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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 4, 1998
----------------
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to __________
Commission file number 0-26400
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LOGAN'S ROADHOUSE, INC.
- - -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
TENNESSEE 62-1602074
- - -------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
P.O. BOX 291047, NASHVILLE, TN 37229
- - -------------------------------------------------------------------------------
(Address of principal executive offices)
(615) 885-9056
- - -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- - -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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:
Class Outstanding November 13, 1998
- - ---------------------------- -----------------------------
Common stock, $.01 par value 7,195,525 shares
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
LOGAN'S ROADHOUSE, INC.
BALANCE SHEETS
Oct. 4, 1998 Dec. 28, 1997
Assets (Unaudited) (Audited)
- - ------------------------------------- -------------- -------------
Current assets:
Cash and cash equivalents $ 1,195,039 6,466,775
Investments, at amortized cost 1,024,709 17,900,052
Receivables: trade and other 1,293,148 812,623
Inventories 710,701 471,150
Preopening costs (note 5) 2,728,834 923,225
Prepaid expenses and other current assets 807,929 762,185
----------- ----------
Total current assets 7,760,360 27,336,010
Property, plant and equipment, net 79,977,416 51,075,003
Other assets 228,468 112,198
----------- ----------
Total assets $87,966,244 78,523,211
=========== ==========
Liabilities and Shareholders' Equity
- - -------------------------------------
Current liabilities:
Accounts payable $ 3,044,459 2,402,763
Accrued payroll and related expenses 1,014,376 1,466,149
Deferred revenue 108,280 492,804
Income taxes payable 101,574 280,458
Accrued state and local taxes 1,089,297 732,338
Deferred income taxes 967,751 332,178
Note payable to bank 1,150,000 -
----------- ----------
Total current liabilities 7,475,737 5,706,690
Deferred income taxes 1,693,330 1,191,299
----------- ----------
Total liabilities 9,169,067 6,897,989
Shareholders' equity (note 2):
Common stock, $0.01 par value;
Authorized 15,000,000 shares; issued
7,194,213 and 7,142,418 shares, respectively 71,942 71,424
Additional paid-in capital 60,547,915 60,048,611
Retained earnings 18,177,320 11,505,187
----------- ----------
Total shareholders' equity 78,797,177 71,625,222
----------- ----------
Total liabilities and shareholders' equity $87,966,244 78,523,211
=========== ==========
See accompanying notes to financial statements.
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LOGAN'S ROADHOUSE, INC.
STATEMENTS OF EARNINGS
(UNAUDITED)
TWELVE WEEKS ENDED: FORTY WEEKS ENDED:
---------------------------- ----------------------------
Oct. 4, 1998 Oct. 5, 1997 Oct. 4, 1998 Oct. 5, 1997
------------ ------------ ------------ ------------
Net restaurant sales $24,501,210 16,074,078 73,677,167 49,936,187
Costs and expenses:
Food and beverage 8,026,850 5,310,584 24,091,852 16,407,928
Labor and benefits 6,998,771 4,516,586 21,137,926 13,851,315
Occupancy and other 3,589,957 2,357,629 10,869,649 7,263,857
Depreciation and amortization 1,257,718 908,803 3,676,770 2,709,413
General and administrative 1,233,831 744,879 4,161,567 2,638,407
----------- ---------- ---------- ----------
21,107,127 13,838,481 63,937,764 42,870,920
----------- ---------- ---------- ----------
Income from operations 3,394,083 2,235,597 9,739,403 7,065,267
Other income
Interest, net 17,121 258,709 322,700 374,707
Franchise fee and royalties 82,234 72,584 234,392 152,092
----------- ---------- ---------- ----------
99,355 331,293 557,092 526,799
----------- ---------- ---------- ----------
Earnings before income taxes 3,493,438 2,566,890 10,296,495 7,592,066
Income tax expense (note 3) 1,229,690 847,073 3,624,367 2,681,262
----------- ---------- ---------- ----------
Net earnings $ 2,263,748 1,719,817 6,672,128 4,910,804
=========== ========== ========== ==========
Earnings per share (note 4):
Basic $ 0.32 0.25 0.93 0.78
=========== ========== ========== ==========
Diluted $ 0.31 0.24 0.90 0.75
=========== ========== ========== ==========
Weighted average shares outstanding:
Basic 7,185,055 7,009,980 7,163,093 6,314,470
=========== ========== ========== ==========
Diluted 7,367,264 7,235,908 7,377,029 6,550,575
=========== ========== ========== ==========
See accompanying notes to financial statements.
