<PAGE> 1
United States
Securities and Exchange Commission
Washington, DC 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 September 28, 1997
Commission file number 0-19924
RARE Hospitality International, Inc.
(Exact name of registrant as specified in its charter)
Georgia 58-1498312
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
8215 Roswell RD; Bldg 200; Atlanta, GA 30350
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(770) 399-9595
--------------
(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.
XX Yes No
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class Outstanding as of November 10, 1997
----- -----------------------------------
Common Stock, no par value 11,943,125 shares
1
<PAGE> 2
RARE Hospitality International, Inc.
Index
Part I - Financial Information
<TABLE>
<CAPTION>
Item 1. Consolidated Financial Statements Page
----
<S> <C> <C>
Consolidated Balance Sheets . . . . . . . . . . . . . . 3
Consolidated Statements of Earnings . . . . . . . . . . 4
Consolidated Statement of Shareholders' Equity . . . . 5
Consolidated Statements of Cash Flows . . . . . . . . . 6
Notes to the Consolidated Financial Statements . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . 8
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 12
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
2
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
RARE Hospitality International, Inc.
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
(unaudited)
December 29, September 28,
Assets 1996 1997
------ ------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,478 $ 2,912
Marketable debt securities 861 609
Accounts receivable 2,522 4,907
Inventories 7,883 9,634
Prepaid expenses 1,465 1,763
Pre-opening costs, net 2,665 3,183
-------- --------
Total current assets 21,874 23,008
Property & equipment, net 120,431 148,118
Goodwill and other intangibles, net 6,139 8,495
Deferred income taxes 816 3,316
Other 2,334 2,362
-------- --------
Total assets $151,594 $185,299
======== ========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 11,385 $ 9,818
Accrued expenses 8,152 5,584
-------- --------
Total current liabilities 19,537 15,402
Long-term debt 7,100 36,000
Deferred income taxes 272 597
-------- --------
Total liabilities 26,909 51,999
-------- --------
Minority Interest 3,301 3,306
-------- --------
Shareholders' equity:
Preferred stock -- --
Common stock 100,180 102,723
Additional paid-in capital 919 919
Retained earnings 20,231 26,352
Unrealized gain on marketable
debt securities 54 --
-------- --------
Total shareholders' equity 121,384 129,994
-------- --------
Total liabilities and
shareholders' equity $151,594 $185,299
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
RARE Hospitality International, Inc.
Consolidated Statements of Earnings
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
Sept. 29, Sept. 28, Sept. 29, Sept. 28,
Revenues: 1996 1997 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Restaurant sales:
LongHorn Steakhouse $ 35,573 $ 41,375 $ 99,659 $ 124,048
Bugaboo Creek Steak House 11,180 10,725 33,282 32,428
The Capital Grille 4,855 9,542 13,490 27,338
Specialty concepts 2,957 2,664 9,287 8,084
--------- --------- --------- ---------
Total restaurant sales 54,565 64,306 155,718 191,898
Wholesale meat sales -- -- 2,547 --
Franchise revenues 70 -- 229 27
--------- --------- --------- ---------
Total revenues 54,635 64,306 158,494 191,925
--------- --------- --------- ---------
Cost of sales:
Cost of restaurant sales 20,506 23,875 57,513 70,710
Cost of wholesale meat sales -- -- 2,491 --
Operating expenses - restaurants 24,517 29,726 69,166 86,814
Depreciation and amortization - restaurants 3,189 3,614 8,754 10,776
Operating expenses - meat division -- -- 234 --
General and administrative expenses 3,372 4,671 10,499 13,430
Merger and conversion expenses 2,900 -- 2,900 --
Provision for restaurant closures 1,436 -- 1,436 --
--------- --------- --------- ---------
Total costs and expenses 55,920 61,886 152,993 181,730
--------- --------- --------- ---------
Operating income (loss) (1,285) 2,420 5,501 10,195
Interest (income) expense, net (97) 225 (48) 524
Minority interest 183 336 449 925
--------- --------- --------- ---------
Earnings (loss) before income taxes (1,371) 1,859 5,100 8,746
Income taxes 288 565 2,334 2,625
--------- --------- --------- ---------
Net earnings (loss) $( 1,659) $ 1,294 $ 2,766 $ 6,121
========= ========= ========= =========
Earnings (loss) per common and
common equivalent share $( 0.14) $ 0.11 $ 0.25 $ 0.52
========= ========= ========= =========
Weighted average common and common
equivalent shares outstanding 11,650 11,777 11,185 11,743
========= ========= ========= =========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
4
<PAGE> 5
RARE Hospitality International, Inc.
