<PAGE> 1
United States
Securities and Exchange Commission
Washington, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1996
Commission file number 0-19924
Longhorn Steaks, Inc.
(Exact name of registrant as specified in its charter)
Georgia 58-1498312
- - ------------------------------------------------------------------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
8215 Roswell RD; Bldg 200; Atlanta, GA 30350
- - ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(770) 399-9595
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
XX Yes No
----- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class Outstanding as of May 10, 1996
----- ------------------------------
Common Stock, no par value 8,459,950 shares
<PAGE> 2
Longhorn Steaks, Inc.
Index
<TABLE>
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets-
December 31, 1995 and March 31, 1996 1
Consolidated Statements of Earnings-
For the three months ended
March 31, 1995 and March 31, 1996 2
Consolidated Statement of Stockholders' Equity
For the three months ended
March 31, 1996 3
Consolidated Statements of Cash Flows-
For the three months ended
March 31, 1995 and March 31, 1996 4
Notes to the Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6-8
Part II - Other Information
Item 1. Legal Proceedings 9-10
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
<PAGE> 3
Part I - Financial Information
Item 1. Financial Statements
Longhorn Steaks, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(unaudited)
Assets 12/31/95 03/31/96
------ ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,444,604 $ 3,075,685
Receivables:
Trade 1,560,180 1,150,358
Employees 40,733 34,131
Inventories 4,061,750 4,937,517
Other prepaid expenses 827,571 835,977
Pre-opening costs, net 1,497,668 1,566,038
---------- ----------
Total current assets 9,432,506 11,599,706
Property & equipment, net 51,390,919 56,146,944
Goodwill, net 5,352,244 5,293,927
Property acquired, held for resale 679,630 679,630
Deferred income taxes 101,000 101,000
Other assets 962,740 1,261,229
----------- -----------
Total assets $67,919,039 $75,082,436
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable 3,477,273 4,677,867
Accrued expenses 4,795,766 4,545,292
Deferred income taxes 442,000 442,000
-------- --------
Total current liabilities 8,715,039 9,665,159
Line of credit 5,000,000 9,500,000
---------- ----------
Total liabilities 13,715,039 19,165,159
Minority interest 615,224 684,319
Stockholders' equity:
Preferred stock --- ---
Common stock 41,201,508 41,405,580
Additional paid in capital 919,306 919,306
Retained earnings 11,467,962 12,908,072
----------- -----------
Total stockholders' equity 53,588,776 55,232,958
----------- -----------
Total liabilities and
stockholders' equity $67,919,039 $75,082,436
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
1
<PAGE> 4
Longhorn Steaks, Inc.
Consolidated Statements of Earnings
For the Three Months Ended March 31, 1995 and 1996
(unaudited)
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Revenues:
Restaurant sales $22,210,253 $31,921,719
Wholesale meat sales 848,613 1,633,237
Franchise revenues 160,570 89,892
----------- -----------
Total revenues 23,219,436 33,644,848
Cost of sales:
Cost of restaurant sales 7,881,752 11,412,707
Cost of wholesale meat sales 795,459 1,587,606
Operating expenses-restaurants 11,467,273 15,818,883
Operating expenses-meat division 186,950 165,437
General and administrative expenses 1,983,699 2,418,522
----------- -----------
Total costs and expenses 22,315,133 31,403,155
----------- -----------
Operating income 904,303 2,241,693
Interest income (expense) 171,549 (55,808)
----------- -----------
Earnings before taxes and
minority interest 1,075,852 2,185,885
Minority interest (1,428) 68,075
Income tax expense 377,000 677,700
----------- -----------
Net earnings $700,280 $1,440,110
=========== ===========
Net earnings per share $0.11 $0.20
===== =====
Weighted average shares outstanding and
common stock equivalents 6,522,880 7,141,000
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
2
<PAGE> 5
Longhorn Steaks, Inc.