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LOGAN'S ROADHOUSE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Forty Weeks Ended
-----------------------------------
October 4 , 1998 October 5, 1997
---------------- ---------------
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net $ 6,672,128 4,910,804
cash provided by operating activities:
Depreciation and amortization 3,676,770 2,709,413
Net effect of changes in current assets and
current liabilities (2,973,690) (461,655)
------------ -----------
Net cash provided by operating activities 7,375,208 7,158,562
------------ -----------
Cash flows from investing activities:
Additions to property, plant and equipment (31,055,839) (10,991,928)
Proceeds from maturities of investments
Increase in other assets 16,875,343 1,253,444
(116,270) (37,725)
------------ -----------
Net cash used by investing activities
(14,296,766) (9,776,209)
------------ -----------
Cash flows from financing activities:
Net proceeds from public offering - 24,566,019
Proceeds from exercise of stock options 499,822 247,546
Increase in notes payable to bank 1,150,000 -
------------ -----------
Net cash provided by financing activities 1,649,822 24,813,565
------------ -----------
Net increase (decrease) in cash (5,271,736) 22,195,913
Cash and cash equivalents, beginning of period 6,466,775 780,307
------------ -----------
Cash and cash equivalents, end of period $ 1,195,039 22,976,225
============ ===========
See accompanying notes to financial statements.
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LOGAN'S ROADHOUSE, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FORTY WEEKS ENDED OCTOBER 4, 1998 AND OCTOBER 5, 1997
(1) BASIS OF PRESENTATION
The accompanying financial statements have been prepared by the
Company without audit, with the exception of the December 28, 1997 balance
sheet which was derived from the audited financial statements included in the
Company's December 28, 1997 Annual Report. The financial statements include
balance sheets, statements of earnings and statements of cash flows which have
been prepared in accordance with generally accepted accounting principles for
interim financial reporting and in accordance with Rule 10-01 of Regulation
S-X. These financial statements, note disclosures and other information should
be read in conjunction with the "Selected Financial Data" and financial
statements and the notes thereto included in the Company's December 28, 1997
Annual Report.
In the opinion of management, the unaudited interim financial
statements contained in this report reflect all adjustments, consisting of only
normal recurring accruals, which are necessary for a fair presentation of the
financial position and the results of operations for the interim periods
presented. The results of operations for any interim period are not necessarily
indicative of results for the full year.
For accounting purposes, the Company has adopted a 52/53 week fiscal
year ending on the last Sunday in December. For financial reporting purposes,
the first quarter consists of 16 weeks with the second, third and fourth
quarters each consisting of 12 weeks (13 weeks in the fourth quarter of a 53
week year).
(2) SHAREHOLDERS' EQUITY
On July 23, 1997, the Company completed a public offering whereby
1,100,000 shares of Common Stock were sold at $24 per share. Proceeds to the
Company (after underwriting discounts and expenses) amounted to approximately
$24.6 million. The Company had 7,194,213 shares of Common Stock outstanding at
October 4, 1998.
(3) INCOME TAXES
The provision for income taxes for the nine months (40 weeks) ended
October 4, 1998 and the comparable period of 1997 consists of both federal and
state taxes. The Company's effective tax rates for the above periods were 35.2%
for 1998 and 35.3% for 1997. These rates are lower than the statutory federal
and state tax rates in effect due to tax exempt interest income being received
on various investments.
