-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PE1iToNIP89RKK8DbYjE5S/c82cQZSXvQHixhmzT4RQ0sTJM4CHkxc8+XOABf3Gq +H+SnAUjBXJHQTZOP2BMqg== 0000912057-97-017609.txt : 19970515 0000912057-97-017609.hdr.sgml : 19970515 ACCESSION NUMBER: 0000912057-97-017609 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHEESECAKE FACTORY INCORPORATED CENTRAL INDEX KEY: 0000887596 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 510340466 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20574 FILM NUMBER: 97604767 BUSINESS ADDRESS: STREET 1: 26950 AGOURA RD CITY: CALABASAS HILLS STATE: CA ZIP: 91301 BUSINESS PHONE: 8188809323 MAIL ADDRESS: STREET 2: 26950 AGOURA RD CITY: CALABASAS HILLS STATE: CA ZIP: 91301 10-Q 1 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 30, 1997 COMMISSION FILE NUMBER 0-20574 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------ THE CHEESECAKE FACTORY INCORPORATED (Exact Name of Registrant as Specified in its Charter) DELAWARE 51-0340466 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 26950 AGOURA ROAD CALABASAS HILLS, CALIFORNIA 91301 (Address of principal executive (Zip Code) offices)
Registrant's telephone number, including area code: (818) 880-9323 ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ As of April 30, 1997, 10,960,408 shares of the registrant's Common Stock, $.01 par value, were outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES INDEX
PAGE NUMBER ----------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets--March 30, 1997 and December 29, 1996................ 1 Consolidated Statements of Operations-- Thirteen weeks ended March 30, 1997 and March 31, 1996......................... 2 Consolidated Statements of Cash Flows-- Thirteen weeks ended March 30, 1997 and March 31, 1996......................... 3 Notes to Consolidated Financial Statements--March 30, 1997....................... 4-5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 5-9 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................................ 10 Item 6. Exhibits and Reports on Form 8-K................................................. 10 Signatures....................................................................... 11
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS
MARCH 30, DECEMBER 29, 1997 1996 -------------- -------------- Current assets: Cash and cash equivalents...................................................... $ 9,358,846 $ 8,535,960 Investments and marketable securities.......................................... 1,920,000 1,770,000 Accounts receivable............................................................ 2,069,138 2,383,138 Other receivables.............................................................. 2,405,192 2,310,096 Advances to officers and employees............................................. 89,531 188,361 Inventories.................................................................... 3,844,024 4,206,251 Preopening expenses............................................................ 6,530,639 6,228,938 Prepaid expenses............................................................... 1,687,622 1,777,696 -------------- -------------- Total current assets......................................................... 27,904,992 27,400,440 -------------- -------------- Property and equipment, net...................................................... 73,563,705 73,036,678 -------------- -------------- Other assets: Marketable securities.......................................................... 285,500 295,700 Other receivables.............................................................. 6,455,346 4,805,437 Deferred income taxes.......................................................... 742,700 788,220 Other.......................................................................... 2,228,597 1,828,773 -------------- -------------- Total other assets........................................................... 9,712,143 7,718,130 -------------- -------------- Total assets............................................................... $ 111,180,840 $ 108,155,248 -------------- -------------- -------------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................................................... $ 8,335,505 $ 8,909,100 Income taxes payable........................................................... 1,767,942 835,043 Other accrued expenses......................................................... 7,115,883 6,561,761 Deferred income taxes.......................................................... 2,337,131 2,337,131 -------------- -------------- Total current liabilities.................................................... 19,556,461 18,643,035 -------------- -------------- Long-term debt................................................................... 6,000,000 6,000,000 Stockholders' equity: Preferred Stock, $.01 par value, 5,000,000 shares authorized, none issued and outstanding -- -- Common Stock, $.01 par value, 30,000,000 shares authorized; 10,960,408 and 10,939,608 issued and outstanding for 1997 and 1996, respectively........................................................... 109,604 109,396 Additional paid-in capital..................................................... 55,563,255 55,264,447 Retained earnings.............................................................. 30,046,728 28,323,050 Marketable securities valuation account........................................ (95,208) (184,680) -------------- -------------- Total stockholders' equity................................................... 85,624,379 83,512,213 -------------- -------------- Total liabilities and stockholders equity.................................. $ 111,180,840 $ 108,155,248 -------------- -------------- -------------- --------------
