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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
FOR THE QUARTERLY PERIOD ENDED JULY 13, 1997
COMMISSION FILE NUMBER O-18629
O'CHARLEY'S INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TENNESSEE 62-1192475
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3038 SIDCO DRIVE, NASHVILLE, TENNESSEE 37204
(Address of principal executive offices) (Zip Code)
</TABLE>
(615) 256-8500
(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 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
<TABLE>
<C> <C>
CLASS OUTSTANDING AS OF
AUGUST 5, 1997
- ---------------------------------------------- ----------------------------------------------
Common Stock, no par value 7,885,581 shares
</TABLE>
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O'CHARLEY'S INC.
FORM 10-Q
FOR QUARTER ENDED JULY 13, 1997
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial statements:
Balance sheets as of July 13, 1997 and December 29,
1996.................................................. 3
Statements of operations for the twelve weeks ended
July 13, 1997 and July 14, 1996....................... 4
Statements of operations for the twenty-eight weeks
ended July 13, 1997 and July 14, 1996................. 5
Statements of cash flows for the twenty-eight weeks
ended July 13, 1997 and July 14, 1996................. 6
Notes to unaudited financial statements................ 7
Item 2. Management's discussion and analysis of financial
condition and results of operations.................... 8
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings................................ 12
Item 6. Exhibits and reports on Form 8-K................. 12
Signatures.................................................. 13
</TABLE>
2
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O'CHARLEY'S INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 13, DECEMBER 29,
1997 1996
-------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 1,683 $ 1,616
Accounts receivable....................................... 1,770 1,546
Inventories............................................... 5,732 4,505
Preopening costs.......................................... 1,322 1,097
Deferred income taxes..................................... 1,912 2,334
Other current assets...................................... 2,203 1,357
-------- --------
Total current assets.............................. 14,622 12,455
Property and Equipment, net................................. 118,389 103,281
Other Assets................................................ 1,361 1,423
-------- --------
$134,372 $117,159
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 6,226 $ 5,022
Accrued payroll and related expenses...................... 4,559 3,365
Accrued expenses.......................................... 7,634 9,162
Federal, state and local taxes............................ 4,117 2,461
Current portion of long-term debt and capitalized
leases................................................. 4,052 3,309
-------- --------
Total current liabilities......................... 26,588 23,319
Deferred Income Taxes....................................... 1,295 1,295
Long-Term Debt.............................................. 38,133 29,822
Capitalized Lease Obligations............................... 13,055 11,797
Shareholders' Equity:
Common stock -- No par value; authorized, 50,000,000
shares; issued and outstanding, 7,885,581 in 1997 and
7,854,368 in 1996...................................... 29,694 29,592
Additional paid-in capital................................ 652 652
Retained earnings......................................... 24,955 20,682
-------- --------
55,301 50,926
-------- --------
$134,372 $117,159
======== ========
</TABLE>
See notes to financial statements
3
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O'CHARLEY'S INC.
STATEMENTS OF OPERATIONS
TWELVE WEEKS ENDED JULY 13, 1997 AND JULY 14, 1996
<TABLE>
<CAPTION>
1997 1996
------- --------
(IN THOUSANDS,
EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues:
Restaurant sales.......................................... $45,710 $ 37,926
Commissary sales.......................................... 694 551
Franchise revenue......................................... 7 8
------- --------
46,411 38,485
Costs and Expenses:
Cost of restaurant sales:
Cost of food, beverage and supplies.................... 15,771 13,652
Payroll and benefits................................... 14,079 11,908
Restaurant operating costs............................. 6,572 5,783
Cost of commissary sales.................................. 640 527
Advertising, general and administrative expenses.......... 3,016 2,099
Depreciation and amortization............................. 2,332 1,831
Asset revaluation......................................... -- 5,110
------- --------
42,410 40,910
------- --------
Income (loss) from Operations............................... 4,001 (2,425)
Other (Income) Expense:
Interest expense, net..................................... 934 641
Litigation................................................ -- 8,500
Other, net................................................ (76) (16)
------- --------
858 9,125
------- --------
Earnings (Loss) Before Income Taxes......................... 3,143 (11,550)
Income Tax Expense (Benefit)................................ 1,132 (4,067)
------- --------
Net Earnings (Loss)......................................... $ 2,011 $ (7,483)
======= ========
Earnings (Loss) per Common Share............................ $ 0.24 $ (0.96)
======= ========
Weighted Average Common Shares Outstanding.................. 8,463 7,786
======= ========
</TABLE>
See notes to financial statements.
