<PAGE>
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 June 30, 1997.
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 August 11, 1997 there were
25,519,792 shares of $0.01 par value
common stock outstanding.
<PAGE>
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements 2
Condensed Unaudited Consolidated Balance Sheets at
June 30, 1997 and December 31, 1996 3
Condensed Unaudited Consolidated Statements of Income
for the Three Months and Six Months ended June 30, 1997
and June 30, 1996 4
Condensed Unaudited Consolidated Statements of
Stockholders' Equity for the Six Months Ended June 30, 1997 5
Condensed Unaudited Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1997 and June
30, 1996 6
Notes to Condensed Unaudited Consolidated Financial
Statements 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
1
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying condensed unaudited consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. 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.
2
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
ASSETS 1997 1996
- ----------------------- ------------ ------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 21,811,484 $ 57,267,986
Accounts receivable--trade and other 9,685,820 10,575,874
Inventory 6,738,566 11,965,894
Other current assets 6,465,474 5,602,727
------------ ------------
Total current assets 44,701,344 85,412,481
PROPERTY AND EQUIPMENT, net 254,855,856 189,895,392
GOODWILL, net of amortization of
$1,032,000 and $1,006,000, respectively 2,992,279 3,047,950
OTHER ASSETS, net 3,423,676 2,842,892
------------ ------------
Total assets $305,973,155 $281,198,715
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 17,290,221 $ 10,655,053
Accrued liabilities 11,196,645 9,888,159
Income taxes payable 1,606,447 ---
Current portion of long-term notes
and other obligations 283,358 492,555
------------ ------------
Total current liabilities 30,376,671 21,035,767
LONG-TERM NOTES AND OTHER OBLIGATIONS,
NON-CURRENT 317,443 221,184
DEFERRED INCOME TAXES & OTHER LIABILITIES 3,494,353 3,494,353
------------ ------------
Total liabilities 34,188,467 24,751,304
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 2,000,000
shares authorized, 9,172 issued and
outstanding 92 284
Common stock, $0.01 par value, 60,000,000
shares, authorized, 25,373,973 and
25,225,356 issued and outstanding,
respectively 253,739 252,253
Additional paid-in capital 239,622,816 238,083,067
Retained earnings 31,908,041 18,111,807
------------ ------------
Total stockholders' equity 271,784,688 256,447,411
------------ -----------
Total liabilities and stockholders' equity $305,973,155 $281,198,715
============ ============
The accompanying notes are an integral part of these condensed unaudited
consolidated financial statements.
3
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- ---------------------------
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Restaurant $ 81,182,474 $ 64,284,058 $145,483,251 $115,845,612
Processing Plant --- 2,001,094 --- 3,510,368
------------ ------------ ------------ ------------
Total revenues 81,182,474 66,285,152 145,483,251 119,355,980
OPERATING COSTS AND EXPENSES:
Cost of sales 24,942,550 20,014,299 44,597,730 35,987,349
Restaurant labor 20,971,418 16,609,183 37,416,239 29,811,561
Other restaurant operating expenses 16,751,225 13,486,437 30,688,950 24,632,424
Depreciation and amortization 3,770,084 3,572,734 7,153,382 6,632,871
Processing plant cost of sales and
other operating expenses --- 2,260,987 --- 3,857,224
General and administrative expenses 2,542,813 2,777,407 4,844,985 5,382,801
------------ ------------ ------------ ------------
Total operating costs and expenses 68,978,090 58,721,047 124,701,286 106,304,230
------------ ------------ ------------ ------------
OPERATING INCOME 12,204,384 7,564,105 20,781,965 13,051,750
OTHER (INCOME) EXPENSE:
Interest (income) expense, net (261,150) (267,629) (752,950) (226,918)
Other, net ( 37,815) 62,313 (21,699) 120,467
------------ ------------ ------------ ------------
Total other (income) expense (298,965) (205,316) (774,649) (106,451)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 12,503,349 7,769,421 21,556,614 13,158,201
PROVISION FOR INCOME TAXES 4,501,205 2,791,646 7,760,380 4,721,787
------------ ------------ ------------ ------------
NET INCOME
$ 8,002,144 $ 4,977,775 $ 13,796,234 $ 8,436,414
============ ============ ============ ============
NET INCOME PER SHARE $ 0.30 $ 0.22 $ 0.52 $ 0.39
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON SHARE EQUIVALENTS OUTSTANDING 26,800,000 22,854,000 26,400,000 21,907,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these condensed unaudited
consolidated financial statements.
