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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Thirteen Weeks Ended July 25, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-28930
ROADHOUSE GRILL, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0367604
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6600 NORTH ANDREWS AVENUE, SUITE 160, FT. LAUDERDALE, FLORIDA 33309
(Address of principal executive offices and zip code)
Registrant's telephone number (954) 489-9699
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[ ]
The number of shares of the registrant's common stock outstanding as of
September 3, 1999 was 9,708,741.
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ROADHOUSE GRILL, INC.
FORM 10-Q
THIRTEEN WEEKS ENDED JULY 25, 1999
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of July 25, 1999 (unaudited)
and April 25, 1999............................................................... 2
Consolidated Statements of Income for the Thirteen
Weeks Ended July 25, 1999 and July 26, 1998 (unaudited) .......................... 3
Consolidated Statement of Changes in Shareholders'
Equity for the Thirteen Weeks Ended July 25, 1999 (unaudited) ................... 4
Consolidated Statements of Cash Flows for the Thirteen
Weeks Ended July 25, 1999 and July 26, 1998 (unaudited) .......................... 5
Notes to Consolidated Financial Statements............................................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......................................................... 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..................................................................... 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................................... 13
SIGNATURES ...................................................................................... 14
EXHIBIT INDEX ...................................................................................... 15
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PART I
ITEM 1. FINANCIAL STATEMENTS
ROADHOUSE GRILL, INC.
CONSOLIDATED BALANCE SHEETS
July 25, 1999 and April 25, 1999
($ in thousands, except per share data)
July 25, April 25,
1999 1999
------- -------
Assets (Unaudited)
Current assets:
Cash and cash equivalents ................................. $ 1,642 $ 975
Accounts receivable ....................................... 596 1,279
Inventory ................................................. 1,218 1,181
Pre-opening costs, net .................................... -- 1,222
Deferred tax assets, net .................................. 2,539 2,270
Prepaid expenses .......................................... 1,174 992
------- -------
Total current assets ................................... 7,169 7,919
Note receivable ............................................. 167 167
Property & equipment, net ................................... 79,138 77,821
Intangible assets, net of accumulated amortization of $261
and $227 at July 25, 1999 and April 25, 1999,
respectively .............................................. 2,391 2,031
Other assets ................................................ 3,665 3,345
------- -------
Total assets .......................................... $92,530 $91,283
======= =======
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable .......................................... $ 4,969 $ 4,692
Accrued expenses .......................................... 3,596 4,476
Current portion of long-term debt ......................... 1,009 1,047
Current portion of capitalized lease obligations .......... 1,662 1,593
------- -------
Total current liabilities ............................. 11,236 11,808
Long-term debt .............................................. 18,230 18,458
Capitalized lease obligations ............................... 12,154 10,340
------- -------
Total liabilities ...................................... 41,620 40,606
Shareholders' equity:
Common stock $.03 par value. Authorized 30,000,000 shares;
issued and outstanding 9,708,741 shares as of July 25,
1999 and April 25, 1999 ................................... 291 291
Additional paid-in-capital .................................. 50,039 50,039
Retained earnings ........................................... 580 347
------- -------
Total shareholders' equity ............................ 50,910 50,677
Commitments and contingencies (Note 2) ...................... -- --
------- -------
Total liabilities and shareholders' equity ............ $92,530 $91,283
======= =======
See accompanying notes to consolidated financial statements.
