<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 March 28, 1999
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. 600; Atlanta, GA 30350
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(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 May 7, 1999
----- -----------------------------
Common Stock, no par value 11,946,756 shares
<PAGE> 2
RARE Hospitality International, Inc.
Index
<TABLE>
<S> <C>
Part I - Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets-
March 28, 1999 and December 27, 1998 1
Consolidated Statements of Earnings-
For the quarters ended
March 28, 1999 and March 29, 1998 2
Consolidated Statement of Shareholders' Equity
For the quarter ended March 28, 1999 3
Condensed Consolidated Statements of Cash Flows-
For the quarters ended
March 28, 1999 and March 29, 1998 4
Notes to the Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 13
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signature 14
</TABLE>
<PAGE> 3
RARE Hospitality International, Inc.
Consolidated Balance Sheets
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Assets 3/28/99 12/27/98
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,832 $ 12,060
Accounts receivable 3,341 3,443
Inventories 9,165 9,609
Prepaid expenses 911 789
Pre-opening costs, net of
accumulated amortization -- 2,102
Refundable income taxes 2,254 2,700
Deferred income taxes 6,979 6,932
--------- ---------
Total current assets 29,482 37,635
Property & equipment, less
accumulated depreciation and
amortization 169,686 167,810
Goodwill, less accumulated
amortization 9,911 10,045
Deferred income taxes 1,377 1,490
Other 3,004 3,372
--------- ---------
Total assets $ 213,460 $ 220,352
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 12,487 $ 12,423
Accrued expenses 20,864 24,076
--------- ---------
Total current liabilities 33,351 36,499
Debt, net of current installments 42,000 48,000
Deferred income taxes 3,106 2,893
Obligations under capital leases 9,706 9,732
--------- ---------
Total liabilities 88,163 97,124
Minority Interest 3,112 2,610
Shareholders' equity:
Preferred stock -- --
Common stock 105,176 105,092
Unearned compensation-restricted
stock (442) (478)
Retained earnings 19,338 16,752
Treasury stock at cost; 144,500
shares in 1999 and 59,500 shares
in 1998 (1,887) (748)
--------- ---------
Total shareholders' equity 122,185 120,618
--------- ---------
Total liabilities and
shareholders' equity $ 213,460 $ 220,352
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
RARE Hospitality International, Inc.
Consolidated Statements of Earnings
For the Quarters Ended March 28, 1999 and March 29, 1998
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Revenues: 1999 1998
------- -------
<S> <C> <C>
Restaurant sales:
LongHorn Steakhouse $63,369 $52,865
The Capital Grille 14,374 11,861
Bugaboo Creek Steak House 13,665 12,499
Specialty concepts 1,546 1,551
------- -------
Total restaurant sales 92,954 78,776
Franchise revenues 25 --
------- -------
Total revenues 92,979 78,776
------- -------
Costs and expenses:
Cost of restaurant sales 33,377 29,288
Operating expenses - restaurants 41,123 34,648
Depreciation expense - restaurants 3,637 3,198
Pre-opening expense - restaurants (See Note 2) 789 1,322
General and administrative expenses 6,287 5,328
------- -------
Total costs and expenses 85,213 73,784
------- -------
Operating income 7,766 4,992
Interest expense, net 1,027 764
Minority interest 491 407
------- -------
Earnings before income taxes and cumulative effect
of change in accounting principle 6,248 3,821
Income tax expense (See Note 3) 2,075 1,150
------- -------
Earnings before cumulative effect of change in
accounting principle 4,173 2,671
------- -------
Cumulative effect of change in accounting principle
net of tax benefit (See Note 2) 1,587 --
------- -------
Net earnings $ 2,586 $ 2,671
======= =======
Basic earnings per common share:
Basic earnings before cumulative effect of
change in accounting principle $ 0.35 $ 0.22
Cumulative effect of change in accounting
principle (0.13) --
------- -------
Basic earnings per common share $ 0.22 $ 0.22
======= =======
Diluted earnings per common share:
Diluted earnings before cumulative effect of
change in accounting principle $ 0.34 $ 0.22
Cumulative effect of change in accounting
principle (0.13) --
------- -------
Diluted earnings per common share $ 0.21 $ 0.22
======= =======
Weighted average common shares outstanding (basic) 11,946 11,981
======= =======
Weighted average common shares outstanding (diluted) 12,198 11,990
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
RARE Hospitality International, Inc.
