnings;
o Efforts to improve sales trends in certain brewery restaurants;
o The company's marketing strategies during 1999;
o Estimated construction costs for new restaurants opening during
1999;
o Estimated capital expenditures in 1999;
o Ability of the company to develop an implementation plan for all Year
2000 issues.
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; greater than anticipated preopening expenses incurred during 1999;
general economic conditions; adverse weather conditions; operating restrictions
and costs associated with governmental regulations; regulatory limitations
regarding common ownership of breweries and restaurants in certain states;
greater than anticipated acquisition transaction costs; ability to identify all
systems within the company impacted by Year 2000 issues and to provide the
necessary financial and personnel resources to address all such issues; and
other risks detailed in the company's reports and other filings under the
Securities Exchange Act of 1934.
In addition to the foregoing, certain statements contained in this report
with respect to the proposed transaction with RB Capital are forward-looking
statements that involve known and unknown risks and uncertainties that may cause
actual results or performance of the company to differ materially. Such
statements include the statement regarding the anticipated date for the
completion of the transaction with RB Capital. Factors that could cause actual
results to differ materially include, among others, delays in receiving required
regulatory and other approvals, adverse economic or market conditions, the
ability of RB Capital to obtain funding necessary to consummate the proposed
transaction.
Due to 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 these forward-looking statements,
whether as a result of new information, future events, or otherwise.
-9-
<PAGE>
OVERVIEW
As of August 11, 1999, the company operated 40 Old Chicago restaurants and
24 brewery restaurants, including two brewery restaurants that opened in
Bellevue, Washington and Phoenix, Arizona during March and April 1999,
respectively, and one Old Chicago restaurant opened in Omaha, Nebraska in late
June, 1999. Additional restaurant openings planned for 1999 include a Rock
Bottom Restaurant & Brewery restaurant in San Diego, California and one in
Arlington, Virginia, and an Old Chicago restaurant in Denver, Colorado. Upon
completion of the four brewery restaurant openings in 1999, the company will
defer opening any new brewery restaurants until at least the third quarter of
2000. During this period of suspended growth, management will focus on
repositioning the concept's niche in the casual dining segment by reintroducing
excitement and energy into both the food and beverage alcohol programs.
Although the company has slowed new restaurant expansion over the last
several years, the company still plans to open six restaurants in each of 1999
and 2000, most of which the company anticipates will be located in existing
markets. The company may not, however, be able to identify suitable restaurant
sites, purchase sites or obtain leases on acceptable terms, or open new
restaurants on anticipated dates. Additionally, due to the maturation of the
company's existing restaurant base and the possible effects of opening
additional restaurants in close proximity, revenues of certain of the company's
restaurants may be lower in future periods than previously experienced. New
restaurants also typically incur certain increased costs in the process of
achieving operational efficiencies during the first several months of operation.
Restaurant salaries and benefits and preopening costs are two examples of these
increased costs.
The company plans to lease sites for a majority of its future restaurant
locations, and presently leases the sites for a majority of its existing
restaurants. However, as of December 27, 1998, the company owned the land and
building for five Old Chicago restaurants (including Salem, Oregon which closed
July 1998) and four brewery restaurants (including Phoenix, Arizona which opened
April 1999). During the second quarter of 1999, the company sold the land and
building for three of the Old Chicago restaurants located in Greeley, Longmont
and Grand Junction, Colorado (the "Colorado Properties"), and the land, building
and certain equipment for the Old Chicago restaurant located in Salem, Oregon.
Additionally, the company also sold the land and building for the brewery
restaurants located in Warrenville, Illinois and Phoenix, and sold land related
to a closed brewery restaurant in Houston, Texas. With the exception of the
property in Salem, Oregon, and Houston, Texas, the company has executed
long-term agreements to lease back each property. As of August 11, 1999, the
company owns the land and building for one Old Chicago restaurant, one brewery
restaurant in Addison, Texas, and one brewery restaurant in Chicago, Illinois.