4
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
CONDENSED UNAUDITED CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-In Retained
Shares Amount Shares Amount Capital Earnings Total
------ ------ ------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 28,398 $284 25,225,356 $252,253 $238,083,067 $ 18,111,807 $256,447,411
Net income --- --- --- --- --- 13,796,234 13,796,234
Exercise of stock options
and income tax benefit --- --- 129,391 1,294 1,539,749 --- 1,541,043
Conversion of preferred stock
into common stock (19,226) (192) 19,226 192 --- --- ---
Balance, June 30, 1997 9,172 $ 92 35,373,973 $253,739 $239,622,816 $ 31,908,041 $271,784,688
======= ===== ========== ======== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these condensed unaudited
consolidated financial statements .
5
<PAGE>
<TABLE>
<CAPTION>
LANDRY'S SEAFOOD RESTAURANTS, INC.
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
--------------------------------
June 30,
1997 1996
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $13,796,234 $ 8,436,414
Adjustments to reconcile net income to net
cash provided by operating activities--
Depreciation and amortization 7,153,382 6,632,871
Change in assets and liabilities-net and other 13,839,060 4,164,178
----------- ------------
Total adjustments 20,992,442 10,797,049
----------- ------------
Net cash provided by operating activities 34,788,676 19,233,463
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions (70,473,005) (33,051,103)
Other assets, including goodwill (611,506) (217,673)
----------- ------------
Net cash used in investing activities (71,084,511) (33,268,776)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable and other long-term
obligations (112,939) (1,166,767)
Borrowings on notes payable --- 8,248,413
Net proceeds from sale of common stock --- 105,617,365
Proceeds from exercise of stock options 952,272 2,321,110
----------- ------------
Net cash provided by (used in) financing
activities 839,333 115,020,121
----------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (35,456,502) 100,984,808
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 57,267,986 17,701,721
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $21,811,484 $118,686,529
=========== ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash payments during the period for--
Income taxes $ 175,200 $ 88,300
Interest $ 26,400 $ 563,137
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
6
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The financial statements included herein have been prepared by the Company
without audit, except for the consolidated balance sheet as of December 31,
1996. 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, 1996, consolidated financial statements filed with the Securities and
Exchange Commission on Form 10-K.
Cash and Cash Equivalents
For purposes of the condensed statements of cash flows, the Company
considers all highly liquid investments with original maturities of three months
or less to be cash equivalents.
Goodwill and Non-Compete Agreements
Goodwill and non-compete agreements are amortized over 30 years and 15
years (or the life of the related agreement), respectively.
Earnings per Share
Net income per share has been computed by dividing net income by the
weighted average common and common share equivalents outstanding, if material.
Common stock equivalent shares, which relate to stock options, are included in
the weighted average using the treasury stock method, when the effect is
material and dilutive.
New Accounting Principles
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS
No. 128 revises the methodology to be used in computing earnings per share (EPS)
such that the computations required for primary and fully diluted EPS are to be
replaced with basic and diluted EPS. Basic EPS is computed by dividing net
income by the weighted average number of shares of common stock outstanding
during the year. Diluted EPS is computed in the same manner as fully diluted
EPS, except that, among other changes, the average share price for the period is
used in all cases when applying the treasury stock method to potentially
dilutive outstanding options.
7
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Company will adopt SFAS No. 128 effective December 15, 1997, and will
restate EPS for all periods presented. The Company anticipates that the
restated amounts reported for basic and diluted EPS will be slightly higher than
the previously reported amounts for the unaudited six months ended June 30, 1996
and 1997.
