-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NuwMEWcERDguu120r4VLEptfkBfAH8CCJdmhS/5U1vxxGoFNwxRW4bnXw1AqJpdd D6D53/CL3ySzHkD4tOXgWQ== 0000899243-01-501266.txt : 20010815 0000899243-01-501266.hdr.sgml : 20010815 ACCESSION NUMBER: 0000899243-01-501266 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LANDRYS SEAFOOD RESTAURANTS INC CENTRAL INDEX KEY: 0000908652 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 740405386 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15531 FILM NUMBER: 1712711 BUSINESS ADDRESS: STREET 1: 1400 POST OAK BLVD STREET 2: STE 1010 CITY: HOUSTON STATE: TX ZIP: 77056 BUSINESS PHONE: 7138501010 10-Q 1 d10q.txt FORM 10-Q FOR THE PERIOD ENDING 06/30/2001 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, 2001. Commission file number 000-22150 LANDRY'S RESTAURANTS, INC. (Exact name of the registrant as specified in its charter) DELAWARE 74-00405386 (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 1510 West Loop South, Houston, TX 77027 (Address of principal executive offices) (713) 850-1010 (Registrant's telephone number) Landry's Seafood Restaurants, Inc. 1400 Post Oak Blvd. Suite 1010 Houston, Texas 77056 (Former name, former address) 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 8, 2001 THERE WERE 21,834,827 SHARES OF $0.01 PAR VALUE COMMON STOCK OUTSTANDING. LANDRY'S RESTAURANTS, INC. INDEX
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements.............................................................................. 2 Condensed Unaudited Consolidated Balance Sheets at June 30, 2001 and December 31, 2000............ 3 Unaudited Consolidated Statements of Income for the Three and Six Months Ended June 30, 2001 and June 30, 2000................................................................... 4 Condensed Unaudited Consolidated Statement of Stockholders' Equity for the Six Months Ended June 30, 2001............................................................................... 5 Condensed Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and June 30, 2000................................................................... 6 Notes to Condensed Unaudited Consolidated Financial Statements.................................... 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 10-14 Item 3. Quantitative and Qualitative Disclosures About Market Risk........................................ 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................................................. 15 Item 2. Changes in Securities............................................................................. 15 Item 3. Defaults upon Senior Securities................................................................... 15 Item 4. Submission of Matters to a Vote of Security Holders............................................... 15 Item 5. Other Information................................................................................. 16 Item 6. Exhibits and Reports on Form 8-K.................................................................. 16 Signatures.................................................................................................. 17
1 LANDRY'S RESTAURANTS, INC. PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS The accompanying condensed unaudited consolidated financial statements have been prepared by Landry's Restaurants, Inc. (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 necessary for fair presentation of the Company's results of operations, financial position and changes therein for the periods presented have been included. This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1993, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are intended to be covered by safe harbors created thereby. Stockholders are cautioned that all forward-looking statements involve risks and uncertainty, including without limitation, the ability of the Company to continue its expansion strategy, ability to make projected capital expenditures, as well as general market conditions, competition, and pricing. In addition, there is no assurance that Landry's management will be able to smoothly integrate Rainforest Cafe operations and business, or whether same store sales declines of Rainforest Cafe units can be mitigated or can achieve projected financial results. All statements, other than statements of historical facts, included or incorporated by reference in this report that address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof), business strategy and measures to implement such strategy, competitive strengths, goals, expansion and growth of the Company's business and operations, plans, references to future success as well as other statements which include words such as "anticipate," "believe," "plan," "estimate," "expect," and "intend" and other similar expressions constitute forward-looking statements. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. 2 LANDRY'S RESTAURANTS, INC. CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS
ASSETS JUNE 30, DECEMBER 31, 2001 2000 ------------ ------------ (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents..................................................... $ 11,818,134 $ 26,159,525 Accounts receivable--trade and other.......................................... 17,888,208 10,653,387 Inventories................................................................... 24,261,276 34,752,119 Deferred taxes................................................................ 3,121,766 2,671,766 Other current assets.......................................................... 11,786,824 12,302,393 ------------ ------------ Total current assets....................................................... 68,876,208 86,539,190 ------------ ------------ PROPERTY AND EQUIPMENT, net..................................................... 577,332,347 559,737,798 GOODWILL, net of amortization of $1,592,000 and $1,523,000, respectively................................................................. 