4
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O'CHARLEY'S INC.
STATEMENTS OF OPERATIONS
TWENTY-EIGHT WEEKS ENDED JULY 13, 1997 AND JULY 14, 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues:
Restaurant sales.......................................... $101,655 $ 84,306
Commissary sales.......................................... 1,375 1,241
Franchise revenue......................................... 16 17
-------- --------
103,046 85,564
Costs and Expenses:
Cost of restaurant sales:
Cost of food, beverage and supplies.................... 35,247 30,242
Payroll and benefits................................... 31,361 26,217
Restaurant operating costs............................. 14,748 12,950
Cost of commissary sales.................................. 1,289 1,181
Advertising, general and administrative expenses.......... 6,739 4,802
Depreciation and amortization............................. 5,161 4,229
Asset revaluation......................................... -- 5,110
-------- --------
94,545 84,731
-------- --------
Income from Operations...................................... 8,501 833
Other (Income) Expense:
Interest expense, net..................................... 1,971 1,340
Litigation................................................ -- 8,500
Other, net................................................ (147) 92
-------- --------
1,824 9,932
-------- --------
Earnings (Loss) Before Income Taxes......................... 6,677 (9,099)
Income Tax Expense (Benefit)................................ 2,404 (3,185)
-------- --------
Net Earnings (Loss)......................................... $ 4,273 $ (5,914)
======== ========
Earnings (Loss) per Common Share............................ $ 0.51 $ (0.76)
======== ========
Weighted Average Common Shares Outstanding.................. 8,417 7,779
======== ========
</TABLE>
See notes to financial statements.
5
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O'CHARLEY'S INC.
STATEMENTS OF CASH FLOWS
TWENTY-EIGHT WEEKS ENDED JULY 13, 1997 AND JULY 14, 1996
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings (loss)....................................... $ 4,273 $ (5,914)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 3,937 3,101
Amortization of preopening costs....................... 1,224 1,128
Asset revaluation adjustment........................... -- 5,110
Provision for deferred income taxes.................... 422 (1,800)
(Gain) loss on the sale of assets...................... 73 (171)
Changes in assets and liabilities:
Accounts receivable.................................... (224) (173)
Inventories............................................ (1,227) (2,377)
Additions to preopening costs.......................... (1,449) (1,258)
Other current assets................................... (847) (1,313)
Accounts payable....................................... 1,204 741
Accrued payroll and other accrued expenses............. 1,324 5,758
-------- --------
Net cash provided by operating activities......... 8,710 2,832
Cash Flows from Investing Activities:
Additions to property and equipment....................... (16,202) (14,864)
Proceeds from the sale of assets.......................... 1,025 171
Other, net................................................ 53 49
-------- --------
Net cash used by investing activities............. (15,124) (14,644)
Cash Flows from Financing Activities:
Proceeds from long-term debt.............................. 8,400 14,137
Payments on long-term debt and capitalized lease
obligations............................................ (2,021) (3,023)
Distribution to Shoex, Inc. shareholders.................. -- (315)
Exercise of employee incentive stock options.............. 102 111
-------- --------
Net cash provided by financing activities......... 6,481 10,910
-------- --------
Increase (Decrease) in Cash................................. 67 (902)
Cash at Beginning of the Period............................. 1,616 2,576
-------- --------
Cash at End of the Period................................... $ 1,683 $ 1,674
======== ========
</TABLE>
See notes to financial statements.