Consolidated Statement of Shareholders' Equity
(unaudited, in thousands)
<TABLE>
<CAPTION>
Unrealized
Common Stock gain/loss on Total
Preferred ----------------------- Paid-In Retained marketable debt shareholders'
Stock Shares Amount capital earnings securities equity
--------- ------- --------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 30, 1996 - 11,653 $ 100,180 $ 919 $ 20,231 $ 54 $ 121,384
Net earnings - -- -- -- 2,874 -- 2,874
Exercise of stock options - 8 72 -- -- -- 72
Unrealized loss on
marketable debt
securities - -- -- -- -- (54) (54)
-------- -------- --------- --------- --------- --------- ---------
Balance, March 30, 1997 - 11,661 100,252 919 23,105 -- 124,276
Net earnings - -- -- -- 1,953 -- 1,953
Exercise of stock options - 7 62 -- -- -- 62
-------- -------- --------- --------- --------- --------- ---------
Balance, June 29, 1997 - 11,668 100,314 919 25,058 -- 126,291
Net earnings - -- -- -- 1,294 -- 1,294
Exercise of stock options - 275 2,409 -- -- -- 2,409
-------- -------- --------- --------- --------- --------- ---------
Balance, September 28, 1997 - 11,943 $ 102,723 $ 919 $ 26,352 $- $ 129,994
======== ======== ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
RARE Hospitality International, Inc.
Consolidated Statements of Cash Flows
(unaudited, in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
Sept. 29, Sept. 28,
1996 1997
--------- ---------
<S> <C> <C>
Operating activities:
Net Earnings $ 2,766 $ 6,121
Adjustments to reconcile Net Earnings to net cash
provided by operating activities:
Depreciation and amortization 9,018 11,168
Changes in working capital accounts (3,917) (8,651)
Minority Interest 449 925
Preopening costs (2,894) (3,607)
Deferred tax (benefit) expense (255) (2,175)
-------- --------
Net cash provided by operating activities 5,167 3,781
-------- --------
Cash flows from investing activities:
Proceeds from maturity of marketable debt securities -- 252
Purchase of property and equipment (33,271) (34,860)
Proceeds from the sale of property and equipment 680 --
Net proceeds from marketable securities 10 --
Asset acquisitions -- (3,262)
-------- --------
Net cash used in investing activities (32,581) (37,870)
-------- --------
Cash flows from financing activities:
Proceeds from stock offering, net of expenses 37,638 --
Proceeds from (repayments of)lines of credit (758) 28,900
Principal payments on long-term debt (12,375) --
Proceeds from minority partners' contributions 1,030 1,313
Distributions to minority partners (912) (2,233)
Proceeds from exercise of stock options 622 2,543
-------- --------
Net cash provided by financing activities 25,245 30,523
-------- --------
Net increase(decrease) in cash and cash equivalents (2,169) (3,566)
Cash and cash equivalents, beginning of period 2,427 6,478
-------- --------
Cash and cash equivalents, end of period $ 258 $ 2,912
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
RARE Hospitality International, Inc.
Notes to Consolidated Financial Statements
(unaudited)
1. Basis of Presentation
The consolidated financial statements of RARE Hospitality International, Inc.