Consolidated Statement of Shareholders' Equity
For the quarter ended March 28, 1999
(In thousands, unaudited)
<TABLE>
<CAPTION>
Common Stock Total
Preferred ------------ Restricted Retained Treasury Shareholders'
Stock Shares Amount Stock Earnings Stock Equity
--------- ------ --------- ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 27, 1998 -- 12,077 $ 105,092 $ (478) $ 16,752 $ (748) $ 120,618
Net earnings -- -- -- -- 2,586 -- 2,586
Issuance of shares pursuant
to exercise of stock
options -- -- -- -- -- -- 84
9 84
Purchase of common stock -- -- -- -- -- (1,139) (1,139)
Amortization of restricted
stock -- -- -- 36 -- -- 36
-- ------ --------- ------ -------- -------- ---------
Balance, March 28, 1999 -- 12,086 $ 105,176 $ (442) $ 19,338 $ (1,887) $ 122,185
== ====== ========= ====== ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
RARE Hospitality International, Inc.
Condensed Consolidated Statements of Cash Flows
For the quarters ended March 28, 1999 and March 29, 1998
(In thousands, unaudited)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Cash Flows from operating activities:
Net earnings $ 2,586 $ 2,671
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 4,004 4,730
Changes in working capital accounts (5,495) (2,887)
Cumulative effect of change in accounting
principle 1,587 --
Minority interest 491 407
Preopening costs -- (319)
Deferred tax expense 279 1,011
-------- --------
Net cash provided by operating activities 3,452 5,613
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (5,669) (4,451)
Asset acquisitions (41) --
-------- --------
Net cash used by investing activities (5,710) (4,451)
-------- --------
Cash flows from financing activities:
Proceeds from (repayments of) credit facilities (6,000) --
Proceeds from minority partners' contributions 750 1,644
Distributions to minority partners (739) (718)
Increase in bank overdraft included in accounts
payable 4,100 2,750
Purchase of common stock for treasury (1,139) --
Principal payments on capital leases (26) (47)
Proceeds from exercise of stock options 84 308
-------- --------
Net cash (used in) provided by financing
activities (2,970) 3,937
-------- --------
Net (decrease) increase in cash and cash equivalents (5,228) 5,099
Cash and cash equivalents, beginning of period 12,060 1,752
-------- --------
Cash and cash equivalents, end of period $ 6,832 $ 6,851
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<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 March 28, 1999 and December 27, 1998 and for the quarters
ended March 28, 1999 and March 29, 1998 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 on Form 10-K for the year ended December 27, 1998.
2. Cumulative Effect of Change in Accounting Principle
At the beginning of fiscal 1999, the Company adopted AICPA Statement of
Position 98-5, "Reporting the Cost of Start-Up Activities." This statement
requires entities to expense start-up costs as they are incurred. The Company
previously amortized start-up costs over a 12-month period, as was the practice
of the restaurant industry. As a result of the adoption of this change in
accounting policy, the Company recorded a cumulative effect charge of $2.3
million (approximately $1.6 million net of tax benefit, or $0.13 per diluted
share) during the first quarter of 1999.
3. Income Taxes
Income tax expense for the quarter ended March 28, 1999 has been provided for
based on the estimated effective tax rate then currently expected to be
applicable for the full 1999 fiscal year. The effective income tax rate of
33.2% for the quarter ended March 28, 1999 differs from applying the statutory
federal income tax rate of 35% to pre-tax earnings primarily due to employee
FICA tip tax credits (a reduction in income tax expense) partially offset by
state income taxes.
4. Long-Term Debt
At March 28, 1999, $42.0 million was outstanding under the Company's $100.0
million revolving credit agreement at a weighted average interest rate equal to
6.8125%.