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ROADHOUSE GRILL, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Thirteen Weeks Ended July 25, 1999 and July 26, 1998
($ in thousands, except per share data)
(Unaudited)
Thirteen Weeks Ended
-----------------------------
July 25, July 26,
1999 1998
----------- -----------
Total revenues ......................... $ 35,232 $ 29,040
Cost of restaurant sales:
Food and beverage ................... 11,744 9,608
Labor and benefits .................. 10,014 8,233
Occupancy and other ................. 7,180 5,728
Pre-opening expenses ................ 47 363
----------- -----------
Total cost of restaurant sales ...... 28,985 23,932
Depreciation and amortization .......... 2,012 1,717
General and administrative expenses .... 2,134 1,631
----------- -----------
Total operating expenses ............ 33,131 27,280
----------- -----------
Operating income .................... 2,101 1,760
Other income (expense):
Interest expense, net ............... (581) (497)
Equity in net income (loss) of
affiliates......................... -- 32
----------- -----------
Total other (expense) .......... (581) (465)
----------- -----------
Income before taxes and
cumulative effect of change
in accounting principle ...... 1,520 1,295
Income tax expense ..................... 334 35
----------- -----------
Income before cumulative
effect of change in
accounting principle.......... 1,186 1,260
Cumulative effect of change in
accounting principle (net of tax
benefit of $269) ..................... (953) --
----------- -----------
Net income ............................. $ 233 $ 1,260
=========== ===========
Basic net income per common share:
Basic income before cumulative
effect of change in accounting
principle .......................... $ 0.12 $ 0.14
Cumulative effect of change in
accounting principle ............... (0.10) --
----------- -----------
Basic net income per common
share ................................ $ 0.02 $ 0.14
=========== ===========
Diluted net income per common share:
Diluted income before cumulative
effect of change in accounting
principle .......................... $ 0.12 $ 0.13
Cumulative effect of change in
accounting principle ............... (0.10) --
----------- -----------
Diluted net income per common
share ............................. $ 0.02 $ 0.13
=========== ===========
Weighted-average common shares
outstanding ....................... 9,708,741 9,308,411
=========== ===========
Weighted-average common shares and
share equivalents outstanding -
assuming dilution ................. 9,874,688 9,523,738
=========== ===========
See accompanying notes to consolidated financial statements.
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ROADHOUSE GRILL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Thirteen Weeks Ended July 25, 1999
($ in thousands)
(Unaudited)
Common Stock Additional
------------------ Paid-in- Retained
Shares Amount Capital Earnings Total
------ ------ ---------- -------- -----
Balance April 25, 1999.. 9,708,741 $291 $50,039 $347 $50,677
Net income ............. -- -- -- 233 233
--------- ---- ------- ---- -------
Balance July 25, 1999 .. 9,708,741 $291 $50,039 $580 $50,910
========= ==== ======= ==== =======
See accompanying notes to consolidated financial statements.
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ROADHOUSE GRILL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Thirteen Weeks Ended July 25, 1999 and July 26, 1998
($ in thousands)
(Unaudited)
July 25, July 26,
1999 1998
------- -------
Cash flows from operating activities
Net income .......................................... $ 233 $ 1,260
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization ..................... 2,012 1,677
Equity in net income of affiliate ................. -- (32)
Cumulative effect of change in accounting principle 1,222 --
Deferred tax benefit .............................. (269) --
Changes in assets and liabilities:
(Increase) in accounts receivable ................. (113) (62)
(Increase) in inventory ........................... (38) (29)
Decrease in pre-opening costs ..................... -- 91
(Increase) in prepaid expense ..................... (182) (36)
(Increase) in other assets ........................ (255) (108)
Increase (decrease) in accounts payable ........... 277 (1,538)
(Decrease) in accrued expenses .................... (879) (1,686)
------- -------
Net cash provided by operating activities ....... 2,008 (463)
Cash flows from investing activities
Dividends received from affiliates .................. -- 70
Advances to affiliates, net ......................... -- 5
Payments for intangibles ............................ (394) --
Proceeds from payment on notes receivable ........... -- 1,020
Proceeds from sale-leaseback transactions ........... 5,583 861
Purchase of property and equipment .................. (5,917) (2,038)
------- -------
Net cash used in investing activities ........... (728) (82)
Cash flows from financing activities
Issuance of common stock ............................ -- 15
Repayments of long-term debt ........................ (266) (110)
Payments on capital lease obligations ............... (347) (287)
------- -------
Net cash used in financing activities ........... (613) (382)
Increase (decrease) in cash and cash equivalents ....... 667 (927)
Cash and cash equivalents at beginning of period ....... 975 3,555
------- -------
Cash and cash equivalents at end of period ............. $ 1,642 $ 2,628
======= =======
Supplementary disclosures:
Interest paid ....................................... $ 705 $ 634
======= =======
Income taxes paid ................................... $ 327 $ 454
======= =======
Non-cash investing and financing activities:
During the thirteen weeks ended July 25, 1999, the Company entered into two
capital lease transactions for real estate in the amount of $1.7 million.
