<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 April 16, 2000
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
<TABLE>
<CAPTION>
Class Outstanding as of May 26, 2000
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<S> <C>
Common Stock, no par value 15,563,380 shares
</TABLE>
<PAGE> 2
O'Charley's Inc.
Form 10-Q
For Quarter Ended April 16, 2000
Index
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I - Financial Statements
Item 1. Financial statements:
Balance sheets as of April 16, 2000 and
December 26, 1999 3
Statements of earnings for the sixteen weeks
ended April 16, 2000 and April 18, 1999 4
Statements of cash flows for the sixteen weeks
ended April 16, 2000 and April 18, 1999 6
Notes to unaudited financial statements 7
Item 2. Management's discussion and analysis of
financial condition and results of operations 10
Item 3. Quantitative and qualitative disclosures about market risk 16
Part II - Other Information
Item 6. Exhibits and reports on Form 8-K 17
Signatures 18
</TABLE>
<PAGE> 3
O'Charley's Inc.
Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
April 16, December 26,
2000 1999
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<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,411 $ 3,178
Accounts receivable 2,830 2,195
Inventories 15,863 8,776
Deferred income taxes 1,138 1,138
Other current assets 1,214 794
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Total current assets 22,456 16,081
Property and Equipment, net 233,865 219,749
Other Assets 4,995 4,350
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$ 261,316 $ 240,180
========= =========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 9,185 $ 9,318
Accrued payroll and related expenses 7,952 6,524
Accrued expenses 6,286 7,470
Federal, state and local taxes 8,036 5,167
Current portion of long-term debt and
capitalized leases 6,802 7,013
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Total current liabilities 38,261 35,492
Deferred Income Taxes 6,338 6,243
Other Liabilities 2,487 2,298
Long-Term Debt 68,398 54,441
Capitalized Lease Obligations 17,197 19,017
Shareholders' Equity:
Common stock -- No par value; authorized,
50,000,000 shares; issued and outstanding,
15,550,051 in 2000 and 15,502,182 in 1999 65,813 65,732
Accumulated other comprehensive loss, net of tax (10) (186)
Retained 62,832 57,143
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128,635 122,689
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$ 261,316 $ 240,180
========= =========
</TABLE>
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O'Charley's Inc.
Statements of Earnings
Sixteen Weeks Ended April 16, 2000 and April 18, 1999
<TABLE>
<CAPTION>
2000 1999
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(in thousands, except
per share data)
<S> <C> <C>
Revenues:
Restaurant sales $105,204 $ 86,855
Commissary sales 1,094 994
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106,298 87,849
Costs and Expenses:
Cost of restaurant sales:
Cost of food, beverage and supplies 33,920 29,059
Payroll and benefits 32,281 26,534
Restaurant operating costs 14,875 12,285
Cost of commissary sales 1,022 936
Advertising, general and administrative expenses 7,085 5,805
Depreciation and amortization 4,955 3,852
Preopening costs 1,611 1,294
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95,749 79,765
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Income from Operations 10,549 8,084
Other (Income) Expense:
Interest expense, net 1,782 1,175
Other, net 14 32
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1,796 1,207
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Earnings Before Income Taxes and Cumulative 8,753 6,877
Effect of Change in Accounting Principle
Income Taxes 3,064 2,407
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Earnings Before Cumulative Effect of
Change in Accounting Principle $ 5,689 $ 4,470
Cumulative Effect of Change in Accounting
Principle (Net of Tax Benefit) -- ($ 1,348)
-------- --------
Net Earnings $ 5,689 $ 3,122
======== ========
</TABLE>
See notes to financial statements.
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O'Charley's Inc.
