<PAGE> 1
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 October 4, 1998
Commission file number O-18629
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O'Charley's Inc.
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(Exact name of registrant as specified in its charter)
Tennessee 62-1192475
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3038 Sidco Drive, Nashville, Tennessee 37204
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(Address of principal executive offices) (Zip Code)
(615) 256-8500
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(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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class Outstanding as of November 11, 1998
----- -----------------------------------
Common Stock, no par value 15,403,935 shares
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O'Charley's Inc.
Form 10-Q
For Quarter Ended October 4, 1998
Index
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I - Financial Statements
Item 1. Financial statements:
Balance sheets as of October 4, 1998 and
December 28, 1997 3
Statements of earnings for the twelve weeks
ended October 4, 1998 and October 5, 1997 4
Statements of earnings for the forty weeks
ended October 4, 1998 and October 5, 1997 5
Statements of cash flows for the forty weeks
ended October 4, 1998 and October 5, 1997 6
Notes to unaudited financial statements 7-8
Item 2. Management's discussion and analysis of
financial condition and results of operations 9-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Part II - Other Information
Item 1. Legal Proceedings 14
Item 6. Exhibits and reports on form 8-K 14
Signatures 15
</TABLE>
<PAGE> 3
O'Charley's Inc.
Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
October 4, December 28,
1998 1997
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<S> <C> <C>
Assets
Current Assets:
Cash $ 2,329 $ 1,965
Accounts receivable 2,227 2,204
Inventories 6,328 4,600
Preopening costs 1,759 1,340
Deferred income taxes 807 807
Other current assets 2,195 2,231
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Total current assets 15,645 13,147
Property and Equipment, net 164,374 136,051
Other Assets 2,015 1,317
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$ 182,034 $150,515
========= ========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 6,208 $ 5,529
Accrued payroll and related expenses 5,470 4,603
Accrued expenses 5,239 6,463
Federal, state and local taxes 5,637 3,240
Current portion of long-term debt and capitalized leases 4,969 4,621
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Total current liabilities 27,523 24,456
Deferred Income Taxes 3,258 2,958
Long-Term Debt 32,890 13,679
Capitalized Lease Obligations 12,953 14,039
Shareholders' Equity:
Common stock - No par value;authorized, 50,000,000
shares; issued and outstanding, 15,403,185 in 1998
and 15,264,921 in 1997 65,871 65,249
Additional paid-in capital 652 652
Unrealized loss on available for sale securities,
net of tax (187) --
Retained earnings 39,074 29,482
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105,410 95,383
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$ 182,034 $150,515
========= ========
</TABLE>
See notes to financial statements.
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O'Charley's Inc.
Statements of Earnings
Twelve Weeks Ended October 4, 1998 and October 5, 1997
<TABLE>
<CAPTION>
1998 1997
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(in thousands, except per share data)
<S> <C> <C>
Revenues:
Restaurant sales $ 57,799 $ 46,856
Commissary sales 452 683
Franchise revenue -- 7
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58,251 47,546
Costs and Expenses:
Cost of restaurant sales:
Cost of food, beverage and supplies 20,109 16,294
Payroll and benefits 17,316 14,232
Restaurant operating costs 8,144 6,772
Cost of commissary sales 433 637
Advertising, general and administrative expenses 3,763 3,100
Depreciation and amortization 3,208 2,434
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52,973 43,469
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Income from Operations 5,278 4,077
Other (Income) Expense:
Interest expense, net 656 965
Other, net (66) (45)
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590 920
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Earnings Before Income Taxes 4,688 3,157
Income Taxes 1,641 1,107
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Net Earnings $ 3,047 $ 2,050
========= ========
Earnings per Common Share - Basic $ 0.20 $ 0.17
========= ========
Earnings per Common Share - Diluted $ 0.19 $ 0.16
========= ========
Weighted Average Basic Common Shares Outstanding 15,387 11,901
========= ========
Weighted Average Dilutive Common Shares Outstanding 16,339 12,861
========= ========
</TABLE>
See notes to financial statements.
