UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009.
Commission file number 000-22150
LANDRY’S RESTAURANTS, INC.
(Exact name of the registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation of organization)
76-0405386
(I.R.S. Employer
Identification No.)
1510 West Loop South, Houston, TX 77027
(Address of principal executive offices)
(713) 850-1010
(Registrants telephone number)
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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).
| Large accelerated filer ¨ | Accelerated filer x | Non-accelerated filer ¨ | Smaller reporting company ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
AS OF AUGUST 7, 2009 THERE WERE
16,142,551 SHARES OF $0.01 PAR VALUE
COMMON STOCK OUTSTANDING
| Page Number | ||||
PART I. FINANCIAL INFORMATION | ||||
Item 1. | 1 | |||
Condensed Consolidated Balance Sheets at June 30, 2009 (unaudited) and December 31, 2008 | 3 | |||
| 4 | ||||
| 5 | ||||
| 6 | ||||
Notes to Condensed Unaudited Consolidated Financial Statements | 7 | |||
Item 4. | 26 | |||
PART II. OTHER INFORMATION | ||||
Item 6. | 27 | |||
| 27 | ||||
i
LANDRY’S RESTAURANTS, INC.
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-Q/A amends the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2009, filed with the Securities and Exchange Commission (“SEC”) on August 10, 2009 (the “Original Quarterly Report”). The Company has determined that its accounting for redeemable noncontrolling interests was incorrect as we did not separately disclose the accreted value on the condensed consolidated statements of income as a deduction from net income to determine net income available to Landry’s common stockholders for the purpose of calculating earnings per share. This amendment revises the following:
Part I – Item 1. Financial Statements
Part I – Item 4. Controls and Procedures
Except as described above, no attempt has been made in this Amendment to modify or update other disclosures presented in the Original Quarterly Report. This Amendment does not reflect events occurring after the filing of the Original Quarterly Report, or modify or update those disclosures, including the exhibits to the Original Annual Report, affected by subsequent events. Accordingly, this Amendment should be read in conjunction with our filings with the SEC subsequent to the filing of the Original Quarterly Report, including any amendments to those filings.
PART I. FINANCIAL INFORMATION
| ITEM 1. | Financial Statements |
The accompanying condensed unaudited consolidated financial statements have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, in our opinion, all adjustments (consisting only of normal recurring entries) necessary for a fair presentation of our results of operations, financial position and changes therein for the periods presented have been included.
The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and related notes to financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008. Operating results for the six months ended June 30, 2009 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending December 31, 2009.
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws. Forward-looking statements may include the words “may,” “will,” “plans,” “believes,” “estimates,” “expects,” “intends” and other similar expressions. Our forward-looking statements are subject to risks and uncertainty, including, without limitation, our ability to continue our expansion strategy, our ability to make projected capital expenditures, as well as general market conditions, competition, and pricing.
This report includes certain forward-looking statements within the meaning of the federal securities laws. You can generally identify forward-looking statements by the appearance in such a statement of words like “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should” or “will” or other comparable words or the negative of these words. When you consider our forward-looking statements, you should keep in mind the risk factors we describe and other cautionary statements we make in this offering circular. Our forward-looking statements are only predictions based on expectations that we believe are reasonable. Our actual results could differ materially from those anticipated in, or implied by, these forward-looking statements as a result of known risks and uncertainties set forth below and elsewhere in this offering circular. These factors include or relate to the following:
| • | our ability to implement our business strategy; |
| • | our ability to expand and grow our business and operations; |
| • | the outcome of legal proceedings that have been, or may be, initiated against us related to the proposed merger with an affiliate in 2008 and its termination; |
| • | the impact of future commodity prices; |
| • | the availability of food products, materials and employees; |
| • | consumer perceptions of food safety; |
| • | changes in local, regional and national economic conditions; |
| • | the effects of local and national economic, credit and capital market conditions on the economy in general and our businesses in particular; |
| • | the effectiveness of our marketing efforts; |
| • | changing demographics surrounding our restaurants, hotels and casinos; |
| • | the effect of changes in tax laws; |
| • | actions of regulatory, legislative, executive or judicial decisions at the federal, state or local level with regard to our business and the impact of any such actions; |
| • | our ability to maintain regulatory approvals for our existing businesses and our ability to receive regulatory approval for our new businesses; |
| • | our expectations of the continued availability and cost of capital resources; |
| • | our ability to obtain long-term financing and the cost of such financing, if available; |
| • | the seasonality and cyclical nature of our business; |
| • | weather and acts of God; |
| • | the ability to maintain existing management; |
1
| • | the impact of potential acquisitions of other restaurants, gaming operations and lines of businesses in other sectors of the hospitality and entertainment industries; |
| • | the impact of potential divestitures of restaurants, restaurant concepts and other operations or lines of business; |
| • | food, labor, fuel and utilities costs; and |
| • | the other factors discussed under “Risk Factors,” included in our Form 10-K for the year ended December 31, 2008. |
We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. To the extent these risks, uncertainties and assumptions give rise to events that vary from our expectations, the forward-looking events discussed herein may not occur. All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement. Some of these and other risks and uncertainties that could cause actual results to differ materially from such forward-looking statements are more fully described under Item 1A. “Risk Factors” and elsewhere in this report, or in the documents incorporated by reference herein. We assume no obligation to modify or revise any forward looking statements to reflect any subsequent events or circumstances arising after the date that the statement was made.
2
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2009 | December 31, 2008 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 65,785,103 | $ | 51,066,805 | ||||
Accounts receivable - trade and other, net | 14,073,902 | 18,021,105 | ||||||
Inventories | 24,680,020 | 26,161,092 | ||||||
Deferred taxes | 26,184,613 | 28,001,267 | ||||||
Assets related to discontinued operations | 2,986,377 | 2,973,593 | ||||||
Other current assets | 14,982,845 | 9,102,029 | ||||||
Total current assets | 148,692,860 | 135,325,891 | ||||||
PROPERTY AND EQUIPMENT, net | 1,311,982,918 | 1,259,186,463 | ||||||
GOODWILL | 18,527,547 | 18,527,547 | ||||||
OTHER INTANGIBLE ASSETS, net | 38,800,995 | 38,872,873 | ||||||
OTHER ASSETS, net | 64,459,974 | 63,411,316 | ||||||
Total assets | $ | 1,582,464,294 | $ | 1,515,324,090 | ||||
| LIABILITIES AND EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 68,035,477 | $ | 70,358,471 | ||||
Accrued liabilities | 145,131,162 | 134,316,329 | ||||||
Income taxes payable | 3,016,135 | 2,784,703 | ||||||
Current portion of long-term notes and other obligations | 15,579,815 | 8,752,906 | ||||||
Liabilities related to discontinued operations | 4,177,677 | 5,149,365 | ||||||
Total current liabilities | 235,940,266 | 221,361,774 | ||||||
LONG-TERM NOTES, NET OF CURRENT PORTION | 915,292,994 | 862,375,429 | ||||||
OTHER LIABILITIES | 107,756,314 | 136,109,782 | ||||||
Total liabilities | 1,258,989,574 | 1,219,846,985 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS’ EQUITY: | ||||||||
Common stock, $0.01 par value, 60,000,000 shares authorized, 16,142,551 and 16,142,263, shares issued and outstanding, respectively | 161,425 | 161,423 | ||||||
Additional paid-in capital | 224,238,881 | 222,410,106 | ||||||
Retained earnings | 128,841,187 | 116,244,708 | ||||||
Accumulated other comprehensive loss | (30,766,773 | ) | (44,339,132 | ) | ||||
Total stockholders’ equity | 322,474,720 | 294,477,105 | ||||||
Noncontrolling interest | 1,000,000 | 1,000,000 | ||||||
Total equity | 323,474,720 | 295,477,105 | ||||||
Total liabilities and equity | $ | 1,582,464,294 | $ | 1,515,324,090 | ||||
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
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CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
| Restated | Restated | |||||||||||||||
REVENUES: | ||||||||||||||||
Restaurant and hospitality | $ | 225,508,163 | $ | 241,570,829 | $ | 425,783,813 | $ | 464,112,021 | ||||||||
Gaming: | ||||||||||||||||
Casino | 34,427,793 | 40,268,189 | 70,396,082 | 83,080,006 | ||||||||||||
Rooms | 12,441,637 | 16,548,192 | 24,847,453 | 34,730,572 | ||||||||||||
Food and beverage | 11,718,082 | 12,428,838 | 22,204,310 | 24,564,678 | ||||||||||||
Other | 4,109,943 | 3,600,419 | 7,722,307 | 7,223,324 | ||||||||||||
Promotional allowances | (6,200,277 | ) | (6,314,192 | ) | (12,658,641 | ) | (13,287,018 | ) | ||||||||
Net gaming revenue | 56,497,178 | 66,531,446 | 112,511,511 | 136,311,562 | ||||||||||||
Total revenue | 282,005,341 | 308,102,275 | 538,295,324 | 600,423,583 | ||||||||||||
OPERATING COSTS AND EXPENSES: | ||||||||||||||||
Restaurant and hospitality: | ||||||||||||||||
Cost of revenues | 54,105,878 | 62,916,685 | 103,769,403 | 121,785,653 | ||||||||||||
Labor | 64,189,889 | 68,779,253 | 122,185,597 | 135,124,959 | ||||||||||||
Other operating expenses | 55,169,808 | 59,165,237 | 96,043,477 | 114,439,359 | ||||||||||||
Gaming: | ||||||||||||||||
Casino | 17,511,110 | 20,310,724 | 37,131,600 | 42,370,003 | ||||||||||||
Rooms | 5,772,122 | 6,442,130 | 11,381,837 | 12,448,775 | ||||||||||||
Food and beverage | 6,732,630 | 7,468,472 | 12,433,916 | 14,640,271 | ||||||||||||
Other | 14,007,287 | 15,000,895 | 26,371,974 | 31,026,152 | ||||||||||||
General and administrative expense | 12,622,404 | 12,353,190 | 24,680,554 | 25,143,388 | ||||||||||||
Depreciation and amortization | 17,701,207 | 17,710,613 | 35,461,698 | 35,375,524 | ||||||||||||
Asset impairment expense | — | 1,593,141 | — | 1,593,141 | ||||||||||||
Gain on insurance claims | (520,751 | ) | — | (4,003,648 | ) | — | ||||||||||
Gain on disposal of assets | (741,016 | ) | — | (1,363,315 | ) | — | ||||||||||
Pre-opening expenses | 459,398 | 372,424 | 715,562 | 840,350 | ||||||||||||
Total operating costs and expenses | 247,009,966 | 272,112,764 | 464,808,655 | 534,787,575 | ||||||||||||
OPERATING INCOME | 34,995,375 | 35,989,511 | 73,486,669 | 65,636,008 | ||||||||||||
OTHER EXPENSE (INCOME): | ||||||||||||||||
Interest expense, net | 28,542,043 | 19,924,731 | 53,156,617 | 40,684,313 | ||||||||||||
Other, net | (4,690,409 | ) | (4,156,481 | ) | (555,997 | ) | 1,147,923 | |||||||||
Total other expense | 23,851,634 | 15,768,250 | 52,600,620 | 41,832,236 | ||||||||||||
Income from continuing operations before income taxes | 11,143,741 | 20,221,261 | 20,886,049 | 23,803,772 | ||||||||||||
Provision for income taxes | 2,546,832 | 6,216,541 | 4,934,413 | 7,277,677 | ||||||||||||
Income from continuing operations | 8,596,909 | 14,004,720 | 15,951,636 | 16,526,095 | ||||||||||||
Loss from discontinued operations, net of taxes | (47,867 | ) | (133,134 | ) | (98,770 | ) | (1,061,936 | ) | ||||||||
Net income | 8,549,042 | 13,871,586 | 15,852,866 | 15,464,159 | ||||||||||||
Less: Net income attributable to noncontrolling interest | 283,730 | — | 514,308 | 70,818 | ||||||||||||
Net income attributable to Landry's | 8,265,312 | 13,871,586 | 15,338,558 | 15,393,341 | ||||||||||||
Less: Accretion of redeemable noncontrolling interest | 1,660,878 | — | 2,725,641 | — | ||||||||||||
Net income available to Landry’s common stockholders | $ | 6,604,434 | $ | 13,871,586 | $ | 12,612,917 | $ | 15,393,341 | ||||||||
Amounts available to Landry’s common stockholders: | ||||||||||||||||
BASIC | ||||||||||||||||
Income (loss) from continuing operations | $ | 0.42 | $ | 0.87 | $ | 0.79 | $ | 1.02 | ||||||||
Loss from discontinued operations | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.07 | ) | ||||||||