The accompanying notes are an integral part of these consolidated statements. 1 THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
THIRTEEN WEEKS THIRTEEN WEEKS ENDED MARCH 30, ENDED MARCH 31, 1997 1996 --------------- --------------- Revenues Restaurant sales............................................................. $ 40,891,425 $ 31,110,969 Bakery sales................................................................. 4,337,037 4,269,029 --------------- --------------- Total revenues............................................................. 45,228,462 35,379,998 --------------- --------------- Costs and expenses Cost of food, beverages and supplies......................................... 11,829,141 9,214,802 Bakery costs................................................................. 1,761,067 1,786,756 Operating expenses: Labor...................................................................... 14,620,766 10,850,700 Occupancy and other........................................................ 7,472,943 5,215,251 General and administrative expenses.......................................... 4,291,313 3,479,024 Depreciation and amortization expenses....................................... 2,765,306 2,507,510 --------------- --------------- Total costs and expenses................................................... 42,740,536 33,054,043 --------------- --------------- Income from operations......................................................... 2,487,926 2,325,955 Interest income................................................................ 87,649 120,467 Interest (expense)............................................................. 0 -- Other income................................................................... 55,995 14,517 --------------- --------------- Income before income taxes..................................................... 2,631,570 2,460,939 Income tax provision........................................................... 907,892 836,719 --------------- --------------- Net income..................................................................... $ 1,723,678 $ 1,624,220 --------------- --------------- --------------- --------------- Earnings per share: Primary...................................................................... $ .16 $ .15 --------------- --------------- --------------- --------------- Weighted average shares outstanding.......................................... 11,027,748 10,941,118 --------------- --------------- --------------- --------------- Fully diluted.................................................................. $ .16 $ .15 --------------- --------------- --------------- --------------- Weighted average shares outstanding............................................ 11,042,370 11,147,788 --------------- --------------- --------------- ---------------
The accompanying notes are an integral part of these consolidated financial statements 2 THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THIRTEEN WEEKS THIRTEEN WEEKS ENDED MARCH 30, ENDED MARCH 31, 1997 1996 --------------- --------------- Cash flows from operating activities: Net income................................................................... $ 1,723,678 $ 1,624,220 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization.............................................. 2,765,306 2,507,510 Deferred income taxes...................................................... (4,808) -- Changes in assets and liabilities: Accounts receivable...................................................... 314,000 828,602 Other receivables........................................................ (1,745,005) (77,092) Due from affiliates, officers and employees.............................. 98,830 535,962 Inventories.............................................................. 362,227 (267,850) Preopening expenses...................................................... (1,418,554) (899,897) Prepaid expenses......................................................... (65,357) 119,063 Other.................................................................... (460,863) (919,582) Accounts payable......................................................... (573,595) (3,208,401) Income taxes payable..................................................... 932,899 836,719 Other accrued expenses................................................... 554,122 280,991 --------------- --------------- Cash provided by operating activities.................................... 2,482,880 1,360,245 Cash flows from investing activities: Additions to property and equipment.......................................... (1,959,010) (4,972,423) --------------- --------------- Cash used by investing activities........................................ (1,959,010) (4,972,423) --------------- --------------- Cash flows from financing activities: Common stock issued.......................................................... 190 25 Proceeds from exercise of employee stock options............................. 298,826 33,300 --------------- --------------- Cash provided by financing activities.................................... 299,016 33,325 --------------- --------------- Net change in cash and cash equivalents........................................ 822,886 (3,578,853) Cash and cash equivalents at beginning of period............................... 8,535,960 10,077,713 --------------- --------------- Cash and cash equivalents at end of period..................................... $ 9,358,846 $ 6,498,860 --------------- --------------- --------------- --------------- Supplemental disclosures: Interest paid................................................................ $ 91,144 $ -- --------------- --------------- --------------- --------------- Income taxes paid.............................................................. $ 7,000 $ -- --------------- --------------- --------------- ---------------
The accompanying notes are an integral part of these consolidated financial statements 3 THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 30, 1997 (UNAUDITED) NOTE A--BASIS OF PRESENTATION The accompanying consolidated financial statements of The Cheesecake Factory Incorporated and Subsidiaries (the "Company") for the thirteen weeks ended March 30, 1997 and March 31, 1996 have been prepared in accordance with generally accepted accounting principles, and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The financial statements presented herein have not been audited by independent public accountants, but include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial condition, results of operations and cash flows for such periods. However, these results are not necessarily indicative of results for any other interim period or for the full year. The consolidated balance sheet data presented herein for December 29, 1996 was derived from the Company's audited consolidated financial statements for the fiscal year then ended. The preparation of financial statements in accordance with generally accepted accounting principles requires the Company's management to make certain estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Actual amounts could differ from those estimates. Certain information and footnote disclosures normally included in financial statements in accordance with generally accepted accounting principles have been omitted pursuant to requirements of the Securities and Exchange Commission. Management believes that the disclosures included in the accompanying interim financial statements and footnotes are adequate to make the information not misleading, but should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Form 10-K for the fiscal year ended December 29, 1996. NOTE B--MARKETABLE SECURITIES Marketable securities, all classified as available for sale, consisted of the following as of March 30, 1997:
UNREALIZED BALANCE CLASSIFICATION COST FAIR VALUE (LOSS) GAIN SHEET AMOUNT MATURITY - ------------------------- ------------ ------------ ----------- ------------ ------------------------------- CURRENT ASSETS: Preferred stocks....... $ 2,010,000 $ 1,920,000 $ (90,000) $ 1,920,000 No maturity dates OTHER ASSETS: Corporate bonds........ $ 344,262 $ 285,500 $ (58,762) $ 285,500 February 1999 to April 2004
NOTE C--NET INCOME PER SHARE Net income per share calculations are based on the weighted average number of common shares and common share equivalents outstanding during the thirteen weeks ended March 30, 1997 and March 31, 1996. The primary net income per share amount for each period is based on the weighted average number of shares outstanding during each period, increased by the common equivalent shares (vested and exercisable stock options) determined using the treasury stock method. The fully diluted net income per share amount for each period is based on the weighted average number of shares outstanding during each period, increased by the common equivalent shares (vested and exercisable stock options as well as nonvested and contingently exercisable stock options) determined using the treasury stock method, utilizing the higher of the average market price or ending market price for the Company's common stock for each period. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, 4 THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 30, 1997 (UNAUDITED) NOTE C--NET INCOME PER SHARE (CONTINUED) "Accounting for Earnings Per Share", which will slightly change the calculation of primary net income per share. The Company intends to adopt the provisions of SFAS No. 128 when reporting the results of operations for the full fiscal year ending December 28, 1997. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements in this Form 10-Q under Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations", which are not historical facts constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to be covered by the safe harbors created thereby. Forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of The Cheesecake Factory Incorporated and its subsidiaries to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties, and other factors include, but are not necessarily limited to, the following: changes in general economic conditions which affect consumer spending patterns for restaurant dining occasions; increasing competition in the upscale casual dining segment of the restaurant industry; adverse weather conditions which cause the temporary underutilization of outdoor patio seating available at several of the Company's restaurants; events which increase the cost to develop and/or delay the development and opening of new restaurants; changes in the availability and/or cost of raw materials, labor, and other resources necessary to operate the Company's restaurants and bakery production facility; the success of operating initiatives; depth of management; adverse publicity; technological difficulties and suboptimal operating leverage associated with the Company's bakery production facility; the Company's dependence on a single bakery production facility; the Company's ability to obtain and retain large-account customers for its bakery operations; changes in timing and/or scope of the dessert marketing and promotional plans of large-account bakery customers which cause fluctuations in bakery sales and operating results; the rate of growth of general and administrative expenses associated with building a strengthened corporate infrastructure to support the Company's expanded restaurant and bakery operations; the availability, amount, type, and cost of capital for the Company and the deployment of such capital; changes in, or any failure to comply with, governmental regulations; the revaluation of any of the Company's assets; the amount of, and any changes to, tax rates; adverse rulings, judgments or settlements involving litigation or other legal matters; and other factors referenced in this Form 10-Q and the Company's Form 10-K for the fiscal year ended December 29, 1996. GENERAL The Company's revenues consist of sales from its restaurant operations and sales to other foodservice operators and distributors from its bakery operations. Certain costs and expenses relate only to restaurant sales (cost of food, beverages and supplies) or only to bakery sales (bakery costs), while other costs and expenses relate to both restaurant and bakery sales (operating expenses including occupancy, general and administrative expenses, and depreciation and amortization expenses). The Company analyzes its revenue, in part, based on comparable restaurant sales which is defined to include the sales of all restaurants open during the full period of all periods being compared. Bakery sales can fluctuate from quarter to quarter based on the timing and amount of orders from large-account bakery customers. 5 RESULTS OF OPERATIONS The following table presents for the thirteen-week periods ended March 30, 1997 and March 31, 1996 the Consolidated Statements of Operations of the Company expressed as percentages of total revenues. The results of operations for the thirteen weeks ended March 30, 1997 are not necessarily indicative of the results to be expected for the full fiscal year.
THIRTEEN WEEKS THIRTEEN WEEKS ENDED MARCH 30, ENDED MARCH 31, 1997 1996 --------------- --------------- % % Revenues: Restaurant sales................................................................. 90.4 87.9 Bakery sales..................................................................... 9.6 12.1 ----- ----- Total revenues................................................................. 100.0 100.0 ----- ----- Costs and expenses: Cost of food, beverages and supplies............................................. 26.2 26.0 Bakery costs..................................................................... 3.9 5.1 Operating expenses: Labor.......................................................................... 32.3 30.7 Occupancy and other............................................................ 16.5 14.7 General and administrative expenses.............................................. 9.5 9.8 Depreciation and amortization expenses........................................... 6.1 7.1 ----- ----- Total costs and expenses....................................................... 94.5 93.4 ----- ----- Income from operations............................................................. 5.5 6.6 Interest income (expense), net..................................................... 0.2 0.3 Other income (expense), net........................................................ 0.1 -- ----- ----- Income before income taxes......................................................... 5.8 6.9 Income tax provision............................................................... 2.0 2.3 ----- ----- Net income......................................................................... 3.8 4.6 ----- ----- ----- -----