2. Accrued Liabilities
Accrued liabilities are comprised of the following:
June 30, 1997 December 31, 1996
------------- -----------------
Payroll and related costs $ 2,350,650 $1,431,765
Deferred income taxes 300,000 300,000
Taxes, other than payroll and income
taxes 3,944,389 2,352,870
Other 4,601,606 5,803,524
----------- ----------
$11,196,645 $9,888,159
=========== ==========
3. Debt
In June 1997, the Company obtained a $125 million unsecured credit facility
from a syndicate of banks which expires in June 2000, and is available for
expansion, acquisitions and general corporate purposes. Interest on the credit
facility is generally payable quarterly at the Eurodollar rate plus 0.6% or the
bank's base rate. The credit facility is governed by certain financial
covenants, including minimum tangible net worth, a maximum leverage ratio and a
minimum fixed charge coverage ratio.
4. Stockholders' Equity
In connection with the Company's Stock Option Plans, certain stock options
aggregating approximately 800,000 shares, granted to the acquired Crab House
restaurant general managers, operations personnel and one officer at $23.00 and
$16.75, were repriced at $12.88 during the three month period ended June 30,
1997. An additional 1,000,000 options were granted to a variety of management
employees at $12.88 during the three month period June 30, 1997. As of June 30,
1997, all options have been granted (or repriced) at the stock price on the
grant date and are generally exercisable beginning one year from the date of
grant with annual vesting periods.
8
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5. Related Party Transactions
On or about January 4, 1996, Fertitta Hospitality which is jointly owned by
Mr. Fertitta and his wife acquired certain properties in Galveston, Texas in
connection with the acquisition of a major resort area. A portion of the
property acquired by Fertitta Hospitality contained a leased restaurant site
upon which a Landry's Seafood Restaurant was located and upon which the terms of
the lease relating to that restaurant had been negotiated in 1993 at arm's-
length between Landry's and the previous unaffiliated third party owner/lessor
(the Woodlands Corporation, a subsidiary of Mitchell Energy and Development
Corp.). Upon the acquisition by Fertitta Hospitality, Landry's continued to pay
rent under the original terms of the lease. The rent was approved in 1993 by the
Board at the time of the original lease with the unaffiliated party. In May 1997
the restaurant property, including land, building and improvements was purchased
by the Company for $3,077,000. Additionally, in June 1997 the Company loaned
$300,000 to an officer.
6. Contingencies
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. Management believes, based on discussions with
its legal counsel and in consideration of reserves recorded, that the outcome of
all legal actions will not have a material adverse effect upon the consolidated
financial position and results of operations of the Company.
9
<PAGE>
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 June 30, 1997 the Company operated approximately 100
restaurants, including three limited menu take-out service units under the name
"Capt. Crab Take-Away's".
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. The recent enactment of staged increases to
federally mandated minimum wage will increase the Company's labor costs.
Effective October 1, 1996, the federal minimum wage increased from $4.25/hour to
$4.75/hour, and is scheduled to further increase to $5.15/hour effective
September 1, 1997. The new minimum wage increases affected primarily initial
entry-level wages of the least skilled jobs in the Company's restaurant
kitchens, as the federal law mandated an offsetting increase in the tip-credit
amounts for tipped employees (i.e., waitstaff).
Upon consummation of the merger with Bayport, the Company's restaurant base
has increased significantly. The Crab House restaurants, acquired from Bayport,
have materially different profit margins, costs to construct, costs of sales,
operating expenses, and other restaurant performance factors than the Company's
existing restaurants. The Company is making efforts to reduce construction and
operating costs of the Bayport restaurants without reducing the quality of their
service or food. However, there can be no assurances that the Company will be
able to operate the Crab House restaurants in a manner that is different from
the way such restaurants were historically constructed and operated. As a
result, the Company's profit margin, cost to construct, cost of sales as
percentages of restaurant sales, operating expenses and other restaurant
performance factors are materially different than the Company's on a historical
stand-alone basis.