Consolidated Statements of Stockholders' Equity
for the three months ended March 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Common Stock
-------------------------
Shares,
Net of Additional Net
Preferred Treasury Paid-In Retained Stockholders'
Stock Shares Amount Capital Earnings Equity
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 --- 6,627,333 41,201,508 919,306 11,467,962 53,588,776
Proceeds from exercise
of stock options --- 18,967 204,072 --- --- 204,072
Net Earnings --- --- --- --- 1,440,110 1,440,110
------ --------- ---------- ------- ---------- ----------
Balance, March 31, 1996 --- 6,646,300 41,405,580 919,306 12,908,072 55,232,958
====== ========= ========== ======= ========== ==========
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE> 6
Longhorn Steaks, Inc.
Consolidated Statements of Cash Flows
For the three months ended March 31, 1995 and 1996
(unaudited)
<TABLE>
<CAPTION>
1995 1996
----- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 700,280 $1,440,110
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 1,006,540 1,859,629
Minority interest 68,075
Pre-opening expenses (235,214) (639,547)
Deferred income taxes --- ---
Change in:
Trade receivables 314,953 409,822
Inventories (686,237) (875,767)
Prepaid expenses and other assets 107,717 (306,895)
Accounts payable and accrued expenses (1,047,658) 950,120
----------- ----------
Net cash provided by operating activities 160,381 2,905,547
Cash flows from investing activities:
Purchase of property and equipment (2,070,138) (5,986,160)
(Increase) in loans to employees (102,427) 6,602
----------- ----------
Net cash used by investing activities (2,172,565) (5,979,558)
Cash flows from financing activities:
Proceeds from borrowings on line of credit --- 4,500,000
Proceeds from minority partners' contributions --- 153,135
Distributions to minority partners --- (152,115)
Exercise of stock options --- 204,072
----------- ----------
Net cash provided by financing activities --- 4,705,092
Net increase/(decrease) in cash (2,012,184) 1,631,081
Cash and cash equivalents at January 1, 1995 and 1996 17,045,981 1,444,604
----------- ----------
Cash and cash equivalents at March 31, 1995 and 1996 $15,033,797 $3,075,685
=========== ==========
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE> 7
Longhorn Steaks, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The financial statements for the three months ended March 31, 1996 and for the
three months ended March 31, 1995 were prepared by the Company in accordance
with the rules and regulations of the Securities and Exchange Commission. In
the opinion of management, these quarterly statements include all adjustments
which are of a normal and recurring nature necessary to present a fair
presentation of the results for such periods. Certain information and footnote
disclosures normally presented in annual financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to these rules and regulations. Company management believes the
disclosures are sufficient for interim financial reporting purposes. These
financial statements should be read in conjunction with the financial
statements of the Company for the year ended December 31, 1995.
2. Income Taxes
Income tax expense for the three months has been provided for based on the
estimated effective tax rate expected to be applicable for the full 1996 fiscal
year. The income tax rate of 32% for the three months ended March 31, 1996
differs from applying the statutory federal income tax rate of 34% to pre-tax
income primarily due to employee FICA tip tax credits (a reduction in income
tax expense) offset by state income taxes.
3. Stockholder's Equity
During the first three months of 1996, the Company undertook a public offering
which closed on April 1, resulting in proceeds to the Company, net of offering
expenses, of approximately $31,980,000. The offering consisted of 1,875,000
shares of common stock, 1,500,000 of which were offered by the Company and the
balance of which were offered by certain shareholders of the Company. The
Company also granted its underwriters the option to purchase up to 281,250
additional shares of common stock to cover over-allotments, which was exercised
in full on April 12. The proceeds from this additional issuance of common stock
were approximately $5,996,250.
5
<PAGE> 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
For the Three Month Period Ended March 31, 1996
Compared to
The Three Month Period Ended March 31, 1995
Results of Operations:
The Company derives substantially all of its revenues from restaurant sales,
wholesale meat sales both to franchises and unrelated parties and franchise
revenues. Total revenues increased 44.9% to $33,645,000 for the first three
months of 1996 compared to $23,220,000 for the first three months of 1995.