Statements of Earnings (Continued)
Sixteen Weeks Ended April 16, 2000 and April 18, 1999
<TABLE>
<CAPTION>
2000 1999
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(in thousands, except
per share data)
<S> <C> <C>
Basic Earnings per Share:
Earnings per Common Share Before Cumulative
Effect of Change in Accounting Principle $ 0.37 $ 0.29
Cumulative Effect of Change in Accounting
Principle -- ($ 0.09)
-------- --------
Basic Earnings per Common Share $ 0.37 $ 0.20
Weighted Average Common Shares Outstanding 15,496 15,398
======== ========
Diluted Earnings per Share:
Earnings per Common Share Before Cumulative
Effect of Change in Accounting Principle $ 0.35 $ 0.27
Cumulative Effect of Change in Accounting
Principle -- ($ 0.08)
-------- --------
Diluted Earnings per Common Share $ 0.35 $ 0.19
======== ========
Weighted Average Common Shares Outstanding 16,318 16,624
======== ========
</TABLE>
See notes to financial statements.
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O'Charley's Inc.
Statements of Cash Flows
Sixteen Weeks Ended April 16, 2000 and April 18, 1999
<TABLE>
<CAPTION>
2000 1999
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(in thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings $ 5,689 $ 3,122
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Cumulative effect of accounting change, net of tax -- 1,348
Depreciation and amortization 4,955 3,852
Provision for deferred income taxes 95 --
Loss on the sale of assets 10 --
Changes in assets and liabilities:
Accounts receivable (635) 41
Inventories (7,087) (2,895)
Other current assets (420) (430)
Accounts payable (133) (31)
Accrued payroll and other accrued expenses 3,113 1,984
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Net cash provided by operating activities 5,587 6,991
Cash Flows from Investing Activities:
Additions to property and equipment (19,367) (16,965)
Proceeds from the sale of assets 291 --
Purchase of equity securities -- --
Other, net (285) 188
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Net cash used by investing activities (19,361) (16,777)
Cash Flows from Financing Activities:
Proceeds from long-term debt 26,208 20,553
Payments on long-term debt and capitalized
lease obligations (14,282) (12,264)
Exercise of employee incentive stock options 665 91
Payments to acquire treasury stock (584) --
-------- --------
Net cash provided by financing activities 12,007 8,380
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Decrease in Cash (1,767) (1,406)
Cash at Beginning of the Period 3,178 3,068
-------- --------
Cash at End of the Period $ 1,411 $ 1,662
======== ========
</TABLE>
See notes to financial statements.
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O'Charley's Inc.
Notes To Unaudited Financial Statements
Sixteen Weeks Ended April 16, 2000 and April 18, 1999
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. Fiscal 2000 will consist of fifty-three weeks compared to
fifty-two weeks in 1999 with the fourth quarter consisting of thirteen weeks
compared to twelve weeks in the fourth quarter of 1999.
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 26, 1999.
B. Earnings Per Common Share
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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Following is a reconciliation of the Company's basic and diluted earnings per
share in accordance with FAS 128.
<TABLE>
<CAPTION>
Sixteen Sixteen
(In thousands, weeks ended weeks ended
except per share data) April 16, 2000 April 18, 1999
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Earnings Before Cumulative Effect of
Change in Accounting Principle $ 5,689 $ 4,470
Cumulative Effect of Change in
Accounting Principle (net of tax benefit) -- (1,348)
Net Earnings $ 5,689 $ 3,122
---------------------------------
Basic Earnings Per Share:
Weighted average shares outstanding 15,496 15,398
---------------------------------
Earnings per share before cumulative
effect of change in accounting principle $ 0.37 $ 0.29
Cumulative effect of accounting change -- ($0.09)
---------------------------------
Basic earnings per share $ 0.37 $ 0.20
---------------------------------
Diluted Earnings Per Share:
Weighted average shares outstanding 15,496 15,398
Incremental stock option shares outstanding 822 1,226
---------------------------------
Weighted average diluted shares outstanding 16,318 16,624
Earnings per share before cumulative
effect of change in accounting principle $ 0.35 $ 0.27
Cumulative effect of accounting change -- ($.08)
----------------------------------
Diluted earnings per share $ 0.35 $ 0.19
---------------------------------
</TABLE>
Options for approximately 1,286,000 and 835,000 shares were excluded from the
2000 and 1999 diluted weighted average shares calculations, respectively, due to
these shares being anti-dilutive.
C. New Accounting Pronouncement
Effective December 28, 1998, the Company adopted SOP 98-5, Reporting the
Costs of Start-up Activities, which requires costs incurred during a start-up
activity be expensed as incurred. As a result, the Company recognized as a
cumulative effect of the change in accounting principle a charge of $1.3
million, net of tax, or $0.08 per diluted share during the first quarter of
1999.
