UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000.
Commission file number 000-22150
LANDRY'S SEAFOOD RESTAURANTS, INC.
(Exact name of the registrant as specified in its charter)
Delaware 74-0405386
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 Post Oak Blvd., Suite 1010, Houston, Texas 77056
(Address of principal executive offices)
(713) 850-1010
(Registrant's 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___
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 November 9, 2000 there were
21,537,333 shares of $0.01 par value
common stock outstanding.
LANDRY'S SEAFOOD RESTAURANTS, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
- ----------------------------------------------------------------------------------------------
Item 1. Financial Statements..................................................... 3
Unaudited Consolidated Balance Sheets at September 30, 2000 and
December 31, 1999........................................................ 4
Unaudited Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 2000 and September 30, 1999................... 5
Condensed Unaudited Consolidated Statement of Stockholders' Equity
for the Nine Months Ended September 30, 2000............................. 6
Condensed Unaudited Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2000 and September 30, 1999................... 7
Notes to Condensed Unaudited Consolidated Financial Statements........... 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................ 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk............... 18
- ----------------------------------------------------------------------------------------------
PART II. OTHER INFORMATION
- ----------------------------------------------------------------------------------------------
Item 1. Legal Proceedings........................................................ 20
Item 2. Changes in Securities.................................................... 20
Item 3. Defaults upon Senior Securities.......................................... 20
Item 4. Submission of Matters to a Vote of Security Holders...................... 20
Item 5. Other Information........................................................ 20
Item 6. Exhibits and Reports on Form 8-K......................................... 20
- ----------------------------------------------------------------------------------------------
Signatures 21
- ----------------------------------------------------------------------------------------------
2
LANDRY'S SEAFOOD RESTAURANTS, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying condensed unaudited consolidated financial statements have
been prepared by Landry's Seafood Restaurants, Inc. (the "Company") pursuant to
the rules and regulations of the Securities and Exchange Commission ("SEC").
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company, all adjustments (consisting only of normal
recurring entries) necessary for fair presentation of the Company's results of
operations, financial position and changes therein for the periods presented
have been included.
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), which are intended to be covered
by safe harbors created thereby. Stockholders are cautioned that all forward-
looking statements involve risks and uncertainty, including without limitation,
the ability of the Company to continue its expansion strategy, retain employees,
increase prices to combat mandatory wage increases and other inflationary
pressures that impact the Company's cost of doing business, ability to make
projected capital expenditures, as well as general market conditions,
competition, and pricing. In addition, there is no assurance that Landry's
management will be able to smoothly integrate the operations and business of
Rainforest Cafe, Inc. ("Rainforest") or whether same store sales declines of
Rainforest units can be mitigated to maintain the Company's existing business
and achieve reasonable financial results. All statements, other than statements
of historical facts, included or incorporated by reference in this report that
address activities, events or developments that the Company expects or
anticipates will or may occur in the future, including such things as future
capital expenditures (including the amount and nature thereof), business
strategy and measures to implement such strategy, competitive strengths, goals,
expansion and growth of the Company's business and operations, plans, references
to future success as well as other statements which include words such as
"anticipate," "believe," "plan," "estimate," "expect," and "intend" and other
similar expressions constitute forward-looking statements. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate and,
therefore, there can be no assurance that the forward-looking statements
included in this report will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will be
achieved. Stockholders are referred to the full discussion of risks and
uncertainties associated with forward-looking statements contained in the
Company's Form 10-K filed with the SEC for the fiscal year ended December 31,
1999.
3
LANDRY'S SEAFOOD RESTAURANTS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
ASSETS 2000 1999
------- -------------- -------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents................................................. $ 8,767,507 $ 22,977,666
Accounts receivable--trade and other...................................... 8,813,601 7,065,298
Inventory................................................................. 15,858,665 18,409,523
Other current assets...................................................... 7,200,559 10,258,086
------------ ------------
Total current assets............................................... 40,640,332 58,710,573
------------ ------------
PROPERTY AND EQUIPMENT, net.................................................. 471,505,651 431,378,855
GOODWILL, net of amortization of $1,487,623 and $1,385,959 .................. 2,611,285 2,707,988
OTHER ASSETS, net............................................................ 5,986,007 3,928,436
------------ ------------
Total assets....................................................... $520,743,275 $496,725,852
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable.......................................................... $ 24,615,711 $ 21,416,112
Accrued liabilities....................................................... 26,734,292 19,772,136
Current portion of long-term notes and other obligations................... 84,779 68,092,714
------------ ------------
Total current liabilities.......................................... 51,434,782 109,280,962
LONG-TERM NOTES AND OTHER OBLIGATIONS........................................ 80,999,481 60,166
DEFERRED INCOME TAXES AND OTHER LIABILITIES.................................. 15,080,476 10,036,686
------------ ------------
Total liabilities.................................................. 147,514,739 119,377,814
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value, 60,000,000 shares authorized, 22,282,925
and 24,823,135 issued and outstanding, net of treasury shares,
respectively............................................................. 222,829 248,231
Additional paid-in capital................................................. 305,841,338 322,605,100
Retained earnings.......................................................... 67,164,369 54,494,707
------------ ------------
Total stockholders' equity......................................... 373,228,536 377,348,038
------------ ------------
Total liabilities and stockholders' equity......................... $520,743,275 $496,725,852
============ ============
The accompanying notes are an integral part of these condensed unaudited
consolidated financial statements.