See "Liquidity and Capital Resources."
The company operates in an 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,
weather conditions, demographic trends and traffic patterns.
During the fourth quarter of 1998, the company made a change in accounting
principle by adopting the American Institute of Certified Public Accountants'
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"). SOP 98-5 requires the company to expense start-up and preopening
costs as they are incurred. Prior to adoption of SOP 98-5, the company, like
most other casual dining restaurant companies, deferred these costs and
amortized them over the 12 months following the opening of each restaurant.
Adoption of SOP 98-5 was made retroactive to the first quarter of 1998 and
required restatement of the March 29, 1998 and June 28, 1998 results of
operations previously reported on Form 10-Q. The one-time charge for the
cumulative effect of this accounting change of $1.3 million, net of taxes, or
$0.16 per share, was recorded to expense preopening costs incurred in 1997 but
deferred into fiscal 1998. Future quarterly earnings
-10-
<PAGE>
will fluctuate due to the timing of new restaurant openings and the
corresponding impact from adoption of SOP 98-5.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"), which provides
guidance on accounting for the cost of such software. Adoption of SOP 98-1
during the first quarter of 1999 did not have a material effect on the company's
financial statements.
PROPOSED TRANSACTION WITH RB CAPITAL
In November 1998, Mr. Frank Day, the company's Chairman, President and
Chief Executive Officer, informed the company's Board of Directors (the "Board")
that he and certain other directors of the company (the "Founders") were in the
preliminary stages of exploring the feasibility of acquiring the company. In
view of possible conflicts of interest in connection with RB Capital's proposal
to acquire the company, during November 1998 the Board unanimously determined
that it was advisable to form a Special Committee of the Board. The Special
Committee, comprised of disinterested directors, was formed for the purpose of
evaluating and negotiating the terms of any potential acquisition proposal,
including any affiliate-led proposal.
Mr. Day formed RB Capital in late November 1998, and on January 13, 1999, RB
Capital submitted a proposal to a Special Committee of the company's Board to
acquire substantially all of the equity interests in Rock Bottom not held by the
Founders in a cash merger for $9.50 per share. On January 27, 1999, the company
announced that it had received three indications of interest to acquire the
company, including the acquisition proposal submitted by RB Capital. RB Capital
continued to negotiate with the Special Committee over the next several weeks,
and on March 18, 1999, the company announced that it had entered into a
definitive agreement to be acquired by RB Capital for $10.00 per share cash
consideration. On July 23, 1999, the Company's stockholders approved the
acquisition by RB Capital, Inc. Closing of the proposed transaction is subject
to the receipt by RB Capital of definitive funding sufficient to consummate the
merger, and other customary conditions and regulatory approvals. Costs incurred
by the Company in connection with this transaction were $1,386,069 for the six
months ended June 27, 1999.