Net income (loss) | $ | 0.41 | $ | 0.86 | $ | 0.78 | $ | 0.95 | ||||||||
Weighted average number of common shares outstanding | 16,140,000 | 16,140,000 | 16,140,000 | 16,140,000 | ||||||||||||
DILUTED | ||||||||||||||||
Income (loss) from continuing operations | $ | 0.42 | $ | 0.86 | $ | 0.79 | $ | 1.00 | ||||||||
Loss from discontinued operations | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.06 | ) | ||||||||
Net income (loss) | $ | 0.41 | $ | 0.85 | $ | 0.78 | $ | 0.94 | ||||||||
Weighted average number of common and common share equivalents outstanding | 16,205,000 | 16,370,000 | 16,180,000 | 16,380,000 | ||||||||||||
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
4
CONDENSED UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
| Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interest | Total | ||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||
Balance, December 31, 2008 | 16,142,263 | $ | 161,423 | $ | 222,410,106 | $ | 116,244,708 | $ | (44,339,132 | ) | $ | 1,000,000 | $ | 295,477,105 | ||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||
Net income attributable to Landry’s | — | — | — | 15,338,558 | — | — | 15,338,558 | |||||||||||||||||||
Gain on interest rate swaps, net of tax expense of $7,308,193 | — | — | — | — | 13,572,359 | — | 13,572,359 | |||||||||||||||||||
Total comprehensive income | 28,910,917 | |||||||||||||||||||||||||
Accretion of redeemable noncontrolling interest | — | — | — | (2,725,641 | ) | — | — | (2,725,641 | ) | |||||||||||||||||
Issuance of restricted stock | 3,000 | 30 | (30 | ) | — | — | — | — | ||||||||||||||||||
Exercise of stock options | 3,516 | 35 | 30,593 | — | — | — | 30,628 | |||||||||||||||||||
Forfeiture of restricted stock | (2,140 | ) | (22 | ) | 22 | — | — | — | — | |||||||||||||||||
Purchase of common stock held for treasury | (4,088 | ) | (41 | ) | (31,452 | ) | (16,438 | ) | — | — | (47,931 | ) | ||||||||||||||
Stock based compensation expense | — | — | 1,829,642 | — | — | — | 1,829,642 | |||||||||||||||||||
Balance, June 30, 2009 | 16,142,551 | $ | 161,425 | $ | 224,238,881 | $ | 128,841,187 | $ | (30,766,773 | ) | $ | 1,000,000 | $ | 323,474,720 | ||||||||||||
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
5
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Six Months Ended June 30, | ||||||||
| 2009 | 2008 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 15,852,866 | $ | 15,464,159 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 35,461,698 | 35,784,927 | ||||||
Asset impairment expense | — | 1,593,141 | ||||||
(Gain) loss on disposition of assets | (1,363,315 | ) | 25,137 | |||||
Gain on insurance claims | (4,003,648 | ) | — | |||||
Changes in assets and liabilities, net and other | 14,023,990 | 2,074,941 | ||||||
Total adjustments | 44,118,725 | 39,478,146 | ||||||
Net cash provided by operating activities | 59,971,591 | 54,942,305 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Property and equipment additions and other | (92,419,176 | ) | (53,491,952 | ) | ||||
Proceeds from disposition of property and equipment | 10,331,599 | 8,630,224 | ||||||
Net cash used in investing activities | (82,087,577 | ) | (44,861,728 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Purchases of common stock for treasury | (47,931 | ) | (15,274 | ) | ||||
Proceeds from exercise of stock options | 30,628 | 6,361 | ||||||
Payments of debt | (3,065,026 | ) | (122,495 | ) | ||||
Financing proceeds | 390,040,000 | — | ||||||
Repayment of bonds | (398,362,000 | ) | — | |||||
Debt issuance costs | (17,639,190 | ) | — | |||||
Proceeds from credit facility | 223,693,852 | 140,000,000 | ||||||
Payments on credit facility | (157,816,049 | ) | (142,000,000 | ) | ||||
Dividends paid | — | (1,614,369 | ) | |||||
Net cash provided by (used in) financing activities | 36,834,284 | (3,745,777 | ) | |||||
NET INCREASE IN CASH AND EQUIVALENTS | 14,718,298 | 6,334,800 | ||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 51,066,805 | 39,601,246 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 65,785,103 | $ | 45,936,046 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
Cash paid (received) during the year for: | ||||||||
Interest | $ | 36,972,937 | $ | 39,713,918 | ||||
Income taxes | $ | 638,958 | $ | (3,240,689 | ) | |||
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
6
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS, RESTATEMENT AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
We are a national, diversified restaurant, hospitality and entertainment company principally engaged in the ownership and operation of full service, casual dining restaurants, primarily under the names Landry’s Seafood House, Charley’s Crab, The Chart House, Saltgrass Steak House and Rainforest Cafe. In addition, we own and operate domestically and license internationally rainforest themed restaurants under the trade name Rainforest Cafe, and we own and operate the Golden Nugget Hotels and Casinos in downtown Las Vegas and Laughlin, Nevada and the Kemah Boardwalk in Kemah, Texas.
Discontinued Operations
During 2006, as part of a strategic review of our operations, we initiated a plan to divest certain restaurants, including 136 Joe’s Crab Shack units (Note 3). Subsequently, several additional locations were added to our disposal plan. The results of operations, assets and liabilities for all units included in the disposal plan have been reclassified to discontinued operations in the statements of income, balance sheets and segment information for all periods presented.
Principles of Consolidation
The accompanying financial statements include the consolidated accounts of Landry’s Restaurants, Inc., a Delaware holding company, and its wholly and majority owned subsidiaries and partnerships. All significant inter-company accounts and transactions have been eliminated in consolidation.
Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by us without audit, except for the consolidated balance sheet as of December 31, 2008. The financial statements include all adjustments, consisting of normal, recurring adjustments and accruals, which we consider necessary for fair presentation of our financial position and results of operations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. This information is contained in our December 31, 2008, consolidated financial statements filed with the Securities and Exchange Commission on Form 10-K.
Restaurant and hospitality revenues are recognized when the goods and services are delivered. Casino revenues are the aggregate net difference between gaming wins and losses, with liabilities recognized for funds deposited by customers before gaming play occurs (“casino front money”) and for chips in the customers possession (“outstanding chip liability”). Revenues are recognized net of certain sales incentives as well as accruals for the cost of points earned in point-loyalty programs. The retail value of accommodations, food and beverage, and other services furnished to hotel-casino guests without charge is deducted from revenue as promotional allowances. Proceeds from the sale of gift cards are deferred and recognized as revenue when redeemed by the holder.
Accounts receivable is comprised primarily of amounts due from our credit card processor, receivables from national storage and distribution companies and, casino and hotel receivables. The receivables from national storage and distribution companies arise when certain of our inventory items are conveyed to these companies at cost (including freight and holding charges but without any general overhead costs). These conveyance transactions do not impact the consolidated statements of income as there is no revenue or expense recognized in the financial statements since they are without economic substance other than drayage. We reacquire these items, although not obligated to, when subsequently delivered to our restaurants at cost plus the distribution company’s contractual mark-up. Accounts receivable are reduced to reflect estimated realizable values by an allowance for doubtful accounts based on historical collection experience and specific review of individual accounts. Receivables are written off when they are deemed to be uncollectible.
We account for long-lived assets in accordance with SFAS 144,Accounting for the Impairment or Disposal of Long-lived Assets. Our properties are reviewed for impairment on a property by property basis whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. The recoverability of properties that are to be held and used is measured by comparison of the estimated future undiscounted cash flows associated with the asset to the carrying amount of the asset. If such assets are considered to be impaired, an impairment charge is recorded in the amount by which the carrying amount of the assets exceeds their fair value. Properties to be disposed of are reported at the lower of their carrying amount or fair value, reduced for estimated disposal costs, and are included in assets related to discontinued operations.
7
Financial Instruments
Effective January 1, 2008, we adopted the provisions of SFAS No. 157,Fair Value Measurements, which among other things, requires enhanced disclosures about financial assets and liabilities carried at fair value. SFAS No. 157 establishes a hierarchy for fair value measurements, such that Level 1 measurements include unadjusted quoted market prices for identical assets or liabilities in an active market, Level 2 measurements include quoted market prices for identical assets or liabilities in an active market which have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets, and Level 3 measurements include those that are unobservable and of a highly subjective measure.
Our financial assets and liabilities that are accounted for at fair value on a recurring basis as of June 30, 2009, consist of interest rate swaps (Note 5), for which the lowest level of input significant to their fair value measurement is Level 2. As of June 30, 2009, the fair value of the interest rate swap liabilities totaled $62.1 million, of which $47.3 million are designated and qualify as hedges and the remaining $14.8 million do not qualify as hedges. These amounts, net of taxes, are recorded as other long term liabilities in our consolidated balance sheets.
The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate the carrying amounts due to their short maturities. The fair value of our long-term debt instruments are estimated based on quoted market prices, where available, or on the amount of future cash flows associated with each instrument, discounted using our current borrowing rate for comparable debt instruments. The estimated fair values of our significant long-term debt, including the current portions, are as follows:
| June 30, 2009 | December 31, 2008 | |||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||
9.5% Senior Notes due December 2014 | $ | 855,000 | $ | 808,506 | $ | 395,662,000 | $ | 367,965,660 | ||||
7.5% Senior Notes due December 2014 | 783,000 | 637,049 | 4,338,000 | 3,261,482 | ||||||||
14.0% Senior Notes due August 2011 | 264,359,965 | 251,141,967 | — | — | ||||||||
Libor + 2.0% First Lien Term Loan due June 2014 | 327,133,236 | 222,450,600 | 249,515,152 | 72,359,394 | ||||||||
Libor + 3.25% Second Lien Term Loan due December 2014 | 165,000,000 | 67,650,000 | 165,000,000 | 17,325,000 | ||||||||
Libor + 6.0% with Libor no less than 3.5% Term Loan due March 2011 | 158,449,246 | 157,657,000 | 30,015,514 | 30,015,514 | ||||||||
Libor + 2.0% Revolving credit facility due June 2013 | — | — | 8,000,000 | 2,320,000 | ||||||||
Libor + 2.0% Revolving credit facility due March 2011 | — | — | 4,182,803 | 4,182,803 | ||||||||
7.0% Seller note due November 2010 | 4,000,000 | 3,524,630 | 4,000,000 | 2,899,151 | ||||||||
9.39% non-recourse note payable due May 2010 | 10,292,362 | 10,280,919 | 10,411,034 | 10,403,241 | ||||||||
| $ | 930,872,809 | $ | 714,150,671 | $ | 871,124,503 | $ | 510,732,245 | |||||
Reclassifications
Certain prior year amounts have been reclassified within our financial statements to conform to the current year presentation. The statements of cash flow have been changed to begin with net income. This change had no impact on cash provided by operating activities.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141 (revised 2007),Business Combinations (SFAS 141R), which expands the use of the acquisition method of accounting used in business combinations to all transactions and other events in which one entity obtains control over one or more other businesses or assets. This statement replaces SFAS No. 141 by requiring measurement at the acquisition date of the fair value of assets acquired, liabilities assumed and any non-controlling interest. Additionally, SFAS 141R requires that acquisition-related costs, including restructuring costs, be recognized as expense separately from the acquisition. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the first fiscal period beginning on or after December 15, 2008. The implementation of this guidance will affect our consolidated financial statements only to the extent we complete business combinations in the future.