(the "Company") as of December 29, 1996 and September 28, 1997 and for the
quarters and nine-month periods ended September 28, 1997 (13 week and 39 week
periods, respectively) and September 29, 1996 (the comparable third quarter and
first nine-months of 1996 contained 13 weeks and 41 weeks, respectively, for the
Bugaboo Creek Steak House and The Capital Grille restaurants and contained 13
weeks and 39 weeks, respectively, for the LongHorn Steakhouse restaurants) have
been prepared by the Company, pursuant to the rules and regulations of the
Securities and Exchange Commission. The information furnished herein reflects
all adjustments (consisting of normal recurring accruals and adjustments) which
are, in the opinion of management, necessary to fairly present the operating
results for the respective periods. Certain information and footnote disclosures
normally presented in annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to such
rules and regulations. These financial statements should be read in conjunction
with the consolidated financial statements and notes thereto contained in the
Company's annual report for the year ended December 29, 1996.
Certain prior year amounts in the accompanying consolidated financial statements
have been reclassified to conform to the current year presentation.
2. Income Taxes
Income tax expense for the first nine months of 1997 has been provided for based
on the estimated effective tax rate expected to be applicable for the full 1997
fiscal year. The income tax rate of 30% for the nine months ended September 28,
1997 differs from applying the statutory federal income tax rate of 34% to
pre-tax income primarily due to employee FICA tip tax credits (a reduction in
income tax expense) offset by state income taxes.
3. Business Combinations and Joint Ventures
On January 27, 1997, the Company purchased the assets of two previously
franchised locations in Greenville and Spartanburg, South Carolina in a
transaction accounted for under the purchase method for approximately $2.0
million in cash. The excess of cost over fair value of tangible assets acquired
was approximately $1.4 million and was recorded as an intangible asset to be
amortized over the 13-year period remaining under the acquired franchise
agreement.
7
<PAGE> 8
On April 5, 1997, the Company paid Longhorn Steaks of Alabama, Inc. $1.2 million
in cash for the termination of the franchise agreement. Longhorn Steaks of
Alabama, Inc. also agreed at that time to close its existing LongHorn Steakhouse
restaurant in Hoover, Alabama and dismiss its lawsuit styled Longhorn Steaks of
Alabama, Inc., William L. Kemp and James E. Adams v. Longhorn Steaks, Inc. and
Richard E. Rivera which was filed on September 13, 1996 in the Circuit Court of
Jefferson County, Alabama, Civil Action No. CV9605485. The purchase price
approximates the fair value of the undeveloped territory and was recorded as an
intangible asset to be amortized over the 13-year period remaining under the
acquired franchise agreement.
Proforma results of operation for the above business combinations are not
significant to the Company.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
REVENUES
The Company currently derives all of its revenues from restaurant sales, which
increased 17.9% and 23.2% for the third quarter and the nine months ended
September 28, 1997 compared to the same periods in 1996.
LongHorn Steakhouse:
Sales in the LongHorn Steakhouse restaurants for the third quarter and the nine
months ended September 28, 1997 increased 16.3% and 24.5% compared to the same
periods of the prior year. The increase reflects a 18.8% increase in restaurant
weeks for the third quarter of 1997 as compared to the same period of the prior
year, resulting from an increase in the restaurant base from 72 LongHorn
Steakhouse restaurants at the end of the third quarter of 1996 to 89 at the end
of the third quarter of 1997 (excluding one restaurant temporarily closed for
remodeling during the third quarter of 1997, scheduled to reopen in November).
Average weekly sales for all LongHorn Steakhouse restaurants in the third
quarter of 1997 were $37,904, a 2.1% decrease from the comparable period in
1996. Sales for the 68 comparable LongHorn Steakhouse restaurants decreased 2.8%
in the third quarter of 1997 as compared to the same period in 1996. Same store
sales for the quarter ended September 28, 1997 consists of sales at restaurants
opened prior to April 1, 1996.
8
<PAGE> 9
Bugaboo Creek Steak House:
Sales in the Bugaboo Creek Steak House restaurants decreased 4.1% for the third
quarter and decreased 2.6% for the first nine months of 1997 compared to the
same periods of 1996. Average weekly sales for all Bugaboo Creek Steak House
restaurants in the third quarter of 1997 were $57,664, a 7.8% decrease from the
comparable 13 week period for 1996. Sales for the 12 comparable Bugaboo Creek
Steak House restaurants in the third quarter of 1997 decreased 6.4% as compared
to the same 13 week period in 1996, primarily due to a decrease in customer
counts.