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(4) EARNING PER SHARE
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 128 Earnings Per Share, during the fourth quarter of 1997. Accordingly, all
prior period earnings per share data has been restated in accordance with SFAS
No. 128. Basic earnings per share data has been computed on the basis of the
weighted average number of shares outstanding, and diluted earnings per share
data has been computed on the basis of the weighted average number of shares
outstanding, including stock equivalents, which consist of stock options.
The following table is a reconciliation of basic and diluted earnings per share
for the periods presented:
Twelve Weeks Ended Oct. 4, 1998 Twelve Weeks Ended Oct. 5, 1997
-------------------------------------------- ----------------------------------------
Income Common Income Common
Available Shares Per Share Available Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------------------------------------- ----------------------------------------
Basic EPS $2,263,748 7,185,055 $0.32 $1,719,817 7,009,980 $0.25
===== =====
Effect of dilutive securities
Stock options _ 182,209 _ 225,928
---------- --------- ----- ---------- --------- -----
Diluted EPS $2,263,748 7,367,264 $0.31 $1,719,817 7,235,908 $0.24
========== ========= ===== ========== ========= =====
Forty Weeks Ended Oct. 4, 1998 Forty Weeks Ended Oct. 5, 1997
------------------------------------------- -----------------------------------------
Income Common Income Common
Available Shares Per Share Available Shares Per Share
(Numerator) (Demonator) Amount (Numerator) (Denomiator) Amount
-------------------------------------------- -----------------------------------------
Basic EPS $6,672,128 7,163,093 $0.93 $4,910,804 6,314,470 $0.78
=====
Effect of dilutive securities
Stock options _ 213,936 _ 236,105
---------- --------- ----- ---------- --------- -----
Diluted EPS $6,672,128 7,377,029 $0.90 $4,910,804 6,550,575 $0.75
========== ========= ===== ========== ========= =====
For the twelve weeks ended October 4, 1998, options to purchase 140,850 shares
of the Company's Common Stock were excluded from the computation of diluted
earnings per share as these securities were anti-dilutive for such period.
(5) NEW ACCOUNTING PRONOUNCEMENT
On April 13, 1998 the AICPA Accounting Standards Executive Committee
(AcSEC) issued Statement of Position 98-5, Reporting on the Costs of Start-Up
Activity. SOP 98-5 is effective for financial statements issued for fiscal
years beginning after December 15, 1998. The SOP requires that costs incurred
during a start-up activity (including organization costs) be expensed as
incurred. The Company currently expects to adopt SOP 98-5 in the first quarter
of 1999. As a result, the Company will recognize, as a cumulative effect of a
change in accounting
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principle, a charge equal to the after tax effect of the unamortized preopening
costs recorded on the balance sheet at the beginning of 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion includes comments and data relating to the
Company's financial condition and results of operations for the third quarter
(12 weeks) and nine months (40 weeks) ended October 4, 1998. This section
should be read in connection with the "Selected Financial Data" and financial
statements and related notes included in the Company's December 28, 1997 Annual
Report.
At the time of the Company's initial public offering in July 1995, the
Company had eight restaurants in operation located primarily in middle
Tennessee. The Company completed its second public offering of Common Stock in
April 1996 at which time it operated ten restaurants. The Company has continued
its expansion strategy and currently operates 39 restaurants located in
Alabama, Georgia, Florida, Indiana, Kentucky, Louisiana, Tennessee, Virginia
and West Virginia. In addition, the Company franchises a total of four
restaurants in Oklahoma, North Carolina and South Carolina.
In July 1997, the Company completed its third public offering raising
net proceeds of approximately $24.6 million. These proceeds, together with cash
on hand, cash flow from operations and lease financing have enabled the Company
to open 17 new restaurants since July 1997. To continue its restaurant
development program, the Company is currently negotiating a new $60 million
credit facility with a local bank which it anticipates finalizing in December
1998. This credit facility, together with cash flow from operations and lease
financing, is expected to fund the Company's development program through the
year 2001. The Company's ability to expand the number of its restaurants will
depend on a number of factors, including the consummation of the proposed new
$60 million credit facility, selection and availability of quality restaurant
sites, the negotiation of acceptable lease or purchase terms, the securing of
required governmental permits and approvals, the adequate supervision of
construction, the hiring, training and retaining of skilled management and
other personnel which may be difficult given the low unemployment rates in the
areas in which the Company intends to operate. There can be no assurance that
the Company will be successful in negotiating the $60 million credit facility
on terms satisfactory to the Company. Furthermore, there can be no assurance
that the Company will open the number of restaurants anticipated in a timely
manner, that the Company's new restaurants will generate sales revenue or
profit margins consistent with those of the Company's existing restaurants, or
that new restaurants will be operated profitably.