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<PAGE> 9
D. Comprehensive Income
Comprehensive income consists of net earnings and other comprehensive income
attributable to unrealized gains and losses on available for sale securities.
Other comprehensive gain, net of tax, for the first quarter 2000 was $176,000.
Comprehensive income for the first quarter 1999 was comprised solely of net
earnings.
E. Subsequent Event
On May 26, 2000, the Company purchased two existing Stoney River Legendary
Steaks restaurants and all associated trademarks and intellectual property for
approximately $14.0 million and the assumption of approximately $1.8 million in
debt. The transaction includes an additional earn-out provision based on certain
performance thresholds to be met over the next five years that could provide the
former owners a maximum of $5.0 million. The transaction will be accounted for
using the purchase method of accounting. Stoney River will be operated as a
wholly-owned subsidiary of the Company.
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<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations
Sixteen Weeks Ended April 16, 2000 and April 18, 1999
RESULTS OF OPERATIONS
GENERAL
At April 16, 2000, we owned and operated 125 O'Charley's restaurants in Alabama,
Florida, Georgia, Indiana, Kentucky, Mississippi, North Carolina, Ohio, South
Carolina, Tennessee and Virginia. O'Charley's are full service, casual dining
restaurants which appeal to traditional casual dining customers as well as
value-oriented customers by offering high quality food at moderate pricing with
outstanding service. Our growth strategy is to continue fully penetrating
existing and new targeted major metropolitan areas while opening new units in
smaller secondary markets in close proximity to our major markets. We operate a
commissary for the primary purpose of providing our restaurants with consistent
quality food products, which meet our specifications while obtaining the best
possible prices for those items. The majority of the food products served in our
restaurants are distributed to the stores by the commissary. In addition to
purchasing food and supply products, the commissary manufactures certain
proprietary products and ages and cuts red meat into steaks in its USDA approved
meat facility. All sales from the commissary to the restaurants are eliminated
in the consolidated financial statements.
During the first quarter of 1999, we adopted Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activity", which requires that preopening
and start-up costs be expensed as incurred rather than capitalized. Before the
accounting change, preopening costs were amortized over one year. The cumulative
effect of the accounting change totaled $2.1 million pre-tax and $1.3 million
net of tax, or $0.08 per diluted share.
The following table reflects changes in the number of Company-owned restaurants
for the periods presented.
<TABLE>
<CAPTION>
Restaurants 2000 1999
--------------------------------------------------------------
<S> <C> <C>
In operation, beginning of period 117 99
Restaurants opened 8 7
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In operation, end of period 125 106
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</TABLE>
REVENUES consist of restaurant sales and to a lesser extent commissary sales.
Restaurant sales include food and beverage sales and are net of applicable state
and local sales taxes. Commissary sales represent sales to outside parties
consisting primarily of sales of O'Charley's label food items, primarily salad
dressings, to retail grocery chains, mass merchandisers and wholesale clubs.
Consistent with industry trends, liquor sales as a percentage of restaurant
sales has declined in each of the last three fiscal years.
We have historically maintained a "kids eat free" program where we provide meals
from a selected menu to kids 10 years old and under. In select markets, we are
currently offering a value-oriented kid's program where we provide a meal from a
kid's menu, which includes a beverage and a dessert, for a set price. The
results indicate that there are no material differences in profitability at
restaurants that implement the value-oriented kid's program.
COST OF FOOD, BEVERAGE AND SUPPLIES primarily consists of the costs of beef,
poultry, seafood, produce and alcoholic and non-alcoholic beverages. Various
factors beyond our control, including adverse weather,
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<PAGE> 11
cause periodic fluctuations in food costs. Generally, temporary increases are
absorbed and are not passed on to customers, however, we typically adjust menu
prices to compensate for increased costs of a more permanent nature.