-11-
<PAGE>
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 (data may not add due to rounding):
<TABLE>
<CAPTION>
Percentage of Revenues Percentage of Revenues
---------------------- ----------------------
Three Months Ended Six Months Ended
------------------ ----------------
June 27, June 28, June 27, June 28,
-------- -------- -------- --------
1999 1998 1999 1998
---- ---- ---- ----
(restated) (restated)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Old Chicago restaurants 43.7% 46.9% 44.3% 47.3%
Brewery restaurants 56.3% 53.1% 55.7% 52.7%
----- ----- ----- -----
Total revenues 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
OPERATING EXPENSES:
Cost of sales 24.6% 25.2% 24.8% 25.2%
Restaurant salaries and benefits 33.8% 33.6% 33.8% 33.4%
Operating expenses 20.2% 19.0% 20.3% 19.4%
Selling expenses 3.4% 3.1% 3.2% 3.2%
General and administrative 5.9% 6.2% 6.4% 6.5%
Depreciation and amortization 5.5% 5.6% 5.4% 5.6%
Start-up costs 1.0% 1.5% 1.3% 1.1%
Other operating expenses, net 0.4% 0.1% 0.4% 0.3%
----- ----- ----- -----
Total operating expenses 94.7% 94.2% 95.6% 94.8%
----- ----- ----- -----
INCOME FROM OPERATIONS 5.3% 5.6% 4.4% 5.2%
Equity in joint venture earnings 0.0% 0.3% 0.0% 0.4%
Interest (expense) income, net (0.8%) (1.8% (1.0%) (1.7%)
Acquisition transaction costs (0.9%) 0.0% (1.6%) 0.0%
----- ----- ----- -----
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 3.6% 4.3% 1.8% 3.9%
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 2.1% 2.9% 0.7% 2.7%
NET INCOME 2.1% 2.9% 0.7% 1.1%
===== ===== ===== =====
RESTAURANT DATA:
Restaurants open (end of period):
Old Chicago restaurants 40 40
Brewery restaurants 24 21
Total 64 61
Restaurant operating weeks:
Old Chicago restaurants 507 517 1,014 1,042
Brewery restaurants 312 267 601 525
Total........................... 819 784 1,615 1,567
</TABLE>
-12-
<PAGE>
THREE AND SIX MONTHS ENDED JUNE 27, 1999 AS COMPARED TO THREE AND SIX MONTHS
ENDED JUNE 28, 1998
Revenues. Revenues increased $4.8 million (12.0%) to $44.9 million in the
quarter ended June 27, 1999 from $40.0 million for the comparable quarter in
1998. For the six months ended June 27, 1999, revenues increased $7.1 million
(9.0%) to $85.7 million from $78.6 million for the comparable period in 1998.
This increase is due primarily to increases in revenues generated by Old Chicago
restaurants and the six new brewery restaurants that have opened since the end
of the first quarter of 1998, offset by a decrease in revenues of approximately
$1.2 million for the six restaurants closed during 1998. Comparable restaurant
sales for the second quarter of 1999 were up by 2.7%. When computing comparable
restaurant sales, restaurants open for at least six full quarters are compared
from year to year.
As the company opened four new brewery restaurants during 1998 and no new
Old Chicago restaurants, revenues from the company's brewery restaurants, as a
percentage of total revenues, increased to 56.3% in the quarter ended June 27,
1999 from 53.1% in the quarter ended June 28, 1998. Revenues from the company's
brewery restaurants for the six months ended June 27, 1999, as a percentage of
total revenues, increased to 55.7% from 52.7% in the first six months of 1998.
Additionally, brewery restaurants generate greater average weekly sales than Old
Chicago restaurants. The company expects that the percentage of revenues
contributed by the brewery restaurants will continue to increase as the 1999
expansion plan includes four brewery restaurants and two Old Chicago
restaurants.
Average weekly sales for the Old Chicago restaurants during the second
quarter of 1999 were $38,624 as compared to $36,661 during the second quarter of
1998, an increase of 5.4%. Comparable Old Chicago restaurant sales also
increased and were up 5.7% for the second quarter of 1999. For the six month
period ending June 27, 1999, average weekly sales for the Old Chicago
restaurants were $37,574 as compared to $35,673 during the first six months of
1998, an increase of 5.3%. The improvement in sales trends is due largely to the
company's efforts toward improving overall execution in each of its Old Chicago
restaurants. This has been accomplished through an increased focus on service
standards, food quality and consistency, menu merchandising, local restaurant
marketing promotions and hiring and training of new staff.