4
LANDRY'S SEAFOOD RESTAURANTS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
REVENUES $133,108,129 $116,509,850 $378,101,396 $341,382,531
OPERATING COSTS AND EXPENSES:
Cost of sales............................... 39,691,093 35,935,628 114,967,754 106,325,569
Restaurant labor............................ 36,517,291 32,171,573 104,753,662 97,089,642
Other restaurant operating expenses......... 29,810,287 25,663,859 86,406,771 77,795,268
General and administrative expenses......... 7,309,821 5,486,155 18,954,114 16,031,442
Pre-opening expenses........................ 288,186 789,224 2,058,684 2,595,970
Depreciation and amortization............... 6,341,232 5,641,160 18,933,621 16,350,783
Special charge (credit)..................... --- --- 2,000,000 2,945,000
------------ ------------ ------------ ------------
Total operating costs and expenses........ 119,957,910 105,687,599 348,074,606 319,133,674
------------ ------------ ------------ ------------
OPERATING INCOME 13,150,219 10,822,251 30,026,790 22,248,857
OTHER (INCOME) EXPENSE:
Interest (income) expense, net.............. 1,803,752 661,073 4,180,581 1,101,250
Other, net.................................. (23,372) 96,626 277,747 (53,325)
------------ ------------ ------------ ------------
Total other (income) expense.............. 1,780,380 757,699 4,458,328 1,047,925
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES.................... 11,369,839 10,064,552 25,568,462 21,200,932
PROVISION FOR INCOME TAXES.................... 3,524,650 3,472,270 8,423,175 7,303,569
------------ ------------ ------------ ------------
NET INCOME.................................... $ 7,845,189 $ 6,592,282 $ 17,145,287 $ 13,897,363
============ ============ ============ ============
EARNINGS PER SHARE INFORMATION:
BASIC--
Net income per common share................. $0.34 $0.26 $0.71 $0.51
Weighted average number of common shares
outstanding................................ 23,000,000 25,600,000 24,000,000 27,233,000
DILUTED--
Net income per common share................. $0.34 $0.26 $0.71 $0.50
Weighted average number of common share
equivalents outstanding.................... 23,200,000 25,600,000 24,200,000 27,767,000
The accompanying notes are an integral part of these condensed unaudited
consolidated financial statements.
5
LANDRY'S SEAFOOD RESTAURANTS, INC.
CONDENSED UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
-------------------------- ------------- -------------- -----
Balance, January 1, 2000........ 24,823,125 $248,231 $322,605,100 $54,494,707 $377,348,038
Net income...................... ---- ---- ---- 17,145,287 17,145,287
Dividends paid.................. ---- ---- ---- (1,208,880) (1,208,880)
Purchase of common stock,
held for treasury.............. (2,540,200) (25,402) (16,763,762) (3,266,745) (20,055,909)
---------- -------- ------------ ----------- ------------
Balance, September 30, 2000..... 22,282,925 $222,829 $305,841,338 $67,164,369 $373,228,536
========== ======== ============ =========== ============
The accompanying notes are an integral part of these condensed unaudited
consolidated financial statements.
6
LANDRY'S SEAFOOD RESTAURANTS, INC.
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
2000 1999
--------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 17,145,287 $ 13,897,363
Adjustments to reconcile net income to net cash
provided by operating activities-
Special charge (credit)........................... ---- (730,000)
Depreciation and amortization..................... 18,933,621 16,350,783
Change in assets and liabilities-net and other.... 16,587,305 23,757,479
------------ ------------
Total adjustments.............................. 35,520,926 39,378,262
------------ ------------
Net cash provided by operating activities......... 52,666,213 53,275,625
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions (58,542,963) (41,691,374)
Other assets, including goodwill ---- (375,683)
------------ ------------
Net cash used in investing activities (58,542,963) (42,067,057)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on notes payable and other
long-term obligations.............................. 12,931,380 22,939,543
Repurchase of common stock for treasury............. (20,055,909) (48,331,830)
Dividends paid...................................... (1,208,880) ----
Proceeds from exercise of stock options............. ---- 5,400,000
------------ ------------
Net cash provided by (used in) financing
activities....................................... (8,333,409) (19,992,287)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.......................................... (14,210,159) (8,783,719)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD............................................... 22,977,666 35,183,405
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............ $ 8,767,507 $ 26,399,686
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash payments during the period for--
Income taxes....................................... $ 1,700,000 $ 464,000
Interest expense................................... $ 5,169,000 $ 1,863,000
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
7
LANDRY'S SEAFOOD RESTAURNTS, INC.
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated financial statements included herein have been prepared by
the Company without audit, except for the consolidated balance sheet as of
December 31, 1999. The financial statements include all adjustments, consisting
of normal, recurring adjustments and accruals, which the Company considers
necessary for fair presentation of its 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 the
Company's December 31, 1999, consolidated financial statements filed with the
Securities and Exchange Commission on Form 10-K.
Earnings Per Share
Net income per common share has been computed in accordance with Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." Basic
Earnings Per Share is computed by dividing net income by the weighted average
number of shares of common stock outstanding during the year. Diluted Earnings
Per Share is computed using the average share price for the period in all cases
when applying the treasury stock method to potentially dilutive outstanding
options.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results may differ from those estimates.
Pre-opening Costs
Pre-opening costs, primarily training related costs, incurred in connection
with the commencement of each restaurant's operations, are expensed as incurred.