PAYROLL AND BENEFITS includes payroll and related costs and expenses directly
relating to restaurant level activities including restaurant management salaries
and bonuses, hourly wages for store level employees, payroll taxes, workers'
compensation, various health, life and dental insurance programs, vacation
expense and sick pay. We have an incentive bonus plan that compensates store
management for achieving and exceeding certain store level financial targets and
performance goals. Currently, Congress is contemplating an increase in the
federal minimum wage rate and it appears an increase is imminent. We typically
pay our employees more than minimum wage; thus, do not expect an immediate
adverse effect on our financial performance from such an increase. However, as
in prior years, we do expect that overall wage inflation will be higher for
several years following any minimum wage increase that may affect payroll costs
in the future. As Congress has raised the federal minimum wage rate in recent
years, the base wage rate for tipped employees has remained at $2.13. Any
increase to that amount would have an effect on payroll and benefits. Currently,
we do not expect an increase to the base wage rate.
RESTAURANT OPERATING COSTS includes occupancy and other expenses at the
restaurant level, except property and equipment depreciation and amortization.
Rent, supervisory salaries, bonuses and expenses, management training salaries,
property insurance, property taxes, utilities, repairs and maintenance, outside
services and credit card fees account for the major expenses in this category.
RESTAURANT OPERATING MARGIN is defined as restaurant sales less cost of
restaurant sales. Cost of restaurant sales, for purposes of this discussion,
consists of cost of food, beverage and supplies, payroll and benefits and
restaurant operating costs.
ADVERTISING, GENERAL AND ADMINISTRATIVE EXPENSES includes all advertising and
home office administrative functions that support the existing restaurant base
and provide the infrastructure for future growth. Advertising, executive
management and support staff salaries, bonuses and related expenses, data
processing, legal and accounting expenses and office expenses account for the
major expenses in this category.
DEPRECIATION AND AMORTIZATION primarily includes depreciation on property and
equipment calculated on a straight-line basis over an estimated useful life.
Depreciation and amortization as a percentage of total revenues may increase as
the number of new store openings increases.
PREOPENING COSTS includes operating costs and expenses incurred prior to a new
restaurant opening. Beginning in the first quarter of 1999, preopening costs are
expensed as incurred in accordance with SOP 98-5 rather than capitalized and
amortized over one year as was the practice prior to the implementation of this
new accounting pronouncement. This new accounting method affects when preopening
costs are expensed and may impact earnings relative to the previous method from
quarter to quarter and year to year basis depending on when these costs are
incurred. Preopening costs are now reflected on a separate line item labeled
"preopening costs" on the statement of earnings. The amount of preopening costs
incurred in any one period may include costs associated with stores expected to
open subsequent to that period. We typically incur average preopening costs of
approximately $200,000 for each new store.
RECENT ACQUISITION
On May 26, 2000, we purchased two existing Stoney River Legendary Steaks
restaurants and all associated trademarks and intellectual property for
approximately $14.0 million and the assumption of approximately $1.8 million in
debt. The transaction includes an additional earn-out provision based on certain
performance thresholds to be met over the next five years that could provide the
former owners a maximum of $5.0 million. The transaction will be accounted for
using the purchase method of accounting. Stoney River will be operated as a
wholly-owned subsidiary of the Company. We expect this transaction will have a
negative impact on earnings for the remainder of 2000 and 2001 due principally
to the costs associated with the integration and expansion of the concept. Major
categories affected will be depreciation, goodwill amortization, and interest
expense. As a result of the transaction, we will recognize goodwill to be
amortized over twenty years. Other expense categories will increase, but not
necessarily as a percentage of increased revenues.
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<PAGE> 12
The following section should be read in conjunction with our financial
statements and the related notes thereto included elsewhere herein. The
following table highlights the operating results for first quarter of 2000 and
1999 as a percentage of total revenues unless otherwise indicated. Each quarter
is comprised of 16 weeks.