Average weekly sales for the brewery restaurants during the second quarter
of 1999 were $80,985 compared to $79,628 during the second quarter of 1998, an
increase of 1.7%, and $79,448 for the first six months of 1999 compared to
$78,984 for the comparable period in 1998, an increase of 0.6%. Such increase is
primarily due to the tendency for brewery restaurants opened after the second
quarter of 1998 to exhibit higher average weekly sales during the second quarter
of 1999 due to the "honeymoon effect". Comparable brewery restaurant sales were
down 0.1% for the second quarter of 1999 primarily due to a decrease in beverage
alcohol sales. Management attributes the decrease in beverage alcohol sales
primarily to an increase in competitive pressures in certain markets,
particularly from other established restaurant concepts. In response to this
trend, the company has initiated several programs aimed at generating higher
beverage alcohol sales, thereby increasing the energy and activity in the
restaurant. These programs include adding a second bar area in newer brewery
restaurants, particularly those in suburban locations, and greater merchandising
of the overall beer program through activities such as happy hour, live music
venues, and seasonal or specialty beer promotions tied to community events.
Cost of Sales. Cost of sales, which consists of food, beverage, and
merchandise costs, increased $1.0 million (9.5%) to $11.0 million in the second
quarter of 1999 compared to $10.1 million in the second quarter of 1998, and
decreased as a percentage of revenues to 24.6% in the second quarter of 1999 as
compared to 25.2% in the second quarter of 1998. For the six months ended June
27, 1999, cost of sales increased by $1.4 million (7.1%) to $21.2 million from
$19.8 million in the comparable period in 1998, and decreased as a percentage of
revenues to 24.8% in the first six months of 1999 compared to 25.2% in the first
six months of 1998. In December 1998, the company changed primary food suppliers
with the expectation of reducing
-13-
<PAGE>
freight costs and improving overall menu quality through better compliance with
specifications and guidelines. The improvement in cost of sales as percentage of
revenues during the first half of 1999 is due primarily to this change in
suppliers, as well as to reengineering the menu in both concepts to increase
average margin per guest. The company also continues to refine its "best
practices" initiative that is focused on streamlining food preparation
procedures and introducing higher margin menu items.
Restaurant Salaries and Benefits. Restaurant salaries and benefits, which
consist of restaurant management and hourly employee wages, payroll taxes, and
group health insurance, increased $1.7 million (12.6%) to $15.1 million in the
second quarter of 1999 from $13.5 million in the second quarter of 1998. For the
six months ended June 27, 1999 salaries and benefits increased $2.7 million
(10.3%) to $29.0 million from $26.3 million in the comparable period of 1998.
Restaurant salaries and benefits as a percentage of revenues increased to 33.8%
in the second quarter of 1999 as compared to 33.6% in 1998, and to 33.8% for the
six month period ended June 27, 1999 from 33.4% in the comparable period of
1998. The increases are primarily due to several factors. The first is a
temporary increase in kitchen labor in the Old Chicago restaurants as a result
of new menus implemented during the first quarter of 1999. Several new items
included in this menu have helped to increase average margin per guest, but
require a certain amount of time to achieve preparation labor efficiencies. The
second factor is an increase in training expenses for both concepts. The third
factor is an increase in staff labor costs in the brewery restaurants primarily
due to higher wage rates.
Operating Expenses. Operating expenses, which include occupancy costs,
utilities, repairs, maintenance and linen, increased $1.5 million (19.2%) to
$9.1 million in the second quarter of 1999 from $7.6 million for the same period
in 1998. For the six months ended June 27, 1999, operating expenses increased
$2.1 million (13.8%) to $17.4 million from $15.3 million in the comparable
period of 1998. As a percentage of revenues, such expenses increased to 20.2% in
the second quarter of 1999 from 19.0% in the second quarter of 1998. This
increase is due primarily to greater expenses during 1999 for repairs and
maintenance as the company has undertaken a comprehensive program to repair and
upgrade existing assets. This program may result in slight increases to
operating expenses during the remainder of the fiscal year. The remaining second
quarter 1999 variance is due to increased occupancy and overall operating
expenses.