8
LANDRY'S SEAFOOD RESTAURANTS, INC.
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. Acquisition of Rainforest Cafe, Inc.
On October 28, 2000, the Company, through LSR Acquisition Corp.
("Purchaser"), a wholly owned subsidiary of Landry's, accepted for purchase
12,454,011 shares of the common stock, no par value (the "Shares"), of
Rainforest Cafe, Inc. ("Rainforest"), that had been validly tendered pursuant to
Purchaser's tender offer for all of the outstanding Shares at $3.25 per Share,
net to the seller in cash (the "Offer"). As a result, as of the closing of the
tender, Landry's owns approximately 60% majority ownership in Rainforest. The
Offer was made pursuant to an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of September 26, 2000, by and among Rainforest, the
Company and Purchaser, which provides for, among other things, the making of the
Offer by Purchaser and, following the consummation of the Offer, the 100% merger
of Purchaser with and into Rainforest (the "Merger"), with Rainforest, a wholly
owned subsidiary of Landry's, as the surviving corporation. The aggregate
purchase price for tendered Shares was approximately $40.5 million, which was
provided from the Company's existing bank credit facility. The finalization of
the remaining merger is expected to cost approximately $30 million for the
remaining outstanding common stock and is expected occur prior to December 31,
2000.
3. Accrued Liabilities
Accrued liabilities are comprised of the following:
September 30, 2000 December 31, 1999
------------------ -----------------
Payroll and related costs..................... $ 6,637,977 $ 4,145,220
Taxes, other than payroll and income taxes.... 7,544,224 6,294,954
Store closings and special charges............ 1,098,000 1,705,027
Deferred and state income taxes............... 2,392,970 1,198,998
Other......................................... 9,061,121 6,427,937
----------- -----------
$26,734,292 $19,772,136
=========== ===========
4. Debt
The Company has a $200.0 million credit facility from a syndicate of banks
which was renewed and increased in June 2000, matures in June 2003 and is
available for expansion, acquisitions, and other general corporate purposes.
Interest on the credit facility is generally payable quarterly at Libor or the
bank's base rate plus a financing spread (aggregating 8.87% at September 30,
2000). The credit facility is governed by certain financial covenants,
including minimum tangible net worth, a maximum leverage
9
LANDRY'S SEAFOOD RESTAURANTS, INC.
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
ratio and a minimum fixed charge coverage ratio, and is secured by the common
stock of the Company's wholly owned subsidiaries. The Company's financing spread
is presently 2.25% for Libor, and 0.50% for base rate borrowings, and may be
decreased or increased by 25 basis points as the Company's leverage ratio
decreases or increases over predetermined percentages. In connection with the
Rainforest acquisition, the credit facility was amended in October, 2000 to
permit the Rainforest acquisition, and to modify the maximum leverage ratio and
temporarily limit, for a temporary period, additional stock repurchases to $6
million. Further acquisitions are temporarily precluded, without additional bank
approval, over a certain dollar amount.
5. Stockholders' Equity
In April 2000, the Company's Board of Directors authorized a renewal of the
Company's open market stock buy back program for $36 million. The costs
associated with the purchase of treasury stock are recorded in the stockholders'
equity accounts on a pro-rata basis.
The Company authorized a $0.10 per share annual dividend for 2000 to be
declared and paid quarterly to stockholders.
A reconciliation of the amounts used to compute net income per common
share-diluted is as follows:
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Net Income.......................................... $ 7,845,189 $ 6,592,282 $17,145,287 $13,897,363
=========== =========== =========== ===========
Weighted Average Common Shares Outstanding.......... 23,000,000 25,600,000 24,000,000 27,233,000
Dilutive Common Stock Options....................... 200,000 ---- 200,000 534,000
----------- ----------- ----------- -----------
Weighted Average Common and Common Equivalent
Shares Outstanding -- Diluted...................... 23,200,000 25,600,000 24,200,000 27,767,000
=========== =========== =========== ===========
Net Income Per Share -- Diluted..................... $ 0.34 $ 0.26 $ 0.71 $ 0.50
=========== =========== =========== ===========
Net Income Per Share, Before Special Charge......... $ 0.34 $ 0.26 $ 0.76 $ 0.57
=========== =========== =========== ===========
10
LANDRY'S SEAFOOD RESTAURANTS, INC.
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
6. Contingencies
Class Action Litigation
-----------------------
Class action lawsuits were filed in June and July of 1999 in the United
States District Court for the Southern District of Texas, Houston Division
against the Company and its executive officers, directors and underwriters that
participated in the Company's offering of Common Stock in March 1998. The
plaintiffs in these actions seek unspecified monetary damages. The Company has
filed a motion with the court to dismiss the lawsuit. Although the ultimate
outcome of these matters cannot be determined at this time, the Company believes
these claims are without merit and intends to defend these claims vigorously.
General Litigation
------------------
The Company is 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 the Company's
financial position, results of operations or cash flows.
11
LANDRY'S SEAFOOD RESTAURANTS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
The Company owns and operates full-service, casual dining seafood
restaurants. As of September 30, 2000, the Company operated 161 restaurants. In
addition, the Company operates three limited-menu take-out service units.
