<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, 1998.
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 10, 1998 there were
30,343,302 shares of $0.01 par value
common stock outstanding.
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Item 1. Financial Statements 2
Condensed Unaudited Consolidated Balance Sheets at June 30, 1998 and
December 31, 1997 3
Condensed Unaudited Consolidated Statements of Income for the Three Months
and Six Months ended June 30, 1998 and June 30, 1997 4
Condensed Unaudited Consolidated Statements of Stockholders' Equity
for the Six Months Ended June 30, 1998 5
Condensed Unaudited Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 and June 30, 1997 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
- ---------------------------------------------------------------------------------------------------
</TABLE>
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
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1998 1997
- --------------------- -------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 53,297,383 $ 17,234,130
Accounts receivable--trade and other 11,276,471 8,381,965
Inventory 21,619,261 28,224,551
Other current assets 9,357,939 8,361,755
------------ ------------
Total current assets 95,551,054 62,202,401
------------ ------------
PROPERTY AND EQUIPMENT, net 388,418,574 313,341,200
GOODWILL, net of amortization of $1,185,000
and $1,120,000, respectively 2,909,122 2,933,590
OTHER ASSETS, net 4,184,150 3,804,294
------------ ------------
Total assets $491,062,900 $382,281,485
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 17,339,077 $ 18,050,183
Accrued liabilities 12,620,759 9,022,274
Income taxes payable 7,228,194 ---
Current portion of long-term notes
and other obligations 76,556 71,819
------------ ------------
Total current liabilities 37,264,586 27,144,276
LONG-TERM NOTES AND OTHER OBLIGATIONS,
NON-CURRENT 17,694,993 50,234,528
DEFERRED INCOME TAXES & OTHER LIABILITIES 7,621,698 8,164,954
------------ ------------
Total liabilities 62,581,277 85,543,758
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 2,000,000 shares authorized,
and 2,702 issued and outstanding 27 27
Common stock, $0.01 par value, 60,000,000 shares authorized,
30,339,602 and 26,004,449 issued and outstanding, respectively 303,400 260,044
Additional paid-in capital 363,240,939 250,935,805
Retained earnings 64,937,257 45,541,851
------------ ------------
Total stockholders' equity 428,481,623 296,737,727
------------ ------------
Total liabilities and stockholders' equity $491,062,900 $382,281,485
============ ============
</TABLE>
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,
1998 1997 1998 1997
---------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES: $111,038,615 $81,182,474 $201,083,568 $145,483,251
OPERATING COSTS AND EXPENSES:
Cost of sales 33,259,847 24,942,550 60,748,077 44,597,730
Restaurant labor 28,481,639 20,971,418 51,399,458 37,416,239
Other restaurant operating expenses 22,210,890 16,751,225 41,496,702 30,688,950
Depreciation and amortization 6,570,729 3,770,084 12,774,089 7,153,382
General and administrative expenses 3,455,149 2,542,813 6,257,595 4,844,985
------------ ----------- ------------ ------------
Total operating costs and expenses 93,978,254 68,978,090 172,675,921 124,701,286
------------ ----------- ------------ ------------
OPERATING INCOME 17,060,361 12,204,384 28,407,647 20,781,965
OTHER (INCOME) EXPENSE:
Interest (income) expense, net (750,463) (261,150) (957,988) (752,950)
Other, net 40,606 ( 37,815) (237,725) (21,699)
------------ ----------- ------------ ------------
Total other (income) expense (709,857) (298,965) (1,195,713) (774,649)
------------ ----------- ------------ ------------
INCOME BEFORE INCOME TAXES 17,770,218 12,503,349 29,603,360 21,556,614
PROVISION FOR INCOME TAXES 6,125,725 4,501,205 10,207,954 7,760,380
------------ ----------- ------------ ------------
NET INCOME $ 11,644,493 $ 8,002,144 $ 19,395,406 $ 13,796,234
============ =========== ============ ============
NET INCOME PER SHARE - BASIC $0.38 $0.31 $0.68 $0.55
============ =========== ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING -
BASIC 30,300,000 25,300,000 28,500,000 25,300,000
============ =========== ============ ============
NET INCOME PER SHARE - DILUTED
$0.38 $0.30 $0.66 $0.53
WEIGHTED AVERAGE NUMBER OF ============ =========== ============ ============