6
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O'CHARLEY'S INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
TWENTY-EIGHT WEEKS ENDED JULY 13, 1997 AND JULY 14, 1996
A. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting and in accordance with Rule 10-01 of Regulation S-X.
In the opinion of management, the unaudited interim financial statements
contained in this report reflect all adjustments, consisting of only normal
recurring accruals, which are necessary for a fair presentation of the financial
position and the results of operations for the interim periods presented. The
results of operations for any interim period are not necessarily indicative of
results for the full year.
These financial statements, footnote disclosures and other information
should be read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K/A for the year
ended December 29, 1996.
B. EARNINGS PER SHARE
Earnings per share has been computed on the basis of the weighted average
number of shares outstanding, including common stock equivalents, which consist
of stock options, except for those reporting periods which reflect a net loss,
as the inclusion of common stock equivalents in such periods would be anti-
dilutive. In determining the number of dilutive common stock equivalents, the
Company includes average commons shares attributable to dilutive stock options
using the treasury stock method. Fully diluted earnings per share is not
presented since it approximates earnings per share.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128), which
establishes standards for the computation, presentation and disclosure
requirements for earnings per share. FAS 128 replaces the presentation of
primary earnings per share with a presentation of basic earnings per share, and
fully diluted earnings per share with diluted earnings per share. It also
requires all entities, other than those with simple capital structures, to
present basic and diluted per-share amounts on the face of the income statement.
FAS 128 is effective for financial statements for both interim and annual
periods ending after December 15, 1997. Earlier application is not permitted.
Upon adoption, all calculations of prior period earnings per share will be
restated to conform with FAS 128.
The Company's pro forma basic earnings per share as calculated under FAS
128 for the twelve and twenty-eight week periods ended July 13, 1997, were $0.26
and $0.54, respectively. Diluted earnings per share for such periods were $0.24
and $0.51, respectively.
C. CONTINGENCIES
As of July 13, 1997, the Company is a party in a civil action in the United
States District Court for the Middle District of Tennessee involving a former
general manager of the Company. In September 1995, the Company filed an action
against the former employee alleging wrongful conversion of Company funds and
fraudulent misrepresentation. The former employee has moved to amend his answer
in the civil action filed by the Company claiming damages of $30.0 million
relating to counterclaims alleging malicious prosecution and intentional
infliction of emotional distress and $600,000 relating to counterclaims alleging
breach of contract and race discrimination. To date the Court has not ruled on
whether it will allow the former employee to pursue any of the foregoing
counterclaims. The Company believes the counterclaims are without merit, intends
to vigorously prosecute its claims and vigorously defend any counterclaims.
Based on the advice of counsel, the Company believes that to the extent the
counterclaims relating to malicious prosecution and intentional infliction are
allowed to proceed, it is likely that these counterclaims will be dismissed upon
the Company's motion for summary judgment. The Company does not believe the
outcome of this proceeding will materially affect its financial condition or
results of operations.
7
<PAGE> 8
O'CHARLEY'S INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TWENTY-EIGHT WEEKS ENDED JULY 13, 1997 AND JULY 14, 1996
RESULTS OF OPERATIONS
The following table highlights the operating results for the second quarter
and first half of 1997 and 1996 as a percentage of total revenue unless
otherwise indicated. Each of the second quarters is comprised of 12 weeks. Each
of the first halves is comprised of 28 weeks. All comparisons included in
management's discussion and analysis compares the respective second quarter and
first half of 1997 to the second quarter and first half of 1996 unless otherwise
indicated.