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O'Charley's Inc.
Statements of Earnings
Forty Weeks Ended October 4, 1998 and October 5, 1997
<TABLE>
<CAPTION>
1998 1997
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(in thousands, except per share data)
<S> <C> <C>
Revenues:
Restaurant sales $ 183,877 $148,511
Commissary sales 1,913 2,058
Franchise revenue 11 23
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185,801 150,592
Costs and Expenses:
Cost of restaurant sales:
Cost of food, beverage and supplies 63,780 51,541
Payroll and benefits 55,780 45,593
Restaurant operating costs 25,908 21,520
Cost of commissary sales 1,802 1,926
Advertising, general and administrative expenses 11,887 9,839
Depreciation and amortization 9,919 7,595
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169,076 138,014
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Income from Operations 16,725 12,578
Other (Income) Expense:
Interest expense, net 2,072 2,936
Other, net (105) (192)
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1,967 2,744
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Earnings Before Income Taxes 14,758 9,834
Income Taxes 5,165 3,511
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Net Earnings $ 9,593 $ 6,323
========= ========
Earnings per Common Share - Basic $ 0.63 $ 0.53
========= ========
Earnings per Common Share - Diluted $ 0.59 $ 0.50
========= ========
Weighted Average Basic Common Shares Outstanding 15,328 11,842
========= ========
Weighted Average Dilutive Common Shares Outstanding 16,388 12,696
========= ========
</TABLE>
See notes to financial statements.
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O'Charley's Inc.
Statements of Cash Flows
Forty Weeks Ended October 4, 1998 and October 5, 1997
<TABLE>
<CAPTION>
1998 1997
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(in thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings $ 9,593 $ 6,323
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 7,794 5,821
Amortization of preopening costs 2,125 1,774
Provision for deferred income taxes 400 1,372
(Gain) loss on the sale and involuntary
conversion of assets (522) 73
Changes in assets and liabilities:
Accounts receivable (23) (492)
Inventories (1,728) (1,398)
Additions to preopening costs (2,544) (1,966)
Other current assets 36 (977)
Accounts payable 679 2,060
Accrued payroll and other accrued expenses 2,040 (1,544)
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Net cash provided by operating activities 17,850 11,046
Cash Flows from Investing Activities:
Additions to property and equipment (34,756) (25,959)
Proceeds from the sale and involuntary
conversion of assets 2,234 1,025
Other, net (1,000) 193
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Net cash used by investing activities (33,522) (24,741)
Cash Flows from Financing Activities:
Proceeds from long-term debt 19,300 16,400
Payments on long-term debt and capitalized
lease obligations (3,885) (2,981)
Exercise of employee incentive stock options 621 286
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Net cash provided by financing activities 16,036 13,705
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Increase in Cash 364 10
Cash at Beginning of the Period 1,965 1,616
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Cash at End of the Period $ 2,329 $ 1,626
========= ========
</TABLE>
See notes to financial statements.
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<PAGE> 7
O'Charley's Inc.
Notes To Unaudited Financial Statements
Twelve Weeks Ended October 4, 1998 and October 5, 1997
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. The Company's
fiscal year ends on the last Sunday in December with its first quarter
consisting of sixteen weeks and the remaining three quarters consisting of
twelve weeks each.
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 for the year ended
December 28, 1997.
B. Earnings Per Common Share
The Board of Directors of the Company approved a 3-for-2 stock split
effected as a 50% stock dividend for shareholders of record on May 20, 1998. The
new shares were distributed on June 1, 1998. On May 20, 1998, the total number
of outstanding shares of common stock increased 5,114,762 shares from 10,229,524
shares to 15,344,286 shares as a result of the stock split. The statements of
earnings for the twelve and forty weeks ended October 4, 1998 and October 5,
1997 reflect the adjusted weighted average basic and dilutive common shares
outstanding and earnings per common share basic and diluted as adjusted for the
stock split.