In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS 160). SFAS 160 applies to the accounting for non-controlling interests (previously referred to as minority interest) in a subsidiary and for the deconsolidation of a subsidiary. We adopted SFAS 160 on January 1, 2009 and have retroactively adjusted the presentation of our financial statements to reflect the effect of our non-controlling interests in a single restaurant operation.
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In February 2008, the FASB issued FASB Staff Position FAS 157-2,Effective Date of FASB Statement No. 157(FSP FAS 157-2), which delayed the effective date of SFAS No. 157,Fair Value Measurementsfor all non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, until January 1, 2009. The adoption of FSP FAS 157-2 did not have an impact on our consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161,Disclosures About Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 expands quarterly disclosure requirements in SFAS 133 about an entity’s derivative instruments and hedging activities. SFAS 161 is effective for fiscal years beginning after November 15, 2008. We adopted SFAS 161 on January 1, 2009 and have included the required expanded disclosures within this report.
In April 2008, the FASB issued FASB FSP No. 142-3,Determination of the Useful Life of Intangible Assets(FSP FAS 142-3).FSP FAS 142-3 removed the requirement of SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142), for an entity to consider, when determining the useful life of an acquired intangible asset, whether the intangible asset can be renewed without substantial cost or material modification to the existing terms and conditions associated with the intangible asset. FSP FAS 142-3 replaces the previous useful life assessment criteria with a requirement that an entity considers its own experience in renewing similar arrangements. If the entity has no relevant experience, it would consider market participant assumptions regarding renewal. FSP FAS 142-3 is being applied prospectively beginning January 1, 2009, and the adoption has not had a material impact on our consolidated financial statements.
In June 2008, the FASB issued Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. In accordance with the FSP, unvested equity-based awards that contain non-forfeitable rights to dividends are considered to participate with common shareholders in undistributed earnings. As a result, our unvested awards of restricted stock are required to be included in the calculation of basic earnings per common share. These participating securities, prior to application of the FSP, were excluded from weighted-average common shares outstanding in the calculation of basic earnings per common share. We applied the provisions of the FSP beginning on January 1, 2009, and have calculated and presented basic earnings per common share on this basis for all periods presented. The impact of the inclusion of participating securities in the calculation of basic earnings per common share for prior periods was not material.
In April 2009, the FASB issued Staff Position No. FAS 107-1 and APB 28-1,Interim Disclosures about Fair Value of Financial Instruments, which amends FASB Statement No. 107,Disclosures about Fair Value of Financial Instruments(“SFAS No. 107”), and Accounting Principles Board Opinion No. 28,Interim Financial Reporting(“APB No. 28”). This pronouncement is effective for our reporting periods beginning with our June 30, 2009 interim financial statements. The amendments expand the disclosure requirements of SFAS No. 107 and APB No. 28 about how an entity reports on fair value to be included in the summarized, interim financial statements. This FASB Staff Position did not impact our consolidated financial position, cash flows or results of operations, and we have included the required disclosures within these June 30, 2009 interim financial statements.
In April 2009, the FASB issued Staff Position No. FAS 115-2 and FAS 124-2,Recognition and Presentation of Other-Than-Temporary Impairments, which provides guidance for measuring and expands the presentation and disclosure requirements of other-than-temporary impairments on debt and equity securities in interim and annual financial statements. As we currently do not own any debt or equity securities, this Staff Position did not impact our financial position, cash flows or results of operations.
In April 2009, the FASB issued FASB Staff Position No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly(FSP FAS 157-4). FSP FAS 157-4, which is effective for our reporting periods beginning with our second quarter of 2009 interim financial statements, provides additional guidance related to the estimation of fair value when the volume and level of activity for the asset or liability have significantly decreased, the identification of transactions that are not orderly, and the use of judgment in evaluating the relevance of inputs such as transaction prices. The implementation of this new accounting standard did not significantly change our valuation or disclosure of financial and nonfinancial assets and liabilities under the scope of FAS 157.
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In April 2009, the FASB issued FASB Staff Position FAS 141(R)-1,Accounting for Assets Acquired and Liabilities Assumed in a Business Combination (FSP FAS 141(R)-1). FSP FAS 141(R)-1, which became effective for business combinations having an acquisition date on or after January 1, 2009, requires an asset or liability arising from a contingency in a business combination to be recognized at fair value if fair value can be reasonably determined. If it cannot, the asset or liability must be recognized in accordance with FASB Statement No. 5,Accounting for Contingencies, and FASB Interpretation No. 14,Reasonable Estimation of the Amount of the Loss. The implementation of this guidance will affect our consolidated financial statements only to the extent we complete business combinations in the future.
In May 2009, the FASB issued SFAS No. 165,Subsequent Events (SFAS 165). SFAS 165 establishes general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 requires disclosure of the date through which subsequent events have been evaluated and whether that date represents the date the financial statements were issued or were available to be issued. SFAS 165 is effective for interim and annual periods ending after June 15, 2009. The adoption of SFAS No. 165 did not have an impact on our consolidated financial statements for the three months ended June 30, 2009, as it is our continuing policy to evaluate subsequent events through the date our financial statements are issued.
In June 2009, the FASB issued SFAS No. 166,Accounting for Transfers of Financial Assets(SFAS 166). SFAS 166 removes the concept of a qualifying special-purpose entity (QSPE) from SFAS No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities(SFAS 140) and removes the exception from applying FIN 46R. This statement also clarifies the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. This statement is effective for fiscal years beginning after November 15, 2009. We are currently evaluating the potential impact this standard may have on our consolidated financial statements.
In June 2009, the FASB issued SFAS No. 167,Amendments to FASB Interpretations No. 46(R) (SFAS 167). SFAS 167 revises the approach to determining the primary beneficiary of a variable interest entity (VIE) to be more qualitative in nature and requires companies to more frequently reassess whether they must consolidate a VIE. SFAS 167 is effective for fiscal years beginning after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. We are currently evaluating the potential impact SFAS No. 167 may have on our consolidated financial statements.
In June 2009, the FASB issued SFAS No. 168,The FASB Accounting Standards CodificationTMand the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162 (SFAS 168), which establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied in the preparation of financial statements in conformity with generally accepted accounting principles. SFAS 168 explicitly recognizes rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under federal securities laws as authoritative GAAP for SEC registrants. SFAS 168 is effective for financial statements issued for interim and annual reporting periods ending after September 15, 2009. We do not believe its implementation will have a material impact on our consolidated financial statements.
Restatement
We have determined that our previous accounting for redeemable noncontrolling interests was incorrect, as we did not separately disclose the accreted value on the condensed consolidated statements of income as a deduction from net income to determine net income available to Landry’s common stockholders for the purpose of calculating earnings per share. This restatement has no effect on the Company’s cash flows or financial position and required no entry to the Company’s internal accounting records. This information has been restated as follows:
| Three Months Ended June 30, 2009 | Six Months Ended June 30, 2009 | |||||||||||||||
| As reported | As restated | As reported | As restated | |||||||||||||
STATEMENTS OF INCOME: | ||||||||||||||||
Net income attributable to Landry’s | $ | 8,265,312 | $ | 8,265,312 | $ | 15,338,558 | $ | 15,338,558 | ||||||||
Less: Accretion of redeemable noncontrolling interest | — | 1,660,878 | — | 2,725,641 | ||||||||||||
Net income available to Landry’s common stockholders | $ | 8,265,312 | $ | 6,604,434 | $ | 15,338,558 | $ | 12,612,917 | ||||||||
EARNINGS (LOSS) PER SHARE INFORMATION: | ||||||||||||||||
| Amounts available to Landry’s common stockholders: | ||||||||||||||||
Income (loss) from continuing operations | $ | 8,313,179 | $ | 6,652,301 | $ | 15,437,328 | $ | 12,711,687 | ||||||||
Loss from discontinued operations | (47,867 | ) | (47,867 | ) | (98,770 | ) | (98,770 | ) | ||||||||
Net income (loss) | $ | 8,265,312 | $ | 6,604,434 | $ | 15,338,558 | $ | 12,612,917 | ||||||||
Amounts available to Landry’s common stockholders: | ||||||||||||||||
BASIC | ||||||||||||||||
Income (loss) from continuing operations | $ | 0.52 | $ | 0.42 | $ | 0.96 | $ | 0.79 | ||||||||
Loss from discontinued operations | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | ||||||||
Net income (loss) | $ | 0.51 | $ | 0.41 | $ | 0.95 | $ | 0.78 | ||||||||
Weighted average number of common shares outstanding | 16,140,000 | 16,140,000 | 16,140,000 | 16,140,000 | ||||||||||||
DILUTED | ||||||||||||||||
Income (loss) from continuing operations | $ | 0.51 | $ | 0.42 | $ | 0.96 | $ | 0.79 | ||||||||
Loss from discontinued operations | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | ||||||||
Net income (loss) | $ | 0.50 | $ | 0.41 | $ | 0.95 | $ | 0.78 | ||||||||
Weighted average number of common and common share equivalents outstanding | 16,205,000 | 16,205,000 | 16,180,000 | 16,180,000 | ||||||||||||
2. HURRICANE IKE
On September 13, 2008, Hurricane Ike struck the Gulf Coast of the United States, causing considerable damage to the cities of Galveston, Kemah and Houston, Texas and surrounding areas. Several of our restaurants in Galveston and Kemah sustained significant damage, as did the amusement rides, the boardwalk itself and some infrastructure at the Kemah Boardwalk. The Kemah and Galveston properties had been a significant driver of our overall performance in 2008. All Houston, Galveston and Kemah restaurants have reopened. The difference between impairments of book value arising from Hurricane Ike damage and the associated insurance proceeds resulted in the recognition of a $0.5 million and a $4.0 million gain during the three and six month period ended June 30, 2009, respectively.
We also maintain business interruption insurance coverage and have recorded approximately $0.2 million in recoveries during the six months ended June 30, 2009 related to lost profits at our affected locations in Galveston and the Kemah Boardwalk. This amount was recorded as revenue in our consolidated financial statements.
3. DISCONTINUED OPERATIONS AND IMPAIRMENT OF LONG LIVED ASSETS
During the third quarter of 2006, as part of a strategic review of our operations, we initiated a plan to divest certain restaurants including 136 Joe’s Crab Shack (“Joe’s”) units. Subsequently, several additional locations were added to our disposal plan. The results of operations for all stores included in our disposal plan have been classified as discontinued operations in our statements of income, balance sheets and segment information for all periods presented.
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On November 17, 2006, we completed the sale of 120 Joe’s restaurants to an unaffiliated entity for approximately $192.0 million, including the assumption of certain working capital liabilities to be finalized in 2009. In connection with the sale, we recorded pre-tax impairment charges and a loss on disposal totaling $49.2 million.
We expect to sell the land and improvements belonging to the remaining restaurants in the disposal plan, or abandon those locations, during the next twelve months.
The results of discontinued operations for the three and six months ended June 30, 2009 and 2008 were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenues | $ | — | $ | 3,811,071 | $ | — | $ | 7,566,800 | ||||||||
Loss from discontinued operations before income taxes | (76,710 | ) | (204,822 | ) | (158,285 | ) | (1,633,748 | ) | ||||||||
Income tax benefit on discontinued operations | (28,843 | ) | (71,688 | ) | (59,515 | ) | (571,812 | ) | ||||||||
Net loss from discontinued operations | $ | (47,867 | ) | $ | (133,134 | ) | $ | (98,770 | ) | $ | (1,061,936 | ) | ||||
We continually monitor unfavorable cash flows, if any, relating to under performing restaurants. Periodically, we may conclude certain properties have become impaired based on the existing and anticipated future economic outlook for such properties in their respective market areas. No impairment charges were recorded during the three and six months ended June 30, 2009.