On April 13, 1998 the AICPA Accounting Standards Executive Committee
(AcSEC) issued Statement of Position 98-5, Reporting on the Costs of Start-Up
Activity. SOP 98-5 is effective for financial statements issued for fiscal
years beginning after December 15, 1998. The SOP requires that costs incurred
during a start-up activity (including organization costs) be expensed as
incurred. The Company currently expects to adopt SOP 98-5 in the first quarter
of 1999. As a result, the Company will recognize, as a cumulative effect of a
change in accounting principle, a charge equal to the after tax effect of the
unamortized preopening costs recorded on the balance sheet at the beginning of
1999.
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentages which items in the statements of earnings bear to net sales.
PERCENTAGE OF NET RESTAURANT SALES
Third Quarter Nine Months
(12 Weeks Ended) (40 Weeks Ended)
---------------- ----------------
Oct. 4, 1998 Oct. 5, 1997 Oct. 4, 1998 Oct. 5, 1997
------------ ------------ ------------ ------------
Net restaurant sales ......................... 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Food and beverage .......................... 32.8 33.0 32.7 32.9
Labor and benefits ......................... 28.6 28.1 28.7 27.7
Occupancy and other ........................ 14.7 14.7 14.8 14.6
Depreciation and amortization .............. 5.0 5.7 5.0 5.4
General and administrative ................. 5.0 4.6 5.6 5.3
----- ----- ----- -----
Total operating costs and expenses ....... 86.1 86.1 86.8 85.9
----- ----- ----- -----
Income from operations .................. 13.9 13.9 13.2 14.1
Other income (expense), net .................. 0.4 2.1 0.8 1.1
----- ----- ----- -----
Earnings before income taxes ............ 14.3 16.0 14.0 15.2
Income tax expense ........................... 5.1 5.3 4.9 5.4
----- ----- ----- -----
Net earnings ............................ 9.2% 10.7% 9.1% 9.8%
===== ===== ===== =====
NET RESTAURANT SALES
Net restaurant sales increased $8,427,132 or 52.4% during the third
quarter of 1998 (12 weeks), and increased $23,740,980 or 47.5% during the
nine-month period (40 weeks) ended October 4, 1998, compared to the
corresponding periods of last year. The Company had 38 restaurants in operation
at October 4, 1998 compared to 23 at October 5, 1997. The Company opened 14 new
restaurants during the nine-month period ended October 4, 1998; five during the
first quarter, four during the second quarter and five during the third
quarter. The substantial growth in sales for both the third quarter and
nine-month period of 1998 is primarily attributable to the opening of 15 new
restaurants since the third quarter of 1997. In addition, a 2.5% menu price
increase was implemented in January 1998.
For the third quarter and first nine-months of 1998, same store sales
increased 0.7% and 0.5%, respectively, when compared to the corresponding
periods of last year. The 0.7% increase for the third quarter is primarily
attributable to the aforementioned 2.5% menu price increase.
Alcoholic beverage sales, consisting of liquor and beer, accounted for
10.6% and 11.2% of net restaurant sales for the nine-month period ended October
4, 1998 and October 5, 1997, respectively. Management attributes the decrease
to an overall increase in the Company's lunch sales and a relative decrease in
liquor sales as a percentage of alcoholic beverage sales.
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FOOD AND BEVERAGE COSTS
This category primarily consists of the cost of all food and
beverages, including alcoholic and non-alcoholic beverages. In addition, the
cost of peanuts, which are complimentary to customers, are reflected in this
category.