See accompanying notes to consolidated financial statements.
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ROADHOUSE GRILL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements of Roadhouse Grill, Inc. (the "Company") for
the thirteen weeks ended July 25, 1999 and July 26, 1998 are unaudited and
reflect all adjustments (consisting of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair presentation of the financial
statements for the interim periods. The financial statements should be read in
conjunction with the notes to consolidated financial statements included herein,
together with management's discussion and analysis of financial condition and
results of operations, contained in the Company's Annual Report on Form 10-K for
the fifty-two weeks ended April 25, 1999 ("fiscal year 1999").
The Company operates on a fifty-two or fifty-three week fiscal year. Each
fiscal quarter consists of thirteen weeks, except in the case of a fifty-three
week year, in which case the fourth fiscal quarter consists of fourteen weeks.
The results of operations for the thirteen weeks ended July 25, 1999 are
not necessarily indicative of the results for the entire fiscal year ending
April 23, 2000.
Certain prior year balances have been reclassified to conform to the
current year presentation.
2. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings arising in the ordinary
course of business, many of which are covered by insurance. In the opinion of
management, disposition of these matters will not materially affect the
Company's financial condition.
No new restaurants were opened during the thirteen weeks ended July 25,
1999. As of July 25, 1999, construction was underway on seven sites which are
expected to open during the second and third quarters of fiscal year 2000. The
estimated aggregate cost to complete these restaurants is approximately $7.9
million. In addition, as of July 25, 1999, the Company had contracted to
purchase or lease fifteen additional sites for new restaurant development.
3. ACQUISITIONS
In August 1996, the Company entered into an agreement to purchase the
remaining 50 percent interest in Kendall Roadhouse Grill, L.C., a limited
liability company, that owned the Kendall, Florida Roadhouse Grill restaurant
("Kendall") from the joint venture partners. On August 14, 1998, the Company
purchased the remaining 50 percent interest in Kendall Roadhouse Grill, L.C. for
a purchase price of $1.6 million.
4. ADOPTION OF NEW ACCOUNTING STANDARDS
In April 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"). SOP 98-5 defines start-up activities broadly (including
organizational costs) and requires that the cost of start-up activities be
expensed as incurred. SOP 98-5 amends provisions of a number of existing SOP's
and audit and accounting guides. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998. In previous years, the Company's accounting
policy was to capitalize pre-opening costs and amortize them over a one-year
period. The Company adopted SOP 98-5 during the first quarter of fiscal year
2000. The effect of initially applying the provisions of SOP 98-5 is reported as
a change in accounting principle at the beginning of the first quarter of fiscal
year 2000 as an expense within the statement of income in the amount of
$953,000, net of income tax benefit. Thereafter, all such costs are expensed as
incurred and are included in "pre-opening expenses" within the accompanying
statements of income.
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5. LEASES
Pursuant to a $10.0 million funding commitment received from CNL Fund
Advisors, Inc. ("CNL"), the Company entered into sale-leaseback transactions for
new Roadhouse Grill restaurants. These transactions were recorded as
financing-type leases with no deferred gain. As of July 25, 1999, the Company
has available to it approximately $7.0 million in a sale-leaseback credit
facility from CNL.