Restaurant sales increased 43.7% to $31,922,000 for the first three months of
1996 compared to $22,210,000 in the corresponding period of the prior year. The
increase in restaurant sales resulted from the opening of new restaurants
coupled with a 8.5% increase in same store sales. The same store sales increase
was attributable in part to the 1996 period having an extra day due to leap
year; further, while five restaurant renovations were completed in each of the
comparative periods, the 1996 renovations experienced less sales disruption
than the 1995 renovations. Same store sales consists of sales at restaurants
opened prior to October 1, 1994. Wholesale meat sales increased 92.3% to
$1,633,000 for the first three months of 1996 compared to $849,000 in the
corresponding period of the prior year due to an increase in sales to
unaffiliated customers partially offset by a decrease in sales to franchises.
Revenues (and costs) attributable to wholesale meat sales are expected to cease
permanently during 1996 due to a new distribution system being fully
implemented during that period eliminating the need for a separate meat
production and distribution facility. Franchise revenues decreased 44.1% to
$90,000 in the 1996 period compared to $161,000 in the 1995 period due to the
Company's acquisition of two franchised restaurants and the closure of two
franchised restaurants.
Cost of restaurant sales as a percentage of restaurant sales increased to 35.8%
for the first three months of 1996 from 35.5% in the corresponding period of
the prior year. This was primarily due to higher beef costs in the 1996 period.
Restaurant operating expenses as a percentage of restaurant revenues decreased
to 49.6% from 51.6%. This was due to a reduction in payroll and other
controllable costs as well as stronger unit sales. Meat division operating
expenses as a percentage of total revenues decreased to 0.5% from 0.8%; this
was attributable to the cessation of meat-cutting operations at the meat
company during the current period.
General and administrative expenses as a percentage of total revenues decreased
to 7.2% from 8.5%. This decrease was largely attributable to fixed corporate
expenses increasing at a slower rate than revenues.
As a result of the relationships between revenues and expenses discussed above,
operating income increased to $2,242,000 for the first three months
6
<PAGE> 9
of 1996 as compared to $904,000 in the corresponding period of the prior year.
Interest income is attributable to the investment of available cash; interest
expense is attributable to borrowings under the Company's revolving line of
credit, net of interest capitalized for construction costs of new units not yet
opened. Interest expense was $56,000 for the first three months of 1996 as
compared to $172,000 in interest income in the corresponding period of the
prior year as a result of the decrease in funds invested and an increase in
borrowed funds.
Income tax expense of $678,000 or 32.0% of earnings before income taxes was
recognized for the first three months of 1996, as compared to $377,000 or 35.0%
of earnings before income taxes for the first three months of 1995, reflecting
an estimated 32.0% 1996 annual effective tax rate. The Company's effective
income tax rate differs from applying the statutory federal income tax rate of
34% to pre-tax income primarily due to employee FICA tip tax credits and state
income taxes.
Net earnings increased to $1,440,000 for the first three months of 1996 as
compared to $700,000 in the corresponding period of the prior year.
Liquidity and Capital Resources:
The following table presents a summary of the Company's cash flows for the
three months ended March 31, 1995 and March 31, 1996.
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 160,381 $ 2,905,547
Net cash used in investing activities (2,172,565) (5,979,558)
Net cash provided by financing activities ----- 4,705,092
----------- -----------
Net increase/(decrease) in cash and
cash equivalents $(2,012,184) $ 1,631,081
=========== ===========
</TABLE>
The Company requires capital primarily for the development of new restaurants,
selected acquisitions and the remodeling of existing restaurants. Capital
expenditures for new and improved facilities totaled approximately $2,070,000
for the first three months of 1995 and $5,986,000 for the first three months of
1996. During the period, the Company funded all of its expansion with
internally generated funds coupled with borrowings under the Company's
revolving line of credit. Subsequent to March 31, 1996, an offering of the
Company's stock was closed resulting in net proceeds to the Company of
approximately $38,000,000. Upon receipt of the proceeds, the Company paid off
the line of credit and has invested the remainder of the proceeds in a
combination of interest bearing cash accounts and short-term investments. These
funds, along with those generated by Company operations, are expected to fund
the Company's expansion plans through 1997.