Selling Expenses. Selling expenses increased approximately $243,000
(19.2%) to $1.5 million in the second quarter of 1999 from $1.3 million in the
same period in 1998. As a percentage of revenues, such expenses increased to
3.4% for the second quarter of 1999 from 3.1% for the same period in 1998. For
the six months ended June 27, 1999, selling expenses increased approximately
$213,000 (8.4%) to $2.7 million compared to $2.5 million in the comparable
period of 1998. As a percentage of revenues, these expenses remained flat at
3.2% for the first six months of 1999 compared to the same period of 1998. This
increase was due primarily to an increased use of local restaurant marketing.
Although the company's marketing strategy will continue to emphasize local
restaurant marketing promotions, selling expenses are expected to increase
during the third and fourth quarters of 1999 due to an increased use of these
programs.
General and Administrative ("G&A"). G&A expenses increased approximately
$160,000 (6.4%) to $2.6 million in the second quarter of 1999 compared to $2.5
million in the second quarter of 1998, but decreased as a percentage of revenues
to 5.9% in the second quarter of 1999 from 6.2% for the same quarter in 1998.
For the six months ended June 27, 1999, G&A expenses increased approximately
$354,000 (6.9%) to $5.5 million compared to $5.1 million revenues for the
comparable period in 1998, but decreased as a percentage of revenues to 6.4% of
revenues in the second quarter of 1999 compared to 6.5% of revenues for the
comparable period in 1998.
Depreciation and Amortization ("D&A"). Depreciation expense and
amortization of intangible assets during the second quarter of 1999 increased by
approximately $211,000 (9.4%) to $2.5 million from $2.2 million for the
comparable quarter of 1998, and as a percentage of revenues decreased to 5.5% in
1999 as
-14-
<PAGE>
compared to 5.6% in the second quarter of 1998. For the six months ended
June 27, 1999 depreciation and amortization expense increased approximately
$219,000 (5.0%) to $4.6 million, or 5.4% of revenues, compared to $4.4 million,
or 5.6% of revenues, for the comparable period in 1998. This decrease is
partially due to the increase in sales trends for the Old Chicago restaurants,
and partially due to reduced amortization expense of corporate intangible assets
resulting from the company's sale of its equity investment in Trolley Barn
Brewery, Inc.
Start-Up Costs. Adoption of SOP 98-5 requires the company to expense
start-up costs associated with opening new restaurants as they are incurred.
Accordingly, the amount expensed each quarter will fluctuate with the number and
type of restaurant (Old Chicago or brewery restaurant) opened in any given
period.
Other Operating Expenses. During the six months ended June 28, 1998, other
operating expenses consisted primarily of severance payments made to employees
in connection with four restaurant closures, a loss on disposition of certain
computer equipment, and income related to a lease settlement agreement with the
owner of the Gladstone, Missouri restaurant. During the second quarter of 1999,
other operating expenses consist primarily of a loss on disposition of certain
fixed assets.
Equity in Joint Venture Earnings. The 1998 equity in joint venture
earnings represents the company's 50% equity interest in net after-tax earnings
of Trolley Barn, its joint venture partner in the southeastern United States.
The company sold this interest back to Trolley Barn during November 1998 for
$7.0 million and used the net proceeds to pay down the existing credit facility.
Interest Expense. Interest expense for the second quarter of 1999
decreased approximately $396,000 from the second quarter of 1998 to $343,876,
and for the first six months of 1999 decreased approximately $467,000 to
$857,051 from the comparable period of 1998. This decrease was due to a
reduction of approximately $15.7 million in the company's outstanding balance on
the revolving line of credit from the second quarter of 1998. Additionally,
interest expense of approximately $46,000 and $102,000 was capitalized to
construction costs in the three and six month periods ended June 27, 1999,
respectively.
Acquisition Transaction Costs. Acquisition transaction costs of $401,096
during the second quarter of 1999 and $1.4 million for the first six months of
1999 primarily represent legal and other outside professional fees incurred
related to the Special Committee's activities.