The Capital Grille:
Sales in The Capital Grille restaurants for the third quarter and the nine
months ended September 28, 1997 increased 96.5% and 102.7% compared to the same
periods of 1996. The increase reflects a 85.7% increase in restaurant weeks in
the third quarter as compared to the same 13 week period of the prior year,
resulting from an increase in the restaurant base from five The Capital Grille
restaurants at the end of the third quarter of 1996 to eight at the end of the
third quarter of 1997. Average weekly sales for all The Capital Grille
restaurants in the third quarter of 1997 were $91,752, a 4.5% increase from the
comparable 13 week period of 1996. This increase is attributable primarily to
positive same store sales increases at restaurants included in the comparable
same store sale base. Sales for the three comparable The Capital Grille
restaurants increased 7.3% in the third quarter of 1997 as compared to the same
period of 1996, which is primarily attributable to an increase in customer
counts.
Company-wide:
Wholesale meat sales ceased prior to the beginning of 1997 compared to $2.5
million in the first nine months of the prior year as a new meat distribution
system was implemented for the LongHorn Steakhouse restaurants during the first
two quarters of 1996, thereby eliminating the need for a separate meat
production and distribution facility. Franchise revenues were eliminated by the
end of the first quarter of 1997 due to i) the termination of the franchise
agreement for the Hoover Alabama franchised Longhorn SteakHouse restaurant, ii)
the Company's acquisition of two franchised LongHorn Steakhouse restaurants in
the first quarter of 1997, iii) the closure of two franchised LongHorn
Steakhouse restaurants (one each, in the first and third quarters of 1996), and
iv) the formation of a joint venture to operate three previously franchised
LongHorn Steakhouse restaurants in the second quarter of 1996.
9
<PAGE> 10
COSTS AND EXPENSES
Cost of restaurant sales as a percentage of restaurant sales decreased to 37.1%
from 37.6% for the third quarter and 36.8% from 36.9% for the first nine months
of 1997 as compared to the respective periods for 1996. The decrease was
primarily due to i) new meat purchasing contracts put in place at all Company
concepts for 1997; and ii) adjustments to menu offerings and pricing made during
the third quarter of 1997 in response to a second quarter 1997 upgrade of
product presentations and the addition of a new steak in the LongHorn Steakhouse
concept, which had resulted in a significant shift in mix and a corresponding
increase in food costs.
Restaurant operating expenses as a percentage of restaurant sales increased to
46.2% from 44.9% for the third quarter and 45.2% from 44.4% on a year-to-date
basis. This increase was principally due to i)incremental labor, controllable
expenses and start-up expenses associated with the Company's new store opening
program and ii) increased labor and controllable expenses as the Company focused
on better execution and higher operating standards in the LongHorn Steakhouse
concept.
Restaurant depreciation and amortization increased for both the third quarter
and year-to-date. Depreciation and amortization increased related to new unit
construction costs, acquisitions, and ongoing remodel costs.
Meat division operating expenses were eliminated as a percentage of total
revenues in the 1997 periods due to the cessation of meat-cutting and
distribution operations at the Company's meat division during the second quarter
of 1996.
General and administrative expenses as a percentage of total revenues increased
to 7.3% from 6.2% for the third quarter and 7.0% from 6.7% for the first nine
months as compared to the same periods of the prior year. This increase was
primarily attributable to increased costs associated with the Company's
accelerated new restaurant opening program partially offset by reductions in
headcount at the support office in Providence resulting from the merger of the
Company and Bugaboo Creek Steak House, Inc.
As a result of the relationships between revenues and expenses discussed above,
the Company's operating income increased to $2.4 million for the third quarter
of 1997 as compared to an operating loss of $1.7 million (after a one-time
charge of $2.9 million for merger and conversion expenses for the September 1996
merger with Bugaboo Creek Steak House, Inc. and an approximate $1.4 million
charge attributable to plans to close two under-performing restaurants) for the
corresponding period of the prior year.
Interest expense, net increased to $225 thousand in interest expense in the
third quarter of 1997 from $97 thousand in interest income for the same period
of the prior year due to an increase in the average balance outstanding under
the Company's revolving credit agreements.