Food and beverage costs remained approximately the same, declining
0.2% as a percentage of net sales from 33.0% in the third quarter of 1997 to
32.8% in the third quarter of 1998 and declining 0.2% from 32.9% for the
nine-month period ended October 5, 1997 to 32.7% for the nine-month period
ended October 4, 1998. During the third quarter and first nine months of 1998,
the Company experienced higher produce, seafood, cheese and dairy costs which
were substantially offset by lower beef costs. In addition, cost increases were
partially offset by a 2.5% menu price increase implemented in January 1998. The
prices of the Company's commodities (beef, pork, chicken, seafood and produce)
are subject to seasonal fluctuations. Accordingly, food cost results for the
third quarter ended October 4, 1998 may not be indicative of results to be
expected for the year.
LABOR AND BENEFITS
Labor and benefits include restaurant management salaries, bonuses,
hourly wages for unit level employees, payroll taxes and various employee
benefit programs.
As a percentage of net sales, labor and benefits increased 0.5% from
28.1% in the third quarter of 1997 to 28.6% in the third quarter of 1998 and
increased 1.0% from 27.7% for the nine-month period ended October 5, 1997 to
28.7% for the nine-month period ended October 4, 1998. The increase in both the
third quarter and nine-month period is primarily attributable to: (i) operating
on lower average unit volumes, compared to the corresponding periods of last
year and (ii) increased employee training focusing on strengthening customer
service, product quality, speed and efficiency.
OCCUPANCY AND OTHER
Occupancy and other costs and expenses are primarily fixed in nature
and, with the exception of advertising, generally do not vary with unit sales
volume. Rent, insurance, property taxes, utilities, maintenance and advertising
account for the major expenditures in this category.
Occupancy and other costs as a percentage of net sales was 14.7% in
both the third quarter of 1998 and the third quarter of 1997 and increased 0.2%
from 14.6% for the nine-month period ended October 5, 1997 to 14.8% for the
nine-month period ended October 4, 1998.
As a result of operating with a larger restaurant base during 1998,
occupancy and other costs and expenses have increased in total absolute
dollars. The percentage increase of 0.3% for the nine-month period ended
October 4, 1998, is primarily attributable to operating on lower average unit
volumes.
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DEPRECIATION AND AMORTIZATION
The Company records depreciation on its property and equipment on a
straight-line basis over an estimated useful life. In addition, this category
also includes amortization of a new restaurant's preopening costs, which
include costs of hiring and training the initial staff and certain other costs.
The preopening costs are amortized over a one-year period commencing with a
restaurant's opening. As of October 4, 1998, the amount of preopening costs,
net of amortization, on the Company's balance sheet was $2,728,834. (See Note 5
of "Notes to Unaudited Financial Statements").
For the third quarter of 1998, depreciation and amortization amounted
to $1,257,718, an increase of $348,915 or 38.4% over the comparable period in
1997. For the nine-month period ended October 4, 1998, these expenses amounted
to $3,676,770, an increase of $967,357 or 35.7% over the comparable period in
1997. As a percentage of net restaurant sales, these expenses declined 0.7%
from 5.7% for the third quarter of 1997 to 5.0% for the third quarter of 1998
and declined 0.4% from 5.4% for the nine-month period ended October 5, 1997 to
5.0% for the nine-month period ended October 4, 1998. The increase in absolute
dollars is primarily the result of increased depreciation and amortization
resulting from the opening of 23 new restaurants since the beginning of 1997.
The 0.7% and 0.4% percentage declines in the third quarter and nine-month
period ended October 4, 1998 is primarily attributable to the amortization of
preopening costs over an expanding sales base.
GENERAL AND ADMINISTRATIVE
General and administrative expenses include all corporate and
administrative functions that serve to support the existing restaurant base and
provide the infrastructure for future growth. Management, supervisory and staff
salaries, employee benefits, data processing, training, rent and costs
associated with being a public company are the major items of expense in this
category.