Income Tax Expense. The income tax provision for the second quarter of
1999 was calculated to exclude acquisition transaction costs as a tax-deductible
item. As a result, income subject to taxes in the second quarter of 1999 is
$2,020,711, and the income tax expense of $656,731 results in an effective tax
rate of 32.5%. The effective tax rate associated with the income tax provision
in 1998 was also 32.5%.
-15-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
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, borrowings under its credit
facility and capital lease obligations. As is common in the restaurant industry,
the company has generally operated with negative working capital as it receives
trade credit based upon negotiated terms in purchasing food and supplies, and
does not have significant receivables or inventory. The following table presents
a summary of the company's cash flows for the six months ended June 27, 1999,
and June 28, 1998:
Six Months Ended
(Unaudited)
--------------------------
1999 1998
--------------------------
Net cash provided by operating activities $ 3,952,86 $ 5,408,808
Net cash used in investing activities (2,463,869) (8,005,585)
Net cash provided by (used in) financing activities (2,622,072) (1,464,557)
Increase (decrease) in cash and cash equivalents (1,133,075) (1,133,020)
Cash and cash equivalents, end of period (683,579) 489,517
Net cash used in investing activities during the first six months of 1999 and
1998 primarily represents capital expenditures related to the opening of new
restaurants and maintenance capital expenditures in existing restaurants.
Additionally, during the second quarter of 1999, the company completed sale and
lease transactions for the brewery restaurants located in Warrenville, Illinois
and Phoenix, Arizona. Also during the second quarter of 1999, the company sold
the land and building for the three Colorado properties and executed long-term
lease agreements for each property. The company also sold the land, building and
certain equipment for the Old Chicago restaurant located in Salem, Oregon. Net
proceeds from all sale transactions were used to pay down the company's existing
credit facility.
Cash flows from financing activities primarily represent borrowings and
repayments under the Company's $30 million bank revolving credit facility, as
amended in July 1999 (the "Credit Facility"), and financing obligations related
to the Warrenville and Phoenix restaurants as well as the exercise of certain
stock options. During April 1999, the company executed a fourth amendment to the
Credit Facility primarily to revise certain covenant calculations to reflect
adoption of SOP 98-5 and to permit execution of the merger agreement with RB
Capital. As of June 27, 1999, $12.5 million was outstanding under the Credit
Facility. Effective July 27, 1999, the Company signed a fifth amendment to its
Credit Facility reducing the facility to $30 million and extending its maturity
date to July, 2000.
The company estimates that total capital expenditures for 1999, excluding
preopening costs, and excluding proceeds from the sale of the land and building
for the Warrenville, Phoenix, Colorado and Salem properties, will be
approximately $17.9 million. This estimate includes $12.4 million in estimated
total costs for the four new brewery restaurants and $1.5 million in estimated
costs for the two new Old Chicago restaurants. The estimated average cash
investment for the two new Old Chicago restaurants of $750,000 will increase to
approximately $1.0 million in the future as the 1999 estimated costs have
benefited from the redeployment of certain assets from the three Old Chicago
restaurants closed during 1998. These estimated capital expenditures may not be
sufficient for completion of current development plans or may increase in the
future.
-17-
<PAGE>
YEAR 2000 COMPLIANCE
The Year 2000 will have an impact on the abilities of certain computer
systems to accurately process information. This impact is a result of computer
programs being written using two digits rather than four to define the
applicable year, therefore time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000.
During 1997, the company began a review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue. As the
company's information technology ("IT") systems primarily consist of either
third-party software programs purchased by the company or use of outside vendors
to process financial information, the company is relying on the abilities of
these third parties to attain Year 2000 compliance with their systems. The
company has obtained representation of Year 2000 compliance from vendors for
approximately 60% of these systems, including the accounting and point-of-sale
systems. For the remaining 40% of the IT systems, the company anticipates that
it will either receive representation from such vendors that the systems are
Year 2000 compliant, upgrade or modify the systems with Year 2000 compatible
programs, or seek replacement systems. The company is currently in the process
of evaluating its various options for its non-compliant Year 2000 IT systems,
and expects to complete such evaluation during the third quarter of 1999. The
company believes it has identified its mission-critical systems, and has either
received representation from vendors that such systems are Year 2000 compliant,
or is taking the appropriate action necessary to achieve Year 2000 compliance.