<PAGE> 8
5. Earnings Per Share
Basic earnings per common share equals net earnings divided by the weighted
average number of common shares outstanding and does not include the dilutive
effect of stock options or restricted stock. Diluted earnings per common share
equals net earnings divided by the weighted average number of common shares
outstanding, after giving effect to dilutive stock options and restricted
stock. A reconciliation between basic and diluted weighted average shares
outstanding and the related earnings per share calculation is presented below
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
13 Weeks Ended
---------------------------
March 28, March 29,
1999 1998
--------- ---------
<S> <C> <C>
Basic weighted average
shares outstanding 11,946 11,981
Dilutive effect of stock options 238 9
Dilutive effect of restricted stock 14 --
-------- --------
Diluted weighted average shares outstanding 12,198 11,990
======== ========
Earnings before cumulative effect of change in
accounting principle $ 4,173 $ 2,671
-------- --------
Cumulative effect of change in accounting
principle (net of tax benefit) 1,587 --
-------- --------
Net earnings $ 2,586 $ 2,671
======== ========
Basic earnings per common share:
Basic earnings before cumulative effect of
change in accounting principle $ 0.35 $ 0.22
Cumulative effect of change in accounting
principle (0.13) --
-------- --------
Basic earnings per common share $ 0.22 $ 0.22
======== ========
Diluted earnings per common share:
Diluted earnings before cumulative effect
of change in accounting principle $ 0.34 $ 0.22
Cumulative effect of change in accounting
principle (0.13) --
-------- --------
Diluted earnings per common share $ 0.21 $ 0.22
======== ========
</TABLE>
6. Comprehensive Income
For the quarter ended March 28, 1999, there was no difference between the
Company's net earnings and comprehensive income.
<PAGE> 9
7. Shareholder Equity
In 1998, the Company's Board of Directors authorized the Company to purchase up
to $5 million of its common stock, through open market transactions, block
purchases, or in privately negotiated transactions. As of March 28, 1999, the
Company has purchased an aggregate 144,500 shares of its common stock for a
total purchase price of $1,887,000(average price of $13.06 per share).
8. New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. This statement is effective for the Company
for periods beginning in fiscal year 2000. The Company believes that the
adoption of the provisions of SFAS No. 133 will not have a material effect on
its financial statements, based on current activities.
<PAGE> 10
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Quarter ended March 28, 1999 compared to quarter ended March 29, 1998
REVENUES
The Company currently derives all of its revenues from restaurant sales and
franchise revenues. Total revenues increased 18.0% to $93.0 million for the
first quarter of 1999 compared to $78.8 million for the first quarter of 1998.
Same store sales comparisons for each of the Company's restaurant concepts for
the quarter ended March 28, 1999, consist of sales at restaurants opened prior
to June 30, 1997.
LongHorn Steakhouse:
Sales in the LongHorn Steakhouse restaurants increased 19.9% to $63.4 million
for the first quarter of 1999 compared to $52.9 million for the first quarter
of the prior year. The increase reflects an 11.6% increase in restaurant weeks
in the first quarter as compared to the same period of the prior year,
resulting from an increase in the restaurant base from 96 LongHorn Steakhouse
restaurants at the end of the first quarter of 1998 to 107 at the end of the
first quarter of 1999. Average weekly sales for all LongHorn Steakhouse
restaurants in the first quarter of 1999 was $46,100, a 7.5% increase over the
comparable period in 1998. Same store sales for the comparable LongHorn
Steakhouse restaurants increased 5.2% in the first quarter of 1999 as compared
to the same period in 1998, primarily due to an increase in customer counts.
The Capital Grille:
Sales in The Capital Grille restaurants increased 21.2% to $14.4 million for
the first quarter of 1999 compared to $11.9 million for the same period in
1998. The increase reflects a 10.0% increase in restaurant weeks in the first
quarter of 1999 as compared to the same period in 1998, resulting from an
increase in the restaurant base from 10 The Capital Grille restaurants at the
end of the first quarter of 1998 to 11 at the end of the first quarter of 1999.
Average weekly sales for all The Capital Grille restaurants in the first
quarter of 1999 were $100,500, a 10.2% increase from the comparable period in
1998. Same store sales for the comparable The Capital Grille restaurants
increased 8.0% in the first quarter of 1999 as compared to the same period in
1998, primarily due to an increase in customer counts.