For the third quarter of 1998, general and administrative expenses
amounted to $1,233,831, an increase of $488,952 or 65.6% over the comparable
period in 1997. For the nine-month period ended October 4, 1998, these expenses
amounted to $4,161,567, an increase of $1,523,160 or 57.7% over the comparable
period in 1997. As a percentage of net sales, these expenses increased 0.4%
from 4.6% for the third quarter of 1997 to 5.0% for the third quarter of 1998
and increased 0.3% from 5.3% for the nine-month period ended October 5, 1997 to
5.6% for the nine-month period ended October 4, 1998.
The dollar increase is primarily attributable to the Company
significantly expanding its management and staff personnel in the areas of
operations, training, real estate, construction and accounting. Most of the
staff additions were made during the fourth quarter of 1997 in preparation for
the Company's expected growth in 1998. Because of the Company's expansion plans
and the expected increase in net sales as a result thereof, management expects
these expenses to continue to increase during 1998 in absolute dollars, but to
decline slightly as a percentage of net sales from the 5.6% rate for the
nine-months ended October 4, 1998. For a discussion of factors affecting the
Company's plans to open additional restaurants, see "Liquidity and Capital
Resources."
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OTHER INCOME (EXPENSE)
Net interest income (interest income minus interest expense) from
cash, cash equivalents and investments amounted to $17,121 during the third
quarter of 1998, compared to $258,709 during the comparable period last year.
For the nine-month period ended October 4, 1998, net interest income amounted
to $322,700, compared to $374,707 in the comparable period last year. During
the third quarter of last year the Company completed a public offering of its
Common Stock with net proceeds to the Company amounting to approximately $24.6
million. Accordingly, during the third quarter of 1997, with higher levels of
invested cash, the Company generated increased interest income from its various
taxable and non-taxable investments.
During the nine-month period ended October 4, 1998, the Company had
four franchised restaurants in operation compared to two for the corresponding
period of 1997. The Company's newest franchised restaurant opened in
Fayetteville, North Carolina in June 1998. In connection with the opening, the
Company recognized as income the initial non-refundable $30,000 franchise fee
collected. During the first nine-months of 1998, royalty fees of $204,392 were
received from the four franchised restaurants.
INCOME TAXES
The effective tax rate for both the third quarter and nine-month
period ended October 4, 1998 was 35.2%. For the corresponding third quarter and
nine-month period of 1997 the effective tax rates were 33.0% and 35.3%,
respectively. The lower tax rate of 33.0% during the third quarter of 1997 is
attributable to an increase in tax-exempt interest income.
NET EARNINGS
As a result of the factors discussed above, net earnings in the third
quarter of 1998 increased $543,931 or 31.6% to $2,263,748, from $1,719,817 in
the third quarter of 1997. As a percentage of net sales, net earnings decreased
1.5% from 10.7% in the third quarter of 1997 to 9.2% in the third quarter of
1998. Diluted earnings per share increased $0.07 or 29.2% in the third quarter
of 1998 to $0.31 from $0.24 in the third quarter of 1997, with an 1.8 %
increase in diluted shares of Common Stock outstanding.
Net earnings increased $1,761,324 or 35.9% to $6,672,128 for the
nine-month period ended October 4, 1998 from $4,910,804 for the nine months
ended October 5, 1997. As a percentage of net sales, net earnings decreased
0.7% from 9.8% for the nine-month period ended October 5, 1997 to 9.1% for the
nine-month period ended October 4, 1998. Diluted earnings per share increased
$.15 or 20.0% for the nine months ended October 4, 1998 to $0.90 from $0.75 for
the nine-months ended October 5, 1997 with a 12.6% increase in shares of Common
Stock outstanding.
LIQUIDITY AND CAPITAL RESOURCES
In July 1997, the Company completed a public offering whereby
1,100,000 shares of Common Stock were sold. Proceeds to the Company (after
underwriting discounts and expenses) amounted to approximately $24.6 million.