COMMON SHARE AND COMMON SHARE
EQUIVALENTS OUTSTANDING - DILUTED
31,050,000 26,300,000 29,375,000 26,065,000
============ =========== ============ ============
</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>
Preferred Stock Common Stock Additional
----------------- -------------------- Paid-In Retained
Shares Amount Shares Amount Capital Earnings Total
-------- ------ --------- --------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 2,702 $27 26,004,449 $260,044 $250,935,805 $45,541,851 $296,737,727
Net income --- --- --- --- --- 19,395,406 19,395,406
Exercise of stock options
and income tax benefit --- --- 524,203 5,246 9,911,772 --- 9,917,018
Issuance of common stock,
net of offering costs --- --- 3,810,950 38,110 102,393,362 --- 102,431,472
----- --- ---------- -------- ------------ ----------- ------------
Balance, June 30, 1998 2,702 $27 30,339,602 $303,400 $363,240,939 $64,937,257 $428,481,623
===== === ========== ======== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these condensed unaudited
consolidated financial statements.
5
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------
June 30,
1998 1997
--------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 19,395,406 $ 13,796,234
Adjustments to reconcile net income to net
cash provided by operating activities--
Depreciation and amortization 12,774,089 7,153,382
Change in assets and liabilities-net and other 11,265,470 13,839,060
------------ ------------
Total adjustments 24,039,559 20,992,442
------------ ------------
Net cash provided by operating activities 43,434,965 34,788,676
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions (83,733,194) (70,473,005)
Other assets, including goodwill (468,269) (611,506)
------------ ------------
Net cash used in investing activities (84,201,463) (71,084,511)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable and other long-term
obligations (32,534,798) (112,939)
Net proceeds from sale of common stock 102,431,472 ---
Proceeds from exercise of stock options 6,933,077 952,272
------------ ------------
Net cash provided by financing activities 76,829,751 839,333
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 36,063,253 (35,456,502)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 17,234,130 57,267,986
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 53,297,383 $ 21,811,484
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash payments during the period for--
Interest $ 1,216,000 $ 26,400
Income taxes $ 292,000 $ 175,200
</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,
1997. 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, 1997, 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 common share has been computed in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS No.
128 revised the historical methodology used in computing earnings per share
(EPS) such that the computations required for primary and fully diluted EPS were
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. All earnings per share amounts presented herein
have been restated to reflect the adoption of SFAS No. 128.
7
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
New Accounting Principles
In April 1998 the American Institute of Certified Public Accountants issued a
new accounting standard under Statement of Position 98-5 "Reporting on the Costs
of Start-Up Activities". This new accounting standard, upon adoption, requires
Companies to expense pre-opening costs as incurred and to expense previously
capitalized pre-opening costs as a cumulative effect of a change in accounting
principle. The Company expects to adopt this new accounting standard in the
fourth quarter of 1998. At June 30, 1998, unamortized pre-opening costs were
$5,871,688, which balances at the date of adoption will be expensed.
2. Accrued Liabilities
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Payroll and related costs $ 3,542,741 $2,166,035
Deferred and state income taxes 675,000 974,279
Taxes, other than payroll and income taxes 4,812,654 4,001,719
Other 3,590,364 1,880,241
----------- ----------
$12,620,759 $9,022,274
=========== ==========
</TABLE>
3. Debt
The Company has 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. At June 30, 1998, the Company had $17,500,000 outstanding under this
credit facility at an approximate interest rate of 6.6%.