<TABLE>
<CAPTION>
First Quarter
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2000 1999
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<S> <C> <C>
REVENUES:
Restaurant sales 99.0% 98.9%
Commissary sales 1.0% 1.1%
--------------------
100.0% 100.0%
COSTS AND EXPENSES:
Cost of restaurant sales:(1)
Cost of food, beverage and supplies 32.3% 33.5%
Payroll and benefits 30.7% 30.6%
Restaurant operating costs 14.1% 14.1%
--------------------
77.1% 78.2%
--------------------
Restaurant operating margin(2) 22.9% 21.8%
Cost of commissary sales(3) 93.4% 94.2%
Advertising, general and administrative expenses 6.7% 6.6%
Depreciation and amortization 4.7% 4.4%
Preopening costs 1.5% 1.5%
--------------------
INCOME FROM OPERATIONS 9.9% 9.2%
OTHER (INCOME) EXPENSE:
Interest expense, net 1.7% 1.3%
Other, net 0.0% 0.0%
--------------------
EARNINGS BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 8.2% 7.8%
INCOME TAXES 2.9% 2.7%
--------------------
EARNINGS BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 5.4% 5.1%
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- (1.5%)
--------------------
NET EARNINGS 5.4% 3.6%
====================
</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> 13
FIRST QUARTER 2000 VERSUS FIRST QUARTER 1999
TOTAL REVENUES in 2000 increased $18.5 million, or 21.0%, to $106.3 million from
$87.8 million in 1999 primarily as a result of an increase in restaurant sales
of $18.4 million, or 21.1%. The increase in restaurant sales was attributable to
19 new restaurants and an increase in same store sales of 3.4%. The increase in
same store sales was the result of an increase in customer traffic and an
increase in the average check. We took a menu price increase of approximately 2%
in March 2000, which increased our average check. At April 16, 2000, we had 52
stores offering the Kids Value Meal program compared to 29 at April 18, 1999.
Our remaining stores offer a Kids Eat Free program. The average check is
approximately 2.5% higher in stores offering the Kids Value Meal program
compared to stores offering the Kids Eat Free program.
COST OF FOOD, BEVERAGE AND SUPPLIES in 2000 increased $4.8 million, or 16.7%, to
$33.9 million from $29.1 million in 1999. As a percentage of restaurant sales,
cost of food, beverage and supplies decreased to 32.3% in 2000 from 33.5% in
1999. We attribute this lower food cost percentage primarily to three factors:
we took a menu price increase in March 2000 which increased the average check;
the cost of several food items decreased; and we improved our purchasing and
operating efficiencies in our stores and commissary. These improvements were
partially offset by an increase in red meat costs. Currently, we are
anticipating further increases in red meat costs for the remainder of 2000 and
expect to experience the normal seasonal fluctuations for certain items
including poultry and produce. There can be no assurance that events outside our
control will not result in increased food costs.
PAYROLL AND BENEFITS increased $5.7 million, or 21.7%, to $32.3 million in 2000
from $26.5 million in 1999. Payroll and benefits as a percentage of restaurant
sales increased slightly to 30.7% in 2000 from 30.6% in 1999. The increase was
attributable to higher store level bonuses and increasing wage rates and
salaries for restaurant support staff and management in 2000. Those higher wages
and salaries were partially offset by economies achieved from higher average
unit sales volumes. Our markets generally have low unemployment rates and we
compete with other restaurants for employees. We anticipate continued wage rate
increases for the remainder of 2000 but do not expect an immediate material
impact that would adversely effect our operations.
RESTAURANT OPERATING COSTS in 2000 increased $2.6 million, or 21.1%, to $14.9
million from $12.3 million in 1999. Restaurant operating costs, as a percentage
of sales, remained level with 1999 at 14.1%. Store level operating costs as a
percentage of sales increased slightly compared to the first quarter of 1999,
but were offset by a reduction in certain supervisory costs.
RESTAURANT OPERATING MARGIN increased $5.2 million, or 27.1%, to $24.1 million
in 2000 from $19.0 million in 1999. Restaurant operating margin, as a percentage
of restaurant sales, improved to 22.9% in 2000 from 21.8% in 1999. This
improvement is due primarily to decreases in food and beverage costs as a
percentage of sales.