The Company adopted Statement of Financial Accounting Standards No. 128
("FAS 128"), Earnings Per Share, during the fourth quarter of 1997. All prior
period earnings per share ("EPS") data have been restated to reflect the
implementation of FAS 128. FAS 128 establishes standards for both the computing
and presentation of basic and diluted EPS on the face of the statements of
earnings. Basic earnings per common share have been computed on the basis of the
weighted average number of common shares outstanding, and diluted earnings per
common share have been computed on the basis of the weighted average number of
common shares outstanding plus the dilutive effect of options outstanding.
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<PAGE> 8
The following is a reconciliation of the Company's basic and diluted
earnings per share in accordance with FAS 128.
<TABLE>
<CAPTION>
Twelve Twelve Forty Forty
(In Thousands, weeks ended weeks ended weeks ended weeks ended
Except Per Share Data) Oct. 4, 1998 Oct. 5, 1997 Oct. 4, 1998 Oct. 5, 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Earnings $ 3,047 $ 2,050 $ 9,593 $ 6,323
================================================================
Basic Earnings Per Share:
Weighted shares outstanding 15,387 11,901 15,328 11,842
Basic earnings per share $ 0.20 $ 0.17 $ 0.63 $ 0.53
================================================================
Diluted Earnings Per Share:
Weighted shares outstanding 15,387 11,901 15,328 11,842
Incremental stock option
Shares outstanding 952 960 1,060 854
----------------------------------------------------------------
Total diluted shares
Outstanding 16,339 12,861 16,388 12,696
Diluted earnings per share $ 0.19 $ 0.16 $ 0.59 $ 0.50
================================================================
</TABLE>
C. New Accounting Pronouncements
On April 3, 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position 98-5, Reporting on the Costs of Start-up Activities (SOP
98-5) which will be effective for financial statements issued for fiscal years
beginning after December 15, 1998. The SOP requires that costs incurred during a
start-up activity be expensed as incurred. Currently the Company capitalizes its
preopening costs and amortizes these costs over a 12-month period. At October 4,
1998, the Company had $1.8 million in unamortized preopening costs. Management
currently anticipates that it will adopt SOP 98-5 in the first quarter of 1999.
As a result, the Company will recognize, as a cumulative effect of a change in
accounting principle, a charge equal to the after tax effect of the unamortized
preopening costs at the beginning of 1999. Management is currently evaluating
the presentation of such costs in the Company's statements of earnings
subsequent to the adoption of SOP 98-5.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosure about Segments of an Enterprise and Related Information, which
supersedes SFAS No. 14. This pronouncement is effective for fiscal years
beginning after December 15, 1997. Management is evaluating the impact of
reporting information about operating segments in the Company's financial
statements.
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<PAGE> 9
O'Charley's Inc.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Forty Weeks Ended October 4, 1998 and October 5, 1997
This report contains certain forward-looking statements within the meaning
of the federal securities laws, which are intended to be covered by the safe
harbors created thereby. Those statements include, but may not be limited to,
all statements regarding the intent, belief and expectations of the Company and
its management such as statements concerning the Company's future profitability
and its operating and growth strategy. Investors are cautioned that all
forward-looking statements involve risks and uncertainties including, without
limitation, the risks discussed in the Company's Annual Report on form 10-K for
the fiscal year ended December 27, 1997 including increases in food, labor and
employee benefit costs, the availability of experienced management and hourly
coworkers, 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 that the assumptions
underlying the forward-looking statements contained herein are reasonable, any
of the assumptions could be inaccurate and, therefore, there can be no assurance
that the forward-looking statements included in this report will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved. The Company
undertakes no obligation to publicly release any revisions to any
forward-looking statements contained herein to reflect events and circumstances
occurring after the date hereof or to reflect the occurrence of unanticipated
events.