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 the safe harbors created thereby. Investors are cautioned that all forward-
looking statements involve risks and uncertainty, including without limitation,
the ability of the Company to continue its accelerated expansion strategy,
successful integration of the Crab House restaurants into the Company, changes
in costs of food, labor, and employee benefits, the ability of the Company to
continue to acquire prime locations at acceptable lease or purchase terms, as
well as general market conditions, competition, and pricing. 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
10
<PAGE>
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.
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
Revenues increased $14,897,322, or 22.5%, from $66,285,152 to $81,182,474
in the three months ended June 30, 1997, compared to the three months ended June
30, 1996. The increase in revenues was attributable to revenues from new
restaurant openings offset by a reduction in processing plant revenues. There
was a nominal change in revenues from units opened prior to 1995. Several of
the Company's restaurants that opened during late 1995 and early 1996 opened at
volumes in excess of the Company's average unit volumes. Subsequently, however,
the Company has experienced a moderation of their initial unit volumes.
As a primary result of increased revenues, cost of sales increased
$4,928,251, or 24.6%, from $20,014,299 to $24,942,550 in the three months ended
June 30, 1997 compared to the same period in the prior year. Cost of sales as a
percentage of restaurant revenues for the three months ended June 30, 1997
decreased to 30.7% from 31.1% in 1996. The decrease in cost of sales as a
percentage of restaurant revenues reflects better management cost controls in
1997.
Restaurant labor expenses increased $4,362,235, or 26.3%, from $16,609,183
to $20,971,418 in the three months ended June 30, 1997 compared to the same
period in the prior year. Restaurant labor expenses as a percentage of
restaurant revenues for three months ended June 30, 1997, remained flat at
25.8%.
Other restaurant operating expenses increased $3,264,788, or 24.2%, from
$13,486,437 to $16,751,225 in the three months ended June 30, 1997, compared to
the same period in the prior year, as a result of increased revenues and the
opening of new restaurants since June 30, 1996. Such expenses decreased
slightly as a percentage of restaurant revenues to 20.7% from 21.0% primarily
due to revenue growth of newly opened restaurants exceeding the increase in
other restaurant operating expenses, somewhat offset by higher occupancy and
other operating costs of the new Crab House restaurants.
Depreciation and amortization expenses increased $197,350 or 5.5% from
$3,572,734 to $3,770,084 in the three months ended June 30, 1997, compared to
the same period in the prior year. The dollar increase was primarily due to the
addition of new restaurants and purchases of new equipment. Depreciation and
amortization as a percentage of restaurant revenue for the three months ended
June 30, 1997 decreased to 4.6% from 5.6% during the same period in 1996
primarily due to a decrease in pre-opening amortization expense during the three
months ended June 30, 1997. The decrease in pre-opening amortization expense is
attributable to a reduction in per unit pre-opening expenses as the result
11
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
of fewer Crab House restaurant openings (which traditionally have higher pre-
opening costs) and better management cost controls.
General and administrative expenses decreased $234,594, or 8.4%, from
$2,777,407 to $2,542,813 compared to the same period of the prior year, and
decreased as a percentage of restaurant revenues to 3.2% from 4.3%. During the
three months ended June 30, 1996, Landry's and Bayport operated as separate
companies and were increasing the general and administrative expenses to support
each company's separate growth plans. However, upon the consummation of the
merger, Bayport's corporate offices were closed and substantially all of
Bayport's office employees were terminated. As a result, general and
administrative expenses, in total and as a percentage of restaurant revenues,
were less than the combined expenses of the separate companies for the three
months ended June 30, 1997 compared to the same period in the prior year.
The decrease in net interest income of $6,479 and change in other expense,
net of $100,128, are not deemed significant.
Provision for income taxes increased by $1,709,559 from $2,791,646 in 1996
to $4,501,205 in 1997 primarily due to the change in the Company's income.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenues increased $26,127,271, or 21.9%, from $119,355,980 to $145,483,251
in the six months ended June 30, 1997, compared to the six months ended June 30,
1996. The increase in revenue was attributable to revenues from new restaurant
openings offset by a reduction in processing plant revenues. There was a
nominal change in revenues from units opened prior to 1995. Several of the
Company's restaurants that opened during late 1995 and early 1996 opened at
volumes in excess of the Company's average unit volumes. Subsequently, however,
the Company has experienced a moderation of their initial unit volumes.