In February 2000, the Company announced it had entered into an initial
merger agreement to acquire all of the outstanding shares of Rainforest Cafe,
Inc. That merger agreement was subsequently cancelled in April 2000, and the
associated costs were expensed in the second quarter of 2000 as a special
charge. On September 29, 2000, the Company subsequently tendered $3.25 per share
for all outstanding shares of Rainforest. On October 28, 2000, approximately 60%
of the outstanding shares were tendered to Landry's. As a result, the Company
effectively controlled Rainforest as of October 28, 2000, and plans to merge
Rainforest into a wholly-owned subsidiary of the Company by December 31, 2000.
The Company's operations may be impacted by changes in federal and state
taxes and other federal and state governmental policies which include many
possible factors such as the level of minimum wages, the deductibility of
business and entertainment expenses, levels of disposable income and national
and regional economic growth. Several state or local governments are in the
process of attempting to raise specific regions or locales minimum wages,
irrespective of federal government or political initiatives. Increases in
minimum wages, federal, state or local mandates or labor pressures will increase
the Company's labor costs.
The restaurant industry is intensely competitive and is affected by changes
in consumer tastes and by national, regional, and local economic conditions and
demographic trends. The performance of individual restaurants, including new
restaurants the Company may open or acquire, may be affected by factors such as
traffic patterns, employee turnover, demographic considerations, weather
conditions, and the type, number, and location of competing restaurants. The
Company has many well-established competitors with greater financial resources
and longer histories of operation than the Company, including competitors
already established in regions where the Company is planning to expand, as well
as competitors planning to expand in the same regions or into regions where the
Company currently operates. The Company faces significant competition from mid-
priced, full-service, casual dining restaurants offering seafood and other types
and varieties of cuisine. The Company's competitors include national, regional,
and local chains as well as local owner-operated restaurants. The Company also
competes with other restaurants and retail establishments for restaurant sites.
12
LANDRY'S SEAFOOD RESTAURANTS, INC.
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), which are intended to be covered
by safe harbors created thereby. Stockholders are cautioned that all forward-
looking statements involve risks and uncertainty, including without limitation,
the ability of the Company to continue its expansion strategy, retain employees,
increase prices to combat mandatory wage increases and other inflationary
pressures that impact the Company's cost of doing business, ability to make
projected capital expenditures, as well as general market conditions,
competition, and pricing. In addition, there is no assurance that Landry's
management will be able to smoothly integrate the operations and business of
Rainforest Cafe, Inc. ("Rainforest") or whether same store sales declines of
Rainforest units can be mitigated to maintain the Company's existing business
and achieve reasonable financial results. All statements, other than statements
of historical facts, included or incorporated by reference in this report that
address activities, events or developments that the Company expects or
anticipates will or may occur in the future, including such things as future
capital expenditures (including the amount and nature thereof), business
strategy and measures to implement such strategy, competitive strengths, goals,
expansion and growth of the Company's business and operations, plans, references
to future success as well as other statements which include words such as
"anticipate," "believe," "plan," "estimate," "expect," and "intend" and other
similar expressions constitute forward-looking statements. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate and,
therefore, there can be no assurance that the forward-looking statements
included in this report will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will be
achieved. Stockholders are referred to the full discussion of risks and
uncertainties associated with forward-looking statements contained in the
Company's Form 10-K filed with the SEC for the fiscal year ended December 31,
1999.
13
LANDRY'S SEAFOOD RESTAURANTS, INC.
RESULTS OF OPERATIONS
Restaurant Profitability
The following table sets forth the percentage relationship to revenues of
certain operating data for the periods indicated:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -------------------
SEPTEMBER 30 SEPTEMBER 30
------------------- -------------------
2000 1999 2000 1999
----- ----- ----- -----
Revenues.............................. 100.0% 100.0% 100.0% 100.0%
Cost of sales......................... 29.8 30.8 30.4 31.1
Restaurant labor...................... 27.4 27.6 27.7 28.5
Other restaurant operating expenses... 22.4 22.1 22.9 22.8
----- ----- ----- -----
Restaurant level profit /(1)/......... 20.4% 19.5% 19.0% 17.6%
===== ===== ===== =====
(1) Excludes depreciation, amortization and pre-opening expenses.
_____________________
Three Months Ended September 30, 2000 Compared to the Three Months Ended
September 30, 1999
Revenues increased $16,598,279, or 14.2%, from $116,509,850 to $133,108,129
for the three months ended September 30, 2000, compared to the three months
ended September 30, 1999. The increase in revenues was primarily attributable
to revenues from new restaurant openings. Same store sales increased 3.5% and
average weekly sales increased 2.5% for the three months ended September 30,
2000, compared to the same period in 1999.
As a primary result of increased revenues, cost of sales increased
$3,755,465, or 10.5%, from $35,935,628 to $39,691,093 in the three months ended
September 30, 2000, compared to the same period in the prior year. Cost of
sales as a percentage of revenues for the three months ended September 30, 2000
decreased to 29.8%, from 30.8% in 1999. The decrease in cost of sales as a
percentage of revenues reflects increased efficiencies and favorable product
costs in 2000.
Restaurant labor expenses increased $4,345,718, or 13.5%, from $32,171,573
to $36,517,291 in the three months ended September 30, 2000, compared to the
same period in the prior year. Restaurant labor expenses as a percentage of
revenues for the three months ended September 30, 2000 decreased to 27.4% from
27.6%. The decrease in restaurant labor expenses is primarily the result of a
decline in hourly labor expenses, due to effective labor management during the
three months ended September 30, 2000.
14
LANDRY'S SEAFOOD RESTAURANTS, INC.