Minority interest expense increased to $336 thousand for the third quarter of
1997 from $183 thousand for the same period of the prior year due to an increase
in the number and profitability of LongHorn Steakhouse restaurants operated
under joint venture agreements. As of September 28, 1997, 47 of the 90 LongHorn
Steakhouse restaurants were operated under joint venture arrangements.
10
<PAGE> 11
Income tax expense for the third quarter of both 1997 and 1996 was 30.0% of
earnings before income taxes. The Company's effective income tax rate differs
from applying the statutory federal income tax rate of 34% to pre-tax income
primarily due to employee FICA tip tax credits offset by state income taxes.
Net earnings increased to $1.3 million for the third quarter of 1997 from a net
loss of $1.7 million for the third quarter of 1996, reflecting the net effect of
the items discussed above.
Liquidity and Capital Resources:
The Company requires capital primarily for the development of new restaurants,
selected acquisitions and the remodeling of existing restaurants. During the
first nine months of 1997, the Company's principal source of working capital was
cash provided by borrowings under the Company's revolving line of credit ($28.9
million). The principal uses of working capital were Capital expenditures ($34.9
million) for new and improved facilities and the acquisition of franchise and
joint venture restaurant interest ($3.3 million). As of September 28, 1997, $36
million was outstanding and $24 million was available under the Company's $60
million revolving credit facility which, coupled with internally generated
funds, should fund expansion into 1998.
As of September 28, 1997, the Company had opened 13 LongHorn Steakhouse
restaurants, two The Capital Grille restaurants, one Bugaboo Creek Steakhouse
restaurant and acquired two LongHorn Steakhouse restaurants from a franchisee.
The Company intends to open five Company-owned and joint venture Longhorn
Steakhouse restaurants, two Bugaboo Creek Steakhouse restaurants and two The
Capital Grille restaurants in the remainder of fiscal year 1997. The Company
estimates that its capital expenditures for fiscal year 1997 (before
contributions from joint venture partners) will be approximately $50-55 million.
As of September 28, 1997 the Company had approximately $2.9 million in cash on
hand.
Impact of Recently Issued Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") and
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
About Capital Structure" ("SFAS 129"), both of which are required to be adopted
for the Company's 1997 fiscal year. SFAS No. 128 specifies the computation,
presentation, and disclosure requirements for earnings per share ("EPS"), and is
designed to improve the EPS information provided in financial statements by
simplifying the existing computational guidelines, revising the disclosure
requirements, and increasing the comparability of EPS data on an international
basis. The Company has not yet determined the effect on operating results of
implementing SFAS 128, however, the adoption of this statement is not expected
to have a material adverse effect on the consolidated financial condition.
SFAS 129 consolidates the existing requirements to disclose certain information
about an entity's capital structure and is not expected to change the Company's
current capital structure disclosures.
11
<PAGE> 12
OTHER EVENTS
On August 4, 1997, the Company announced the resignation, effective August 29,
1997, of Richard E. Rivera from his positions as President, Chief Executive
Officer and a director of the Company, to pursue other interests. On October 7,
1997, the Company announced the appointment of Philip Hickey Jr. to the
positions of president and chief operating officer. George W. McKerrow, Jr.,
Chairman, has assumed the position of Chief Executive Officer, a position he
held prior to Mr. Rivera's joining the Company in 1994.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Filed
<TABLE>
<S> <C>
10.1 First Amendment to Line of Credit Agreement dated as of November
6, 1997, by and among RARE Hospitality International, Inc. and
First Union National Bank.
10.2 First Amendment to Credit Agreement dated as of November 6, 1997,
by and among RARE Hospitality International, Inc. and several
lenders with First Union National Bank as Agent and Fleet National
Bank as Co-Agent.
27.1 Financial Data Schedule (for SEC use only).
</TABLE>
(b) Reports on Form 8-K.
None.
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.
RARE Hospitality International, Inc.