2,506,775 2,575,625 DEFERRED TAXES.................................................................. 2,574,582 8,501,521 OTHER ASSETS, net............................................................... 6,246,909 6,520,641 ------------ ------------ Total assets............................................................... $657,536,821 $663,874,775 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable.............................................................. $ 46,207,142 $ 40,192,661 Accrued liabilities........................................................... 66,978,851 85,943,990 Current portion of long-term notes............................................ 8,957 59,963 ------------ ------------ Total current liabilities.................................................. 113,194,950 126,196,614 LONG-TERM DEBT.................................................................. 146,000,000 155,000,000 OTHER LONG-TERM LIABILITIES..................................................... 18,364,952 18,125,503 ------------ ------------ Total liabilities.......................................................... 277,559,902 299,322,117 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $0.01 par value, 60,000,000 shares authorized, 21,760,668 and 21,498,352 shares, respectively, issued and outstanding, net of treasury shares............................................................. 217,606 214,984 Additional paid-in capital.................................................... 303,418,298 301,225,712 Retained earnings............................................................. 76,341,015 63,111,962 ------------ ------------ Total stockholders' equity................................................. 379,976,919 364,552,658 ------------ ------------ Total liabilities and stockholders' equity................................. $657,536,821 $663,874,775 ============ ============
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements. 3 LANDRY'S RESTAURANTS, INC. UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended June 30, June 30, ---------------------------- ---------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ REVENUES.................................. $207,415,463 $134,041,989 $383,370,426 $244,993,267 OPERATING COSTS AND EXPENSES: Cost of sales............................ 61,881,566 40,994,880 113,936,215 75,276,661 Restaurant labor......................... 58,997,056 36,553,345 110,689,226 68,236,372 Other restaurant operating expenses...... 50,036,869 30,416,118 95,339,173 56,596,484 General and administrative expenses...... 9,661,817 6,003,354 18,696,800 11,644,293 Pre-opening expenses..................... 502,132 817,606 1,583,908 1,770,497 Depreciation and amortization............ 8,541,835 6,246,613 17,143,909 12,592,389 Special charge........................... - 2,000,000 - 2,000,000 ------------ ------------ ------------ ------------ Total operating costs and expenses...... 189,621,275 123,031,916 357,389,231 228,116,696 ------------ ------------ ------------ ------------ OPERATING INCOME.......................... 17,794,188 11,010,073 25,981,195 16,876,571 OTHER (INCOME) EXPENSE: Interest (income) expense, net........... 2,598,082 1,117,076 5,383,102 2,376,828 Other, net............................... (173,577) 308,758 (133,968) 301,119 ------------ ------------ ------------ ------------ Total other (income) expense............ 2,424,505 1,425,834 5,249,134 2,677,947 ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES................ 15,369,683 9,584,239 20,732,061 14,198,624 PROVISION FOR INCOME TAXES................ 4,764,602 3,306,562 6,426,939 4,898,525 ------------ ------------ ------------ ------------ NET INCOME................................ $ 10,605,081 $ 6,277,677 $ 14,305,122 9,300,099 ============ ============ ============ ============ EARNINGS PER SHARE INFORMATION: BASIC-- Net income per common share.............. $0.49 $0.26 $0.66 $0.38 Weighted average number of common shares outstanding...................... 21,700,000 24,100,000 21,600,000 24,500,000 DILUTED-- Net income per common share.............. $0.47 $0.26 $0.64 $0.38 Weighted average number of common share equivalents outstanding................. 22,400,000 24,300,000 22,200,000 24,650,000
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements. 4 LANDRY'S RESTAURANTS, INC. CONDENSED UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
COMMON STOCK ------------------------ ADDITIONAL RETAINED SHARES AMOUNT PAID-IN CAPITAL EARNINGS TOTAL ------------ --------- --------------- ------------ ------------- Balance, December 31, 2000................... 21,498,352 $214,984 $301,225,712 $63,111,962 $364,552,658 Net income................................... -- -- -- 14,305,122 14,305,122 Dividends paid............................... -- -- -- (1,076,069) (1,076,069) Exercise of stock options and income tax benefit................................. 262,316 2,622 2,192,586 -- 2,195,208 ---------- -------- ------------ ----------- ------------ Balance, June 30, 2001....................... 21,760,668 $217,606 $303,418,298 $76,341,015 $379,976,919 ========== ======== ============ =========== ============