4. ACCRUED LIABILITIES
Accrued liabilities are comprised of the following:
| June 30, 2009 | December 31, 2008 | |||||
Payroll and related costs | $ | 30,249,660 | $ | 22,345,794 | ||
Rent and insurance | 32,352,105 | 29,384,290 | ||||
Taxes, other than payroll and income taxes | 16,646,538 | 20,214,428 | ||||
Deferred revenue (gift cards and certificates) | 15,470,438 | 25,091,978 | ||||
Accrued interest | 17,771,061 | 2,612,258 | ||||
Casino deposits, outstanding chips and other gaming | 8,880,914 | 10,237,310 | ||||
Other | 23,760,446 | 24,430,271 | ||||
| $ | 145,131,162 | $ | 134,316,329 | |||
5. DEBT
During 2008, we obtained a financing commitment which included up to $250.0 million in term loans.
On December 19, 2008, we entered into an $81.0 million interim senior secured credit facility to fund a portion of the commitment. The interim senior secured credit facility provided for a $31.0 million senior secured term loan facility and a $50.0 million senior secured revolving credit facility, the proceeds of which were used to refinance the outstanding indebtedness under our previously issued and outstanding senior credit facility and to pay related transaction fees and expenses.
We subsequently funded an additional $135.0 million under the commitment by entering into a $215.6 million Amended and Restated Credit Agreement dated as of February 13, 2009 (the Credit Agreement) which included the interim senior secured credit facility. The Credit Agreement provides for a term loan of $165.6 million, which includes the $31 million term loan and the revolving credit line of $50.0 million that was previously funded. The obligations under the Credit Agreement are unconditionally guaranteed by the Guarantors and are secured by a first lien position on substantially all of our assets and the Guarantors.
We subsequently entered into a $215.6 million Amended and Restated Credit Agreement dated as of February 13, 2009 (the Credit Agreement) which replaced the interim senior secured credit facility. The Credit Agreement provides for a term loan of $165.6 million and a revolving credit line of $50.0 million. The obligations under the Credit Agreement are unconditionally guaranteed by the Guarantors defined below, and are secured by a first lien position on substantially all of our assets and the assets of the Guarantors.
Interest on the Credit Agreement accrues at a base rate (which is the greater of 5.50%, the Federal Funds Rate plus .50%, or Wells Fargo’s prime rate) plus a credit spread of 5.0%, or at our option, at the Eurodollar base rate of at least 3.5% plus a credit spread of 6.0%, and matures on May 13, 2011.
The Credit Agreement contains covenants that limit our and the Guarantors’ ability to, among other things, incur or guarantee additional indebtedness; create liens; make capital expenditures; pay dividends on, or repurchase, stock; make certain types of investments; sell assets or merge with other companies. The Credit Agreement contains financial covenants, including a maximum leverage ratio, a maximum senior leverage ratio, and a minimum fixed charge coverage ratio.
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On February 13, 2009, we completed the offering of $295.5 million in aggregate principal amount of 14.0% senior secured notes due 2011 (the Notes). The gross proceeds from the sale of the Notes were $260.0 million. The Notes are unconditionally guaranteed on a senior secured basis as to principal, premium, if any, and interest by all of our current and future domestic restricted subsidiaries (each individually a Guarantor and collectively, the Guarantors) and are secured by a second lien position on substantially all of our and the Guarantors’ assets. The Notes were issued pursuant to an indenture, dated as of February 13, 2009 (Indenture), among us, the Guarantors and Deutsche Bank Trust Company America, as Trustee and as Collateral Agent. On July 10, 2009, we and the Guarantors filed a registration statement with respect to an offer to exchange the Notes for notes registered under the Securities Act of 1933, as amended (the “Securities Act”), having substantially identical terms as the Notes.
The Notes will mature on August 15, 2011. Interest on the Notes accrue from February 13, 2009, at a fixed interest rate of 14.0% to be paid twice a year, on each February 15th and August 15th, beginning August 15, 2009. We may redeem the Notes any time at par, plus accrued interest. We are required to offer to purchase the Notes at 101% of their aggregate principal amount, plus accrued interest, if we experience a change in control as defined in the Indenture.
The Indenture under which the Notes have been issued contains a maximum leverage ratio covenant as well as restrictions that limit our ability and the ability of the Guarantors to, among other things: incur or guarantee additional indebtedness; create liens; pay dividends on or redeem or repurchase stock; make capital expenditures or certain types of investments; sell assets or merge with other companies.
We used the proceeds from the Notes offering, together with borrowings under the Credit Agreement to refinance our existing $395.7 million aggregate principal amount of 9.5% senior notes due 2014 (the “9.5% Notes”) and $4.3 million aggregate principal amount of 7.5% senior notes due 2014 (the “7.5% Notes” and, together with the 9.5% Notes, the “Existing Notes”). As of June 30, 2009, $0.8 million of our 7.5% Notes and $0.9 million of our 9.5% Notes remained outstanding. In addition, we paid a redemption premium of approximately $4.0 million in connection with the repurchase of the Existing Notes.
In connection with the refinancing of our Existing Notes, on December 23, 2008, we commenced separate cash tender offers (each a “tender offer” and together, the “tender offers”) to purchase any and all of our outstanding 9.5% Notes and 7.5% Notes for a purchase price of 101% of the principal amount thereof. In conjunction with the tender offers, we solicited consents of at least a majority of the aggregate principal amount of each of the outstanding 9.5% Notes and 7.5% Notes to certain proposed amendments to each of the indentures governing the 9.5% Notes and 7.5% Notes to eliminate most of the restrictive covenants and certain events of default and to amend certain other provisions contained in the indentures and notes related thereto. We executed supplemental indentures with U.S. Bank National Association, as trustee, to effectuate the proposed amendments to the indentures governing the Existing Notes, which became operative upon the consummation of the Notes offering.
With respect to any Existing Notes that were not tendered, we may, at our option, either (i) pay such Existing Notes in accordance with their terms through maturity, (ii) repurchase any 9.5% Notes if the holders exercise their option to require us to do so, at 101% of the principal amount plus accrued but unpaid interest, if any, through the payment date or (iii) defease any or all of the remaining Existing Notes.
In June 2007, our wholly owned unrestricted subsidiary, Golden Nugget, Inc. (the “Golden Nugget”), completed a new $545.0 million credit facility consisting of a $330.0 million first lien term loan, a $50.0 million revolving credit facility, and a $165.0 million second lien term loan. The $330.0 million first lien term loan includes a $120.0 million delayed draw component to finance the expansion at the Golden Nugget Hotel and Casino in Las Vegas, Nevada. The revolving credit facility expires on June 30, 2013 and the first lien term loan matures on June 30, 2014. Both the first lien term loan and the revolving credit facility bear interest at Libor or the bank’s base rate, plus a financing spread of 2.0% and 0.75%, respectively, at June 30, 2009. In addition, the credit facility requires a commitment fee on the unfunded portion for both the $50.0 million revolving credit facility and the $120.0 million delayed draw component of the first lien term loan. The second lien term loan matures on December 31, 2014 and bears interest at Libor or the bank’s base rate, plus a financing spread of 3.25% and 2.0%, respectively, at June 30, 2009. The financing spreads and commitment fees for the revolving credit facility increase or decrease depending on the leverage ratio as defined in the credit facility. The first lien term loan requires one percent of the outstanding principal balance due annually to be paid in equal quarterly installments commencing on September 30, 2009, with the balance due on maturity. Principal of the second lien term loan is due at maturity. The Golden Nugget’s subsidiaries have granted liens on substantially all real property and personal property as collateral under the credit facility and are guarantors of the credit facility.
The proceeds from the $545.0 million credit facility were used to repay all of the Golden Nugget’s outstanding debt, including its 8.75% Senior Secured Notes due 2011 totaling $155.0 million, plus the outstanding balance of approximately $10.0 million on its former $43.0 million revolving credit facility with Wells Fargo Foothill, Inc. In addition, the proceeds
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were used to pay associated tender premiums of approximately $8.8 million due to the early redemption of the Senior Secured Notes, plus accrued interest and related transaction fees and expenses. We expect to incur higher interest expense as a result of the increased borrowings associated with the Golden Nugget financing. In 2008, the revolver commitment was reduced to $47.0 million and the delayed draw term loan commitment was reduced to $117.5 million as a result of the failure of one of the lending banks.
Consistent with our policy to manage our exposure to interest rate risk and in conformity with the requirements of the first and second lien facilities, we entered into interest rate swaps for all of the first and second lien borrowings of the Golden Nugget that fix the interest rates at between 5.4% and 5.5%, plus the applicable margin. We have designated $210.0 million of the first lien interest rate swaps and all of the second lien swaps as cash flow hedging transactions as set forth in SFAS 133. These swaps mirror the terms of the underlying debt and reset using the same index and terms. At June 30, 2009 these swaps were determined to be highly effective, and no ineffective portion was recognized in income. Included in Accumulated other comprehensive loss at June 30, 2009 and December 31, 2008 are unrealized losses, net of income taxes, totaling $30.8 million and $44.3 million, respectively, related to these hedges. The impact of these interest rate swaps was an increase to interest expense of $5.5 million and $2.7 million during the three months ended June 30, 2009 and 2008, respectively, and $11.0 million and $4.4 million during the six months ended June 30, 2009 and 2008, respectively. The remaining interest rate swaps associated with the $120.0 million of first lien borrowings reflecting the delayed draw construction loan have not been designated as hedges and the change in fair market value is reflected as other income/expense in the consolidated financial statements. Accordingly, a non-cash gain of approximately $4.5 million and $4.4 million was recorded for the three months ended June 30, 2009 and 2008, respectively. For the six months ended June 30, 2009 we recorded a non-cash gain of $4.9 million and an expense of $0.2 million for the six months ended June 30, 2008.
Our debt agreements contain various restrictive covenants including minimum EBITDA, fixed charge and financial leverage ratios, limitations on capital expenditures, and other restricted payments as defined in the agreements. In addition, the Golden Nugget debt agreement requires a parent contribution if the leverage ratio, as defined, falls below a predetermined level through December 31, 2009. The contribution is required to be made within 10 days of reporting the Golden Nugget quarterly results to the lenders. As a result of reduced operating results combined with additional borrowings for construction of the new tower, we contributed approximately $12.7 million in cash to the Golden Nugget in May 2009 and expect to contribute approximately $6.0 million in August 2009. As of June 30, 2009, we were in compliance with all such covenants and had approximately $20.7 million in letters of credit outstanding, and our available borrowing capacity was $76.3 million.