6. NET INCOME (LOSS) PER COMMON SHARE ("EPS")
The calculation of Basic EPS excludes all dilution and is based upon the
weighted-average number of common shares outstanding during the year. Diluted
EPS reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
The following is a reconciliation of the numerators (net income) and the
denominators (common shares outstanding) of the basic and diluted per share
computations for net income:
Thirteen Weeks Ended July 25, 1999
----------------------------------
Net Income Shares Amount
---------- ------ ------
($ in thousands, except per share data )
BASIC EPS
Net income available
to common shareholders $233 9,708,741 $0.02
EFFECT OF DILUTIVE SECURITIES
Stock options -- 165,947 --
DILUTED EPS $233 9,874,688 $0.02
==== ========= =====
Options to purchase 148,130 shares of common stock at a weighted-average
exercise price of $6.82 per share were outstanding during the thirteen weeks
ended July 25, 1999. These options were not included in the computation of
diluted EPS because the options' exercise price was greater than the average
market price of the common shares. The options, which expire on varying dates,
were still outstanding as of July 25, 1999.
Thirteen Weeks Ended July 26, 1998
----------------------------------
Net Income Shares Amount
---------- ------ ------
($ in thousands, except per share data )
BASIC EPS
Net income available
to common shareholders $1,260 9,308,411 $ 0.14
EFFECT OF DILUTIVE SECURITIES
Stock options -- 103,323 --
Convertible debt -- 112,004 (0.01)
DILUTED EPS $1,260 9,523,738 $ 0.13
====== ========= ======
Options to purchase 637,418 shares of common stock at a weighted-average
exercise price of $6.66 per share were outstanding during the thirteen weeks
ended July 26, 1998. These options were not included in the computation of
diluted EPS because the options' exercise price was greater than the average
market price of the common shares. The options, which expire on varying dates,
were still outstanding as of July 26, 1998.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto, included elsewhere in
this Form 10-Q.
As of September 3, 1999, Roadhouse Grill, Inc. owns and operates 57
full-service casual dining restaurants under the name "Roadhouse Grill". In
addition, Roadhouse Grill, Inc. franchises three full-service casual dining
restaurants. The Company was incorporated in October 1992 and opened the first
Company-Owned restaurant in Pembroke Pines, Florida in March of 1993. Since
then, the Company has opened 56 additional restaurants in 11 states. One
franchised location is located in Kuala Lumpur, capital city of Malaysia, and
two domestic franchises are located in Las Vegas, Nevada.
The Company's revenues are derived primarily from the sale of food and
beverages. Sales of alcoholic beverages accounted for approximately 10.5% of
total revenues for the thirteen weeks ended July 25, 1999. Franchise and
management fees have accounted for less than 1% of the Company's total revenues
for all periods since its inception.
The Company's new restaurants can be expected to incur above-average costs
during the first few months of operation. In prior years, pre-opening costs,
such as employee recruiting and training costs and other initial expenses
incurred in connection with the opening of a new restaurant, were amortized over
a twelve-month period commencing with the first full accounting period that the
restaurant opened. The Company adopted the provisions of SOP 98-5 during the
first quarter of fiscal year 2000 and currently expenses all pre-opening costs
as incurred.
The average cash investment, excluding real estate costs and pre-opening
expenses, required to open each of the Roadhouse Grill restaurants opened by the
Company prior to July 25, 1999 was approximately $1.4 million. The average real
estate acquisition cost for the 13 restaurant sites owned by the Company was
approximately $911,000. The Company has obtained financing in connection with
the acquisition of its owned properties, which financing generally has required
a down payment of 10% of the purchase price. The average annual occupancy cost
for the restaurant sites leased by the Company is approximately $100,000 per
site. The Company expects that the average cash investment required to open its
prototype restaurants, including pre-opening expenses but excluding real estate
costs, will be between $1.1 million and $1.6 million, depending upon whether the
Company converts an existing building or constructs a new restaurant from the
ground up.