ADVERTISING, GENERAL AND ADMINISTRATIVE EXPENSES increased $1.3 million, or
22.1%, to $7.1 million in 2000 from $5.8 million in 1999. As a percentage of
total revenue, advertising, general and administrative expenses increased to
6.7% in 2000 from 6.6% in 1999. Advertising expenditures increased 16.8% to $2.8
million in 2000 from $2.4 million in 1999 and, as a percentage of restaurant
sales, decreased to 2.7% in 2000 from 2.8% in 1999. General and administrative
expenses increased 25.8% to $4.2 million in 2000 from $3.4 million in 1999, and
as a percentage of total sales, increased to 4.0% in 2000 from 3.8% in 1999. The
increase in general and administrative resulted primarily from an increase in
salary and employee benefits and legal expenses.
DEPRECIATION AND AMORTIZATION in 2000 increased $1.1 million, or 28.6%, to $5.0
million from $3.9 million in 1999. As a percentage of total revenue,
depreciation and amortization increased to 4.7% in 2000 from 4.4% in 1999. The
increase in depreciation expense is primarily attributable to the growth in the
number of new stores and additional capital expenditures for the remodeling of
certain existing stores.
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<PAGE> 14
PREOPENING COSTS, excluding the one-time cumulative adjustment for the change in
accounting principle as measured under SOP 98-5, increased 24.5% in 2000 to $1.6
million from $1.3 million in 1999. As a percentage of total revenue, preopening
costs remained at 1.5% in 2000.
INCOME FROM OPERATIONS increased $2.5 million, or 30.5%, to $10.5 million in
2000 from $8.1 million in 1999.
INTEREST EXPENSE, net increased $607,000 in 2000 to $1.8 million from $1.2
million in 1999. The increase is primarily related to the increased borrowings
under our revolving line of credit.
EARNINGS before income taxes and cumulative effect of the change in accounting
principle for 2000 increased $1.9 million, or 27.3%, to $8.8 million from $6.9
million in 1999.
THE CUMULATIVE EFFECT OF THE CHANGE IN ACCOUNTING PRINCIPLE, net of tax,
recorded in the first quarter of 1999, represented the write off of unamortized
preopening costs in accordance with SOP 98-5. The $2.1 million of unamortized
preopening costs remaining on our balance sheet at December 28, 1998 was written
off in this one-time adjustment. After adjusting for the tax benefit, the net
cumulative adjustment was $1.3 million
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of capital have historically been generated from cash
provided by operations, borrowings under our bank credit facilities and
additions to capitalized lease obligations. Our principal capital needs arise
primarily from the purchase and development of new restaurants, equipment
replacement and improvements to existing restaurants.
Property and equipment expenditures were $19.4 million in the first quarter of
2000. These additions were made primarily for eight new stores opened during the
quarter, stores under construction at April 16, 2000 and improvements to
existing restaurants. Additionally, we repaid $14.3 million, in principal on our
long-term debt and capitalized lease obligations. These cash outlays were funded
primarily by $5.6 million in cash provided by operations and borrowings of $26.2
million under our revolving credit agreement (the "Revolver"). The total
decrease in cash was $1.8 million in the first quarter 2000.
Excluding expenditures for the Stoney River restaurants discussed below, we
believe we will incur additional capital expenditures of approximately $40.0
million for the remainder of 2000 for the planned 12 to 13 new restaurants and
for improvements to existing units. As of April 16, 2000, we had eleven
restaurants under construction; five to six of which are expected to open during
the second quarter of 2000. We are currently in discussions concerning the
purchase of the existing commissary and home office land and building
facilities, which are currently occupied under an operating lease. We estimate
the cost to purchase the commissary and home office facilities to be
approximately $5.9 million. Financing to fund these projects is currently being
evaluated and would likely include borrowings under the Revolver or off balance
sheet financing. Actual capital expenditures for the remainder of 2000 may
differ from the above estimate based on a number of factors, including the
timing of additional purchases of future restaurant sites. We intend to continue
financing the furniture, fixtures and equipment for our new stores with
capitalized lease obligations.