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements. 5 LANDRY'S RESTAURANTS, INC. CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, -------------------------------------------- 2001 2000 ------------------- ------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income...................................................................... $ 14,305,122 $ 9,300,099 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization.................................................. 17,143,909 12,592,389 Change in assets and liabilities-net and other................................. 1,480,018 5,406,516 ------------ ------------ Total adjustments.............................................................. 18,623,927 17,998,905 ------------ ------------ Net cash provided by operating activities..................................... 32,929,049 27,299,004 CASH FLOWS FROM INVESTING ACTIVITIES: Property and equipment additions................................................ (38,888,573) (43,217,563) ------------ ------------ Net cash used in investing activities......................................... (38,888,573) (43,217,563) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options......................................... 1,745,208 - Borrowings (payments) under credit line, net.................................... (9,051,006) 14,954,997 Repurchase of common stock for treasury......................................... - (10,656,445) Dividends paid.................................................................. (1,076,069) (620,559) ------------ ------------ Net cash provided by (used in) financing activities........................... (8,381,867) 3,677,993 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................. (14,341,391) (12,240,566) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................................. 26,159,525 22,977,666 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD....................................... $ 11,818,134 $ 10,737,100 ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash payments during the period for-- Income taxes................................................................... $ 563,000 $ 1,565,000 Interest....................................................................... $ 6,514,000 $ 3,094,000
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 LANDRY'S RESTAURANTS, INC. NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS Landry's Restaurants, Inc. (the "Company") owns and operates seafood restaurants primarily under the trade names Landry's Seafood House, Joe's Crab Shack and The Crab House. In addition, the Company owns and operates domestic and licenses international rainforest themed restaurants under the trade name Rainforest Cafe. Rainforest Cafe, Inc. ("Rainforest Cafe"), a casual dining restaurant chain, was acquired in 2000. The Company is also the developer and operator of the Kemah Boardwalk, located near Houston, Texas. The Kemah Boardwalk is a forty acre waterfront restaurant development including seven restaurants, a boutique hotel, retail shops, amusement attractions, and a marina. Principles of Consolidation The accompanying financial statements include the consolidated accounts of Landry's Restaurants, Inc., a Delaware holding company and its wholly and majority owned subsidiaries and partnership. Basis of Presentation The consolidated financial statements included herein have been prepared by the Company without audit, except for the consolidated balance sheet as of December 31, 2000. The financial statements include all adjustments 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, 2000, consolidated financial statements filed with the Securities and Exchange Commission on Form 10-K. The Company early adopted, as of March 31, 2001, newly released guidance for accounting for certain sales incentives and revised the recognition and income statement classification for certain discounts, certificates, and offers. There were no reclassifications to prior financial statements as amounts were not deemed material, and the change had no impact on reported earnings. Two new financial accounting standards were issued addressing accounting for business combinations, goodwill and other intangible assets. Management does not believe either pronouncement will have a material effect on the Company's financial statements. 2. ACCRUED LIABILITIES Accrued liabilities are comprised of the following: JUNE 30, DECEMBER 31, 2001 2000 ----------- ----------- Payroll and related costs.............................................. $13,082,752 $10,898,420 Rent, insurance and taxes, other than payroll and income taxes......... 23,598,091 17,841,483 Store closings and special charges..................................... 801,740 947,131 Accruals for Rainforest Cafe acquisition............................... 16,370,487 44,361,565 Other.................................................................. 13,125,781 11,895,391 ----------- ----------- $66,978,851 $85,943,990 =========== ===========
The change since December 31, 2000, in accruals for the Rainforest Cafe acquisition is due primarily to payments to former Rainforest Cafe shareholders, termination payments to exit certain closed facilities and a non-cash reduction to estimated exit costs, and corresponding property and equipment purchase allocations, of $4.3 million. 7 LANDRY'S RESTAURANTS, INC. NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 3. DEBT The Company has a $200.0 million credit line from a syndicate of banks. The credit line matures in June 2003, and is available for expansion, acquisitions, share repurchases, and other general corporate purposes. Interest on the credit line is payable monthly or quarterly at Libor or the banks' base rate plus a financing spread (aggregating 6.4% at June 30, 2001). The Company's financing spread is presently 2.50% for Libor, and 0.75% for base rate borrowings, and may be decreased or increased as the Company's leverage ratio decreases or increases over predetermined amounts. The credit line is governed by certain financial covenants, including maximum leverage ratio, maximum indebtedness, tangible net worth and fixed charge coverage ratio tests, limitations of capital expenditures to prescribed amounts, maximum annual cash dividends of $5.0 million per year, and restrictions on repurchases of common stock. In connection with the bank syndicate's approval of the Rainforest Cafe acquisition, certain financial covenants were amended or added, including a permitted increase in the maximum leverage ratio through September 30, 2001, and an additional limitation of common stock repurchases to $6.0 million until the Company's leverage ratio is below a prescribed amount. 