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RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain selected
statements of operations data expressed as a percentage of total revenues:
Thirteen Weeks Ended
--------------------
July 25, 1999 July 26, 1998
------------- -------------
Total revenues .................. 100.0% 100.0%
Cost of restaurant sales:
Food and beverage ............ 33.3 33.1
Labor and benefits ........... 28.4 28.4
Occupancy and other .......... 20.4 19.7
Pre-opening expenses ......... 0.1 1.3
----- -----
Total cost of restaurant sales 82.2 82.5
Depreciation and amortization ... 5.7 5.9
General and administrative ...... 6.1 5.6
----- -----
Total operating expenses ..... 94.0 94.0
----- -----
Operating income ............. 6.0 6.0
Other income (expense):
Interest expense, net ........ (1.6) (1.7)
Equity in net income of
affiliates ................... -- 0.1
----- -----
Total other (expense) ........ (1.6) (1.6)
----- -----
Income before income taxes and
cumulative effect of change in
accounting principle ............ 4.4 4.4
Income taxes .................... 0.9 0.1
----- -----
Income before cumulative effect
of change in accounting principle 3.5 4.3
Cumulative effect of change in
accounting principle ............ (2.7) 0.0
----- -----
Net income ................... 0.8% 4.3%
===== =====
This Form 10-Q contains forward-looking statements, including statements
regarding, among other things (i) the Company's growth strategies, (ii)
anticipated trends in the economy and the restaurant industry and (iii) the
Company's future financing plans. In addition, when used in this Form 10-Q, the
words "believes," "anticipates," "expects" and similar words often are intended
to identify certain forward-looking statements. These forward-looking statements
are based largely on the Company's expectations and are subject to a number of
risks and uncertainties, many of which are beyond the Company's control. Actual
results could differ materially from these forward-looking statements as a
result of changes in trends in the economy and the restaurant industry,
reductions in the availability of financing, increases in interest rates and
other factors. In light of the foregoing, there is no assurance that the
forward-looking statements contained in this Form 10-Q will in fact prove
correct or occur. The Company does not undertake any obligation to revise these
forward-looking statements to reflect future events or circumstances.
THIRTEEN WEEKS ENDED JULY 25, 1999 ("FISCAL YEAR 2000 FIRST QUARTER") COMPARED
TO THIRTEEN WEEKS ENDED JULY 26, 1998 ("FISCAL YEAR 1999 FIRST QUARTER")
Restaurants open. At July 25, 1999 there were 57 Company-Owned restaurants
open, including the Kendall Roadhouse Grill ("Kendall") restaurant and the North
Palm Beach Roadhouse Grill restaurant ("North Palm"). On July 12, 1999, the
Company terminated a licensing agreement for the North Palm Beach restaurant and
began operating the location as a Company-Owned restaurant. On August 14, 1998,
the Company purchased the remaining 50% equity interest outstanding in Kendall.
At July 26, 1998, there were 46 Company-Owned restaurants, excluding Kendall and
North Palm. This represents a 19.6% increase in the number of Company-Owned
restaurants since July 26, 1998.
Total revenues. Total revenues increased $6.2 million, or 21.3%, from $29.0
million for the fiscal year 1999 first quarter
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to $35.2 million for the fiscal year 2000 first quarter. This increase is
primarily attributable to sales generated at the nine new restaurants opened by
the Company since the end of the fiscal year 1999 first quarter. Sales at
comparable stores for the fiscal year 2000 first quarter increased 1% compared
with sales in the fiscal year 1999 first quarter. This was due in part to the
Company's advertising campaign that was implemented in January 1999.
Food and beverage. Food and beverage costs increased $2.1 million to $11.7
million in the fiscal year 2000 first quarter from $9.6 million in the fiscal
year 1999 first quarter. As a percentage of sales, food and beverage costs
increased by 0.2 percentage points to 33.3% for the fiscal year 2000 first
quarter from 33.1% for the fiscal year 1999 first quarter.
Labor and benefits. Labor and benefits costs increased $1.8 million to
$10.0 million in the fiscal year 2000 first quarter, or 21.6%, from $8.2 million
in the fiscal year 1999 first quarter. The increase is primarily due to the
operation of nine new restaurants opened since the end of the fiscal year 1999
first quarter. As a percentage of sales, labor and benefits costs were
comparable for both periods presented.