8
<PAGE>
PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. Stockholders' Equity
In March 1998, the Company completed a public offering of 3,810,950 shares of
the Company's Common Stock. Net proceeds of the common stock offering, of
approximately $102,400,000, has been and will be used to repay outstanding bank
loans, finance expansion for working capital, and for general corporate
purposes.
A reconciliation of the amounts used to compute net income per common share -
diluted is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income................................... $11,644,493 $ 8,002,144 $19,395,406 $13,796,234
=========== =========== =========== ===========
Weighted Average Common Shares Outstanding... 30,300,000 25,300,000 28,500,000 25,300,000
Dilutive Common Stock Equivalents -- Stock
Options..................................... 750,000 1,000,000 875,000 765,000
----------- ----------- ----------- -----------
Weighted Average Common and Common
Equivalent Shares Outstanding -- Diluted.... 31,050,000 26,300,000 29,375,000 26,065,000
=========== =========== =========== ===========
Net Income Per Share -- Diluted.............. $ 0.38 $ 0.30 $ 0.66 $ 0.53
=========== =========== =========== ===========
</TABLE>
5. 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.
6. Year 2000
The Company recognizes the need to ensure that its operations will not be
adversely impacted by year 2000 software failures. The Company is currently
working to resolve the potential impact of the year 2000 issue on the processing
of date-sensitive information by the Company's computerized information systems.
The year 2000 problem is the result of computer programs being written using two
digits (rather than four) to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000, which could result in miscalculations
or system failures. Based on preliminary information, costs of addressing
potential problems are not currently expected to have a material adverse impact
on the Company's financial position, results of operations or cash flows in
future periods. However, if the Company, or its vendors are unable to resolve
such processing issues in a timely manner, it could result in a material
financial risk. Accordingly, the Company plans to devote the necessary resources
to resolve all significant year 2000 issues in a timely manner.
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, 1998 the Company operated approximately 140 restaurants. In
addition, the Company operates three limited menu take-out service units.
The Company closed two restaurants during the three months ended March 31,
1998. A Houston area restaurant closed due to an electrical fire. The restaurant
is being rebuilt and a portion of the costs of construction are covered by
insurance. The proceeds from business interruption insurance will replace the
restaurant's lost profits during the construction period. Additionally, the
Company decided not to renew a lease for a Crab House restaurant located in a
hotel in Key West, Florida.
In June 1998, the Company closed four additional restaurants for remodeling
and conversion to one of the Company's other restaurant concepts in order to
improve the consumer appeal. These locations are currently scheduled to re-open
by the end of the first quarter of 1999.
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 has increased the Company's labor costs.
The Company now anticipates a non-recurring charge in the fourth quarter
related to adoption of a new accounting standard requiring the expensing of pre-
opening costs. Additionally, the Company is evaluating certain restaurant
locations, including several South Florida Crab House locations, which the
Company may offer for sale. Such evaluation may result in a write-down of net
book value to estimated realizable value.
The restaurant industry is intensely competitive and is affected by changes in
consumer tastes and by national, regional, and local economic conditions and
demographic trends. The performance of individual restaurants may be affected by
factors such as traffic patterns, demographic considerations, weather
conditions, and the type, number, and location of competing restaurants. The
Company has many well established competitors with greater financial resources
and longer histories of operation than the Company, including competitors
already established in regions into which the Company is planning to expand, as
well as competitors planning to expand in the same regions. The Company faces
significant competition from mid-priced, full-service, casual dining restaurants
offering seafood and other types and varieties of cuisine. The Company's
competitors include national, regional, and local chains as well a local owner-
operated restaurants. The Company also competes with other restaurants and
retail establishments for restaurant sites.