On May 26, 2000, we purchased two existing Stoney River Legendary Steaks
restaurants and all associated trademarks and intellectual property for
approximately $14.0 million. We also assumed approximately $1.8 million in debt
related to the buildings and equipment of the existing restaurants. The
transaction includes an additional earn-out provision based on certain
performance thresholds to be met over the next five years that could provide the
former owners a maximum of $5.0 million. We currently anticipate additional
capital expenditures of approximately $3.0 million in 2000 for expansion of the
Stoney River concept. We anticipate opening two new Stoney River restaurants in
2001. These capital additions are expected to be financed under our Revolver.
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<PAGE> 15
On January 31, 2000, the Revolver was amended and restated to extend the
maturity date and increase the maximum borrowing capacity to $135 million from
$100 million. As of April 16, 2000, $68.0 million was outstanding under the
Revolver and bore interest at an average rate of 6.9%. The maturity date was
extended until May 31, 2003. The maturity date may be extended annually by one
year, at the participating banks' option, beginning on each anniversary of the
Revolver. The Revolver imposes restrictions on us with respect to the
maintenance of certain financial ratios, the incurrence of indebtedness, the
sale of assets, mergers and the payment of dividends.
Our working capital historically has had current liabilities in excess of
current assets due to cash reinvestments in long-term assets, mostly property
and equipment additions. At April 16, 2000, working capital deficiency and the
current ratio were $15.8 million and 0.6 to 1, respectively.
On September 2, 1998, the Board of Directors of the Company approved the
repurchase of up to 750,000 shares of our outstanding common stock. As of April
16, 2000, approximately 310,000 shares, or 2% of our outstanding stock, had been
repurchased. We continually evaluate the best uses of our capital and may
repurchase additional shares in the future.
We believe that available cash, cash generated from operations and borrowings
under the Revolver and capitalized lease obligations will be sufficient to
finance our operations and expected capital outlays for the next twelve months.
Our growth strategy includes the consideration of acquisitions or strategic
joint ventures. Any such acquisitions, or joint ventures or other growth
opportunities may require additional external financing, and we may from time to
time seek to obtain additional funds from public or private issuances of equity
or debt securities.
YEAR 2000
We have not experienced any significant disruptions to our financial or
operating activities caused by the failure of our computerized systems, or those
of our suppliers, resulting from Year 2000 conversion issues. We do not expect
Year 2000 conversion issues to have a material adverse effect on our operations
or financial results in 2000.
IMPACT OF INFLATION
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 our 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, we have continued to
increase wages and benefits in order to attract and retain management personnel
and hourly coworkers. In addition, most of our leases require us to pay taxes,
insurance, maintenance, repairs and utility costs, and these costs are subject
to inflationary pressures. We 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.
NOTE REGARDING FORWARD LOOKING INFORMATION
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 our intent, belief and expectations such as statements
concerning our future profitability, operating growth strategy, and financing
plans. Investors are cautioned that all forward-looking statements involve risks
and uncertainties including, without limitation, those set forth under the
caption "Forward-Looking Statements/Risk Factors" in our Annual
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Report on Form 10-K for the fiscal year ended December 26, 1999. Although we
believe 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 us
or any other person that the objectives and plans of the Company will be
achieved. We undertake 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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Disclosure About Interest Rate Risk. The Company is subject to
market risk from exposure to changes in interest rates based on its financing,
investing, and cash management activities. The Company utilizes a balanced mix
of debt maturities along with both fixed-rate, primarily capitalized leases, and
variable-rate, primarily the Revolver, debt to manage its exposures to changes
in interest rates. The outstanding debt under the Revolver at April 16, 2000 was
$68 million. The current interest rate environment is uncertain and overall
interest rates have been increasing in 2000. At April 16, 2000, the amounts
borrowed under the Revolver are subject to interest rate fluctuations, based
primarily on short-term LIBOR rates. See Notes 5 and 6 to the Financial
Statements in our Annual Report on Form 10-K for the fiscal year ended December
26, 1999. The Company does not expect changes in interest rates to have a
material effect on income or cash flows in fiscal 2000, although there can be no
assurances that interest rates will not significantly change.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 - 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 sixteen
weeks ended April 18, 1999.
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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: 5-31-00 By: /s/ Gregory L. Burns
-----------------------------
Gregory L. Burns
Chief Executive Officer
Date: 5-31-00 By: /s/ A. Chad Fitzhugh
-----------------------------
A.Chad Fitzhugh
Chief Financial Officer
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