New Accounting Pronouncements
The Company currently expects to adopt Statement of Position 98-5,
Reporting on the Costs of Start-up Activities (SOP 98-5) at the beginning of the
first quarter of 1999. As discussed in Note C in Notes to Unaudited Financial
Statements, SOP 98-5 requires that costs incurred during a start-up activity be
expensed as incurred. The Company currently capitalizes its preopening costs and
amortizes these costs over a 12-month period. As a result of the adoption of SOP
98-5, the Company will recognize, as a cumulative effect of a change in
accounting principle, a charge equal to the after tax effect of the unamortized
preopening costs at the beginning of 1999. At October 4, 1998, the Company had
$1.8 million in unamortized preopening costs. The Company currently expects to
open three additional restaurants during the remainder of 1998 and incur certain
additional pre-opening expenditures for stores expected to open in the first
quarter of 1999. The majority of preopening costs is typically incurred in the
two months prior to the opening of a new restaurant and averages approximately
$180,000 per restaurant. As a result of the adoption of SOP 98-5, the Company's
earnings in future periods could be affected depending on the timing of the
preopening store expenditures. Management is currently evaluating the
presentation of such costs in the Company's statements of earnings subsequent to
the adoption of SOP 98-5.
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<PAGE> 10
Results of Operations
The following table highlights the operating results for the third quarter
and first three quarters of 1998 and 1997 as a percentage of total revenue
unless otherwise indicated. Each of the third quarters is comprised of 12 weeks.
Each of the first three quarters is comprised of 40 weeks. All comparisons
included in management's discussion and analysis compares the respective third
quarter and first three quarters of 1998 to the third quarter and first three
quarters of 1997 unless otherwise indicated.
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<TABLE>
<CAPTION>
Third Quarter Year To Date
-------------------- --------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales 99.2% 98.5% 99.0% 98.6%
Commissary sales 0.8% 1.5% 1.0% 1.4%
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Cost of restaurant sales: (1)
Cost of food, beverage and supplies 34.8% 34.8% 34.7% 34.7%
Payroll and benefits 30.0% 30.4% 30.3% 30.7%
Restaurant operating costs 14.1% 14.5% 14.1% 14.5%
------ ------ ------ ------
78.9% 79.6% 79.1% 79.9%
Restaurant operating margin (2) 21.1% 20.4% 20.9% 20.1%
Cost of commissary sales (3) 95.8% 93.3% 94.2% 93.6%
Advertising, general and
administrative expenses 6.5% 6.5% 6.4% 6.5%
Depreciation and amortization 5.5% 5.1% 5.3% 5.0%
Income from Operations 9.1% 8.6% 9.0% 8.4%
Other(Income)Expense:
Interest expense, net 1.1% 2.0% 1.1% 1.9%
Other, net -0.1% -0.1% -0.1% -0.1%
Earnings Before Income Taxes 8.0% 6.6% 7.9% 6.5%
Net Earnings 5.2% 4.3% 5.2% 4.2%
====== ====== ====== ======
</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.
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<PAGE> 11
TOTAL REVENUES increased $10.7 million, or 22.5%, to $58.3 million for the
third quarter of 1998 and $35.2 million, or 23.4%, to $185.8 million for the
first three quarters of 1998. Restaurant sales increased $10.9 million, or
23.4%, to $57.8 million and $35.4 million, or 23.8%, to $183.9 million in the
third quarter and first three quarters of 1998, respectively. These increases
were primarily the result of operating additional restaurants in 1998 and same
store sales increases for the third quarter and year to date of 4.1% and 6.0%,
respectively. The following table presents the number of restaurants in
operation for each of the first three quarters in 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Beginning number of Company restaurants 82 69
Opened during the first quarter 5 6
Opened during the second quarter 4 3
Opened during the third quarter 4 1
Restaurant formerly operated by franchisee 1 -
-- --
Ending number of Company restaurants 96 79
== ==
</TABLE>
The increase in same store sales was primarily the result of increased
customer counts and, to a lesser extent, menu price increases. Management
attributes the increase in customer counts to increased advertising
expenditures, more favorable weather conditions in the first quarter of 1998 and
overall improved restaurant operations. Menu price increases instituted during
1997 and the first quarter of 1998 resulted in an increased check average of
approximately 2.0%. The Company also terminated its franchisee agreement with
the sole remaining franchisee at the beginning of the second quarter of 1998 and
now operates the restaurant as a Company-owned restaurant.