7
<PAGE> 10
The Company opened twelve Company-owned and joint venture restaurants during
1995 and acquired four. The Company intends to open approximately fifteen
Company-owned and joint venture restaurants in 1996. The Company estimates that
its capital expenditures (without consideration of contributions from joint
venture partners) will be approximately $19,000,000 in fiscal 1996. The Company
expects the 1996 average cost per restaurant to be slightly lower than 1995 due
to lower pre-opening expenses and better cost control and engineering. During
the first three months of 1996, the Company negotiated with two of its existing
franchises to form a joint venture to own and operate the three franchised
restaurants in Charlotte, North Carolina and Columbia, South Carolina and the
Company's two Longhorn Steakhouse restaurants in Greensboro and High Point,
North Carolina. This transaction closed on April 1.
As of March 31, 1996 the Company had approximately $3.1 million in cash on
hand.
8
<PAGE> 11
Part II - Other Information
Item 1. Legal Proceedings
On February 10, 1994 Linda Upton, a shareholder of the Company, filed a
putative class action against the Company, several of its directors and the two
managing underwriters of its previous public offerings of Common Stock. The
lawsuit is styled Linda Upton v. George W. McKerrow, Jr., Ronald P. Sheean,
Ronald W. San Martin, J. William Norman, George W. McKerrow, Sr., J. C.
Bradford & Co., The Robinson-Humphrey Company, Inc., and Longhorn Steaks, Inc.,
Civil Action No. 1:94-CV-0353-MHS, U. S. District Court for the Northern
District of Georgia, Atlanta Division. The Plaintiff purports to represent a
class of all persons who purchased the Common Stock of the Company between July
27, 1992 and June 17, 1993. The complaint alleges that during this interval the
defendants made material misrepresentations and omissions in connection with
the financial condition of the Company which had the effect of artificially
inflating the market price of the Company's Common Stock. The complaint
alleges that by virtue of this conduct defendants violated Section 10(b) of the
Securities Exchange Act of 1934 (the 1934 "Act") and SEC Rule 10b-5 thereunder.
The complaint also alleges that defendants Longhorn Steaks, Inc., George W.
McKerrow, Jr., Ronald W. San Martin, J. William Norman, and George W. McKerrow,
Sr. were each controlling persons within the meaning of Section 20 of the 1934
Act and are therefore liable to the plaintiffs on that basis as well. The
complaint seeks compensatory damages along with pre- and post- judgment
interest, reasonable attorney's fees, expert witness fees, and other costs. The
complaint also seeks relief in the form of "extraordinary equitable and/or
injunctive relief as permitted by law, equity and the federal statutory
provisions sued hereunder, including attaching, impounding, imposing a
constructive trust upon or otherwise restricting the proceeds of defendants'
trading activities or their other assets so as to ensure that plaintiff has an
effective remedy..."
In the plaintiff's answers to mandatory interrogatories filed under the Court's
rules, the plaintiff states that, although this is a matter for experts, at
this point, it appears that "class-wide damages likely total in excess of $40
million."
Under the indemnification agreements with each of them and the provisions of
the Company's Bylaws, the Company is advancing to each of the above named
directors their costs of defense of the claims against them in this action. The
Company has made a claim under its officers and directors liability insurance
policy with respect to this litigation and has reached an interim agreement
with the insurer (subject to renegotiation at the conclusion of the case) for
the insurer to advance payment of a portion of the aggregate cost of defending
the Company and the named directors once the Company has incurred insured
defense costs equal to the $250,000 retainage under the policy. The Company has
incurred expenses to date substantially equal to this retainage, and a portion
of the future costs of the Company in its defense and that of the directors
will be paid by the Company's insurer.