Long-term debt is comprised of the following:
| June 30, 2009 | December 31, 2008 | |||||
$50.0 million revolving credit facility, Libor + 2.0%, due March 2011 | $ | — | $ | 4,182,803 | ||
$165.6 million Term loan, Libor + 6.0% with Libor no less than 3.5%, 9.5% interest paid quarterly, principal paid quarterly beginning June 30, 2009, due March 2011 | 158,449,246 | 30,015,514 | ||||
Senior Notes, 14.0% interest only, due August 2011 | 264,359,965 | — | ||||
Senior Notes, 9.5% interest only, due December 2014 | 855,000 | 395,662,000 | ||||
Senior Notes, 7.5% interest only, due December 2014 | 783,000 | 4,338,000 | ||||
$47.0 million revolving credit facility, Libor + 2.0%, due June 2013 | — | 8,000,000 | ||||
$327.0 million First Lien Term Loan, Libor + 2.0%, 1% of principal paid quarterly beginning September 30, 2009, due June 2014 | 327,133,236 | 249,515,152 | ||||
$165.0 million Second Lien Term Loan, Libor + 3.25%, interest only, due December 2014 | 165,000,000 | 165,000,000 | ||||
Non-recourse long-term note payable, 9.39% interest, principal and interest aggregate $101,762 monthly, due May 2010 | 10,292,362 | 10,411,034 | ||||
Other long-term notes payable with various interest rates, principal and interest paid monthly | — | 3,832 | ||||
$4.0 million seller note, 7.0%, interest paid monthly, due November 2010 | 4,000,000 | 4,000,000 | ||||
Total debt | 930,872,809 | 871,128,335 | ||||
Less current portion | 15,579,815 | 8,752,906 | ||||
Long-term portion | $ | 915,292,994 | $ | 862,375,429 | ||
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6. EARNINGS PER SHARE (Restated)
A reconciliation of the amounts used to compute earnings (loss) per share is as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
Amounts available to Landry’s common stockholders: | ||||||||||||||||
Income (loss) from continuing operations | $ | 6,652,301 | $ | 14,004,720 | $ | 12,711,687 | $ | 16,455,277 | ||||||||
Loss from discontinued operations | (47,867 | ) | (133,134 | ) | (98,770 | ) | (1,061,936 | ) | ||||||||
Net income (loss) | $ | 6,604,434 | $ | 13,871,586 | $ | 12,612,917 | $ | 15,393,341 | ||||||||
Weighted average common shares outstanding—basic | 16,140,000 | 16,140,000 | 16,140,000 | 16,140,000 | ||||||||||||
Dilutive common stock equivalents: | ||||||||||||||||
Stock options | 65,000 | 230,000 | 40,000 | 240,000 | ||||||||||||
Weighted average common and common share equivalents outstanding—diluted | 16,205,000 | 16,370,000 | 16,180,000 | 16,380,000 | ||||||||||||
Earnings (loss) per share—basic | ||||||||||||||||
Income from continuing operations | $ | 0.42 | $ | 0.87 | $ | 0.79 | $ | 1.02 | ||||||||
Loss from discontinued operations, net of taxes | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.07 | ) | ||||||||
Net income | $ | 0.41 | $ | 0.86 | $ | 0.78 | $ | 0.95 | ||||||||
Earnings (loss) per share—diluted | ||||||||||||||||
Income from continuing operations | $ | 0.42 | $ | 0.86 | $ | 0.79 | $ | 1.00 | ||||||||
Loss from discontinued operations, net of taxes | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.06 | ) | ||||||||
Net income | $ | 0.41 | $ | 0.85 | $ | 0.78 | $ | 0.94 | ||||||||
In June 2008, the FASB issued Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities . In accordance with the FSP, unvested equity-based awards that contain non-forfeitable rights to dividends are considered to participate with common shareholders in undistributed earnings. As a result, our unvested awards of restricted stock are required to be included in the calculation of basic earnings per common share. These participating securities, prior to application of the FSP, were excluded from weighted-average common shares outstanding in the calculation of basic earnings per common share. The basic and diluted earnings per share amounts have been retroactively adjusted for all periods presented.
7. STOCK-BASED COMPENSATION
In December 2004, the FASB issued SFAS No. 123R,Share-Based Payments. SFAS No. 123R requires the recognition of the cost of employee services received in exchange for awards of equity instruments, such as stock options and restricted stock, based on the fair value of those awards at the date of grant. We adopted SFAS No. 123R effective January 1, 2006 using the modified-prospective method. We have several stock-based employee compensation plans, which are more fully described in our 2008 Annual Report on Form 10-K.
For the three months ended June 30, 2009 and 2008, total stock-based compensation expense, which includes both stock options and restricted stock, totaled $0.9 million and $1.0 million, respectively. For the six months ended June 30, 2009 and 2008, total stock-based compensation expense totaled $1.8 million and $2.1 million, respectively. Stock-based compensation expense is not reported at the segment level as these amounts are not included in internal measurements of segment operating performance.
8. INCOME TAXES
Effective January 1, 2007, we adopted the provisions of the FASB issued Interpretation No. 48 (“FIN 48”),Accounting for Uncertainty in Income Taxes. As of January 1, 2009, we had approximately $15.7 million of unrecognized tax benefits, including $2.3 million of interest and penalties, which represents the amount of unrecognized tax benefits that, if recognized, would favorably impact our effective income tax rate in future periods. There were no material changes in unrecognized benefits for the six months ended June 30, 2009. It is reasonably possible that the amount of unrecognized tax benefits with respect to our uncertain tax positions could significantly increase or decrease within 12 months. However, based on the current status of examinations, it is not possible to estimate the future impact, if any, to recorded uncertain tax positions at June 30, 2009. Our continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense.
14
We are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. We have substantially concluded all U.S. federal income tax matters for years through 2005. Substantially all material state and local income tax matters have been concluded for years through 2004. The Internal Revenue Service has substantially completed its audit of tax years ended December 31, 2004 and December 31, 2005 with no material issues identified to date.
9. COMMITMENTS AND CONTINGENCIES
Building Commitments
As of June 30, 2009, we had future development, land purchases and construction commitments anticipated to be expended within the next 12 months of approximately $60.5 million, including construction of certain new restaurants and the construction of a hotel tower at the Golden Nugget – Las Vegas. We estimate aggregate capital expenditures for the remainder of the year to be $45.8 million, most of which relates to the tower.
In 2003, we purchased the Flagship Hotel and Pier from the City of Galveston, Texas, subject to an existing lease. Under this agreement, we have committed to spend an additional $15.0 million to transform the hotel and pier into a 19th century style inn and entertainment complex complete with rides and carnival type games. The property was significantly damaged by Hurricane Ike in 2008. We are currently in litigation with the former tenant due to its failure to purchase adequate insurance and are evaluating our options concerning the property.
Other Commitments
On February 24, 2006, we acquired 80% of T-Rex Cafe, Inc. from Schussler Creative, Inc. (SCI). The agreement with SCI provides that we can acquire SCI’s 20% interest for up to $35.0 million or that SCI can put its interest to us at a calculated amount as determined in the agreement no earlier than January 2010. During the first quarter of 2009, we determined that the redemption was probable and began accreting to the expected redemption value on the expected redemption date. We are recording the estimated amount as an increase to non-controlling interests liability and a decrease to retained earnings in our consolidated balance sheets as of June 30, 2009.
Certain of our casino employees at the Golden Nugget in Las Vegas, Nevada are members of various unions and are covered by union-sponsored, collective bargained, multi-employer health and welfare and defined benefit pension plans. Under such plans, we recorded expenses of $3.3 million and $4.0 million for the three months ended June 30, 2009 and 2008, respectively and $6.8 million and $7.5 million for the six months ended June 30, 2009 and 2008, respectively. The plans’ sponsors have not provided sufficient information to permit us to determine its share of unfunded vested benefits, if any. However, based on available information, we do not believe that unfunded amounts attributable to our casino operations are material.
We are self-insured for most health care benefits for our non-union casino employees. The liability for claims filed and estimates of claims incurred but not reported is included in “accrued liabilities” in the accompanying consolidated balance sheets.
In connection with certain of our discontinued operations, we remain the guarantor or assignor of a number of leased locations. In the event of future default under any of such leased locations, we may be responsible for significant damages to existing landlords which may materially affect our financial condition, operating results and/or cash flows. We estimate that lessee rental payment obligations during the remaining terms of the assignments and subleases approximate $67.8 million at June 30, 2009. We have recorded a liability of $5.7 million with respect to these obligations, where it is probable that we will make future cash payments. We believe the remaining obligations will be met by the third party.
We manage and operate the Galveston Island Convention Center in Galveston, Texas. In connection with the Galveston Island Convention Center Management Contract (“Contract”), we agreed to fund operating losses, if any, subject to certain rights of reimbursement. Under the Contract, we have the right to one-half of any profits generated by the operation of the Convention Center.
Litigation and Claims
Following Mr. Fertitta’s proposal to acquire all of our outstanding stock in 2008, two putative class action lawsuits were filed as follows:
James F. Stuart, individually and on behalf of all others similarly situated v. Landry’s Restaurants, Inc. et al., was filed on June 26, 2008 in the Court of Chancery of the State of Delaware (“Stuart”). We are named as a defendant along with our directors, among others. Stuart is a putative class action in which plaintiff alleges that the merger agreement unduly hinders obtaining the highest value for shares of our stock. Plaintiff also alleges that the merger is unfair. Plaintiff seeks to enjoin or rescind the merger, an accounting and damages along with costs and fees.
15
David Barfield v. Landry’s Restaurants, Inc. et al., was filed on June 27, 2008 in the Court of Chancery of the State of Delaware (“Barfield”). We are named in this case along with our directors, among others.Barfield is a putative class action in which plaintiff alleges that our directors aided and abetted Fertitta Holdings, Inc. and Fertitta Acquisition Co. (Parent and Merge Sub, respectively), and have breached their fiduciary duties by failing to engage in a fair and reliable sales process leading up to the merger agreement. Plaintiff seeks to enjoin or rescind the transaction, an accounting and damages along with costs and fees.
Stuart and Barfield were consolidated by court order. The consolidated action is proceeding under Consolidated C.A. No. 3856-VCL;In re: Landry’s Restaurants, Inc. Shareholder Litigation. In their consolidated complaint, plaintiffs allege that our directors breached fiduciary duties to our stockholders and that the preliminary proxy statement filed on July 17, 2008 fails to disclose what plaintiffs contend are material facts. Plaintiffs also alleged that we, Parent and Merger Sub aided and abetted the alleged breach of fiduciary duty. We believe that this action is without merit and intend to contest the above matter vigorously.
On February 5, 2009, a purported class action and derivative lawsuit entitledLouisiana Municipal Police Employee’s Retirement System on behalf of itself and all other similarly situated shareholders of Landry’s Restaurant’s, Inc. and derivatively on behalf of minimal defendant Landry’s Restaurant’s, Inc. was brought against all members of our Board of Directors, Parent, and Merger Sub in the Court at Chancery of the State of Delaware. The lawsuit alleges, among other things, a breach of a fiduciary duty by the directors for renegotiating the Merger Agreement with the Fertitta entities, allowing Mr. Fertitta to acquire shares of stock in the Company and gain majority control thereof, and terminating the Merger Agreement without requiring payment of the reverse termination fee. The suit seeks consummation of the merger buyout at $21.00 a share or damages representing the difference between $21.00 per share and the price at which class members sold their stock in the open market, or damages for allowing Mr. Fertitta to acquire control of the Company without paying a control premium, or alternately requiring payment of the reverse termination fee or damages for the devaluation of the Company’s stock. We believe that the action is without merit and intend to contest this matter vigorously.
General Litigation
We are subject to other legal proceedings and claims that arise in the ordinary course of business. Management does not believe that the outcome of any of those matters will have a material adverse effect on our financial position, results of operations or cash flows.