Date: November 12, 1997 /s/Anne D. Huemme
----------------------- -----------------------------
Anne D. Huemme
Chief Financial Officer and
Officer (Chief Financial
Officer and Principal
Accounting Officer)
12
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT TO LINE OF CREDIT AGREEMENT
THIS FIRST AMENDMENT TO LINE OF CREDIT AGREEMENT (this "First Amendment")
is made and entered into as of this 12th day of November, 1997 by and among RARE
HOSPITALITY INTERNATIONAL, INC. (formerly known as LongHorn Steaks, Inc.), a
corporation organized under the laws of Georgia ("RHI" or the "Borrower"), and
FIRST UNION NATIONAL BANK (formerly known as First Union National Bank of
Georgia), as Lender.
Statement of Purpose
The Lender agreed to extend certain Loans to the Borrower pursuant to the
Line of Credit Agreement dated as of December 18, 1996 by and among the
Borrower and the Lender (as amended or supplemented from time to time, the
"Line of Credit Agreement").
The parties now desire to amend the Line of Credit Agreement in certain
respects on the terms and conditions set forth below.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Effect of Amendment. Except as expressly amended hereby, the Line
of Credit Agreement and Loan Documents shall be and remain in full force and
effect.
2. Capitalized Terms. All capitalized undefined terms used in this
First Amendment shall have the meanings assigned thereto in the Line of Credit
Agreement.
3. Modification of Line of Credit Agreement. Section 1.1 of the Line
of Credit Agreement is hereby modified by deleting the defined term "Commitment"
and substituting the following in lieu thereof:
"'Commitment' means the obligations of the Lender to make Loans to
the Borrower hereunder in an aggregate principal amount at any time
outstanding not to exceed $5,000,000."
4. Conditions. The effectiveness of the amendments set forth herein
shall be conditioned upon delivery to the Lender of the following items:
(a) Note. The Borrower shall issue and deliver to the Lender, in
exchange for the Note outstanding, anew Note, payable to the Lender in
the amount of the Lender's Commitment.
(b) Officer's Certificate. The Lender shall have received a
certificate from the chief executive officer or chief financial officer
of the Borrower to the effect that (after giving effect to this First
Amendment and the First Amendment to Credit Agreement of even date
herewith by and among the Borrower and certain of its subsidiaries, the
Lenders party thereto and First Union National Bank, as Agent) (i) all
representations and warranties of the Borrower contained in the Line of
Credit Agreement and the other Loan Documents are true, correct and
complete in all material respects, except to the extent that such
representations and warranties expressly relate to an earlier date (in
which case such representations and warranties shall have been true and
correct in all material respects on and as of such earlier date); (ii)
the Borrower is not in violation of any of the covenants contained in the
Line of Credit
<PAGE> 2
Agreement and the other Loan Documents; (iii) no Default or Event of
Default has occurred and is continuing and (iv) the Borrower has
satisfied each of the closing conditions to be satisfied thereby.
(c) Certificate of Secretary of the Borrower. The Lender shall
have received a certificate of the secretary or assistant secretary of
the Borrower certifying that attached thereto is a true and complete copy
of the articles of incorporation of the Borrower and all amendments
thereto, certified as of a recent date by the appropriate Governmental
Authority in its jurisdiction of incorporation; that attached thereto is
a true and complete copy of the bylaws of the Borrower as in effect on
the date of such certification; that attached thereto is a true and
complete copy of resolutions duly adopted by the Board of Directors of
the Borrower authorizing the borrowings contemplated under the Line of
Credit Agreement, as amended hereby, and the execution, delivery and
performance of the First Amendment and the other Loan Documents to be
executed in connection herewith; and as to the incumbency and genuineness
of the signature of each officer of the Borrower executing this First
Amendment and the other Loan Documents to be executed in connection
herewith.
(d) Certificate of Good Standing. The Lender shall have received a
long-form certificate as of a recent date of the good standing of the
Borrower under the laws of its jurisdiction of organization.
(e) Opinion of Counsel. The Lender shall have received a favorable
opinion of counsel to the Borrower addressed to the Lender with respect
to the Borrower and the Loan Documents reasonably satisfactory in form
and substance to the Lender.