<TABLE>
<CAPTION>
SECOND QUARTER YEAR TO DATE
-------------- --------------
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales.......................................... 98.5% 98.6% 98.7% 98.5%
Commissary sales.......................................... 1.5% 1.4% 1.3% 1.5%
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Cost of restaurant sales:(1)
Cost of food, beverage and supplies.................... 34.5% 36.0% 34.7% 35.9%
Payroll and benefits................................... 30.8% 31.4% 30.8% 31.1%
Restaurant operating costs............................. 14.4% 15.2% 14.5% 15.4%
----- ----- ----- -----
79.7% 82.6% 80.0% 82.4%
----- ----- ----- -----
Restaurant operating margin(2)............................ 20.3% 17.4% 20.0% 17.6%
Cost of commissary sales(3)............................... 92.2% 95.6% 93.7% 95.2%
Advertising, general and administrative expenses.......... 6.5% 5.5% 6.5% 5.6%
Depreciation and amortization............................. 5.0% 4.8% 5.0% 4.9%
Asset revaluation......................................... -- 13.3% -- 6.0%
----- ----- ----- -----
Income from operations.................................... 8.6 (6.3) 8.2 1.0
Other(Income)Expense:
Interest expense, net..................................... 2.0% 1.7% 1.9% 1.6%
Litigation................................................ -- 22.1% -- 9.9%
Other, net................................................ (0.2)% 0.0% (0.1)% 0.1%
Earnings (Loss) Before Income Taxes......................... 6.8% (30.0)% 6.4% (10.6)%
Net Earnings (Loss)......................................... 4.3% (19.4)% 4.1% (6.9)%
===== ===== ===== =====
</TABLE>
- ---------------
(1) As a percentage of restaurant sales.
(2) Reflects restaurant sales less cost of restaurant sales, expressed as a
percentage of restaurant sales.
(3) As a percentage of commissary sales.
The following discussion includes certain forward-looking statements.
Actual results could differ materially from those reflected by the
forward-looking statements and several factors may affect future results,
liquidity and capital resources. These factors include increased food, labor and
employee benefit costs, the availability of experienced management and hourly
employees, the Company's ability to locate and open new restaurants and to
operate such restaurants profitably and the intense competition in the
restaurant industry. Although the Company believes it has the business strategy
and resources needed for improved operations, future revenue and margin trends
cannot always be reliably predicted and may cause the Company to adjust its
strategy during the remainder of fiscal 1997.
Total revenues in the second quarter of 1997 increased $7.9 million, or
20.6%, to $46.4 million from $38.5 million in the comparable period in the prior
year. Total revenues in the first half of 1997 increased $17.4
8
<PAGE> 9
million, or 20.4%, to $103.0 million from $85.6 million in the comparable period
in the prior year. These increases were primarily attributable to the addition
of nine restaurants in the first half of 1997 and an increase in same store
sales of 2.7% for the second quarter and 4.1% for the first half of 1997. The
increases in same store sales resulted from an increase in customer counts
partially offset by a slight decrease in check average. The increase in customer
counts resulted from the introduction of a redesigned menu and a new advertising
campaign in the fourth quarter of 1996 and milder weather in the Company's
markets during the first half of 1997 as compared to the first half of 1996. The
decrease in check average resulted from the introduction of certain lower priced
seasonal promotions in the first half of 1997, partially offset by a menu price
increase of approximately 1.4% instituted in the last six weeks of the first
quarter of 1997. Liquor sales as a percentage of restaurant sales decreased to
12.1% in the first half of 1997 reflecting industry trends.
Cost of food, beverage and supplies as a percentage of restaurant sales
decreased to 34.5% and 34.7% in the second quarter and first half of 1997,
respectively, from 36.0% and 35.9%, respectively, for the comparable periods in
1996. These decreases were primarily attributable to cost reductions in certain
high volume food commodities, increased operating efficiencies of the Company's
commissary and overall lower produce costs due primarily to lower potato costs.
Payroll and benefits as a percentage of restaurant sales decreased to 30.8%
for both the second quarter and the first half of 1997 from 31.4% and 31.1%,
respectively, for the comparable periods in 1996. Increases in restaurant
management bonus expense, wage rates and vacation expense were offset by certain
employee benefit cost reductions, including workers compensation, health
insurance and economies achieved from overall higher sales volume. The increase
in bonus expense resulted from higher bonuses earned by restaurant management
upon the improvement in restaurant level profits in 1997.