Other restaurant operating expenses increased $4,146,428, or 16.2%, from
$25,663,859 to $29,810,287 in the three months ended September 30, 2000,
compared to the same period in the prior year, primarily as a result of
increased revenues. Such expenses increased as a percentage of revenues to
22.4% in 2000 from 22.1% in 1999, primarily due to higher utility costs.
Depreciation and amortization expense increased $700,072, or 12.4%, from
$5,641,160 to $6,341,232 in the three months ended September 30, 2000, compared
to the same period in the prior year. The increase is primarily due to the
addition of new facilities.
General and administrative expenses increased $1,823,666, or 33.2%, from
$5,486,155 to $7,309,821 in the three months ended September 30, 2000, compared
to the same period in the prior year, and increased as a percentage of revenues
to 5.5% from 4.7%. The increase resulted primarily from accrued bonus
compensation as a result of expectations that the Company will exceed its
original performance goals for the year.
Pre-opening expenses in the three months ended September 30, 2000 were
$288,187 as compared to $789,224 in the three months ended September 30, 1999.
The Company opened one unit during the three months ended September 30, 2000.
The increase in net interest expense in the three months ended September
30, 2000, as compared to the same period in the prior year, is primarily
attributable to increased borrowings for the Company's stock buy-back program
and increases in the weighted average borrowing rates under the Company's credit
facilities. The change in other income in the three months ended September 30,
2000, as compared to the same period in the prior year, is not deemed
significant.
Provision for income taxes increased by $52,380 from $3,472,270 in 1999 to
$3,524,650 in 2000 primarily due to the change in the Company's income. The
provision for income taxes as a percentage of income before income taxes was
reduced to 31.0% from 34.5%, as a result of continuing favorable Federal income
tax credits for tipped employees. The lower income tax accrual rate is believed
to be applicable for periods in the foreseeable future.
The Company's actual cash payments for annual income taxes due are
currently lower than the financial accrual rate due to significant permanent and
timing differences due to differences between the rules for preparing tax
returns, and their resulting liabilities and payments, and financial statement
preparation rules for accruing such amounts.
15
LANDRY'S SEAFOOD RESTAURANTS, INC.
Nine Months Ended September 30, 2000 Compared to the Nine Months Ended September
30, 1999
Revenues increased $36,718,865, or 10.8%, from $341,382,531 to $378,101,396
for the nine months ended September 30, 2000, compared to the nine months ended
September 30, 1999. The increase in revenues was primarily attributable to
revenues from new restaurant openings. Same store sales and average weekly
sales increased 2.2% and 1.6%, respectively, for the nine months ended September
30, 2000 compared to the same period in 1999.
As a primary result of increased revenues, cost of sales increased
$8,642,185, or 8.1%, from $106,325,569 to $114,967,754 in the nine months ended
September 30, 2000, compared to the same period in the prior year. Cost of
sales as a percentage of revenues for the nine months ended September 30, 2000
decreased to 30.4%, from 31.1% in 1999. The decrease in cost of sales as a
percentage of revenue reflects increased efficiencies and favorable product
costs in 2000.
Restaurant labor expenses increased $7,664,020, or 7.9%, from $97,089,642
to $104,753,662 in the nine months ended September 30, 2000, compared to the
same period in the prior year. Restaurant labor expenses as a percentage of
revenues for the nine months ended September 30, 2000 decreased to 27.7% from
28.5%. The decrease in restaurant labor expenses is primarily the result of a
decline in hourly labor expenses, due to effective labor management during the
more recent quarters, and in part due to less efficient labor costs in early
1999 (as a comparison to 2000) due to menu and operational adjustments
implemented in the Joe's Crab Shack Restaurant stores.
Other restaurant operating expenses increased $8,611,503, or 11.1%, from
$77,795,268 to $86,406,771 in the nine months ended September 30, 2000, compared
to the same period in the prior year, as a result of increased revenues. Such
expenses increased as a percentage of revenues to 22.9% in 2000 from 22.8% in
1999 due to improved cost management offset by higher utility costs.
Depreciation and amortization expense increased $2,582,838, or 15.8%, from
$16,350,783 to $18,933,621 in the nine months ended September 30, 2000, compared
to the same period in the prior year. The dollar increase was primarily due to
the addition of new facilities.
General and administrative expenses increased $2,922,672, or 18.2%, from
$16,031,442 to $18,954,114 in the nine months ended September 30, 2000, compared
to the same period in the prior year and increased as a percentage of revenue
to 5.0% from 4.7%. The dollar and percentage increase is primarily attributable
to increased bonus compensation expense as a result of projected performance
results for the Company.
Pre-opening expenses in 2000 were $2,058,684 as compared to $2,595,970 in
1999. The Company opened 11 units during the nine months ended September 30,
2000.
16
LANDRY'S SEAFOOD RESTAURANTS, INC.
The special charge of $2,000,000 ($1,310,000 net of tax) in 2000 was
incurred in connection with the termination of the initial attempted acquisition
of Rainforest Cafe, Inc. ("Rainforest") in April. On October 28, 2000 the
Company acquired, subject to a cash tender offer, 59.1% of the outstanding
shares of Rainforest. The Company anticipates acquiring the remaining shares
through a merger expected to occur on or about December 1, 2000. Therefore,
Rainforest results will be consolidated into Landry's financial statements at
the 59.1% level from October 28, 2000 until consummation of the merger, at which
time Rainforest will then become a wholly owned subsidiary of the Company, and
be fully consolidated. The special charge of $2,945,000 in 1999 represents the
net of a $730,000 reversal (income) of estimated costs related to favorably
settling lease obligations of certain closed stores recorded in the second
quarter of 1999, and $3,675,000 of expenses incurred related to a different
merger transaction which was abandoned during the first quarter of 1999.