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10. SEGMENT INFORMATION
The following table presents certain financial information for continuing operations with respect to our reportable segments:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| 2009 | 2008 | 2009 | 2008 | ||||||||||||
Revenue: | |||||||||||||||
Restaurant and Hospitality | $ | 225,508,163 | $ | 241,570,829 | $ | 425,783,813 | $ | 464,112,021 | |||||||
Gaming | 56,497,178 | 66,531,446 | 112,511,511 | 136,311,562 | |||||||||||
Total | $ | 282,005,341 | $ | 308,102,275 | $ | 538,295,324 | $ | 600,423,583 | |||||||
Unit level profit: | |||||||||||||||
Restaurant and Hospitality | $ | 52,042,588 | $ | 50,709,654 | $ | 103,785,336 | $ | 92,762,050 | |||||||
Gaming | 12,474,029 | 17,309,225 | 25,192,184 | 35,826,361 | |||||||||||
Total | $ | 64,516,617 | $ | 68,018,879 | $ | 128,977,520 | $ | 128,588,411 | |||||||
Depreciation, amortization and impairment: | |||||||||||||||
Restaurant and Hospitality | $ | 12,358,543 | $ | 14,017,133 | $ | 24,783,404 | $ | 26,440,507 | |||||||
Gaming | 5,342,664 | 5,286,621 | 10,678,294 | 10,528,158 | |||||||||||
Total | $ | 17,701,207 | $ | 19,303,754 | $ | 35,461,698 | $ | 36,968,665 | |||||||
Income before taxes: | |||||||||||||||
Unit level profit | $ | 64,516,617 | $ | 68,018,879 | $ | 128,977,520 | $ | 128,588,411 | |||||||
Depreciation, amortization and impairment | 17,701,207 | 19,303,754 | 35,461,698 | 36,968,665 | |||||||||||
General and administrative | 12,622,404 | 12,353,190 | 24,680,554 | 25,143,388 | |||||||||||
Gain on insurance claims | (520,751 | ) | — | (4,003,648 | ) | — | |||||||||
Loss (gain) on disposal of assets | (741,016 | ) | — | (1,363,315 | ) | — | |||||||||
Pre-opening | 459,398 | 372,424 | 715,562 | 840,350 | |||||||||||
Interest expense, net | 28,542,043 | 19,924,731 | 53,156,617 | 40,684,313 | |||||||||||
Other expenses (income) | (4,690,409 | ) | (4,156,481 | ) | (555,997 | ) | 1,147,923 | ||||||||
Consolidated income from continuing operations before taxes | $ | 11,143,741 | $ | 20,221,261 | $ | 20,886,049 | $ | 23,803,772 | |||||||
| June 30, 2009 | December 31, 2008 | ||||||||||||||
Segment assets: | |||||||||||||||
Restaurant and Hospitality | $ | 726,055,321 | $ | 720,728,486 | |||||||||||
Gaming | 644,980,621 | 601,475,227 | |||||||||||||
Corporate and other (1) | 211,428,352 | 193,120,377 | |||||||||||||
| $ | 1,582,464,294 | $ | 1,515,324,090 | ||||||||||||
| (1) | Includes intersegment eliminations and assets and liabilities related to discontinued operations |
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11. SUPPLEMENTAL GUARANTOR INFORMATION
In February 2009, we issued $295.5 million of 14% senior secured notes due in 2011 (see Note 5 “Debt”). These notes are fully and unconditionally and joint and severally guaranteed by us and certain of our 100% owned subsidiaries, “Guarantor Subsidiaries”.
The following condensed consolidating financial statements present separately the financial position, results of operations and cash flows of the Guarantor, subsidiaries and our Non-guarantor subsidiaries on a combined basis with eliminating entries.
Condensed Unaudited Consolidating Financial Statements
Balance Sheet
June 30, 2009
| Parent | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated Entity | ||||||||||||||
| ASSETS | ||||||||||||||||||
CURRENT ASSETS: | ||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 4,115,305 | $ | 62,754,708 | $ | (1,084,910 | ) | $ | 65,785,103 | |||||||
Accounts receivable—trade and other, net | 2,797,602 | 6,178,564 | 5,097,736 | — | 14,073,902 | |||||||||||||
Inventories | 9,193,544 | 13,029,447 | 2,457,029 | — | 24,680,020 | |||||||||||||
Deferred taxes | 21,864,886 | 1,183,034 | 3,136,693 | — | 26,184,613 | |||||||||||||
Assets related to discontinued operations | 2,520,286 | 466,091 | — | — | 2,986,377 | |||||||||||||
Other current assets | 7,205,144 | 2,793,169 | 4,984,532 | — | 14,982,845 | |||||||||||||
Total current assets | 43,581,462 | 27,765,610 | 78,430,698 | (1,084,910 | ) | 148,692,860 | ||||||||||||
PROPERTY AND EQUIPMENT, net | 9,460,927 | 660,607,941 | 641,914,050 | — | 1,311,982,918 | |||||||||||||
GOODWILL | — | 18,527,547 | — | — | 18,527,547 | |||||||||||||
OTHER INTANGIBLE ASSETS, net | 1,991,592 | 8,468,181 | 28,341,222 | — | 38,800,995 | |||||||||||||
INVESTMENT IN AND ADVANCES TO SUBSIDIARIES | 760,175,440 | (21,084,547 | ) | (139,883,683 | ) | (599,207,210 | ) | — | ||||||||||
OTHER ASSETS, net | 38,809,675 | 51,072 | 25,599,227 | — | 64,459,974 | |||||||||||||
Total assets | $ | 854,019,096 | $ | 694,335,804 | $ | 634,401,514 | $ | (600,292,120 | ) | $ | 1,582,464,294 | |||||||
| LIABILITIES AND EQUITY | ||||||||||||||||||
CURRENT LIABILITIES: | ||||||||||||||||||
Accounts payable | $ | 18,773,815 | $ | 20,860,877 | $ | 28,400,785 | $ | — | $ | 68,035,477 | ||||||||
Accrued liabilities | 61,538,908 | 48,890,678 | 35,786,486 | (1,084,910 | ) | 145,131,162 | ||||||||||||
Income taxes payable | 1,430,489 | — | 1,585,646 | — | 3,016,135 | |||||||||||||
Current portion of long-term debt and other obligations | 12,105,000 | — | 3,474,815 | — | 15,579,815 | |||||||||||||
Liabilities related to discontinued operations | — | 4,177,677 | — | — | 4,177,677 | |||||||||||||
Total current liabilities | 93,848,212 | 73,929,232 | 69,247,732 | (1,084,910 | ) | 235,940,266 | ||||||||||||
LONG-TERM NOTES, NET OF CURRENT PORTION | 412,342,211 | — | 502,950,783 | — | 915,292,994 | |||||||||||||
OTHER LIABILITIES | 24,353,953 | 20,209,124 | 63,193,237 | — | 107,756,314 | |||||||||||||
Total liabilities | 530,544,376 | 94,138,356 | 635,391,752 | (1,084,910 | ) | 1,258,989,574 | ||||||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||||||||||||
TOTAL EQUITY | 323,474,720 | 600,197,448 | (990,238 | ) | (599,207,210 | ) | 323,474,720 | |||||||||||
Total liabilities and equity | $ | 854,019,096 | $ | 694,335,804 | $ | 634,401,514 | $ | (600,292,120 | ) | $ | 1,582,464,294 | |||||||
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Condensed Consolidating Financial Statements
Balance Sheet
December 31, 2008
| Parent | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated Entity | ||||||||||||||
| ASSETS | ||||||||||||||||||
CURRENT ASSETS: | ||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 5,705,232 | $ | 46,595,810 | $ | (1,234,237 | ) | $ | 51,066,805 | |||||||
Accounts receivable—trade and other, net | 1,101,730 | 11,888,296 | 5,031,079 | — | 18,021,105 | |||||||||||||
Inventories | 9,704,247 | 13,308,701 | 3,148,144 | — | 26,161,092 | |||||||||||||
Deferred taxes | 23,786,393 | 1,107,582 | 3,107,292 | — | 28,001,267 | |||||||||||||
Assets related to discontinued operations | 2,509,248 | 464,345 | — | — | 2,973,593 | |||||||||||||
Other current assets | 2,482,521 | 2,348,472 | 4,271,036 | — | 9,102,029 | |||||||||||||
Total current assets | 39,584,139 | 34,822,628 | 62,153,361 | (1,234,237 | ) | 135,325,891 | ||||||||||||
PROPERTY AND EQUIPMENT, net | 12,363,905 | 654,061,082 | 592,761,476 | — | 1,259,186,463 | |||||||||||||
GOODWILL | — | 18,527,547 | — | — | 18,527,547 | |||||||||||||
OTHER INTANGIBLE ASSETS, net | 1,880,275 | 8,481,376 | 28,511,222 | — | 38,872,873 | |||||||||||||
INVESTMENT IN AND ADVANCES TO SUBSIDIARIES | 750,833,921 | (122,866,613 | ) | (153,010,055 | ) | (474,957,253 | ) | — | ||||||||||
OTHER ASSETS, net | 26,794,020 | 1,969,121 | 34,648,175 | — | 63,411,316 | |||||||||||||
Total assets | $ | 831,456,260 | $ | 594,995,141 | $ | 565,064,179 | $ | (476,191,490 | ) | $ | 1,515,324,090 | |||||||
| LIABILITIES AND EQUITY | ||||||||||||||||||
CURRENT LIABILITIES: | ||||||||||||||||||
Accounts payable | $ | 25,079,676 | $ | 20,756,949 | $ | 24,521,846 | $ | — | $ | 70,358,471 | ||||||||
Accrued liabilities | 48,074,063 | 50,450,283 | 37,026,220 | (1,234,237 | ) | 134,316,329 | ||||||||||||
Income taxes payable | 2,784,703 | — | — | — | 2,784,703 | |||||||||||||
Current portion of long-term debt and other obligations | 7,503,833 | — | 1,249,073 | — | 8,752,906 | |||||||||||||
Liabilities related to discontinued operations | — | 5,149,365 | — | — | 5,149,365 | |||||||||||||
Total current liabilities | 83,442,275 | 76,356,597 | 62,797,139 | (1,234,237 | ) | 221,361,774 | ||||||||||||
LONG-TERM NOTES, NET OF CURRENT PORTION | 426,698,317 | — | 435,677,112 | — | 862,375,429 | |||||||||||||
DEFERRED TAXES | — | 2,089,261 | — | (2,089,261 | ) | — | ||||||||||||
OTHER LIABILITIES | 25,838,563 | 21,405,413 | 88,865,806 | — | 136,109,782 | |||||||||||||
Total liabilities | 535,979,155 | 99,851,271 | 587,340,057 | (3,323,498 | ) | 1,219,846,985 | ||||||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||||||||||||
TOTAL EQUITY | 295,477,105 | 495,143,870 | (22,275,878 | ) | (472,867,992 | ) | 295,477,105 | |||||||||||
Total liabilities and equity | $ | 831,456,260 | $ | 594,995,141 | $ | 565,064,179 | $ | (476,191,490 | ) | $ | 1,515,324,090 | |||||||
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Condensed Unaudited Consolidating Financial Statements
Statement of Income
Three Months Ended June 30, 2009
| Parent | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated Entity | ||||||||||||||||
REVENUES | ||||||||||||||||||||
Restaurant and hospitality | $ | 511,813 | $ | 222,346,836 | $ | 3,406,034 | $ | (756,520 | ) | $ | 225,508,163 | |||||||||
Gaming: | ||||||||||||||||||||
Casino | — | — | 34,427,793 | — | 34,427,793 | |||||||||||||||
Rooms | — | — | 12,441,637 | — | 12,441,637 | |||||||||||||||
Food and beverage | — | — | 11,718,082 | — | 11,718,082 | |||||||||||||||
Other | — | — | 4,109,943 | — | 4,109,943 | |||||||||||||||
Promotional allowances | — | — | (6,200,277 | ) | — | (6,200,277 | ) | |||||||||||||
Net gaming revenue | — | — | 56,497,178 | — | 56,497,178 | |||||||||||||||
Total revenue | 511,813 | 222,346,836 | 59,903,212 | (756,520 | ) | 282,005,341 | ||||||||||||||
OPERATING COSTS AND EXPENSES: | ||||||||||||||||||||
Restaurant and hospitality: | ||||||||||||||||||||
Cost of revenues | — | 53,610,512 | 495,366 | — | 54,105,878 | |||||||||||||||
Labor | — | 63,308,614 | 881,275 | — | 64,189,889 | |||||||||||||||
Other operating expenses | (75,322 | ) | 54,725,971 | 1,275,679 | (756,520 | ) | 55,169,808 | |||||||||||||
Gaming: | ||||||||||||||||||||
Casino | — | — | 17,511,110 | — | 17,511,110 | |||||||||||||||
Rooms | — | — | 5,772,122 | — | 5,772,122 | |||||||||||||||
Food and beverage | — | — | 6,732,630 | — | 6,732,630 | |||||||||||||||