THIRTEEN WEEKS ENDED MARCH 30, 1997 VERSUS MARCH 31, 1996 REVENUES For the thirteen weeks ended March 30, 1997, the Company's total revenues increased 28% to $45.2 million versus $35.4 million for the quarter ended March 31, 1996. Restaurant sales increased 31% to $40.9 million versus $31.1 million for the same period of the prior year. This $9.8 million increase consisted of a $1.9 million (6.6%) increase in comparable restaurant sales for the period, a $0.7 million increase in the sales of the Boca Raton restaurant which included the effect of a 125-seat addition during the period, and $7.2 million from the openings of four new restaurants during the trailing 12 months ended March 30, 1997. The 6.6% increase in comparable restaurant sales for the thirteen weeks ended March 30, 1997 was comprised of an estimated 3.9% increase in customer counts and a 2.7% increase in the average guest check amount. Sales in comparable restaurants benefited, in part, from the impact of an approximate 1.5% effective menu price increase that was taken in all restaurants during the December 1996--January 1997 period. Bakery sales increased 2% to $4.3 million for the thirteen weeks ended March 30, 1997. Higher sales of bakery products to certain warehouse club and supermarket customers slightly offset lower sales to other foodservice operators and distributors during the period. Bakery sales trends continued soft during April 1997. The Company is in the final stages of negotiations with several potential large-account bakery 6 customers which, if successfully completed, have the potential to improve bakery sales volumes during the second half of fiscal 1997. COST OF FOOD, BEVERAGES AND SUPPLIES During the thirteen weeks ended March 30, 1997, cost of food, beverages and supplies for the restaurants was $11.8 million versus $9.2 million for the comparable period last year. The related increase of $2.6 million was primarily attributable to new restaurant openings. As a percentage of restaurant sales, these costs decreased slightly to 28.9% versus 29.6% for the same period of the prior year. During the thirteen weeks ended March 30, 1997, the Company negotiated reductions in the costs of certain food, beverage and supply items which have the potential to be reflected in slightly lower costs during the remainder of fiscal 1997. BAKERY COSTS Bakery costs, which include ingredient, packaging and production supply costs, were $1.8 million for the thirteen weeks ended March 30, 1997 versus approximately the same amount for the comparable last year, as bakery sales experienced an increase of only 2%. As a percentage of bakery sales, bakery costs decreased slightly to 40.6% in 1997 versus 41.9% for the comparable period in fiscal 1996. OPERATING EXPENSES, INCLUDING OCCUPANCY Operating expenses, which include all restaurant-level operating and occupancy costs (labor, rent, laundry, repairs and maintenance, utilities, outside services, and other operating expenses) and certain bakery operating costs (direct labor and indirect production costs), increased 38% to $22.1 million for the thirteen weeks ended March 30, 1997 versus $16.1 million for the same period of the prior fiscal year. This increase was principally attributable to the 28% increase in total revenues for the thirteen weeks ended March 30, 1997 and higher labor and occupancy-related costs associated with the Company's new bakery production facility. As a percentage of total revenues, operating expenses were 48.8% for the thirteen weeks ended March 30, 1997 versus 45.4% for the same period of fiscal 1996. The Company incurred certain duplicative and inefficient labor and other operating costs in connection with the transition to its new bakery production facility during the first three quarters of fiscal 1996. Additionally, management estimates that annualized occupancy-related costs for its bakery operations, excluding depreciation and amortization, increased by approximately $700,000 during fiscal 1996 as a result of the estimated four-fold increase in production capacity offered by the new facility. While management believes that measurable improvements were achieved in labor productivity and ingredient yields in the new facility during the fourth quarter of fiscal 1996 and the first quarter of fiscal 1997, operating expense comparisons on a percentage-of-sales basis will likely remain unfavorable until bakery sales volumes improve. One of the Company's principal goals for fiscal 1997 is to more effectively leverage the investment and fixed occupancy costs in the new production facility with higher sales levels. The Company added two national salespeople and two product development professionals to its bakery operations staff during the first quarter of fiscal 1997. During the same period, the Company also hired a senior concept development professional to manage the development of a bakery cafe concept under "The Cheesecake Factory" brand name. The Company plans to open its first two bakery cafe operations during the summer of 1997. If successful, the bakery cafe concept could be more rapidly expanded and could provide an additional source of sales and operating leverage for the production facility. 