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O'Charleys Restaurant Diners Get Hepatitis

Two more O'Charley's restaurants, both in Georgia, were part of a hepatitis A outbreak in the Southeast linked to green onions, the company disclosed in a filing with the Securities and Exchange Commission.

It was the first time the Nashville-based restaurant chain acknowledged its involvement in the Georgia illnesses.

At least 10 people got the virus after eating at O'Charley's restaurants (searchin Centerville and Macon, Ga., the company said.

There also were 81 cases of hepatitis A reported in Tennessee among diners at an O'Charley's restaurant in Knoxville. One man died after contracting the illness.

"Each of the Knox County Health Department, the Georgia Division of Public Health, the Centers for Disease Control and Prevention and the Food and Drug Administration have tentatively associated the recent outbreaks of the hepatitis A virus affecting a number of restaurants, including O'Charley's, to eating green onions (scallions)," the company said in its quarterly filing dated Wednesday.

The Food and Drug Administration (searchis inspecting green onions imported from three Mexican companies that have been linked to hepatitis A cases in Tennessee and Georgia and possibly to a Pennsylvania outbreak that killed three people and sickened 540 people who dined at a Chi-Chi's restaurant.

To date, O'Charley's said 14 lawsuits had been filed stemming from the outbreak. Some seek to become class action cases.

One lawsuit filed on behalf of the man who died has been amended to seek compensatory damages of at least $7.5 million and punitive damages of $10 million for wrongful death.

The company warned that it may incur large legal expenses in the future.

"We have liability insurance," O'Charley's said in the SEC filing. "However, we cannot assure you that our insurance carriers will reimburse us for any loss or liability we suffer in connection with this litigation or that our insurance will be sufficient to cover such loss of liability."

The company said third quarter sales at its restaurants in the Knoxville area were down 50 percent since the outbreak compared with the same period a year ago.

Overall, sales increased $10.5 million, or 9.4 percent, to $122.4 million for the third quarter compared with $112 million a year ago.

The increase came from the net addition of 27 restaurants during the last 12 months, including 29 new restaurants and the closure of two.

But same store sales for comparable O'Charley's restaurants dropped 3.3 percent in the third quarter of 2003, including a 1.3 percent decline in customers seated and a 2 percent drop in the average check.

"We expect the negative publicity surrounding the hepatitis A outbreak to continue to adversely affect sales at our O'Charley's restaurants for at least the remainder of 2003," the company said.

Share were down 4 cents to $16.60 in early trading Friday on Nasdaq. The stock reached its 52-week low of $13.66 on Oct. 8.