Other | — | — | 14,007,287 | — | 14,007,287 | |||||||||||||||
General and administrative expense | 12,622,404 | — | — | — | 12,622,404 | |||||||||||||||
Depreciation and amortization | 935,411 | 10,913,275 | 5,852,521 | — | 17,701,207 | |||||||||||||||
Gain on insurance claims | (158,788 | ) | — | (361,963 | ) | — | (520,751 | ) | ||||||||||||
Loss (gain) on disposal of assets | — | — | (741,016 | ) | — | (741,016 | ) | |||||||||||||
Pre-opening expenses | — | 459,398 | — | — | 459,398 | |||||||||||||||
Total operating costs and expenses | 13,323,705 | 183,017,770 | 51,425,011 | (756,520 | ) | 247,009,966 | ||||||||||||||
OPERATING INCOME | (12,811,892 | ) | 39,329,066 | 8,478,201 | — | 34,995,375 | ||||||||||||||
OTHER EXPENSES (INCOME): | ||||||||||||||||||||
Interest expense, net | 20,417,036 | (69 | ) | 8,125,076 | — | 28,542,043 | ||||||||||||||
Other, net | (411,144 | ) | — | (4,279,265 | ) | — | (4,690,409 | ) | ||||||||||||
Total other expense | 20,005,892 | (69 | ) | 3,845,811 | — | 23,851,634 | ||||||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | (32,817,784 | ) | 39,329,135 | 4,632,390 | — | 11,143,741 | ||||||||||||||
PROVISION (BENEFIT) FOR INCOME TAXES | (7,710,625 | ) | 9,150,063 | 1,107,394 | — | 2,546,832 | ||||||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS | (25,107,159 | ) | 30,179,072 | 3,524,996 | — | 8,596,909 | ||||||||||||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS NET OF TAXES | — | (47,867 | ) | — | — | (47,867 | ) | |||||||||||||
EQUITY IN EARNINGS OF SUBSIDIARIES | 33,656,201 | — | — | (33,656,201 | ) | — | ||||||||||||||
NET INCOME | 8,549,042 | 30,131,205 | 3,524,996 | (33,656,201 | ) | 8,549,042 | ||||||||||||||
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | 283,730 | — | — | — | 283,730 | |||||||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO LANDRY’S | $ | 8,265,312 | $ | 30,131,205 | $ | 3,524,996 | $ | (33,656,201 | ) | $ | 8,265,312 | |||||||||
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Condensed Unaudited Consolidating Financial Statements
Statement of Income
Three Months Ended June 30, 2008
| Parent | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated Entity | ||||||||||||||||
REVENUES | ||||||||||||||||||||
Restaurant and hospitality | $ | 564,676 | $ | 238,482,492 | $ | 3,386,520 | $ | (862,859 | ) | $ | 241,570,829 | |||||||||
Gaming: | ||||||||||||||||||||
Casino | — | — | 40,268,189 | — | 40,268,189 | |||||||||||||||
Rooms | — | — | 16,548,192 | — | 16,548,192 | |||||||||||||||
Food and beverage | — | — | 12,428,838 | — | 12,428,838 | |||||||||||||||
Other | — | — | 3,600,419 | — | 3,600,419 | |||||||||||||||
Promotional allowances | — | — | (6,314,192 | ) | — | (6,314,192 | ) | |||||||||||||
Net gaming revenue | — | — | 66,531,446 | — | 66,531,446 | |||||||||||||||
Total revenue | 564,676 | 238,482,492 | 69,917,966 | (862,859 | ) | 308,102,275 | ||||||||||||||
OPERATING COSTS AND EXPENSES: | ||||||||||||||||||||
Restaurant and hospitality: | ||||||||||||||||||||
Cost of revenues | — | 62,386,897 | 529,788 | — | 62,916,685 | |||||||||||||||
Labor | — | 67,767,205 | 1,012,048 | — | 68,779,253 | |||||||||||||||
Other operating expenses | (22,331 | ) | 58,999,912 | 1,050,515 | (862,859 | ) | 59,165,237 | |||||||||||||
Gaming: | ||||||||||||||||||||
Casino | — | — | 20,310,724 | — | 20,310,724 | |||||||||||||||
Rooms | — | — | 6,442,130 | — | 6,442,130 | |||||||||||||||
Food and beverage | — | — | 7,468,472 | — | 7,468,472 | |||||||||||||||
Other | — | — | 15,000,895 | — | 15,000,895 | |||||||||||||||
General and administrative expense | 12,353,190 | — | — | — | 12,353,190 | |||||||||||||||
Depreciation and amortization | 838,075 | 11,360,654 | 5,511,884 | — | 17,710,613 | |||||||||||||||
Asset impairment expense | — | 1,593,141 | — | — | 1,593,141 | |||||||||||||||
Pre-opening expenses | — | 372,424 | — | — | 372,424 | |||||||||||||||
Total operating costs and expenses | 13,168,934 | 202,480,233 | 57,326,456 | (862,859 | ) | 272,112,764 | ||||||||||||||
OPERATING INCOME | (12,604,258 | ) | 36,002,259 | 12,591,510 | — | 35,989,511 | ||||||||||||||
OTHER EXPENSES (INCOME): | ||||||||||||||||||||
Interest expense, net | 10,854,827 | — | 9,069,904 | — | 19,924,731 | |||||||||||||||
Other, net | 146,879 | 631 | (4,303,991 | ) | — | (4,156,481 | ) | |||||||||||||
Total other expense | 11,001,706 | 631 | 4,765,913 | — | 15,768,250 | |||||||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | (23,605,964 | ) | 36,001,628 | 7,825,597 | — | 20,221,261 | ||||||||||||||
PROVISION (BENEFIT) FOR INCOME TAXES | (8,260,387 | ) | 12,097,518 | 2,379,410 | — | 6,216,541 | ||||||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS | (15,345,577 | ) | 23,904,110 | 5,446,187 | — | 14,004,720 | ||||||||||||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS NET OF TAXES | — | (133,134 | ) | — | — | (133,134 | ) | |||||||||||||
EQUITY IN EARNINGS OF SUBSIDIARIES | 29,217,163 | — | — | (29,217,163 | ) | — | ||||||||||||||
NET INCOME | 13,871,586 | 23,770,976 | 5,446,187 | (29,217,163 | ) | 13,871,586 | ||||||||||||||
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | — | — | — | — | — | |||||||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO LANDRY’S | $ | 13,871,586 | $ | 23,770,976 | $ | 5,446,187 | $ | (29,217,163 | ) | $ | 13,871,586 | |||||||||
21
Condensed Unaudited Consolidating Financial Statements
Statement of Income
Six Months Ended June 30, 2009
| Parent | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated Entity | ||||||||||||||||
REVENUES | ||||||||||||||||||||
Restaurant and hospitality | $ | 988,278 | $ | 418,589,258 | $ | 7,876,972 | $ | (1,670,695 | ) | $ | 425,783,813 | |||||||||
Gaming: | ||||||||||||||||||||
Casino | — | — | 70,396,082 | — | 70,396,082 | |||||||||||||||
Rooms | — | — | 24,847,453 | — | 24,847,453 | |||||||||||||||
Food and beverage | — | — | 22,204,310 | — | 22,204,310 | |||||||||||||||
Other | — | — | 7,722,307 | — | 7,722,307 | |||||||||||||||
Promotional allowances | — | — | (12,658,641 | ) | — | (12,658,641 | ) | |||||||||||||
Net gaming revenue | — | — | 112,511,511 | — | 112,511,511 | |||||||||||||||
Total revenue | 988,278 | 418,589,258 | 120,388,483 | (1,670,695 | ) | 538,295,324 | ||||||||||||||
OPERATING COSTS AND EXPENSES: | ||||||||||||||||||||
Restaurant and hospitality: | ||||||||||||||||||||
Cost of revenues | — | 102,755,506 | 1,013,897 | — | 103,769,403 | |||||||||||||||
Labor | — | 120,486,977 | 1,698,620 | — | 122,185,597 | |||||||||||||||
Other operating expenses | (469,551 | ) | 95,638,122 | 2,545,601 | (1,670,695 | ) | 96,043,477 | |||||||||||||
Gaming: | ||||||||||||||||||||
Casino | — | — | 37,131,600 | — | 37,131,600 | |||||||||||||||
Rooms | — | — | 11,381,837 | — | 11,381,837 | |||||||||||||||
Food and beverage | — | — | 12,433,916 | — | 12,433,916 | |||||||||||||||
Other | — | — | 26,371,974 | — | 26,371,974 | |||||||||||||||
General and administrative expense | 24,680,554 | — | — | — | 24,680,554 | |||||||||||||||
Depreciation and amortization | 1,958,626 | 21,958,711 | 11,544,361 | — | 35,461,698 | |||||||||||||||
Gain on insurance claims | (3,641,685 | ) | — | (361,963 | ) | — | (4,003,648 | ) | ||||||||||||
Loss (gain) on disposal of assets | (4,931 | ) | — | (1,358,384 | ) | — | (1,363,315 | ) | ||||||||||||
Pre-opening expenses | — | 715,562 | — | — | 715,562 | |||||||||||||||
Total operating costs and expenses | 22,523,013 | 341,554,878 | 102,401,459 | (1,670,695 | ) | 464,808,655 | ||||||||||||||
OPERATING INCOME | (21,534,735 | ) | 77,034,380 | 17,987,024 | — | 73,486,669 | ||||||||||||||
OTHER EXPENSES (INCOME): | ||||||||||||||||||||
Interest expense, net | 36,385,359 | (69 | ) | 16,771,327 | — | 53,156,617 | ||||||||||||||
Other, net | 3,863,993 | (121 | ) | (4,419,869 | ) | — | (555,997 | ) | ||||||||||||
Total other expense | 40,249,352 | (190 | ) | 12,351,458 | — | 52,600,620 | ||||||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | (61,784,087 | ) | 77,034,570 | 5,635,566 | — | 20,886,049 | ||||||||||||||
PROVISION (BENEFIT) FOR INCOME TAXES | (15,010,458 | ) | 18,586,700 | 1,358,171 | — | 4,934,413 | ||||||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS | (46,773,629 | ) | 58,447,870 | 4,277,395 | — | 15,951,636 | ||||||||||||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS NET OF TAXES | — | (98,770 | ) | — | (98,770 | ) | ||||||||||||||
EQUITY IN EARNINGS OF SUBSIDIARIES | 62,626,495 | — | — | (62,626,495 | ) | — | ||||||||||||||
NET INCOME | 15,852,866 | 58,349,100 | 4,277,395 | (62,626,495 | ) | 15,852,866 | ||||||||||||||
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | 514,308 | — | — | — | 514,308 | |||||||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO LANDRY’S | $ | 15,338,558 | $ | 58,349,100 | $ | 4,277,395 | $ | (62,626,495 | ) | $ | 15,338,558 | |||||||||
22
Condensed Unaudited Consolidating Financial Statements
Statement of Income
Six Months Ended June 30, 2008
| Parent | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated Entity | ||||||||||||||||
REVENUES | ||||||||||||||||||||
Restaurant and hospitality | $ | 1,935,211 | $ | 456,495,099 | $ | 7,577,999 | $ | (1,896,288 | ) | $ | 464,112,021 | |||||||||
Gaming: | ||||||||||||||||||||
Casino | — | — | 83,080,006 | — | 83,080,006 | |||||||||||||||
Rooms | — | — | 34,730,572 | — | 34,730,572 | |||||||||||||||
Food and beverage | — | — | 24,564,678 | — | 24,564,678 | |||||||||||||||
Other | — | — | 7,223,324 | — | 7,223,324 | |||||||||||||||
Promotional allowances | — | — | (13,287,018 | ) | — | (13,287,018 | ) | |||||||||||||
Net gaming revenue | — | — | 136,311,562 | — | 136,311,562 | |||||||||||||||
Total revenue | 1,935,211 | 456,495,099 | 143,889,561 | (1,896,288 | ) | 600,423,583 | ||||||||||||||
OPERATING COSTS AND EXPENSES: | ||||||||||||||||||||
Restaurant and hospitality: | ||||||||||||||||||||
Cost of revenues | — | 120,496,852 | 1,288,801 | — | 121,785,653 | |||||||||||||||
Labor | — | 133,025,176 | 2,099,783 | — | 135,124,959 | |||||||||||||||
Other operating expenses | 710,824 | 112,764,469 | 2,860,354 | (1,896,288 | ) | 114,439,359 | ||||||||||||||
Gaming: | ||||||||||||||||||||
Casino | — | — | 42,370,003 | — | 42,370,003 | |||||||||||||||
Rooms | — | — | 12,448,775 | — | 12,448,775 | |||||||||||||||
Food and beverage | — | — | 14,640,271 | — | 14,640,271 | |||||||||||||||
Other | — | — | 31,026,152 | — | 31,026,152 | |||||||||||||||
General and administrative expense | 25,143,388 | — | — | — | 25,143,388 | |||||||||||||||