Restaurant operating costs as a percentage of restaurant sales decreased to
14.4% and 14.5% in the second quarter and first half of 1997, respectively, from
15.2% and 15.4%, respectively, in the comparable periods in 1996. These
decreases were primarily attributable to the allocation of certain supervisory
and overhead costs over a greater number of restaurants and higher average unit
sales. Since January 1996, the Company has generally opened new stores in
existing geographical markets which has contributed to a slower growth rate in
certain expenses, particularly supervisory costs. Additionally, rent expense as
a percentage of restaurant sales was lower as the Company continued to purchase
most of its restaurant sites.
Restaurant operating margin as a percentage of restaurant sales increased
to 20.3% in the second quarter and 20.0% in the first half of 1997 from 17.4%
and 17.6%, respectively, in the comparable periods in 1996.
Advertising, general and administrative expenses as a percentage of total
revenues increased to 6.5% in both the second quarter and the first half of 1997
from 5.5% and 5.6%, respectively, in the comparable periods in 1996. These
increases were primarily the result of an increase in advertising expenditures
and bonus expense for corporate management. The Company introduced a television
and radio advertising campaign in the fourth quarter of 1996 in conjunction with
the introduction of a redesigned menu. These advertising expenses, which
increased to 2.7% and 2.8% of restaurant sales in the second quarter and first
half of 1997, respectively, as compared to approximately 2.3% in the comparable
periods in 1996, are expected to continue at these percentage levels for the
remainder of 1997. Bonus expense increased primarily as a result of an increase
in corporate management bonus compensation which is based in part on a formula
that rewards increased profits.
Depreciation and amortization as a percentage of total revenues increased
to 5.0% in both the second quarter and the first half of 1997 from 4.8% and
4.9%, respectively, in the comparable periods in 1996.
Interest expense, net increased $293,000, or 45.7%, to $934,000 in the
second quarter of 1997 from $641,000 in the comparable period in 1996. Interest
expense, net increased $631,000, or 47.1%, to $2.0 million in the first half of
1997 from $1.3 million in the comparable period in 1996. These increases in
interest expense were primarily the result of increased borrowings under the
Company's revolving credit facility (the "Revolver") and capitalized lease
obligations to fund the Company's growth.
Other, net was net income of $76,000 in the second quarter and $147,000 in
the first half of 1997 as compared to net income of $16,000 in the second
quarter and net expense of $92,000 in the first half of 1996.
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<PAGE> 10
Income tax expense (benefit) as a percentage to earnings (loss) before
income taxes for the second quarter and the first half of 1997 was 36.0% as
compared to 35.0% in the comparable periods in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital needs arise from the development of new
restaurants and the maintenance and improvement of existing restaurants.
Historically, the Company's primary sources for working capital have been cash
provided from operations, bank indebtedness and capitalized lease obligations.
During the first half of 1997, the Company expended approximately $20.1 million
in capital for the development of nine new restaurants, improvements to existing
restaurants, the construction of the Company's training center and for new
equipment and additional warehouse space at the Company's commissary (including
$3.9 million of equipment financed under capital lease arrangements).
Additionally, the Company repaid $2.0 million in principal on its capitalized
lease obligations and long-term debt and incurred $1.5 million in preopening
costs. These capital outlays were funded primarily by borrowings of $8.4 million
under the Revolver, borrowings of approximately $3.9 million under capitalized
lease obligations, $8.7 million in cash provided by operating activities and
approximately $1.0 million in proceeds from the sale of certain assets.
During 1996, the Company expended approximately $33.7 million in capital
for the development of 12 new stores and improvements to existing facilities
(including $5.9 million of equipment financed under capital lease arrangements).
Additionally, the Company capitalized approximately $2.2 million in preopening
costs and made $3.6 million in principal reductions in its long-term debt and
capitalized lease obligations. These capital outlays were funded primarily by
$10.7 million in cash provided by operating activities, borrowings of $18.5
million under the Revolver and borrowings of $5.9 million under capitalized
lease obligations.
As of July 13, 1997, the Company had four additional restaurants under
construction, all of which are expected to open during the remainder of 1997.