5. Representations and Warranties/No Default. By its execution
hereof, the Borrower hereby certifies that (after giving effect to this First
Amendment and the First Amendment to Credit Agreement of even date herewith by
and among the Borrower, certain of its Subsidiaries, the Lenders party thereto
and the First Union National Bank, as Agent) each of the representations and
warranties set forth in the Line of Credit Agreement and the other Loan
Documents is true and correct in all material respects as of the date hereof as
if fully set forth herein, except to the extent that such representations and
warranties expressly relate to an earlier date (in which case such
representations and warranties shall have been true and correct in all material
respects on and as of such earlier date), and that as of the date hereof no
Default or Event of Default has occurred and is continuing.
6. Expenses. The Borrower shall pay all reasonable out-of-pocket
expenses of the Lender in connection with the preparation, execution and
delivery of this First Amendment, including without limitation, the reasonable
fees and disbursements of counsel for the Lender.
7. Governing Law. This First Amendment shall be governed by and
construed in accordance with the laws of the State of North Carolina.
8. Counterparts. This First Amendment may be executed in separate
counterparts, each of which when executed and delivered is an original but all
of which taken together constitute one and the same instrument.
9. Effective Date. Once executed by each of the parties hereto, this
First Amendment shall become effective as of September 27, 1997.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be duly executed as of the date and year first above written.
[CORPORATE SEAL] RARE HOSPITALITY INTERNATIONAL,
INC.
By:
---------------------------
Name:
--------------------------
Title:
------------------------
FIRST UNION NATIONAL BANK
By:
---------------------------
Name:
--------------------------
Title:
------------------------
<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "First Amendment") is made
and entered into as of this 12th day of November, 1997 by and among RARE
HOSPITALITY INTERNATIONAL, INC. (formerly known as LongHorn Steaks, Inc.), a
corporation organized under the laws of Georgia ("RHI"), CERTAIN Subsidiaries of
RHI listed on the signature pages hereto (the "Subsidiary Borrowers" and,
together with RHI, the "Borrowers"), the Lenders who are or may become a party
to the Credit Agreement referred to below, and FIRST UNION NATIONAL BANK
(formerly known as First Union National Bank of Georgia), as Agent for the
Lenders and FLEET NATIONAL BANK, as Co-Agent for the Lenders.
Statement of Purpose
The Lenders agreed to extend certain Loans to the Borrowers pursuant to
the Credit Agreement dated as of December 18, 1996 by and among the Borrowers,
the Lenders, the Agent and the Co-Agent (as amended or supplemented from time to
time, the "Credit Agreement").
The parties now desire to amend the Credit Agreement in certain respects
on the terms and conditions set forth below.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Effect of Amendment. Except as expressly amended hereby, the
Credit Agreement and Loan Documents shall be and remain in full force and
effect.
2. Capitalized Terms. All capitalized undefined terms used in this
First Amendment shall have the meanings assigned thereto in the Credit
Agreement.
3. Modification of Line of Credit Agreement. The Credit Agreement is
hereby amended as follows:
(a) Section 5.1(s) of the Credit Agreement is hereby deleted in its
entirety and the following Section 5.1(s) shall be substituted in lieu thereof:
"(s) Liens. None of the properties and assets of LongHorn or any
Subsidiary thereof is subject to any Lien, except Liens permitted
pursuant to Section 9.3. No financing statement under the Uniform
Commercial Code of any state which names LongHorn or any Subsidiary
thereof or any of their respective trade names or divisions as debtor and
which has not been terminated, has been filed in any state or other
jurisdiction and neither LongHorn nor any Subsidiary thereof has signed
any such financing statement or any security agreement authorizing any
secured party thereunder to file any such financing statement, except (i)
financing statements filed to perfect those Liens permitted by Section
9.3 hereof and (ii) financing statements which relate solely to operating
leases which have been filed for precautionary purposes."