Bugaboo Creek Steak House:
Sales in the Bugaboo Creek Steak House restaurants increased 9.3% to $13.7
million for the first quarter of 1999 compared to $12.5 million for the same
period in 1998. Average weekly sales for all Bugaboo Creek Steak House
restaurants in the first quarter of 1999 were $61,800, a 2.8%
<PAGE> 11
increase from the comparable period for 1998. Same store sales for the
comparable Bugaboo Creek Steak House restaurants in the first quarter of 1999
decreased 4.5% as compared to the same period in 1998, primarily due to a
decrease in customer counts.
Franchise Revenue:
Franchise revenues of approximately $25 thousand were derived from a franchise
LongHorn Steakhouse restaurant, which opened in Puerto Rico in September 1998.
COSTS AND EXPENSES
Cost of restaurant sales as a percentage of restaurant sales decreased to 35.9%
for the first quarter of 1999 from 37.2% for the same period of 1998. The
decrease was primarily due to lower contracted beef prices for the first
quarter of 1999 compared to the first quarter of 1998. During January 1998, the
Company was purchasing most of its meat at spot market prices, which were
higher than the average prices paid under contracts in place during the first
quarter of 1999. At the end of January 1998, the Company entered into a forward
contract on meat, at prices which reduced the average cost of restaurant sales
as a percentage of restaurant sales for most of the remainder of 1998, as
compared to the first quarter of that year. Accordingly, cost of restaurant
sales comparisons for the remainder of 1999 are not expected to be as favorable
as those for the first quarter.
Restaurant operating expenses as a percentage of restaurant sales increased to
44.2% for the first quarter of 1999 as compared to 44.0% for the same period in
1998. This was due to an increase in advertising expense and manager
incentives, partially offset by greater leverage of fixed and semi-fixed
expenses. Restaurant depreciation increased to $3.6 million from $3.2 million
in the corresponding period of the prior year primarily due the depreciation
associated with construction of new restaurants.
Due to the Company's adoption of AICPA Statement of Position 98-5, "Reporting
the Cost of Start-Up Activities" (SOP 98-5), pre-opening costs are expensed as
they are incurred effective as of the beginning of the first quarter of 1999.
Rather than restate prior periods for this change in accounting principle, the
cumulative effect of the change is shown net of tax benefit as a separate line
on the consolidated statement of earnings. Accordingly, the line on the
consolidated statement of earnings "pre-opening expense - restaurants" reflects
a comparison of amounts incurred and expensed in 1999 to pre-opening
amortization in the prior year.
General and administrative expenses as a percentage of total revenues remained
flat at 6.8% for the first quarter of 1999 as compared to the corresponding
period of the prior year.
As a result of the relationships between revenues and expenses discussed above,
the Company's operating income increased to $7.8 million for the first quarter
of 1999 from $5.0 million for the corresponding period of the prior year.
Interest expense, net increased to $1.0 million in the first quarter of 1999
from $0.8 million for the same period of the prior year due to higher average
borrowings and average interest rates as well as amortization of
<PAGE> 12
loan costs associated with the Company's $100 million revolving credit
facility.
Minority interest expense increased to $491 thousand for the first quarter of
1999 from $407 thousand for the same period of the prior year due to improved
operating results at the joint venture owned LongHorn Steakhouse restaurants.
This increase was partially offset by the reduction in minority interest
expense created by the purchase of a joint venture partner's partnership
interest in 11 joint venture restaurants during the fourth quarter of 1998.
Income tax expense for the first quarter of 1999 was 33.2% of earnings before
income taxes and cumulative effect of change in accounting principle. This
compares to 30.1% of earnings before income taxes for the first quarter of
1998. The Company's effective income tax rate differs from applying the
statutory federal income tax rate of 35% to pre-tax income primarily due to
employee FICA tip tax credits partially offset by state income taxes.
Net earnings decreased to $2.6 million for the first quarter of 1999 from net
earnings of $2.7 million for the first quarter of 1998, 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 quarter of 1999 the Company's principal source of working capital was
cash provided by operating activities ($3.5 million). The principal uses of
working capital were capital expenditures ($5.7 million) for new and improved
facilities and the purchase of common stock for treasury ($1.1 million). As of
March 28, 1999 the Company has $42 million is outstanding and $58 million
available under the Company's $100 million revolving credit facility.