10
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act, and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), which are intended to be covered
by 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 expansion strategy, 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, the ability of
the Company to resolve all of its year 2000 issues, 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 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, 1998 Compared to Three Months Ended June 30, 1997
Revenues increased $29,856,141, or 36.8%, from $81,182,474 to $111,038,615 in
the three months ended June 30, 1998, compared to the three months ended June
30, 1997. The increase in revenues was attributable to revenues from new
restaurant openings. Same store sales, of restaurants open 18 months or more,
declined approximately 6%. This decline is believed to be caused by (i) the
extreme heat throughout the South and Southwest, (ii) the Company's decision to
add new restaurants (i.e. back fill) in existing markets, and (iii) newer
restaurants entering the same store sales base that are continuing to fall from
their initial or honeymoon sales amounts. The Company's overall average weekly
unit sales declined approximately 8% during the three months ended June 30, 1998
compared to 1997, due primarily to the decline in same store sales, and reduced
proportional effect of new store "honeymoon" sales. Continued decreases in same
store sales and overall average unit sales will tend to decrease the Company's
restaurant profitability.
As a primary result of increased revenues, cost of sales increased $8,317,297,
or 33.3%, from $24,942,550 to $33,259,847 in the three months ended June 30,
1998 compared to the same period in the prior year. Cost of sales as a
percentage of revenues for the three months ended June 30, 1998 decreased to
30.0% from 30.7% in 1997. The decrease in cost of sales as a percentage of
revenues reflects improved pricing and good management cost controls in 1998.
Restaurant labor expenses increased $7,510,221, or 35.8%, from $20,971,418 to
$28,481,639 in the three months ended June 30, 1998 compared to the same period
in the prior year. Restaurant labor expenses as a percentage of revenues for
three months ended June 30, 1998, remained relatively flat, decreasing 0.1% from
25.8% to 25.7%. The Company continues to experience labor cost pressures
attributable in part to increases in federally mandated minimum wages, and a
recent increase in restaurant manager turnover. The Company is considering
several strategic programs to increase restaurant manager and employee
recruitment and retention. Among the variety of programs being considered are
medical benefits for hourly employees, retention or seniority type bonuses for
managers, and other increases in compensation. The Company expects labor related
costs to increase relative to revenues during the remainder of 1998 and 1999.
Other restaurant operating expenses increased $5,459,665, or 32.6%, from
$16,751,225 to $22,210,890 in the three months ended June 30, 1998, compared to
the same period in the prior year, as a result of increased revenues from the
opening of new restaurants since June 30, 1997. Such expenses decreased as a
percentage of revenues to 20.0% from 20.6% primarily due to revenue growth
exceeding the increase in other restaurant operating expenses. However, the
Company expects to increase its marketing related expenditures to stimulate
restaurant revenues.
11
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
Depreciation and amortization expenses increased $2,800,645 or 74.3% from
$3,770,084 to $6,570,729 in the three months ended June 30, 1998 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 three months ended June 30, 1998
increased to 5.9% from 4.6% during the same period in 1997 primarily due to an
increase in pre-opening amortization expense during the three months ended June
30, 1998, and the decline in same store sales whereby the fixed expense leverage
is reduced. The increase in pre-opening amortization expense is attributable to
an increase in the relative number of units subject to amortization and an
increase in the per unit pre-opening expenses.
General and administrative expenses increased $912,336, or 35.9%, from
$2,542,813 to $3,455,149 compared to the same period of the prior year, and
remained relatively flat as a percentage of revenues, decreasing 0.1% to 3.1%
from 3.2%. The dollar increase resulted primarily from increased personnel,
salaries and travel to support the Company's expansion plans.
Net interest income increased by $489,313 for the three months ended June 30,
1998 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 offering in March 1998.
The change in other expense, net of $78,421, was not deemed significant.