The increase in net interest expense in the nine months ended September 30,
2000, as compared to the same period in the prior year, is primarily
attributable to increased borrowings for capital expenditures, working capital,
and treasury stock purchases, and increases in the weighted average borrowing
rates under the Company's credit facilities. The change in other income is not
deemed significant.
Provision for income taxes increased by $1,119,606 from $7,303,569 in 1999
to $8,423,175 in 2000 primarily due to the change in the Company's income. The
provision for income taxes as a percentage of income before income taxes was
reduced for the three months ended September 30, 2000 and prospectively to
reflect continuing favorable Federal tax credits for tipped employees.
Liquidity and Capital Resources
For the nine months ended September 30, 2000 the capital expenditures of
the Company were approximately $58.5 million, and the Company repurchased $20.1
million of common stock funded out of existing cash balances, cash flow from
operations and borrowings.
Subsequent to September 30, 2000, the company purchased 59.1% of the
outstanding common stock of Rainforest for approximately $40.5 million through a
cash tender offer. The funds were provided by the existing bank credit facility,
as approved by the bank syndicate. The shares not tendered as of October 28,
2000 are expected to be acquired via a merger on or about December 1, 2000 for
approximately $30.4 million, also funded through the existing bank credit
facility.
The Company has a $200.0 million credit facility from a syndicate of banks
which expires in June 2003, and is available for expansion, acquisitions and
general corporate purposes. At September 30, 2000, the Company had $81.0 million
outstanding under this credit facility at an interest rate of 8.87% and cash
equivalent balances approximating $8.8 million. In connection with the
Rainforest acquisition, the credit facility was amended in October, 2000, to
permit the Rainforest acquisitions, temporarily modify the maximum leverage
ratio and temporarily limit additional stock repurchases to $6 million. Further
acquisitions are temporarily restricted to a certain dollar amount, without bank
approval. All temporary limitations will be automatically removed based upon the
Company's near-term financial results and resulting leverage ratios, without
further action by the Company.
The Company's current development plans are to open 12 restaurants in 2000,
eleven of which were open as of September 30, 2000. As a result of the
Rainforest acquisition, the Company expects to reduce new openings in 2001 to
approximately seven restaurants, plus one Rainforest Cafe unit, while it focuses
its attention on Rainforest. The Company, from time to time, reviews
opportunities for investment in the hospitality, entertainment, food service and
facilities management and other industries. The Company's exercise of any such
investment opportunity may impact the Company's development plans and capital
expenditures.
17
LANDRY'S SEAFOOD RESTAURANTS, INC.
The Company is constructing a multi-story office building for the Company's
corporate headquarters, meeting and training facilities and a research and
development test kitchen. Capital expenditures related to the office building
are anticipated to be $15.0 million, and have been substantially paid or accrued
for as of September 30, 2000.
In April 2000, the Company's Board of Directors authorized a renewal of the
Company's stock buy back program for $36.0 million. Through September 30, 2000,
the Company has repurchased 2,540,200 shares. Additionally, the Company
authorized a $0.10 per share annual dividend for 2000 to be declared and paid
quarterly to stockholders.
Seasonality and Quarterly Results
The Company's business is seasonal in nature, with revenues and, to a
greater degree, operating profits being lower in the first and fourth quarters
than in other quarters due to the Company's reduced winter volumes. The Company
has and continues to open restaurants in highly seasonal tourist markets and has
further noted that the Joe's Crab Shack concept restaurants tend to experience
even greater seasonality and sensitivity to weather. The Company anticipates a
decline in revenues from the initial ("honeymoon") volumes of new units.
Impact of Inflation
Management does not believe that inflation has had a significant effect on
the Company's operations during the past several years. Management believes the
Company has historically been able to pass on increased costs through menu price
increases, but there can be no assurance that it will be able to do so in the
future. Future increases in restaurant labor costs, including expected future
increases in federal minimum wages, interest rates, land and construction costs
could adversely affect the Company's profitability and ability to expand.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk primarily related to potential
adverse changes in interest rates as discussed below. Management is actively
involved in monitoring exposure to market risk and continues to develop and
utilize appropriate risk management techniques. The Company is not exposed to
any other significant risks from the use of derivative financial instruments.
Management does not use derivative financial instruments for trading or to
speculate on changes in interest rates or commodity prices.
18
LANDRY'S SEAFOOD RESTAURANTS, INC.
Interest Rate Risk
Total debt at September 30, 2000, included $81.0 million of floating-rate
debt attributed to bank credit facility borrowings at an average interest rate
of 8.87%. As a result, the Company's annual interest cost in 2000 and 2001 will
fluctuate based on short-term interest rates. The impact on annual cash flow of
a ten percent change in the floating rate (approximately 89 basis points) would
be approximately $720,000 annually based on the floating-rate debt outstanding
at September 30, 2000. As the Company's leverage ratio increases the result of
incremental borrowings required to acquire Rainforest Cafe, the Company's
financing spread, and thus aggregate borrowing costs will increase on the
scheduled terms in accordance with the Company's credit agreements.