COST OF FOOD, BEVERAGE AND SUPPLIES increased $3.8 million, or 23.4%, in the
third quarter of 1998, to $20.1 million and $12.2 million, or 23.7%, in the
first three quarters of 1998 to $63.8 million. As a percentage of restaurant
sales, cost of food, beverage and supplies was unchanged for both the third
quarter of 1998 at 34.8% and year to date at 34.7%. While the effect of overall
food inflation during 1998 has been minimal, the Company did experience
increases in certain food items including poultry, produce and certain dairy
items, particularly cheese and sour cream. These increases were offset by the
effect of menu price increases and improved operating efficiencies.
PAYROLL AND BENEFITS increased $3.1 million, or 21.7%, to $17.3 million and
$10.2 million, or 22.3%, to $55.8 million in the third quarter and first three
quarters of 1998, respectively. As a percentage of restaurant sales, payroll and
benefits decreased 0.4% for both the third quarter of 1998 and year to date. The
Company achieved certain economies from overall higher sales volumes and reduced
hourly and store management turnover that offset increases in restaurant
management bonuses and hourly wage rates. The increased bonus expense was
primarily the result of higher bonuses being earned by restaurant management
upon the improvement in restaurant level profits in 1998.
RESTAURANT OPERATING COSTS increased $1.4 million, or 20.3%, in the third
quarter of 1998 to $8.1 million and $4.4 million, or 20.4%, for the first three
quarters to $25.9 million. As a percentage of restaurant sales, restaurant
operating costs decreased 0.4% to 14.1% for both the third quarter and first
three quarters of 1998. The Company has continued to open stores in existing
geographical markets which has contributed to slower growth rates in certain
operating 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. In 1999, the Company expects to open
approximately 4 to 5 stores in two new major markets, Columbus, Ohio and
Charlotte, North Carolina, which may limit continued improvements in the
restaurant operating cost as a percentage of revenue.
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<PAGE> 12
RESTAURANT OPERATING MARGIN, defined as restaurant sales less cost of
restaurant sales, increased $2.7 million, or 28.0%, to $12.2 million and $8.6
million, or 28.6%, to $38.4 million in the third quarter and first three
quarters of 1998, respectively. As a percentage of restaurant sales, the
restaurant operating margin increased 0.7% to 21.1% and 0.8% to 20.9% for the
third quarter of 1998 and year to date, respectively. The improvement was
primarily attributable to the leverage achieved from overall higher sales
volumes.
ADVERTISING, GENERAL AND ADMINISTRATIVE EXPENSES increased $663,000, or
21.4%, to $3.8 million in the third quarter of 1998 and $2.0 million, or 20.8%,
to $11.9 million in the first three quarters of 1998. As a percentage of total
revenue, advertising, general and administrative expenses remained unchanged at
6.5% for the third quarter of 1998 and decreased 0.1% to 6.4% for the first
three quarters of 1998. Advertising expenses remained unchanged as a percent of
restaurant sales at 2.9% for the third quarter of 1998 and decreased to 2.7% of
restaurant sales for the first three quarters of 1998 from 2.8% for the
comparable period in 1997.
DEPRECIATION AND AMORTIZATION EXPENSE in the third quarter and first three
quarters of 1998 increased $774,000, or 31.8%, to $3.2 million and $2.3 million,
or 30.6%, to $9.9 million, respectively. As a percentage of total revenues,
depreciation and amortization expense increased 0.4% to 5.5% in the third
quarter of 1998 and 0.3% to 5.3% for the first forty weeks. The increases were
primarily attributable to the Company incurring additional capital expenditures
for the remodeling of certain existing restaurants and the relocation of two
restaurants. See "New Accounting Pronouncements"and Note C in the notes to
unaudited financial statements regarding new accounting pronouncements for
changes in the reporting of preopening costs.