These proceeds, together with cash on hand, cash flow from operations and lease
financing, have enabled the Company to open 17 new
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restaurants since July 1997. The Company has available an unsecured $2.5
million revolving credit facility with a local bank, of which approximately
$1.4 million was unused as of October 4, 1998. The Company is currently
negotiating a new $60 million credit facility with a local bank which it
anticipates finalizing in December 1998. This credit facility, together with
cash flow from operations and lease financing, is expected to fund the
Company's development program though the year 2001.
As reflected in the table below, the Company's single largest use of
funds has been for capital expenditures consisting of land, building, equipment
and preopening costs associated with its restaurant development program. The
principal sources of capital to fund such expenditures have been (i) cash
provided by operations, (ii) net proceeds from equity offerings and (iii) lease
financing. The following table provides certain information regarding the
Company's sources and uses of capital for the periods presented.
Nine Months
(40 weeks ended) Fiscal Years Ended
Oct. 4, 1998 Dec. 28, 1997 Dec. 29, 1996
------------ ------------- -------------
(in thousands)
Cash flows from operations $ 7,375 $ 8,915 $ 7,302
Capital expenditures (31,056) (19,296) (18,146)
Net proceeds from public offerings -- 24,556 20,733
Net borrowings (repayments) 1,150 -- (2,579)
Cash flows provided by operations and proceeds from public equity
offerings represent the Company's primary sources of liquidity and capital. The
substantial growth of the Company over the period has not required significant
additional working capital. Sales are predominantly cash, and the business does
not require significant additional working capital, receivables or inventories.
In addition, it is common to receive trade credit for the purchase of food,
beverage and supplies, thereby reducing the need for incremental working
capital to support sales increases.
The Company prefers to own rather than lease its restaurant facilities
when possible. The cost of developing the Company's prototype Logan's Roadhouse
restaurant is estimated to range from $2.0 to $2.6 million, including $900,000
for building costs, $400,000 for equipment costs and $175,000 for preopening
costs. Land acquisition costs, including site preparation, are the most
variable development costs and are estimated to range between $500,000 and $1.1
million. The cost of development of a new restaurant will not include land
acquisition costs if the property is leased rather than purchased.
Capital expenditures and preopening costs for the fourth quarter of
1998 are estimated to amount to approximately $13.5 million for the development
of 10 or 11 new restaurants of which three or four are expected to open during
the fourth quarter of 1998. For 1999, the Company anticipates opening 16 to 18
new restaurants and incurring capital expenditures ranging from approximately
$36.4 million to $40.9 million, depending on the consummation of the proposed
new $60 million credit facility, availability of quality sites, the hiring and
training of sufficiently skilled management and other personnel and other
factors.
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Management believes that available cash, the proposed new $60 million
credit facility, investments, cash provided from operations, and lease
financing will be sufficient to fund the Company's expansion plans through
2001. If the Company fails to consummate the $60 million credit facility, its
actual results of operations fall short of, or its rate of expansion
significantly exceed its plans, or should its costs or capital expenditures
exceed expectations, the Company may need to seek additional financing in the
future. In negotiating such financing, there can be no assurance that the
Company will be able to raise additional capital on terms satisfactory to the
Company.
In order to provide any additional funds necessary to pursue the
Company's growth strategy, the Company may incur, from time to time, additional
short and long-term bank indebtedness and may issue, in public or private
transactions, its equity and debt securities, the availability and terms of
which will depend upon market and other conditions. There can be no assurance
that such additional financing will be available on terms acceptable to the
Company.
YEAR 2000
The following disclosure is designated as Year 2000 readiness
disclosure for purposes of the Year 2000 Information and Readiness Disclosure
Act.
As the year 2000 approaches, a critical business issue has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. Many existing application software products in the
marketplace were designed to accommodate only two-digit date entries. Beginning
in the year 2000, these systems and products will need to be able to accept
four-digit entries to distinguish years beginning with 2000 from prior years.