Depreciation and amortization | 2,000,641 | 22,094,053 | 11,280,830 | — | 35,375,524 | |||||||||||||||
Asset impairment expense | — | 1,593,141 | — | — | 1,593,141 | |||||||||||||||
Pre-opening expenses | — | 840,350 | — | — | 840,350 | |||||||||||||||
Total operating costs and expenses | 27,854,853 | 390,814,041 | 118,014,969 | (1,896,288 | ) | 534,787,575 | ||||||||||||||
OPERATING INCOME | (25,919,642 | ) | 65,681,058 | 25,874,592 | — | 65,636,008 | ||||||||||||||
OTHER EXPENSES (INCOME): | ||||||||||||||||||||
Interest expense, net | 22,575,010 | — | 18,109,303 | — | 40,684,313 | |||||||||||||||
Other, net | 367,604 | 1,081 | 779,238 | — | 1,147,923 | |||||||||||||||
Total other expense | 22,942,614 | 1,081 | 18,888,541 | — | 41,832,236 | |||||||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | (48,862,256 | ) | 65,679,977 | 6,986,051 | — | 23,803,772 | ||||||||||||||
PROVISION (BENEFIT) FOR INCOME TAXES | (15,072,632 | ) | 20,208,386 | 2,141,923 | — | 7,277,677 | ||||||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS | (33,789,624 | ) | 45,471,591 | 4,844,128 | — | 16,526,095 | ||||||||||||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS NET OF TAXES | — | (1,061,936 | ) | — | — | (1,061,936 | ) | |||||||||||||
EQUITY IN EARNINGS OF SUBSIDIARIES | 49,253,783 | — | — | (49,253,783 | ) | — | ||||||||||||||
NET INCOME | 15,464,159 | 44,409,655 | 4,844,128 | (49,253,783 | ) | 15,464,159 | ||||||||||||||
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | 70,818 | — | — | — | 70,818 | |||||||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO LANDRY’S | $ | 15,393,341 | $ | 44,409,655 | $ | 4,844,128 | $ | (49,253,783 | ) | $ | 15,393,341 | |||||||||
23
Condensed Unaudited Consolidating Financial Statements
Statement of Cash Flows
Six months ended June 30, 2009
| Parent | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated Entity | ||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||||||
Net income | $ | 15,852,866 | $ | 58,349,100 | $ | 4,277,395 | $ | (62,626,495 | ) | $ | 15,852,866 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||
Depreciation and amortization | 1,958,626 | 21,958,711 | 11,544,361 | — | 35,461,698 | |||||||||||||||
Gain on disposition of assets | (4,931 | ) | — | (1,358,384 | ) | — | (1,363,315 | ) | ||||||||||||
Gain on insurance claims | (3,641,685 | ) | — | (361,963 | ) | — | (4,003,648 | ) | ||||||||||||
Change in assets and liabilities, net and other | 13,684,189 | (53,408,279 | ) | (9,027,742 | ) | 62,775,822 | 14,023,990 | |||||||||||||
Total adjustments | 11,996,199 | (31,449,568 | ) | 796,272 | 62,775,822 | 44,118,725 | ||||||||||||||
Net cash provided (used) by operating activities | 27,849,065 | 26,899,532 | 5,073,667 | 149,327 | 59,971,591 | |||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
Property and equipment additions and/or transfers | 1,169,447 | (28,489,459 | ) | (65,099,164 | ) | — | (92,419,176 | ) | ||||||||||||
Proceeds from disposition of property and equipment | 3,646,616 | — | 6,684,983 | — | 10,331,599 | |||||||||||||||
Net cash provided by (used in) investing activities | 4,816,063 | (28,489,459 | ) | (58,414,181 | ) | — | (82,087,577 | ) | ||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
Purchases of common stock for treasury | (47,931 | ) | — | — | — | (47,931 | ) | |||||||||||||
Proceeds from exercise of stock options | 30,628 | — | — | — | 30,628 | |||||||||||||||
Payments of debt | (2,503,832 | ) | — | (561,194 | ) | — | (3,065,026 | ) | ||||||||||||
Financing proceeds | 390,040,000 | — | — | — | 390,040,000 | |||||||||||||||
Repayment of bonds | (398,362,000 | ) | — | — | — | (398,362,000 | ) | |||||||||||||
Debt issuance costs | (17,639,190 | ) | — | — | — | (17,639,190 | ) | |||||||||||||
Proceeds from credit facility | 97,633,246 | — | 126,060,606 | — | 223,693,852 | |||||||||||||||
Payments on credit facility | (101,816,049 | ) | — | (56,000,000 | ) | — | (157,816,049 | ) | ||||||||||||
Net cash provided (used) in financing activities | (32,665,128 | ) | — | 69,499,412 | — | 36,834,284 | ||||||||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | — | (1,589,927 | ) | 16,158,898 | 149,327 | 14,718,298 | ||||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | — | 5,705,232 | 46,595,810 | (1,234,237 | ) | 51,066,805 | ||||||||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | — | $ | 4,115,305 | $ | 62,754,708 | $ | (1,084,910 | ) | $ | 65,785,103 | |||||||||
24
Condensed Unaudited Consolidating Financial Statements
Statement of Cash Flows
Six Months Ended June 30, 2008
| Parent | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated Entity | ||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||||||
Net income | $ | 15,464,159 | $ | 44,409,655 | $ | 4,844,128 | $ | (49,253,783 | ) | $ | 15,464,159 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||
Depreciation and amortization | 2,000,641 | 22,503,456 | 11,280,830 | — | 35,784,927 | |||||||||||||||
Asset impairment expense | — | 1,593,141 | — | — | 1,593,141 | |||||||||||||||
Loss on disposition of assets | — | 25,137 | — | — | 25,137 | |||||||||||||||
Change in assets and liabilities, net and other | 9,392,187 | (47,475,463 | ) | (9,095,566 | ) | 49,253,783 | 2,074,941 | |||||||||||||
Total adjustments | 11,392,828 | (23,353,729 | ) | 2,185,264 | 49,253,783 | 39,478,146 | ||||||||||||||
Net cash provided (used) by operating activities | 26,856,987 | 21,055,926 | 7,029,392 | — | 54,942,305 | |||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
Property and equipment additions and/or transfers | (1,626,830 | ) | (30,116,850 | ) | (21,748,272 | ) | — | (53,491,952 | ) | |||||||||||
Proceeds from disposition of property and equipment | — | 8,630,224 | — | — | 8,630,224 | |||||||||||||||
Net cash provided by (used in) investing activities | (1,626,830 | ) | (21,486,626 | ) | (21,748,272 | ) | — | (44,861,728 | ) | |||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
Purchases of common stock for treasury | (15,274 | ) | — | — | — | (15,274 | ) | |||||||||||||
Proceeds from exercise of stock options | 6,361 | — | — | — | 6,361 | |||||||||||||||
Payments of debt | (17,108 | ) | — | (105,387 | ) | — | (122,495 | ) | ||||||||||||
Proceeds from credit facility | 98,000,000 | — | 42,000,000 | — | 140,000,000 | |||||||||||||||
Payments on credit facility | (107,000,000 | ) | — | (35,000,000 | ) | — | (142,000,000 | ) | ||||||||||||
Dividends paid | (1,614,369 | ) | — | — | — | (1,614,369 | ) | |||||||||||||
Net cash provided by (used in) financing activities | (10,640,390 | ) | — | 6,894,613 | — | (3,745,777 | ) | |||||||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 14,589,767 | (430,700 | ) | (7,824,267 | ) | — | 6,334,800 | |||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 4,265,460 | 11,691,100 | 23,644,686 | — | 39,601,246 | |||||||||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 18,855,227 | $ | 11,260,400 | $ | 15,820,419 | $ | — | $ | 45,936,046 | ||||||||||
25
12. SUBSEQUENT EVENTS
For the quarterly period ended June 30, 2009, we have evaluated subsequent events through August 10, 2009, which is the date our financial statements were issued and filed with the SEC.
On August 10, 2009, Golden Nugget (GN) entered into a First Amendment to its First and Second Lien Credit Agreements by and among GN, the lenders and Wachovia Bank, National Association as Administrative Agent. The First Amendment to the First Lien Credit Agreement amends the definition of Net Income to exclude gains on extinguishment of debt resulting from Golden Nugget debt repurchases. The First Amendment to the Second Lien Credit Agreement allows affiliates to acquire and then retire the second lien term loan at market clearing prices in a combination of dutch auctions and open market purchases through December 31, 2010, and amends the definition of Net Income similar to the First Lien Credit Agreement. The Second Lien amendment also precludes debt purchases using funds from the Golden Nugget. There is no assurance that debt purchases will occur and if so, at what price.
| ITEM 4. | Controls and Procedures |
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the SEC under the Exchange Act, as amended, is recorded, processed, summarized and reported within the time periods specified by the Commission’s rules and forms, and that information is accumulated and communicated to our management, including the Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial and accounting officer) as appropriate to allow timely decisions regarding required disclosure. As of June 30, 2009, our management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act. In the Company’s Quarterly Reports on Form 10-Q for the quarter June 30, 2009, as filed on August 10, 2009, the Company’s management concluded, based on that evaluation, that the Company’s disclosure controls and procedures as of June 30, 2009 were effective and management reported that there was no change in the Company’s internal controls over financial reporting that occurred during the quarter ended June 30, 2009 that materially affected, or were reasonably likely to materially affect, the Company’s internal controls over financial reporting.
In conjunction with the restatement described in Note 1 to our condensed consolidated financial statements contained elsewhere in this document, a re-evaluation was performed as of June 30, 2009 of the effectiveness of the Company’s disclosure controls and procedures. Based upon this re-evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2009 due to a material weakness in our internal control over financial reporting solely related to our restatement of net income available to Company stockholders for the purpose of calculating earnings per share arising from the application of EITF D-98.
26
| ITEM 6. | Exhibits |
The following Exhibits are set forth herein:
| 31.1 | —Certification by Chief Executive Officer | |
| 31.2 | —Certification by Chief Financial Officer | |
| 32 | —Certification with respect to quarterly report of Landry’s Restaurants, Inc. | |
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 hereunto duly authorized.
| LANDRY’S RESTAURANTS, INC. |
| (Registrant) |
| /s/ TILMAN J. FERTITTA |
| Tilman J. Fertitta |
Chairman of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer) |
| /s/ RICK H. LIEM |
| Rick H. Liem |
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
| Date: November 9, 2009 |
27