The Company expects to open 14 to 16 new Company-owned restaurants in 1998.
Management estimates that the Company will make approximately $14.0 million in
capital expenditures during the remainder of 1997 and approximately $39.0
million in 1998. Actual capital expenditures may increase based on a number of
factors, including the timing of additional purchases of future restaurant
sites. The Company intends to continue financing the furniture, fixtures and
equipment for its new stores with capitalized lease obligations.
As of July 13, 1997, $37.4 million of indebtedness was outstanding under
the Revolver and bore interest at a weighted average rate of 7.0%. The Revolver
provides for a maximum borrowing capacity of $70.0 million and matures on
November 30, 1999. The Revolver includes a provision to extend the maturity
annually by one year, at the participating banks' option, beginning on the first
anniversary of the Revolver (November 22, 1997). The Revolver imposes
restrictions on the Company with respect to the maintenance of certain financial
ratios, the incurrence of indebtedness, the sale of assets, mergers and the
payment of dividends.
Management believes that available cash, cash generated from operations and
borrowings under the Revolver and capitalized lease obligations will be
sufficient to finance its operations and expected growth through 1998.
As of the beginning of 1995, the Company owned 20% of Logan's Partnership
(the "Partnership") pursuant to the Logan's Partnership Agreement (the
"Agreement"). Under the Agreement, the Company had the option to purchase the
remaining 80% interest in the Partnership at a 25% discount from its then
appraised value. The Agreement was amended and the Company agreed to forego its
purchase option in the event the Partnership consummated a "qualifying initial
public offering" (as defined in the amended Agreement), and at such time, the
Company's percentage interest in the Partnership would increase depending on the
timing of any such qualifying offering. During the third quarter of 1995,
Logan's was formed, and the Company's interest in the Partnership was
transferred to Logan's in exchange for a 31.1% interest (as determined under the
amended Agreement) in Logan's which occurred upon a qualifying initial public
offering. The Logan's initial public offering became effective on July 26, 1995,
at which time the Company sold substantially all of its shares (628,995 shares)
and received net proceeds from the sale of approximately $7.9 million. In
connection with the Logan's offering, the Partnership purchased all of the
Logan's restaurant properties owned
10
<PAGE> 11
by the Company at their appraised fair market value of approximately $6.1
million. The total proceeds from the Logan's offering of $14.0 million netted
cash of approximately $10.7 million after federal and state taxes, which was
used to reduce the Company's long-term debt. As a result of the Logan's
offering, the Company earned and reported a one-time gain in the third quarter
of 1995 of $0.55 per share.
On January 5, 1996, the shareholders of the Company approved an Agreement
and Plan of Merger, dated October 9, 1995 (the "Merger Agreement"), to acquire
Shoex, which owned and operated six O'Charley's restaurants in Alabama. The
transaction was accounted for as a pooling-of-interests. Pursuant to the Merger
Agreement, the Company issued 666,666 shares of its Common Stock valued at
approximately $9.5 million and the Company assumed approximately $1.9 million in
net obligations of Shoex (defined as long-term debt, capitalized lease
obligations and working capital deficit). Under the terms of the Merger
Agreement, O'Charley's acquired the six restaurants operated by Shoex and
regained the rights to develop other O'Charley's restaurants in Alabama,
Mississippi and specific locations in Florida and Georgia. The Company recorded
merger expenses of approximately $290,000 in the first quarter of 1996 as a
result of this transaction.
During the fourth quarter of 1996, a consent decree approving the
definitive settlement agreement of a two-year old class action lawsuit against
the Company was approved by the U.S. District Court for the Middle District of
Tennessee. The settlement agreement created a settlement pool of $4.8 million
for the benefit of the class members, $700,000 for claims administration and
fees and $2.0 million for the attorneys representing the plaintiff class. The
Company accrued $1.0 million for legal and other expenses related to the
settlement. An adjustment of approximately $2.3 million was made to the original
accrual in December 1996 as a result of the lower than originally anticipated
number of claims submitted by members of the plaintiff class. The total
settlement amount payable to the plaintiff class and their attorneys is
currently expected to approximate $5.2 million, of which approximately $500,000
will be paid through the issuance of shares of the Company's Common Stock and
the remaining $4.7 million will be paid in cash. As of July 13, 1997,
approximately $2.3 million had been paid with the additional outlay of
approximately $2.4 million expected to be paid in the third quarter of 1997. The
additional cash will be funded by additional borrowings under the Revolver.