Provision for income taxes increased by $1,624,520 in the three months ended
June 30, 1998, primarily due to the change in the Company's income. The
provision for income taxes as a percentage of income before income before taxes
decreased to 34.5% from 36.0% due to the effect of FICA tax tip credits on
reducing the Company's effective tax rate.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Revenues increased $55,600,317, or 38.2%, from $145,483,251 to $201,083,568 in
the six months ended June 30, 1998 compared to the six months ended June 30,
1997. The increase in revenue was attributable to revenues from new restaurant
openings. The Company believes that an unseasonably mild winter had a positive
impact on first quarter sales. However, the same store sales of restaurants open
18 months or more, while relatively flat for the first quarter, declined 6% for
the second quarter. This decline is believed to be caused by (i) the extreme
heat throughout the South and Southwest, (ii) the Company's decision to add new
units (i.e. back fill) in existing markets, and (iii) newer units entering the
same store sales base that are continuing to fall from their initial or
honeymoon sale amounts.
As a primary result of increased revenues, cost of sales increased
$16,150,347, or 36.2%, from $44,597,730 to $60,748,077 in the six months ended
June 30, 1998 compared to the same period in the prior year. Cost of sales as a
percentage of revenues for the six months ended June 30, 1998 decreased to 30.2%
from 30.7% in 1997. The decrease in cost of sales as a percentage of revenues
reflects improved pricing and good management controls in 1998.
Restaurant labor expenses increased $13,983,219, or 37.4%, from $37,416,239 to
$51,399,458 in the six months ended June 30, 1998 compared to the same period in
the prior year. Restaurant labor expenses as a percentage of revenues for six
months ended June 30, 1998 remained relatively flat, decreasing 0.1% from 25.7%
to 25.6%. The Company continues to experience labor cost pressures attributable
in part to recent increases in federally mandated minimum wages, and a recent
increase in restaurant manager turnover.
12
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
Other restaurant operating expenses increased $10,807,752, or 35.2%, from
$30,688,950 to $41,496,702 in the six months ended June 30, 1998 compared to the
same period in the prior year, as a result of increased revenues from the
opening of new restaurants since June 30, 1997. Such expenses decreased as a
percentage of revenues to 20.6% from 21.1% primarily due to revenue growth of
newly opened restaurants exceeding the increase in other restaurant operating
expenses.
Depreciation and amortization expenses increased $5,620,707, or 78.6%, from
$7,153,382 to $12,774,089 in the six months ended June 30, 1998 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, 1998
increased to 6.4% from 4.9% during the same period in 1997 primarily due to an
increase in pre-opening amortization expense during the six months ended June
30, 1998. The increase in pre-opening amortization expense is attributable to
an increase in the relative number of units subject to amortization and an
increase in the per unit pre-opening expenses.
General and administrative expenses increased $1,412,610, or 29.2%, from
$4,844,985 to $6,257,595 compared to the same period of the prior year, and
decreased slightly as a percentage of revenues to 3.1% from 3.3%. The dollar
increase resulted primarily from increased personnel, salaries and travel to
support the Company's expansion plans.
The increase in net interest income of $205,038 and the change in other income
of $216,026 in the six months ended June 30, 1998 as compared to the same period
in the prior year was not deemed significant.
Provision for income taxes increased by $2,447,574 from $7,760,380 in 1997 to
$10,207,954 in 1998 primarily due to the change in the Company's income. The
provision for income taxes as a percentage of income before income taxes
decreased to 34.5% from 36.0% due to the effect of FICA tax tip credits on
reducing the Company's effective tax rate.
Liquidity and Capital Resources
For the six months ended June 30, 1998 the capital expenditures of the Company
was approximately $83,700,000 which was funded out of existing cash balances,
proceeds from stock offerings, cash flow from operations and borrowings.
In March 1998, the Company completed a public offering of 3,810,950 shares of
the Company's common stock. Net proceeds of the common stock offering, of
approximately $102,400,000 has been and will be used to repay outstanding bank
loans, finance expansion, working capital, and for general corporate purposes.
13
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
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 expansion,
acquisitions and general corporate purposes. At June 30, 1998, the Company had
$17.5 million outstanding under this credit facility at an approximate interest
rate of 6.6% and had cash balances aggregating approximately $53.3 million.