INCOME FROM OPERATIONS increased $1.2 million, or 29.5%, to $5.3 million and
$4.1 million, or 33.0%, to $16.7 million in the third quarter and first three
quarters of 1998, respectively. As a percentage of total revenue, income from
operations increased 0.5% to 9.1% for the third quarter of 1998 and 0.6% to 9.0%
for the first three quarters of 1998. These increases were primarily the result
of improved restaurant operating margins that were partially offset by increased
depreciation and amortization expense.
INTEREST EXPENSE, NET, decreased $309,000, or 32.0%, to $656,000 and
$864,000, or 29.4%, to $2.1 million in the third quarter and first three
quarters of 1998, respectively. The decreases were primarily the result of
reduced borrowings under the Company's revolving credit facility. The Company
reduced its long-term debt by approximately $34.7 million in the fourth quarter
of 1997 using the net proceeds received from the sale of common stock.
INCOME TAX EXPENSE as a percentage of earnings before income taxes was 35.0%
in both the third quarter and first three quarters of 1998 as compared to 35.1%
and 35.7% in the third quarter and first three quarters of 1997, respectively.
The lower tax rate in 1998 is primarily attributable to a lower overall
effective state income tax rate.
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 forty weeks of 1998, the Company expended approximately $37.9
million in capital expenditures for new stores and improvements to existing
facilities (including $3.1 million of equipment financed under capitalized lease
arrangements). Additionally, the Company repaid $3.9 million in principal on its
long-term debt and capitalized lease obligations. These capital outlays were
funded primarily by borrowings of $19.3 million on the Company's revolving
credit facility (the "Revolver"), borrowings of approximately $3.1 million
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<PAGE> 13
under capitalized lease obligations, $17.9 million in cash provided by operating
activities and approximately $2.2 million in proceeds from the sale and
involuntary conversion of certain assets.
The Company opened thirteen new restaurants in the first three quarters of
1998. As of October 4, 1998, the Company had four additional restaurants under
construction, three of which are expected to open in the forth quarter of 1998.
The Company expects to open sixteen new Company-owned restaurants and estimates
spending approximately $49.0 million in capital expenditures 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.
On October 13, 1998, the Company's Board of Directors approved the
repurchase of up to 750,000 shares of the Company's common stock, which
represents approximately 5% of the 15.4 million shares outstanding. Shares
repurchased under this program will be made from time to time in accordance with
applicable securities regulations in open market or privately negotiated
transactions. The actual number of shares repurchased, the timing of the
purchases and the prices paid will depend on future market conditions. Any
shares repurchased will be available for use under the Company's Stock Option
Plan to minimize dilution to existing shareholders.
As of October 4, 1998, $32.3 million of indebtedness was outstanding under
the Revolver, which bore interest at a weighted average rate of 6.3%. The
Revolver provides for a maximum borrowing capacity of $100.0 million and matures
on November 30, 2000. The Revolver includes a provision to extend the maturity
by one year, at the first anniversary (December 8, 1998). Management believes
that available cash, cash generated from operations and borrowings under the
Revolver and capitalized lease obligations will be sufficient to finance the
Company's operations and expected growth through 1999 as well as any stock
repurchases.
The impact of inflation on the cost of food, labor, equipment, land and
construction costs could adversely affect the Company's operations. A majority
of the Company's employees are paid hourly rates related to federal and state
minimum wage laws. As a result of increased competition and the low unemployment
rates in the markets in which the Company's restaurants are located, the Company
has continued to increase wages and benefits in order to attract and retain
management personnel and hourly coworkers. In addition, most of the Company's
leases require the Company to pay taxes, insurance, maintenance, repairs and
utility costs, and these costs are subject to inflationary pressures. The
Company may attempt to offset the effect of inflation through periodic menu
price increases, economies of scale in purchasing and cost controls and
efficiencies at existing restaurants.