Occupancy and other. Occupancy and other costs increased $1.5 million to
$7.2 million in the fiscal year 2000 first quarter, or 25.3%, from $5.7 million
in the fiscal year 1999 first quarter. The increase is primarily due to the
operation of nine new restaurants opened since the end of the fiscal year 1999
first quarter. As a percentage of sales, occupancy and other costs increased by
0.7 percentage points from 19.7% for the fiscal year 1999 first quarter to 20.4%
for the fiscal year 2000 first quarter. A substantial portion of the dollar
amount increase as well as the percentage increase is due to higher media
advertising costs incurred in the fiscal year 2000 first quarter compared to the
same period of the prior year.
Pre-opening expenses. Pre-opening expenses decreased $316,000 to $47,000 in
the fiscal year 2000 first quarter, or 87.1%, from $363,000 in the fiscal year
1999 first quarter. The decrease is primarily due to the adoption of Statement
of Position 98-5 "Reporting on the Costs of Start-Up Activities", which requires
that pre-opening costs be expensed as incurred. Previously, the Company
amortized pre-opening costs over a twelve-month period. The Company adopted SOP
98-5 in the fiscal year 2000 first quarter and expensed the remaining amount as
the cumulative effect of a change in accounting principle, net of tax benefit.
The amount recorded for fiscal year 2000 first quarter represents actual
pre-opening expenditures associated with the restaurants that will be opened
during the fiscal year 2000.
Depreciation and amortization. Depreciation and amortization increased
$295,000 to $2.0 million in the fiscal year 2000 first quarter, or 17.2%, from
$1.7 million in the fiscal year 1999 first quarter. The increase is primarily
due to the operation of nine new restaurants opened since the end of the fiscal
year 1999 first quarter. As a percentage of sales, depreciation and amortization
decreased by 0.2 percentage points from 5.9% for the fiscal year 1999 first
quarter to 5.7% for the fiscal year 2000 first quarter.
General and administrative. General and administrative costs increased
$503,000 to $2.1 million in the fiscal year 2000 first quarter, or 30.8%, from
$1.6 million in the fiscal year 1999 first quarter. The increase is primarily
the result of the Company's substantial recruiting efforts. The Company
currently has approximately 60 managers in various stages of training that will
be ready for the expected openings later this fiscal year. The Company plans to
continue to maintain a pool of managers that are trained according to the
Roadhouse Grill philosophy. As a percentage of sales, general and administrative
costs increased 0.5 percentage points from 5.6% for the fiscal year 1999 first
quarter to 6.1% for the fiscal year 2000 first quarter.
Total other income (expense). Total other income (expense) increased
$116,000 in expense to ($581,000) in the fiscal year 2000 first quarter, or
24.9%, from ($465,000) in the fiscal year 1999 first quarter. The increase is
primarily due to additional interest expense on additional debt incurred due to
the development and opening of nine new restaurants since the end of the fiscal
year 1999 first quarter.
Cumulative effect of change in accounting principle. During the first
quarter of fiscal year 2000, the Company adopted the provisions of SOP 98-5. The
Company recorded an expense of $953,000 (net of tax benefit) related to the
adoption of SOP 98-5. The Company's policy, effective at the beginning of the
fiscal year 2000 first quarter, is to expense all pre-opening costs as incurred,
as required by SOP 98-5.
Income tax. The Company has a valuation allowance that offsets a portion of
its net deferred tax assets. Each quarter management determines, based on
projections, the realizability of the related deferred tax assets in future
years and reduces the allowance to the extent year-to-date income is available
to realize the benefit of the deferred tax assets. The reduction of the
valuation allowance currently minimizes income tax expense. The Company expects
to utilize the valuation allowance during the current year. The effective income
tax rate for the fiscal year 2000 first quarter was 22% versus an effective rate
of approximately 3% in the fiscal year 1999 first quarter. Income tax expense of
$334,000 and $35,000 in the fiscal year 2000 first quarter and the fiscal year
1999 first quarter, respectively, represent state income tax and alternative
minimum tax.