<PAGE> 2
(b) Section 8.3 of the Credit Agreement is hereby deleted in its
entirety and the following Section 8.3 shall be substituted in lieu thereof:
"SECTION 8.3. Interest Coverage Ratio. As of the end of any fiscal
quarter, permit the ration of (a) EBITR for the period of four (4)
consecutive fiscal quarters ending on such date to (b) the sum of
Interest Expense for such period plus Rental Expense for such period, to
be less than (i) 2.00 to 1.00, for the period from September 27, 1997
through and including September 27, 1998 and (ii) 2.50 to 1.00
thereafter."
(c) Section 9.1(g) of the Credit Agreement is hereby deleted in its
entirety and the following Section 9.1(g) shall be substituted in lieu thereof:
"(g) Debt owing to First Union pursuant to a line of credit
facility in an amount not to exceed $5,000,000 and Debt owing to First
Union in connection with letters of credit in an amount not to exceed
$2,100,000."
4. Representations and Warranties/No Default. By their execution
hereof, the Borrowers hereby certify that (after giving effect to this First
Amendment and the First Amendment to Line of Credit Agreement of even date
herewith between RHI and First Union National Bank) each of the representations
and warranties set forth in the Credit Agreement and the other Loan Documents is
true and correct in all material respects as of the date hereof as if fully set
forth herein, except to the extent that such representations and warranties
expressly relate to an earlier date (in which case such representations and
warranties shall have been true and correct in all material respects on and as
of such earlier date), and that as of the date hereof no Default or Event of
Default has occurred and is continuing.
5. Expenses. The Borrowers shall pay all reasonable out-of-pocket
expenses of the Agent in connection with the preparation, execution and delivery
of this First Amendment, including without limitation, the reasonable fees and
disbursements of counsel for the Agent.
6. Governing Law. This First Amendment shall be governed by and
construed in accordance with the laws of the State of North Carolina.
7. Counterparts. This First Amendment may be executed in separate
counterparts, each of which when executed and delivered is an original but all
of which taken together constitute one and the same instrument.
8. Effective Date. Once executed by each of the parties hereto, this
First Amendment shall become effective as of September 27, 1997.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed as of the date and year first above written.
[CORPORATE SEAL] RARE HOSPITALITY INTERNATIONAL,
INC.
By:
---------------------------
<PAGE> 3
Name:
--------------------------
Title:
------------------------
[CORPORATE SEAL] BUGABOO CREEK STEAK HOUSE, INC.
ATTEST:
By: By:
---------------------------- ---------------------------
Name: Name:
-------------------------- --------------------------
Title: Title:
-------------------------- ------------------------
FIRST UNION NATIONAL BANK,
As Agent and Lender
By:
---------------------------
Name:
--------------------------
Title:
------------------------
FLEET NATIONAL BANK, as Lender
By:
---------------------------
Name:
--------------------------
Title:
------------------------
AMSOUTH BANK OF ALABAMA, as Lender
By:
---------------------------
Name:
--------------------------
Title:
------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF RARE HOSPITALITY INTERNATIONAL, INC. AT SEPTEMBER
28,1 997 AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE 39 WEEKS ENDED
SEPTEMBER 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> SEP-28-1997
<CASH> 2,912,000
<SECURITIES> 609,000
<RECEIVABLES> 4,907,000
<ALLOWANCES> 0
<INVENTORY> 9,634,000
<CURRENT-ASSETS> 23,008,000
<PP&E> 148,118,000<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 185,299,000
<CURRENT-LIABILITIES> 15,402,000
<BONDS> 36,000,000
0
0
<COMMON> 102,723,000
<OTHER-SE> 27,271,000
<TOTAL-LIABILITY-AND-EQUITY> 185,299,000
<SALES> 191,898,000
<TOTAL-REVENUES> 191,925,000
<CGS> 70,710,000
<TOTAL-COSTS> 181,730,000
<OTHER-EXPENSES> 925,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 524,000
<INCOME-PRETAX> 8,746,000
<INCOME-TAX> 2,625,000
<INCOME-CONTINUING> 6,121,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,121,000
<EPS-PRIMARY> 0.52<F2>
<EPS-DILUTED> 0.52
<FN>
<F1>ASSET VALUES REPRESENT NET AMOUNTS.
<F2>PRIMARY EPS IS CALCULATED USING A WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
OF 11,743,000.
</FN>
</TABLE>