4. CONTINGENCIES Class Action Litigation Class action lawsuits were filed in June and July of 1999 against the Company in the United States District Court for the Southern District of Texas, Houston Division. These actions name the Company, all of its then current executive officers and directors, and underwriters that participated in the Company's offering of Common Stock in March 1998. Such lawsuits allege that the defendants violated Federal securities laws during certain periods while individually selling the Company's common stock. The plaintiffs in these actions seek unspecified monetary damages. Although the ultimate outcome of this matter cannot be determined at this time, the Company believes these claims are without merit and intends to defend these claims vigorously. Dissenters Rights Litigation Eighty-one former shareholders (holding 4,406,655 shares) of Rainforest Cafe common stock dissented to the merger between the Company and Rainforest Cafe. On February 13, 2001, Rainforest Cafe sent each of the 81 dissenting shareholders, Rainforest Cafe's estimate of its fair value per share, along with a check in the amount of $3.25 per share, which was the original acquisition price. Subsequently, approximately 78 of the dissenting shareholders have made a demand for supplemental payment based on their belief that the fair value of each share of common stock in the former Rainforest Cafe was greater than $3.25 per share. The Company believes that its estimate of fair value is correct, and that the dissenting shareholders' estimate of fair value is significantly inflated. The Company will vigorously pursue its determination of fair value in an appraisal proceeding. General Litigation The Company is subject to other legal proceedings and claims that arise in the ordinary course of business. Management does not believe that the outcome of any of those matters will have a material adverse effect on the Company's financial position, results of operations or cash flows. 8 LANDRY'S RESTAURANTS, INC. NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 5. STOCKHOLDERS' EQUITY A reconciliation of the amounts used to compute net income per common share- diluted is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------------------------------------------------ 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Net Income............................................. $10,605,081 $ 6,277,677 $14,305,122 $ 9,300,099 ----------- ----------- ----------- ----------- Weighted Average Common Shares Outstanding............. 21,700,000 24,100,000 21,600,000 24,500,000 Dilutive Common Stock Equivalents--Stock Options....... 700,000 200,000 600,000 150,000 ----------- ----------- ----------- ----------- Weighted Average Common and Common Equivalent Shares Outstanding--Diluted................................ 22,400,000 24,300,000 22,200,000 24,650,000 =========== =========== =========== =========== Net Income Per Share--Diluted.......................... $ 0.47 $ 0.26 $ 0.64 $ 0.38 =========== =========== =========== =========== Net Income Per Share, Before Special Charge............ 0.47 0.31 0.64 0.43 =========== =========== =========== ===========
9 LANDRY'S 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 restaurants. As of June 30, 2001, the Company operated 192 restaurants. In addition, the Company operates three limited menu take-out service units. On October 28, 2000, the Company acquired, pursuant to a tender offer, approximately 60% of the outstanding common stock of Rainforest Cafe, a publicly traded restaurant company. On December 1, 2000, the Company completed the 100% merger with Rainforest Cafe. The aggregate purchase price for all outstanding shares was approximately $70.2 million. As of June 30, 2001, there were 25 domestic Rainforest Cafes owned and operated by the Company and 13 international franchised units. The Company owns an equity interest in certain international franchised units. Subsequent to the acquisition, four domestic Rainforest Cafe restaurants have been closed. It is probable that certain additional Rainforest Cafe restaurants failing to meet certain minimum standards will be closed. Revenues for substantially all Rainforest Cafe restaurants have experienced same store sales declines for an extended period of time. Correspondingly, comparative restaurant profitability has also declined. Management is implementing numerous changes to address the sales declines through improved menu development, a focused general manager incentive plan, additional investments in improved ambiance, additional marketing initiatives and selective unit closures of restaurants that do not meet the Company's minimum standards. There is no assurance that management will successfully curtail the same store sales decline of Rainforest Cafe restaurants or that its operational and financial plans will improve operating margins, particularly in situations where sales declines continue. 