As a primary result of increased revenues, cost of sales increased
$8,610,381, or 23.9%, from $35,987,349 to $44,597,730 in the six months ended
June 30, 1997 compared to the same period in the prior year. Cost of sales as a
percentage of restaurant revenues for the six months ended June 30, 1997
decreased to 30.7% from 31.1% in 1996. The decrease in cost of sales as a
percentage of restaurant revenues reflects better management cost controls in
1997.
Restaurant labor expenses increased $7,604,678, or 25.5%, from $29,811,561
to $37,416,239 in the six months ended June 30, 1997 compared to the same period
in the prior year. Restaurant labor expenses as a percentage of restaurant
revenues for six months ended June 30, 1997, remained flat at 25.7%.
12
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
Other restaurant operating expenses increased $6,056,526, or 24.6%, from
$24,632,424 to $30,688,950 in the six months ended June 30, 1997, compared to
the same period in the prior year, as a result of increased revenues and the
opening of new restaurants since June 30, 1996. Such expenses decreased
slightly as a percentage of restaurant revenues to 21.1% from 21.3% primarily
due to revenue growth of newly opened restaurants exceeding the increase in
other restaurant operating expenses offset by higher occupancy and other
operating costs of the new Crab House restaurants.
Depreciation and amortization expenses increased $520,511 or 7.8% from
$6,632,871 to $7,153,382 in the six months ended June 30, 1997, compared to the
same period in the prior year. The dollar increase was primarily due to the
addition of new restaurants and purchases of new equipment. Depreciation and
amortization as a percentage of revenue for the six months ended June 30, 1997
decreased to 4.9% from 5.7% during the same period in 1996 primarily due to a
decrease in pre-opening amortization expense during the six months ended June
30, 1997. The decrease in pre-opening amortization expense is attributable to a
reduction in per unit pre-opening expenses as the result of fewer Crab House
restaurant openings (which traditionally have higher pre-opening costs) and
better management cost controls.
General and administrative expenses decreased $537,817, or 10.0%, from
$5,382,801 to $4,844,984 compared to the same period of the prior year, and
decreased as a percentage of restaurant revenues to 3.3% from 4.6%. During the
six months ended June 30, 1996, Landry's and Bayport operated as separate
companies and were increasing the general and administrative expenses to support
each company's separate growth plans. However, upon the consummation of the
merger, Bayport's corporate offices were closed and substantially all of
Bayport's office employees were terminated. As a result, general and
administrative expenses, in total and as a percentage revenues, were less than
the combined expenses of the separate companies for the six months ended June
30, 1997 compared to the same period in the prior year.
Net interest income increased by $526,032 for the six months ended June 30,
1997 compared to the same period in the prior year. The increase resulted
primarily from the Company's investment of excess cash in interest bearing
securities subsequent to the Company's public stock offerings. Other expenses,
net changed by $142,166, and was not deemed significant.
Provision for income taxes increased by $3,038,593 from $4,721,787 in 1995
to $7,760,380 in 1996 primarily due to the change in the Company's income.
13
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
Liquidity and Capital Resources
For the six months ended June 30, 1997 the combined capital expenditures of
the Company was approximately $70.5 million which was funded out of existing
cash balances and cash flow from operations. During 1996, the Company incurred
merger costs related to the acquisition of Bayport and repaid the pre-merger
outstanding indebtedness of Bayport. As a result, the combined entities cash
balances declined from approximately $119 million at June 30, 1996, immediately
prior to the merger, to approximately $57 million at December 31, 1996, and the
majority of the outstanding debt of the combined companies was eliminated.