Additionally, the company has completed its assessment and remediation for all
office computer hardware in the restaurants and the corporate office.
The company has also begun an investigation and assessment of its non-IT
systems (i.e. embedded technology such as microprocessors in kitchen equipment,
elevators, etc.), and of the Year 2000 readiness of its critical suppliers. For
non-IT systems, the company expects to complete the assessment by the third
quarter of 1999, and then to make a determination as to the process for testing,
verifying and remedying any non-compliant systems. To assess the readiness of
its suppliers, the company is in the process of sending informational
questionnaires to critical vendors, and will review responses to obtain
assurance that such vendors have achieved Year 2000 readiness, or have developed
plans to do so. To the extent that these vendors are unable to provide
sufficient evidence of Year 2000 compliance by the third quarter of 1999, the
company will seek to obtain replacement vendors.
Costs incurred to date related to Year 2000 compliance have not had a
material impact on the company's financial condition or results of operations.
Management does not have an estimate for future costs that may be incurred to
achieve Year 2000 compliance. Management expects, but makes no assurance, that
future Year 2000 costs will not have a material adverse effect on the company's
financial condition or results of operations. Such expectation does not consider
any costs that may be incurred by the company for failure of third-party
software vendors, suppliers, or other third parties, including providers of
public utilities or services, to achieve Year 2000 compliance in a timely
manner.
Although certain systems have been identified that can be remedied with
manual processes, a comprehensive contingency plan has not yet been formulated
in the event that non-compliant IT and non-IT systems (or their replacements),
critical suppliers or other third parties do not become year 2000 compliant. The
company plans to formulate a contingency plan during the third quarter of 1999
to address the possibility that its non-compliant IT and non-IT systems may not
achieve Year 2000 compliance, and anticipates that such steps will mitigate the
risk of business interruption. Such contingency plan may not eliminate all risks
of business interruption. Additionally, the company is unable to predict with
certainty whether the consequences associated with the failure of its suppliers,
third-party software vendors, or other third parties to achieve Year 2000
readiness will have a material adverse impact on its financial condition,
results of operations or liquidity.
-18-
<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, and
are more susceptible to adverse weather conditions in the first and fourth
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, increasing minimum wage
rates have the potential to impact all aspects of the company's business due to
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.
-18-
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description of 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.
-19-
<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 16, 1999 By: /S/ WILLIAM S. HOPPE
--------------------------------
William S. Hoppe
Executive Vice President, Chief
Administrative Officer and
Chief Financial Officer
(Principal Financial Officer)
-20-
<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 28, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS. OTHER EXPENSES INCLUDES ACQUISITION TRANSACTION COSTS OF
$984,973
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-END> JUN-27-1999
<CASH> (683,579)
<SECURITIES> 0
<RECEIVABLES> 472,496
<ALLOWANCES> 0
<INVENTORY> 2,209,901
<CURRENT-ASSETS> 3,406,866
<PP&E> 121,654,411
<DEPRECIATION> (28,141,030)
<TOTAL-ASSETS> 98,285,103
<CURRENT-LIABILITIES> 23,363,195
<BONDS> 14,760,064
0
0
<COMMON> 81,637
<OTHER-SE> 66,856,105
<TOTAL-LIABILITY-AND-EQUITY> 98,285,103
<SALES> 85,690,059
<TOTAL-REVENUES> 85,690,059
<CGS> 21,210,443
<TOTAL-COSTS> 81,894,286
<OTHER-EXPENSES> 1,386,069
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 857,051
<INCOME-PRETAX> 1,555,783
<INCOME-TAX> 956,102
<INCOME-CONTINUING> 599,681
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 599,681
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