In addition, the Company has certain indemnification agreements with the
underwriter defendants and has agreed on an interim basis (subject to
9
<PAGE> 12
renegotiation at the conclusion of the case) to, advance a portion of the costs
of the underwriters incurred in defending this litigation.
Notwithstanding the contribution of the insurance company to the costs of the
defense, the cost of defending litigation of this type can be significant and
the portion of these costs that will be borne by the Company, including the
Company's indemnification obligations to the underwriters, will be an expense
in future periods until the matter is resolved. The Company cannot estimate the
amount of the expense.
The Company believes that the claims of the plaintiff in the lawsuit are
unfounded and completely without merit. The Company denies any liability with
respect to these claims and intends to vigorously defend them. In April 1994,
the defendants filed motions to dismiss the complaint for failure to state a
claim on which relief can be granted. On March 30, 1995, the court granted the
defendants' motions as to certain of the plaintiff's allegations of
misstatements and the court denied the defendant's motions as it relates to
certain other alleged misstatements. The plaintiff filed an amended complaint
in response to the Court's March 30, 1995 order and the defendants filed
motions to dismiss the amended complaint for failure to state a claim on which
relief can be granted. The Court has entered an order denying the defendants'
motions to dismiss the amended complaint. The defendants have answered the
complaint, denying liability and intend to continue to defend the action
vigorously. The plaintiff has filed a motion for class certification, which the
defendants intend to oppose.
This action remains at an early procedural stage and it is not possible at this
time to determine the outcome of the lawsuit or the effect of its resolution on
the Company's financial position or operating results. Management believes the
Company's defenses have merit and that the resolution of this matter will not
have a material adverse effect on the Company's financial position; however,
there can be no assurance that the Company will be successful in its defense or
that this litigation will not have a material adverse effect on the Company's
results of operations for some period or on the Company's financial position.
10
<PAGE> 13
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Filed.
3(a) Amended and Restated Articles of Incorporation of the Registrant
(incorporated by reference from exhibit 3(a) to the Registration
Statement on Form S-1, Registration Statement No. 33-57942).
3(b) Amended and Restated Bylaws of the Registrant (incorporated by
reference from exhibit 3(b) to the Registration Statement on
Form S-1, Registration Statement No. 33-45695).
27 Financial Data Schedule (for SEC use only)
(b) Reports filed on Form 8-K.
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Longhorn Steaks, Inc.
Date: May 13, 1996 /s/ Anne D. Huemme
-------------------------- -----------------------------
Anne D. Huemme
Chief Financial Officer and
Officer (Principal Financial
Officer and Principal
Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 1996 AND THE CONSOLIDATED STATEMENT
OF EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH 10-Q FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,075,685
<SECURITIES> 0
<RECEIVABLES> 1,150,358
<ALLOWANCES> 0
<INVENTORY> 4,937,517
<CURRENT-ASSETS> 11,599,706
<PP&E> 56,146,944<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 75,082,436
<CURRENT-LIABILITIES> 9,665,159
<BONDS> 9,500,000
0
0
<COMMON> 41,405,580
<OTHER-SE> 13,827,378
<TOTAL-LIABILITY-AND-EQUITY> 75,082,436
<SALES> 33,554,956
<TOTAL-REVENUES> 33,644,848
<CGS> 13,000,313
<TOTAL-COSTS> 13,000,313
<OTHER-EXPENSES> 15,984,320
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,808
<INCOME-PRETAX> 2,185,885
<INCOME-TAX> 677,700
<INCOME-CONTINUING> 1,440,110
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,440,110
<EPS-PRIMARY> .22<F2>
<EPS-DILUTED> .20
<FN>
<F1>ASSET VALUES REPRESENT NET AMOUNTS.
<F2>PRIMARY EPS IS CALCULATED USING A WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING OF 6,635,064.
</FN>
</TABLE>