In 1994 and 1995 the Company, exclusive of Bayport, spent approximately $32
million and $71 million on capital expenditures, respectively. Since 1993, the
Company has funded capital expenditures primarily from proceeds of common stock
offerings, and in part from cash flow from operations of approximately $10
million and $19 million in 1994 and 1995, respectively. Separately, Bayport
spent approximately $5 million and $19 million in 1994 and 1995 on capital
expenditures. In recent years and through the date of the merger, Bayport
primarily funded capital expenditures out of borrowings.
The Company's current development plans, which were increased during the
quarter, are to open approximately 10 - 15 restaurants during the balance of
1997. In addition, the Company has commenced working on a development plan for
a waterfront area in South Houston (the "Kemah Development"). The Kemah
Development includes up to eight restaurant sites, with possibilities of
additional light retail and hotel/motel facilities in a master planned
development. The Company currently operates five restaurants in this
development, and has not determined which portions of the remaining development
it will operate or sublease. Further, the Company is evaluating the feasibility
of building a multistory office building for the Company's corporate
headquarters. Due to the Company's rapid growth and increasing office needs, the
Company has experienced difficulty in obtaining adequate office space within the
desirable immediate area of its existing office. To this end, in July 1997 the
Company acquired a 4 acre undeveloped land parcel in Houston. Exclusive of any
acquisitions or large real estate purchases, the Company currently expects to
incur capital expenditures of up to $100 - $110 million in 1997, depending upon
the actual timing of construction expenditures, the number of land purchases,
the amount of expenditures spent on remodels, and the mix of leased, owned or
conversion type locations. The Company expects that its average per unit
investment, excluding real estate costs and pre-opening expenses, to approximate
$1.9 million. Historically, Crab House restaurants required a significantly
higher average unit investment cost due to their size, geographic location and
other factors. On a go-forward basis, the Company will attempt to reduce the
average new unit investment costs of future Crab House restaurants to an amount
more comparable to the Company's other restaurants. However, individual unit
investment costs can vary from management's expectations due to a variety of
factors. Moreover, average unit investment costs are dependent upon many
factors, including competition for sites, location, construction costs, unit
size and the mix of conversions, build-to-suit, leased and fee-owned locations.
The Company currently anticipates that it will continue to purchase a portion of
its new restaurant locations, which are expected to be more costly than leased
14
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
locations. Separately, the Company may spend up to $12 - $15 million on the
Kemah Development and up to $13 -$15 million on the Corporate headquarter
development, both of which will be spread over the next several fiscal years.
The Company believes that existing cash balances, cash generated from operations
and potential financing sources will be sufficient to satisfy the Company's
working capital and capital expenditure requirements through 1998.
The Company has a $125 million line of credit from a syndicate of banks
which expires in June 2000. The line of credit is available for expansions,
acquisitions and general corporate purposes.
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 timing
of unit openings can and will affect quarterly results. To a degree, the
Company anticipates some moderation in revenues from the initial volumes of
units opened in the first and fourth quarters.
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 land and construction costs could adversely affect
the Company's ability to expand.
15
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the registrant
is a party or of which any of the property of the registrant is the
subject, except for claims in the ordinary course of business, none of
which are considered material.
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
1. ELECTION OF DIRECTORS.
The following persons were elected to serve on the Board of Directors
until the 1998 Annual Meeting of Shareholders or until their successor
have been duly elected and qualified. The Directors received the votes
set forth opposite their respective names:
Name For Against Withheld
---- --- ------- Authority
---------
Tilman J. Fertitta 22,851,237 0 141,759
E.A. "Al" Jaksa, Jr. 22,851,237 0 141,759
Steven L. Scheinthal 22,851,237 0 141,759
Paul S. West 22,851,237 0 141,759
James E. Masucci 22,851,237 0 141,759
Joe Max Taylor 22,851,237 0 141,759
ITEM 5. OTHER INFORMATION Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS - NONE
(B) REPORTS ON FORM 8-K
The Company filed Form 8-K on June 25, 1997 announcing the finalization
of a $125 million revolving loan facility with a group of banks led by
Bank of America Texas, N.A .
16
<PAGE>
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.
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: August 13, 1997
---------------
17
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