The Company intends to open 12 to 14 Company-owned and joint venture Longhorn
Steakhouse restaurants, two Bugaboo Steakhouse restaurants and one The Capital
Grille restaurant in fiscal year 1999. The Company estimates that its capital
expenditures for fiscal year 1999 will be approximately $40-45 million. During
the first quarter of 1999, the Company opened three LongHorn Steakhouse
restaurants, and as of May 12, 1999, has already opened two LongHorn Steakhouse
restaurants in the second quarter. Management believes that available cash,
cash provided by operations, and available borrowings under the Company's $100
million revolving credit facility will provide sufficient funds to finance the
Company's expansion plans through the year 2000.
Since substantially all sales in the Company's restaurants are for cash, and
accounts payable are generally due in seven to 30 days, the Company operates
with little or negative working capital.
<PAGE> 13
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. This statement is effective for the Company
for periods beginning in fiscal year 2000. The Company believes that the
adoption of the provisions of SFAS No. 133 will not have a material effect on
its financial statements, based on current activities.
Impact of the Year 2000 Issue
Most hardware and software designed in the past was not designed to
recognize calendar dates beginning in the Year 2000. The failure of such
hardware and software to properly recognize the dates beginning in the Year
2000 could result in miscalculations or system failures, which could result in
an adverse effect on the Company's operations.
The Company's key information technology systems, including its financial,
informational and operational systems ("IT Systems"), which are mainly
comprised of third party hardware and software, have been assessed and detailed
plans have been developed to address any remediation required before the end of
1999. The Company is in the process of testing its IT Systems to determine Year
2000 compliance. Management anticipates that such testing will be complete by
September 30, 1999. In addition, the Company is in the process of assessing its
non-IT systems that utilize embedded technology such as microcontrollers and
reviewing them for Year 2000 compliance. Assessment of the Company's non-IT
Systems is scheduled for completion by September 30, 1999.
To operate its business, the Company relies upon its suppliers, distributors
and other third party service providers ("Material Providers"), over which it
can assert little control. The Company's ability to conduct its core business
is dependent upon the ability of these Material Providers to remediate their
Year 2000 issues to the extent they affect the Company. If the Material
Providers do not appropriately remediate their Year 2000 issues or develop
viable contingency plans, the Company's ability to conduct its core business
may be materially impacted, which could result in a material adverse effect on
the Company's financial condition.
Where predictable, the Company is assessing and attempting to mitigate
its risks with respect to the failure of its Material Providers to be Year 2000
ready as part of its ongoing contingency planning. The Company has requested
all of its Material Providers to provide information regarding their state of
Year 2000 readiness. The process of following up with Material Providers who
have not yet responded and evaluating all responses is expected to be completed
by September 30, 1999. Although the communications received by the Company from
its Material Providers, to date, have not disclosed any material Year 2000
issues, there can be no assurance that these Material Providers will be Year
2000 ready on a timely basis. Unanticipated failures or significant delays in
furnishing products or services by Material Providers could cause certain
restaurants to temporarily close or remove certain items from their menus,
which could have a material adverse effect on the Company's consolidated
financial position, results of operations and cash flows. If unanticipated
problems arise from systems or equipment, there could be material adverse
effects on
<PAGE> 14
the Company's consolidated financial position, results of operations and cash
flows. As part of the Year 2000 readiness efforts, the Company is developing
contingency plans which will need to be implemented in the event of failures in
the Company's IT Systems or non-IT systems. The remainder of the contingency
plans are expected to be completed by September 30, 1999, but will be modified
as additional information regarding possible failures becomes available.
The Company expenses costs associated with its Year 2000 system changes
as the costs are incurred, except for system change costs that the Company
would otherwise capitalize. The program, including testing and remediation of
all of the Company's systems and applications, the cost of external
consultants, the purchase of software and hardware, the development and
implementation of viable contingency plans, including the compensation of
internal employees working on Year 2000 projects, is expected to cost
approximately $1,025,000 (except for fringe benefits of internal employees,
which are not separately tracked) from inception in calendar year 1998 through
completion in calendar year 1999. Of these costs, approximately $100,000 was
incurred (approximately $80,000 of which was capitalized) during 1998,
approximately $400,000 was incurred(approximately $375,000 of which was
capitalized)during the first quarter of 1999 and approximately $525,000 is
expected to be incurred during the remainder of 1999 (approximately $425,000 of
which is expected to be capitalized). However, the Company is unable to
estimate the additional costs that it may incur subsequent to 1999 as a result
of Year 2000 problems suffered by Material Providers, and there can be no
assurance that the Company will successfully address the Year 2000 problems
present in its own IT Systems and non-IT systems.