As a result, computer systems and software used by many companies may need to
be upgraded to comply with such "Year 2000" requirements. The Company has
developed a plan to minimize the risk that its operations will be adversely
affected by Year 2000 software failures and is in the process of preparing for
Year 2000. Management believes that the Company's current systems are Year 2000
compliant. Through September 30, 1998, the Company has not incurred any costs
in connection with Year 2000 compliance and expects to incur costs of
approximately $5,000 on normal system software and equipment upgrades separate
from the Year 2000 issue, which the Company anticipated incurring and budgeted
in the normal course of business.
The Company has initiated discussions with its principal food product
supplier to determine the extent to which the Company is vulnerable to such
supplier's failure to remediate its Year 2000 issues. The Company has been
informed by its principal supplier that it expects to be Year 2000 compliant by
the end of 1998. Management of the Company will confirm such compliance in
early 1999. The Company's other food product suppliers are primarily comprised
of small, local vendors, some of whom do not use computer-based systems for
distribution and billing. In any event, management of the Company believes that
any unresolved Year 2000 issues facing such vendors would not materially affect
the Company. Finally, management of the Company plans to contact the utility
companies providing services to its restaurants during 1999 to ensure that such
service providers are or expect to be Year 2000 compliant so that no restaurant
will experience an interruption of service as a result of any Year 2000
compliance problem.
The malfunction or complete failure of the Company's systems would
likely have a material adverse effect on the results of operations and
financial condition of the Company. The Company currently does not have a
contingency plan to address the failure of the Company's systems or the systems
of its principal food supplier to be Year 2000 compliant. Should the remaining
review of the Company's Year 2000 risks reveal potentially non-compliant
systems or material third party risks, contingency plans will be developed to
address the deficiencies revealed at that time. The Company's forward-looking
statements regarding Year 2000 issues
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are dependent on many factors, including the ability of the Company's principal
food product supplier to achieve Year 2000 compliance and the proper
functioning of the Company's own systems and software, some of which are beyond
the Company's control.
FORWARD-LOOKING STATEMENTS
This Form 10-Q and other information that is provided by the Company
contains forward-looking statements, including those regarding the proposed new
credit facility, the opening of additional restaurants, planned capital
expenditures, the adequacy of the Company's capital resources and other
statements regarding trends relating to various revenue and expense items
including Year 2000 related issues. These statements are subject to a number of
risks and uncertainties beyond the Company's control that could cause the
Company's actual results to differ materially from those projected in such
forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No disclosure required.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As disclosed in the Company's quarterly reports on Form 10-Q for the
quarters ended April 19, 1998 and July 12, 1998, Kenneth F. Payne filed a
lawsuit against the Company in the United States District Court for the Middle
District of Tennessee, Nashville Division, alleging that the Company violated
the Fair Labor Standards Act and the Tennessee Whistle Blower Statute. On
September 15, 1998, the United States District Court for the Middle District of
Tennessee dismissed with prejudice the action brought by Mr. Payne.
The Company is not currently involved in any litigation nor, to
management's knowledge, is any litigation threatened against the Company except
for routine litigation arising in the ordinary course of business. In the
judgment of management of the Company, no material adverse effect on the
Company's financial position or results of operations would result if any such
litigation were not resolved in the Company's favor.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
*3.1 Amended and Restated Charter of the Registrant
*3.2 Bylaws of the Registrant
*4.1 Section 8 of the Amended and Restated Charter of the
Registrant
(included in Exhibit 3.1)
*4.2 Specimen of Common Stock Certificate
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27.1 Financial Data Schedule for quarter ended October 5, 1997
(for SEC use only)
27.2 Financial Data Schedule for quarter ended October 4, 1998
(for SEC use only)
* Incorporated by reference to the Registrant's Registration Statement
on Form SB-2 (Registration No. 33-92976-A)
(b) Reports on Form 8-K
The Company was not required to file a report on Form 8-K during the
quarter for which this report is filed.
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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 thereunto duly authorized.
LOGAN'S ROADHOUSE, INC.
By: /s/ David J. McDaniel
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David J. McDaniel,
Sr. Vice President, Treasurer and Secretary
(Chief Financial Officer)
Date: November 16, 1998
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