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ADOPTION OF NEW ACCOUNTING STANDARDS
In April 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"). SOP 98-5 defines start-up activities broadly (including
organizational costs) and requires that the cost of start-up activities be
expensed as incurred. SOP 98-5 amends provisions of a number of existing SOP's
and audit and accounting guides. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998. In previous years, the Company's accounting
policy was to capitalize pre-opening costs and amortize them over a one-year
period. The Company adopted SOP 98-5 during the first quarter of fiscal year
2000. The effect of initially applying the provisions of SOP 98-5 is reported as
a change in accounting principle at the beginning of the first quarter of fiscal
year 2000. Thereafter, all such costs are expensed as incurred and are included
in "pre-opening expenses" within the accompanying statements of income.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital principally for the opening of new restaurants
and has financed its requirements through the private placement of common stock,
an Initial Public Offering, bank loans, leasing facilities and loans from
certain private parties, including present and former shareholders of the
Company.
As of July 25, 1999, the Company had available to it approximately $17.0
million in sale-leaseback credit facilities. Of this amount approximately $10.0
million was available from Franchise Finance Corporation of America ("FFCA") and
approximately $7.0 million was available from CNL Fund Advisors, Inc. ("CNL").
These sale-leaseback credit facilities are available for development by the
Company of new Roadhouse Grill restaurants. The credit facility with FFCA
expired in August 1999 and the credit facility with CNL expires in January 2000.
The Company is currently in negotiations with FFCA to secure a new
sale-leaseback credit facility with them, as well as other lenders. While the
Company anticipates securing additional sale-leaseback credit facilities with
both FFCA and CNL upon expiration of the current agreements, there is no
assurance that the Company can, if fact, secure any credit facilities with FFCA,
CNL or any other lending institution. If the Company fails to obtain additional
capital through some type of financing, its expansion plans for fiscal year 2000
and beyond would be greatly reduced.
The Company's capital expenditures aggregated approximately $5.9 million
for the thirteen weeks ended July 25, 1999 and $2.0 million for the thirteen
weeks ended July 26, 1998, substantially all of which were used to open
Roadhouse Grill restaurants.
The Company anticipates that it may require additional debt or equity
financing in order to continue to open new restaurants. There can be no
guarantee or assurance financing will be available on terms acceptable to the
Company, if at all. In the event the Company is unable to secure additional
financing sufficient to support continued growth, the Company's operating and
financial plans would require revision.
As is common in the restaurant industry, the Company has generally operated
with negative working capital ($4.1 million at July 25, 1999). The Company does
not have significant receivables or inventory and receives trade credit on its
purchases of food and supplies.
SEASONALITY AND QUARTERLY RESULTS
The Company's sales and earnings fluctuate seasonally. The Company's
highest earnings are expected to occur in the third and fourth fiscal quarters.
The fiscal year ends on the last Sunday in April and consists of four thirteen
week quarters (except in the case of a fifty-three week year in which the fourth
quarter consists of fourteen weeks) structured as follows:
- - 1st Quarter - May, June, July
- - 2nd Quarter - August, September, October
- - 3rd Quarter - November, December, January
- - 4th Quarter - February, March, April
YEAR 2000
Many software applications and operational programs previously written were not
designed to recognize calendar dates beginning in the Year 2000. The failure of
such applications or programs to properly recognize the dates beginning in the
Year 2000 may result in miscalculations or system failures. This could have an
adverse effect on the Company's operations, if not corrected.
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The Company has appointed a Year 2000 committee which has initiated a
comprehensive project to prepare its information technology systems as well as
non-information technology systems for the Year 2000. The project includes
identification and assessment of software, hardware and equipment that could
potentially be affected by the Year 2000 issue, remedial action and further
testing procedures. The Company plans to complete this project by October 1,
1999. The Company believes that the majority of its information technology
systems and non-information technology systems will be Year 2000 compliant with
minimal modifications required for software applications, hardware and
equipment, and currently estimates that the total cost of its Year 2000 project
will be approximately $150,000. The Company's aggregate cost estimate does not
include time and costs that may be incurred by the Company as a result of any
third parties, including suppliers, to become Year 2000 compliant or costs to
implement any contingency plans.