7 GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses consist of bakery selling and administrative expenses (including product development and marketing expenses), certain restaurant administrative expenses (principally credit card discounts and property insurance), restaurant field supervision expenses (salaries and expenses of regional vice presidents and area directors of operations), and corporate support expenses (salaries and related fringe benefits; travel; and other administrative expenses). General and administrative expenses increased to $4.3 million for the thirteen weeks ended March 30, 1997 from $3.5 million for the same period of fiscal 1996, an increase of $0.8 million or 23%. As a percentage of total revenues, general and administrative expenses decreased slightly to 9.5% for the thirteen weeks ended March 30, 1997 versus 9.8% for the same period of fiscal 1996. The Company plans to continue to strengthen its operational and corporate infrastructure during fiscal 1997 to support its planned future growth. This strengthening will likely result in a higher level of general and administrative expenses during fiscal 1997. During the thirteen weeks ended March 30, 1997, the Company added a regional vice president and three area directors of operations to the field supervision staff for its restaurants. Additional professionals are also planned for the Company's performance development and restaurant opening teams. The Company also added personnel to the product development and marketing staffs in its bakery operations. Additionally, the Company plans to aggressively pursue new large-account customers for its bakery operations which will require continuing investments in advertising and promotional programs. One of the Company's principal objectives for fiscal 1997 is to more effectively leverage its operational and corporate support infrastructure with higher sales volumes. DEPRECIATION AND AMORTIZATION EXPENSES Depreciation and amortization expenses increased to $2.8 million for the thirteen weeks ended March 30, 1997 from $2.5 million for the thirteen weeks ended March 31, 1996, an increase of $0.3 million or 10%. As a percentage of total revenues, depreciation and amortization expenses were 6.1% for the thirteen weeks ended March 30, 1997 versus 7.1% for the same period of the prior year. The increase of $0.3 million for the thirteen weeks ended March 30, 1997 consisted of the following components: a $0.2 million decrease (to $1.1 million) in restaurant preopening amortization; a $0.1 million increase (to $0.5 million) in bakery depreciation and amortization; a $0.4 million increase (to $1.1 million) in restaurant depreciation; and a slight increase (to $0.1 million) in corporate support-related depreciation. The increase in restaurant depreciation was attributable to the opening of four new restaurants during the trailing 12 months ended March 30, 1997. As a result of the highly customized and operationally complex nature of the Company's restaurants, the restaurant preopening process is extensive and costly relative to that of most chain restaurant operations. Preopening costs, which often exceed $1 million per restaurant, include recruiting, training, relocation and related costs for developing management and hourly staff for new restaurants, as well as other costs directly related to the opening of new restaurants. Preopening costs will vary from location to location depending on a number of factors including, among others, the proximity of other established Company restaurants, the size and layout of each location, and the relative difficulty of the restaurant staffing and training process. The Company defers preopening costs until the opening of new restaurants and then amortizes the deferred costs over the 12-month period immediately following the respective openings. Total restaurant preopening amortization will vary from quarter to quarter depending on the timing of restaurant openings and the number of newer restaurants amortizing their preopening costs in a given quarter. Based on the Company's planned fiscal 1997 openings of new restaurants (as of April 30, 1997), management believes that total preopening amortization for fiscal 1997 will likely be higher than the amount reported for fiscal 1996. During fiscal 1996, the Company reevaluated its restaurant preopening process with the objective of reducing its timeframe, intensiveness, and overall cost. The Company 8 continues to review this process during fiscal 1997. However, there can be no assurance that preopening costs will be reduced for future restaurants. LIQUIDITY AND CAPITAL RESOURCES Following is a summary of the Company's liquidity measurements for the thirteen weeks ended March 30, 1997, December 29, 1996 and March 31, 1996:
THIRTEEN WEEKS ENDED --------------------------------------- MARCH 30, DECEMBER 29, MARCH 31, 1997 1996 1996 ----------- ------------- ----------- (DOLLAR AMOUNTS IN MILLIONS) Cash and marketable securities on hand, end of period....................... $ 11.6 $ 10.6 $ 13.5 Net working capital, end of period.......................................... $ 8.3 $ 8.8 $ 11.0 Current ratio, end of period................................................ 1.4:1 1.5:1 1.8:1 Long-term debt, end of period............................................... $ 6.0 $ 6.0 -- Cash provided (used) by operations.......................................... $ 2.5 $ (1.1) $ 1.4 Capital expenditures........................................................ $ 2.0 $ 7.5 $ 5.0