At September 30, 2000, the Company's floating-rate debt had a book value
and a fair market value of $81.0 million. The floating-rate debt will mature in
June 2003.
19
LANDRY'S SEAFOOD RESTAURANTS, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Class Action Litigation
-----------------------
Class action lawsuits were filed in June and July of 1999 against the
Company and its executive officers, directors, and underwriters that
participated in the Company's offering of common stock in March 1998, in the
United States District Court for the Southern District of Texas, Houston
Division. The plaintiffs in these actions seek unspecified monetary damages.
Landry's filed a motion to dismiss this litigation on August 30, 2000 and is
awaiting a decision from the court regarding such dismissal request.
Although the ultimate outcome of this matter cannot be determined at this time,
the Company believes these claims are without merit and intends to defend these
claims vigorously.
General Litigation
------------------
The Company is 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 the Company's
financial position, results of operations or cash flows.
ITEM 2. CHANGES IN SECURITIES Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 17, 2000, the Company held its 2000 Annual Meeting of
Stockholders. At such time, the following items were submitted to a vote of
stockholders through the solicitation of proxies:
(a) Election of Directors.
The following persons were elected to serve on the Board of
Directors until the 2001 Annual Meeting of Stockholders or
until their successors have been duly elected and qualified.
The Directors each received at least a minimum of 20,350,000
votes: Tilman J. Fertitta; Steven L. Scheinthal; Paul S. West;
James A. Mussaci; Joe Max Taylor
ITEM 5. OTHER INFORMATION
(a) Pro forma information for Rainforest acquisition.
The following unaudited pro forma condensed combined financial statements gives
effect to the acquisition of Rainforest Cafe using the purchase method of
accounting, with the Company as the current holder of 59% of the outstanding
common stock of Rainforest. Unaudited condensed pro forma amounts are also
presented for informational purposes to give effect to the final acquisition of
Rainforest with the Company as the acquirer of 100% of the outstanding common
stock of Rainforest, which acquisition is expected to occur by December 31,
2000. The unaudited pro forma condensed combined financial statements are based
on the consolidated financial statements of Landry's and Rainforest (combined
either at the pro rata amount of 59% or 100%, as noted and applicable) for the
year ended December 31, 1999 and the nine months ended September 30, 2000 for
Landry's and approximately the same dates for Rainforest.
The pro forma financial statements and adjustments are based on preliminary
estimates, available information and certain assumptions and may be revised as
additional information becomes available. The pro forma financial statements do
not purport to represent what the Company's financial position or results of
operations would actually have been if such transactions in fact had occurred on
those dates or project the Company's financial position or results of operations
for any future period. Since the Company and Rainforest were not under common
control or management for all periods, historical combined results may not be
comparable to, or indicative of, future performance. Such results would have
been and will be in the future materially different. Unaudited pro forma
financial statements should be read in conjunction with the other financial
statements and notes thereto included elsewhere in this filing.
The pro forma adjustments are as follows:
(A) Reflects the purchase of 59% of the outstanding shares of Rainforest
common stock for $40,476,000 in a cash tender offer, and estimated fees and
expenses of approximately $15,000,000, a draw of $40,476,000 under the Landry's
credit facility, the adjustments to fair value for the net assets acquired and
the recognition of the remaining 41% minority interest to be purchased. The
adjustment to fair value includes the write down of property, plant and
equipment to $113,700,000, the recognition of a deferred tax asset of
approximately $15,500,000 for the difference between the book and tax basis in
the assets acquired, the recording of an accrual for estimated lease termination
costs of certain Rainforest Cafe units of approximately $18,000,000 and the
recording of an $8,500,000 accrual for fees and expenses not payable at closing.
(B) Reflects the reduced annual depreciation expense as the result of the
write down of property, plant and equipment to fair value.
(C) Reflects the interest expense related to borrowing for the acquisition
under the Landry's credit facility at an estimated interest rate of 9%.
(D) Reflects the increased book income tax expense related to the increase
in taxable income as the result of the net reduction in expenses.
(E) Reflects the remaining yet unpurchased minority interest of 41%. This
interest of remaining Rainforest Common Stock not owned by Landry's subsequent
to the cash tender offer on October 27, 2000 but prior to the completion of the
remaining acquisition is expected to be purchased by December 31, 2000 for $3.25
per share.