These borrowings were used to fund capital expenditures and working capital.
The Company's current development plans are to open approximately 40 to 45
restaurants during 1998, and 20 to 30 restaurants in 1999. The 1999 restaurant
development may be financed primarily out of internally generated cash flow.
During 1997 the Company commenced construction on a development plan for a
waterfront area in south Houston (the "Kemah development"). The Kemah
Development includes up to eight restaurant sites, a 56 room hotel, connected
public areas and plaza, three to four amusement/entertainment rides, and light
retail facilities. The Company currently operates five restaurants in this
development and expects to open one additional restaurant, hotel, amusement
facilities, and retail shops, (some of which will be leased and operated by
third parties) by the end of the third quarter. The aggregate investment in the
Kemah Development during 1998 may be approximately $25 million.
Exclusive of any acquisitions or large real estate purchases, the Company
currently expects to incur capital expenditures of up to $135 million in 1998
(based upon approximately 45 new restaurants), depending upon the actual number
and timing of restaurant construction, 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, capitalized interest costs and pre-opening
expenses, to approximate $1.9 million. 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
locations. Separately, the Company may spend up to $25 million on the Kemah
Development and up to $10-$12 million on a corporate headquarters 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 planned capital expenditures through 1999.
The Company is reviewing possible scenarios which would be intended to
increase shareholder value.
Seasonality and Quarterly Results
The Company's business is seasonal in nature, with revenues and, to a greater
degree, operating profits being lower in the first and fourth quarters than in
other quarters due to the Company's reduced winter volumes. The Company has and
continues to open restaurants in highly seasonal tourist markets and has further
noted that the Joe's Crab Shack concept restaurants tend to experience an even
greater seasonality and sensitivity to weather. The timing of unit openings can
and will affect quarterly results. The Company anticipates moderation in
revenues from the initial volumes of new units.
14
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
Impact of Inflation
Management does not believe that inflation has had a significant effect on the
Company's operations during the past several years. Management believes the
Company has historically been able to pass on increased costs through menu price
increases, but there can be no assurance that it will be able to do so in the
future. Future increases in restaurant labor costs, land and construction costs
could adversely affect the Company's profitability and ability to expand.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which 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. The Annual Meeting of Shareholders was held on June 11, 1998.
2. The following persons were elected to serve on the Board of
Directors until the 1999 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:
Withheld
Name For Against Authority
---- --- ------- ---------
Tilman J. Fertitta 27,876,792 0 221,151
E.A. "Al" Jaksa, Jr. 27,876,792 0 221,151
Steven L. Scheinthal 27,876,792 0 221,151
Paul S. West 27,876,792 0 221,151
James E. Masucci 27,876,792 0 221,151
Joe Max Taylor 27,876,792 0 221,151
3. Shareholders approved the amendment to the Company's 1995
Flexible Incentive Plan with the number of votes as indicated below:
Withheld
For Against Authority
--- ------- ---------
14,769,965 13,290,376 37,602
ITEM 5. OTHER INFORMATION
On August 10, 1998, Mr. E.A. "Al" Jaksa, Jr., Executive Vice President
and Chief Operating Officer, and a member of the Board of Directors, of the
Company resigned to pursue other interests. His responsibilities were
new site selection, lease negotiations and restaurant construction and
development, which responsibilities will be assumed by existing tenured
construction and development management.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBIT 27 - FINANCIAL DATA SCHEDULE
(B) REPORTS ON FORM 8-K - NONE
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, 1998
17
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<PERIOD-START> APR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
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<DEPRECIATION> (39,969,788) (39,969,788)
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<OTHER-EXPENSES> 40,606 (237,725)
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<INTEREST-EXPENSE> (750,463) (957,988)
<INCOME-PRETAX> 17,770,218 29,603,360
<INCOME-TAX> 6,125,725 10,207,954
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