During the thirteen weeks ended March 30, 1997, the Company's total amount of cash on hand and marketable securities increased by $1.0 million to $11.6 million versus $10.6 million as of December 29, 1996. The Company's net working capital position decreased slightly by $0.5 million during the period to $8.3 million as of March 30, 1997. It is not uncommon for operators in the restaurant industry to maintain a minimal or slightly negative net working capital position as the restaurant business receives substantially immediate payment for sales while payment terms to suppliers for inventories and related items are typically 15 to 30 days. The Company did not borrow additional funds under its revolving credit and term loan facility during the thirteen weeks ended March 30, 1997. However, the Company expects to increase its borrowings under that facility as necessary during the remainder of fiscal 1997 to fund planned capital expenditures. During the thirteen weeks ended March 30, 1997, the Company's total capital expenditures were $2.0 million, substantially all of which were related to its restaurant operations. For fiscal 1997, the Company estimates that its total capital expenditure requirement will be approximately $28 million, excluding restaurant preopening expenses. This estimate includes approximately $25 million (net of expected landlord construction contributions) to open as many as six new restaurants and to provide for an increase in construction-in-progress disbursements for anticipated fiscal 1998 openings. The Company has historically leased the land and building shells for its restaurant locations; however, the Company has expended cash for leasehold improvements and furnishings, fixtures, and equipment for the locations. The remaining estimated capital expenditures for fiscal 1997 consist of approximately $1 million for the bakery cafe concept and approximately $2 million for maintenance-related expenditures for the Company's existing restaurants, bakery, and corporate center. The Company's planned capital expenditures for fiscal 1997 are expected to be financed through a combination of cash provided by operations, cash and marketable securities on hand, landlord construction contributions (when available), and drawdowns on the Company's revolving credit and term loan facility. In March 1997, the Company's existing revolving credit and term loan facility was amended to, among other things, increase the maximum amount available to the Company under the facility from $15 million to $25 million. During fiscal 1997, the Company may seek to obtain additional debt and/or equity capital to finance its anticipated restaurant expansion in 1998 and thereafter. The Company may also seek other sources of financing including equipment financing or the sale/leaseback of assets comprising its headquarters and bakery production facility. There can be no assurance that any additional financing will be available on suitable terms, if at all. 9 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On February 13, 1997, a New Mexico corporation named Cheesecake Factory, Inc. brought suit in the U.S. District Court of New Mexico against the Company, its subsidiaries and certain of its bakery customers alleging trademark, service mark, and trade name infringements and wrongful registration with respect to the Company's incontestable registration and use of "The Cheesecake Factory" name. On May 9, 1997, the Court determined that it would not issue a preliminary injunction relating to the Company's sale of bakery products under "The Cheesecake Factory" name in the state of Texas, where the Company's sale of bakery products under that name is substantial and where it currently operates one restaurant with the intent of operating others under that name. At the same time, the Court found that the plaintiff had used "The Cheesecake Factory" name in the state of New Mexico prior to the Company's registration of that name and prior to the Company's sale of bakery products under that name in that state. Accordingly, the court issued a preliminary injunction preventing the Company from selling bakery products under "The Cheesecake Factory" name in the state of New Mexico. Historically, sales of the Company's bakery products under "The Cheesecake Factory" name in the state of New Mexico have been de minimus (less than 1% of its total bakery product sales on an annual basis). The preliminary injunction is not a final order as to either Texas or New Mexico. The case has been set for trial commencing September 8, 1997. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. None. (b) Reports on Form 8-K. None. 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE CHEESECAKE FACTORY INCORPORATED By: /s/ DAVID M. OVERTON -------------------------------------- David M. Overton CHAIRMAN OF THE BOARD, PRESIDENT, CHIEF EXECUTIVE AND OPERATING OFFICER BY: /S/ GERALD W. DEITCHLE -------------------------------------- Gerald W. Deitchle EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Date: May 14, 1997 11 EX-27 2 FDS
5 3-MOS DEC-28-1997 DEC-30-1996 MAR-30-1997 9,358,846 1,920,000 2,069,138 0 3,844,024 27,904,992 91,929,829 18,366,124 111,180,840 19,556,461 0 0 0 109,604 85,514,775 111,180,840 45,228,462 45,228,462 13,590,208 13,590,208 29,150,328 0 0 2,631,570 907,892 1,723,678 0 0 0 1,723,678 .16 .16
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