(F) Reflects the purchase of 59.1% of the outstanding shares of Rainforest
common stock.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
30-SEP-00
(Amounts in thousands, except per share data)
Historical
------------------------ Pro Forma Pro Forma Pro Forma
Landry's Rainforest Adjustments Combined Combined
30-Sep-00 01-Oct-00 at 59.1% ownership at 59.1% at 100%
----------- ----------- ------------------- ---------- ---------
ASSETS
Current Assets:
Cash and cash equivalents $ 8,768 $ 17,960 (10,032) A $ 16,696 $ 16,696
Other Current assets 31,872 22,240 1,154 A 55,266 55,266
--------- --------- ---------- --------
Total current assets 40,640 40,200 71,962 71,962
PP&E, net 471,506 114,873 (1,195) A 585,184 558,389
Other Non-Current Assets, net 8,597 1,730 12,500 A 22,827 35,327
--------- --------- ---------- --------
Total Assets $ 520,743 $ 156,803 $ 679,973 $665,678
========= ========= ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Total current liabilities $ 51,435 $ 19,434 26,500 A $ 97,369 $ 97,369
Long-term Notes and Other Obligations, Net of
Current Portion 80,999 0 40,476 A 121,475 $151,850
Deferred Occupancy Costs and Income Taxes 15,080 27,790 42,870 42,870
--------- --------- ---------- --------
Total liabilities 147,514 47,224 261,714 292,089
Minority interest 0 360 44,671 A 45,031 360
Shareholders' Equity 373,229 109,219 (109,219) A 373,229 373,229
--------- --------- ---------- --------
Total Liabilities and Stockholders equity $ 520,743 $ 156,803 $ 679,973 $665,678
========= ========= ========== ========
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Amounts in thousands, except per share data)
Revenues $ 378,102 $ 201,185 $ 579,287 $579,287
Costs and Expenses:
Food, beverage and retail cost of good sold 114,968 55,637 170,605 170,605
Restaurant & Retail operating expenses 191,161 113,486 304,647 304,647
General and administrative 18,954 11,628 30,582 30,582
Preopening expenses 2,059 2,631 4,690 4,690
Depreciation and amortization 18,934 14,086 (4,056) B 28,964 26,600
Special charges/(credits), net 2,000 101,891 103,891 103,891
----------- ----------- ---------- ---------
Total costs and expenses 348,076 299,359 643,379 641,015
Other (Income) Expense, net 4,458 3,746 2,732 C 10,936 12,987
Income (Loss) before Income Taxes and
minority interest 25,568 (101,920) (75,028) (74,715)
Provision (benefit) for Income Taxes 8,423 (5,202) 457 D 3,678 3,786
Minority Interest 0 0 (39,558) E (39,558) 0
----------- ----------- ---------- ----------
Net Income (Loss) $ 17,145 $ (96,718) $ (39,148) $(78,501)
========= ========= ========== ========
Earnings Per Share Data:
Diluted (1)
Net income per common share $ 0.71 $ (4.26) $ (1.18) $ (3.24)
Weighted average number of common shares and
common share equivalents outstanding 24,000 22,715 (13,425) F 33,290 $ 24,000
Net income per share without special charges -
diluted $ 0.75 $ 0.00 $ 0.87 $ 0.79
(1) Basic earning per share is approximately
equal to the Diluted earnings per share for
the pro forma nine months ended September 30,
2000 for all amounts presented.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(Amounts in thousands, except per share data)
Revenues $ 438,986 $ 262,690 $ 701,676 $701,676
Total costs and expenses 413,743 256,028 (6,836) B 662,935 659,783
Other (Income) Expense, net 1,789 (2,029) 3,643 C 3,403 6,136
Income before Income Taxes and
minority interest 23,454 8,691 35,338 35,757
Provision for Income Taxes 8,080 2,997 1,102 D 12,179 12,323
Minority Interest 0 0 2,329 E 2,329 0
--------- --------- ---------- -------
Net Income $ 15,374 $ 5,694 $ 20,830 $23,434
========= ========= ========== =======
Earnings Per Share Data:
Diluted (1)
Net income per common share $ 0.57 $ 0.23 $ 0.56 $ 0.87
Weighted average number of common shares
and common share equivalents outstanding 27,025 24,637 (14,560) F 37,102 27,025
Net income per share without special charges -
diluted $ 0.64 $ 0.43 $ 0.77 $ 1.12
(1) Basic earning per share is approximately
$0.01 higher than Diluted earnings per share for
the pro forma year ended December 31, 1999
for all amounts presented.
(b) Rainforest Cafe Form 10-K filed with the SEC on March 2, 2000
(incorporated herein by reference)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 First Amended and Restated Credit Agreement
("Credit Agreement"), dated as of June 28,
2000, by and among Landry's, Bank of America,
N.A. as Administrative Agent, and the other
financial institutions party thereto, Banc of
America Securities LLC, as Sole Lead Arranger
and Sole Book Manager, The Bank of Nova Scotia,
as Syndication Agent, Fleet National Bank, as
Documentation Agent, and Guaranty Federal Bank,
F.S.B., as co-Agent (incorporated herein by
reference to Exhibit 10.1 to Current Report on
Form 8-K of Landry's Seafood Restaurants, Inc.,
filed with the SEC on July 13, 2000)
10.2 Term Sheet relating to the Credit Agreement
(incorporated herein by reference to Exhibit
(b)(2) to the Tender Offer Statement on Schedule
TO filed by Landry's Seafood Restaurants, Inc.
and LSR Acquisition Corp. with the SEC on
September 29, 2000)
10.3 Amendment No. 1 and Consent dated as of October 17, 2000
to the First Amended and Restated Credit Agreement
dated June 28, 2000 by and among Landry's Seafood
Restaurants, Inc., the lenders from time to time
party to the Credit Agreement, and Bank of America, N.A.,
as administrative agent for the Banks.
99.1 Section 9 ("Source and Amount of Funds") of the Offer
to Purchase of ISB Acquisition Corp. dated
September 29, 2000 (incorporated herein by references
to exhibit 99(a)(1) to the Schedule TO filed by Landry's
Seafood Restaurants, Inc. and LER Acquisition Corp. with
the SEC on September 29, 2000)
27. FINANCIAL DATA SCHEDULE
(b) REPORTS on Form 8-K
The Company filed a Form 8-K on July 12, 2000, announcing a $200
million credit line with a syndicate of banks.
20
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LANDRY'S SEAFOOD 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/ Paul S. West
---------------------------------------------
Paul S. West
Vice President-Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: November 13, 2000
-----------------
21