A business issue exists with regard to existing software applications and
the ability of these applications to process date values. Specifically, many
computer applications are written in two digits rather than four to define the
applicable year. Beginning in the year 2000, these applications will need to be
capable of recognizing four digit dates in order to properly distinguish the
year 2000 from prior periods. Management of the Company is considering the
impact of the year 2000 issues on its business and operations and has a
remediation plan. The Company has completed testing of its information
technology ("IT") systems. The Company's time keeping software package is
currently not year 2000 compliant. The time keeping software package is expected
to be compliant by March 31, 1999. The Company is currently testing its non-IT
systems and anticipates completing such testing by June 30, 1999. The Company is
currently making inquiries to its suppliers and other third-party entities with
which it has business relations as to their own year 2000 issues. The Company
expects to complete such inquiries by December 1, 1998. The Company expenses all
costs associated with system changes as the costs are incurred. A significant
portion of the Company's year 2000 related costs are already included in its
software support agreements, therefore,
-13-
<PAGE> 14
management does not believe the year 2000 issue will have a significant impact
on the Company's operations or liquidity. The Company is in the process of
developing contingency plans to be implemented in the event any IT system,
non-IT system, third party or supplier is not year 2000 compliant by January 1,
2000.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As of October 4, 1998, 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 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. The Court has ruled that it will
allow the former employee to pursue all of the foregoing claims except the
intentional infliction of emotional distress claim. The Company believes the
claims are without merit, intends to vigorously prosecute its claims and
vigorously defend any of the former manager's claims. Based on the advice of
counsel, the Company believes that the malicious prosecution will be dismissed
upon the Company's motion for summary judgement. 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 27.1 - Financial Data Schedule (for SEC use only)
27.2 - Restated 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 October 4, 1998.
-14-
<PAGE> 15
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)
Date: 11/18/98 By: /s/ Gregory L. Burns
--------------- -----------------------------------
Gregory L. Burns
President and
Chief Executive Officer
Date: 11/18/98 By: /s/ A. Chad Fitzhugh
---------------- -----------------------------------
A. Chad Fitzhugh
Chief Financial Officer
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF O'CHARLEY'S INC. FOR THE NINE MONTHS ENDED OCTOBER 4,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> OCT-04-1998
<CASH> 2,329
<SECURITIES> 0
<RECEIVABLES> 2,227
<ALLOWANCES> 0
<INVENTORY> 6,328
<CURRENT-ASSETS> 15,645
<PP&E> 164,374
<DEPRECIATION> 0
<TOTAL-ASSETS> 182,034
<CURRENT-LIABILITIES> 27,523
<BONDS> 0
0
0
<COMMON> 65,871
<OTHER-SE> 39,539
<TOTAL-LIABILITY-AND-EQUITY> 182,034
<SALES> 183,877
<TOTAL-REVENUES> 185,801
<CGS> 145,468
<TOTAL-COSTS> 169,076
<OTHER-EXPENSES> (105)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,072
<INCOME-PRETAX> 14,758
<INCOME-TAX> 5,165
<INCOME-CONTINUING> 9,593
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,593
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.59
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF O'CHARLEY'S INC. FOR THE NINE MONTHS ENDED OCTOBER 5,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> OCT-05-1997
<CASH> 1,626
<SECURITIES> 0
<RECEIVABLES> 2,038
<ALLOWANCES> 0
<INVENTORY> 5,903
<CURRENT-ASSETS> 14,152
<PP&E> 126,271
<DEPRECIATION> 0
<TOTAL-ASSETS> 141,640
<CURRENT-LIABILITIES> 24,248
<BONDS> 0
0
0
<COMMON> 30,323
<OTHER-SE> 27,657
<TOTAL-LIABILITY-AND-EQUITY> 141,640
<SALES> 148,511
<TOTAL-REVENUES> 150,592
<CGS> 118,654
<TOTAL-COSTS> 138,014
<OTHER-EXPENSES> (192)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,936
<INCOME-PRETAX> 9,834
<INCOME-TAX> 3,511
<INCOME-CONTINUING> 6,323
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,323
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.50
</TABLE>