Forward-Looking Statements
Statements contained in this Report concerning future results, performance or
expectations, including those regarding the opening of additional restaurants,
planned capital expenditures, the adequacy of the Company's capital resources,
disclosures related to the effect of the advent of the year 2000 on the Company
and its systems and other statements regarding trends relating to various
revenue and expense items, are forward looking statements. These statements are
subject to a number of risks and uncertainties, some of which are beyond the
Company's control that could cause the Company's actual results to differ
materially from those projected in such forward-looking statements.
Actual results, performance or developments could differ materially from those
expressed or implied by those forward-looking statements as a result of known
or unknown risks, uncertainties and other factors, including those described
from time to time in the Company's filings with the Securities and Exchange
Commission, press releases and other communications. The Company undertakes no
obligation to update or revise forward-looking statements to reflect the
occurrence of unanticipated events or changes to future operating results over
time.
<PAGE> 15
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
As of March 28, 1999, $42.0 million was outstanding under the Company's $100.0
million revolving credit facility. Amounts outstanding under such credit
facility bear interest at LIBOR plus a margin of 1.25% to 2.0% (depending on
the Company's leverage ratio), or the administrative agent's prime rate of
interest plus a margin of 0% to 0.75% (depending on the Company's leverage
ratio), at the Company's option. Accordingly, the Company is exposed to the
impact of interest rate movements. To achieve the Company's objective of
managing its exposure to interest rate changes, the Company from time to time
uses interest rate swaps.
The Company entered into an interest rate swap agreement with a commercial
bank, which effectively fixes the interest rate at 7.515% on $40.0 million of
the Company's borrowings through August 1999, decreasing to $35.0 million
through February 2000 and decreasing to $25.0 million through August 2001. The
Company is exposed to credit losses on this interest rate swap in the event of
counterparty non-performance, but does not anticipate any such losses.
While changes in LIBOR and the administrative agent's prime rate of interest
could affect the cost of borrowings under the credit facility in excess of
amounts covered by the interest rate swap agreement (of which only $2.0 million
was outstanding at March 28, 1999) in the future, the Company does not consider
its current exposure to changes in such rates to be material, and the Company
believes that the effect, if any, of reasonably possible near-term changes in
interest rates on the Company's financial condition, results of operations or
cash flows would not be material.
Investment Portfolio
The Company invests portions of its excess cash, if any, in highly
liquid investments. At March 28, 1999, the Company had approximately $3.2
million invested in high-grade overnight repurchase agreements.
<PAGE> 16
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Filed.
27 - Financial Data Schedules (for SEC use only)
(b) Reports filed 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.
Date: May 12, 1999 /s/ W. Douglas Benn
----------------------- ----------------------
W. Douglas Benn
Executive Vice President and
Chief Financial Officer
(Principal Financial
Officer and Principal
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q OF
RARE HOSPITALITY INTERNATIONAL, INC. FOR THE THREE MONTH PERIOD ENDED MARCH 28,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> DEC-27-1998
<PERIOD-END> MAR-28-1999
<CASH> 6,832
<SECURITIES> 0
<RECEIVABLES> 3,341
<ALLOWANCES> 0
<INVENTORY> 9,165
<CURRENT-ASSETS> 29,482
<PP&E> 169,686<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 213,460
<CURRENT-LIABILITIES> 33,351
<BONDS> 51,706
0
0
<COMMON> 105,176
<OTHER-SE> 17,009
<TOTAL-LIABILITY-AND-EQUITY> 213,460
<SALES> 92,954
<TOTAL-REVENUES> 92,979
<CGS> 33,377
<TOTAL-COSTS> 78,137
<OTHER-EXPENSES> 7,076
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,027
<INCOME-PRETAX> 6,248
<INCOME-TAX> 2,075
<INCOME-CONTINUING> 4,173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 1,587
<NET-INCOME> 2,586
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.21
<FN>
<F1>ASSET VALUES REPRESENT NET AMOUNTS.
</FN>
</TABLE>