11
<PAGE> 12
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 15, 1994, class action suit was filed in the United States
District Court in the Western District of Tennessee against the Company, Mr.
Burns, David K. Wachtel, Jr., and Charles F. McWhorter (Messrs. Wachtel and
McWhorter are former directors and executive officers of the Company). The suit
was later transferred to the United States District Court for the Middle
District of Tennessee. The suit alleged racially discriminatory job selection,
termination and work environment practices in violation of federal law. The suit
sought actual, compensatory and punitive damages in an unspecified amount. The
court approved a consent decree approving the definitive settlement of the suit
on December 18, 1996. The settlement agreement created a settlement pool of $4.8
million for the benefit of the class members, reserved $700,000 for claims
administration and fees, and included $2.0 million for the attorneys
representing the class. An additional $1.0 million for legal and other expenses
related to the settlement was accrued by the Company. Less than 30% of the
estimated pool of class members submitted claims against the settlement accrual.
Therefore, an adjustment of approximately $2.3 million was made to the
settlement accrual in December 1996.
The Company is presently a party in a civil action in the United States
District Court for the Middle District of Tennessee involving a former general
manager of the Company. In September 1995, the Company filed an action against
the former employee alleging wrongful conversion of Company funds and fraudulent
misrepresentation. The former employee has moved to amend his answer in the
civil action filed by the Company claiming damages of $30.0 million relating to
counterclaims alleging malicious prosecution and intentional infliction of
emotional distress and $600,000 relating to counterclaims alleging breach of
contract and race discrimination. To date the Court has not ruled on whether it
will allow the former employee to pursue any of the foregoing counterclaims. The
Company believes the counterclaims are without merit, intends to vigorously
prosecute its claims and vigorously defend any counterclaims. Based on the
advice of counsel, the Company believes that to the extent the counterclaims
relating to malicious prosecution and intentional infliction are allowed to
proceed, it is likely that these counterclaims will be dismissed upon the
Company's motion for summary judgment. The Company does not believe the outcome
of this proceeding will materially affect its financial condition or results of
operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the twelve
weeks ended July 13, 1997.
12
<PAGE> 13
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.
O'Charley's Inc.
(Registrant)
<TABLE>
<S> <C> <C>
Date: 08/13/97 By: /s/ GREGORY L. BURNS
--------------------------------------------------------
Gregory L. Burns
President and
Chief Executive Officer
Date: 08/13/97 By: /s/ A. CHAD FITZHUGH
--------------------------------------------------------
A. Chad Fitzhugh
Chief Financial Officer
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF O'CHARLEY'S INC., FOR THE 28-WEEK PERIOD ENDED
JULY 13, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> JUL-13-1997
<EXCHANGE-RATE> 1
<CASH> 1,683
<SECURITIES> 0
<RECEIVABLES> 1,770
<ALLOWANCES> 0
<INVENTORY> 5,732
<CURRENT-ASSETS> 14,622
<PP&E> 118,389
<DEPRECIATION> 0
<TOTAL-ASSETS> 134,372
<CURRENT-LIABILITIES> 26,588
<BONDS> 0
0
0
<COMMON> 29,694
<OTHER-SE> 25,607
<TOTAL-LIABILITY-AND-EQUITY> 134,372
<SALES> 101,655
<TOTAL-REVENUES> 103,046
<CGS> 81,356
<TOTAL-COSTS> 94,545
<OTHER-EXPENSES> (147)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,971
<INCOME-PRETAX> 6,677
<INCOME-TAX> 2,404
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,273
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0
</TABLE>