The Company's most significant third party vendors consist of restaurant
food and supply vendors and other vendors. An initial inventory of all
significant third party vendors, including but not limited to, restaurant food
and supply vendors, banking institutions, credit card processors and information
systems providers such as outside payroll services, has been completed and
letters mailed requesting information regarding each party's Year 2000
compliance status. All responses received to date have indicated the vendor is
now or will be Year 2000 compliant prior to January 1, 2000. The Company has
developed a contingency plan for any vendors that appear to have substantial
Year 2000 operational risks. Such contingency plans may include a change in
vendors to minimize the Company's risks. The effect, if any, on the Company's
results of operations from failure of third parties to be Year 2000 compliant
cannot be reasonably estimated.
The Company believes that it has an effective plan in place to be Year
2000 compliant in a timely manner. However, due to the unique nature of the
issue and the lack of historical experience, it is difficult to predict with
certainty what will happen after December 31, 1999. The Company may encounter
unanticipated third party failures or a failure to successfully conclude its
systems remediation efforts. Any of these unforeseen events may have a material
adverse impact on the Company's results of operations, financial condition or
cash flows. Potential sources of risk include the inability of principal
suppliers to be Year 2000 compliant, which could result in delays in product
deliveries from suppliers, and disruption of the distribution channels,
including transportation vendors. The amount of any potential losses related to
these occurrences cannot be reasonably estimated at this time. The Company has
developed a contingency plan which is intended to mitigate the effects of
problems experienced by the Company or key vendors or service providers in the
timely implementation of Year 2000 programs.
The most likely worst case scenario for the Company is that a significant
number of Roadhouse Grill restaurants will be temporarily unable to operate due
to public infrastructure failures and/or food supply problems. Some restaurants
may have problems for extended periods of time. The failure of restaurants to
operate would result in reduced revenues and cash flows for the Company during
the disruption period. Loss of restaurant sales would, however, be partially
offset by reduced costs.
IMPACT OF INFLATION
The Company does not believe that inflation has materially affected its
results of operations during the past five fiscal years. Substantial increases
in costs and expenses, particularly food, supplies, labor and operating expenses
could have a significant impact on the Company's operating results to the extent
that such increases cannot be passed along to customers.
EMPLOYEES
The Company competes with other companies for qualified personnel,
especially management. A shortage of qualified personnel could materially affect
the Company. The Company has not experienced a shortage of qualified personnel
to date and believes that the risk of a shortage is minimal.
SITE LOCATION
The Company competes in the marketplace for qualified restaurant
locations. There is no assurance that the Company can find enough qualified
sites to continue its expansion plans.
CONSUMER TASTE
The restaurant industry is highly competitive and subject to changes in
consumer tastes. The Company believes that it has the ability to respond quickly
to changing taste and preferences because of its flexible format and trade name.
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PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal actions arising in the normal
course of business. While the resolution of any such action may have an impact
on the financial results for the period in which it is resolved, the Company
believes that the ultimate disposition of these matters will not, in the
aggregate, have a material adverse effect upon its business or financial
position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The Exhibits listed on the accompanying Exhibit Index are filed with or
incorporated by reference in this report.
(b) The Company filed no reports on Form 8-K during the period covered by this
Form 10-Q.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf on September 7, 1999, by the undersigned, thereunto duly authorized.
ROADHOUSE GRILL, INC.
(Registrant)
/s/ Ayman Sabi President, Chief Executive Officer September 7, 1999
- ------------------------------ and Director
Ayman Sabi (Principal Executive Officer)
/s/ Glenn E. Glasshagel Chief Financial Officer September 7, 1999
- ------------------------------ (Principal Financial Officer
Glenn E. Glasshagel and Principal Accounting Officer)
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
21.0 Subsidiaries of the Registrant.
27 Financial Data Schedule.
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