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. There are various federal, state and local governmental initiatives to increase the level of minimum wages which would increase the Company's labor costs. The restaurant industry is intensely competitive and is affected by changes in consumer tastes and by national, regional, and local economic conditions and demographic trends. The performance of individual restaurants 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 where 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 as local owner-operated restaurants. The Company also competes with other restaurants and retail establishments for restaurant sites. This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, which are intended to be covered by safe harbors created thereby. Stockholders are cautioned that all forward-looking statements involve risks and uncertainty, including without limitation, the ability of the Company to continue its expansion strategy, ability to make projected capital expenditures, as well as general market conditions, competition, and pricing. In addition, there is no assurance that Landry's management will be able to smoothly integrate Rainforest Cafe operations and business, or whether same store sales declines of Rainforest Cafe units can be mitigated or can achieve projected financial results. All statements, other than statements of historical facts, included or incorporated by reference in this report that address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof), business strategy and measures to implement such strategy, competitive strengths, goals, expansion and growth of the Company's business and operations, plans, references to future success as well as other statements which 10 include words such as "anticipate," "believe," "plan," "estimate," "expect," and "intend" and other similar expressions constitute forward-looking statements. Although the Company believes that the assumptions underlying the forward- looking statements contained herein are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. RESULTS OF OPERATIONS Restaurant Profitability The following table sets forth the percentage relationship to total restaurant revenues of certain restaurant operating data for the periods indicated:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------------------------------------------------------- 2001 2000 2001 2000 --------------- --------------- -------------- -------------- Revenues......................................... 100.0% 100.0% 100.0% 100.0% Cost of revenues................................. 29.8 30.6 29.7 30.7 Restaurant labor................................. 28.5 27.3 28.9 27.9 Other restaurant operating expenses (1).......... 24.1 22.7 24.9 23.1 ----- ----- ----- ----- Restaurant level profit (1)...................... 17.6% 19.4% 16.5% 18.3% ===== ===== ===== =====
(1) Excludes depreciation, amortization and pre-opening expenses. Three Months Ended June 30, 2001 Compared to the Three Months Ended June 30, 2000 Revenues increased $73,373,474, or 54.7%, from $134,041,989 to $207,415,463 for the three months ended June 30, 2001, compared to the three months ended June 30, 2000. The increase in revenues was primarily attributable to revenues from new restaurant openings, a same store sales increase of 2.5% for the Company's seafood restaurants, and the inclusion of revenues from Rainforest Cafe restaurants in the 2001 period. As a primary result of increased revenues, cost of revenues increased $20,886,686, or 50.9%, from $40,994,880 to $61,881,566 in the three months ended June 30, 2001, compared to the same period in the prior year. Cost of revenues as a percentage of revenues for the three months ended June 30, 2001, decreased to 29.8%, from 30.6% in 2000. The decrease in cost of revenues as a percentage of revenues primarily reflects the inclusion of Rainforest Cafe restaurants with lower cost of revenues margins, menu changes and lower product costs in 2001 as compared to 2000. Restaurant labor expenses increased $22,443,711 or 61.4%, from $36,553,345 to $58,997,056 in the three months ended June 30, 2001, compared to the same period in the prior year, principally as a result of increased revenues. Restaurant labor expenses as a percentage of revenues for the three months ended June 30, 2001, increased to 28.5% from 27.3% in 2000. The increase in labor expense as a percentage of revenues was primarily caused by the inclusion of the Rainforest Cafe units, which generally incur higher labor costs. Other restaurant operating expenses increased $19,620,751, or 64.5%, from $30,416,118 to $50,036,869 in the three months ended June 30, 2001, compared to the same period in the prior year, principally as a result of increased revenues. Such expenses increased as a percentage of revenues to 24.1% in 2001 from 22.7% in 2000, as a primary result of higher advertising and utility costs and the inclusion of Rainforest Cafe restaurants with higher occupancy expenses. 11 General and administrative expenses increased $3,658,463, or 60.9%, from $6,003,354 to $9,661,817 in the three months ended June 30, 2001, compared to the same period in the prior year, and increased as a percentage of revenues to 4.7% in 2001 from 4.5% in 2000. The increase resulted primarily from increased personnel to support the Rainforest Cafe concept. Depreciation and amortization expense increased $2,295,222, or 36.7%, from $6,246,613 to $8,541,835 in the three months ended June 30, 2001, compared to the same period in the prior year. The increase was primarily due to the addition of new restaurants and equipment and the inclusion of the Rainforest Cafe restaurants in the 2001 period. The increase in net interest expense for the three months ended June 30, 2001, as compared to the prior year, is substantially due to increased borrowings for the Rainforest Cafe acquisition and treasury stock purchases. The Company's average borrowing rate declined by approximately 2.5% from December 31, 2000, to June 30, 2001. The change in other expense (income), net was not deemed material. Provision for income taxes increased by $1,458,040 to $4,764,602 in the three months ended June 30, 2001 from $3,306,562 in 2000 primarily due to changes in the Company's pre-tax income, offset by a reduction in the accrual rate from 34.5% to 31.0%. Effective in the third quarter of 2000, the Company's provision for income taxes as a percentage of income before income taxes was reduced from 34.5% to 31.0% to reflect continuing favorable Federal tax credits for tipped employees. Six Months Ended June 30, 2001 Compared to the Six Months Ended June 30, 2000 Revenues increased $138,377,159, or 56.5%, from $244,993,267 to $383,370,426 for the six months ended June 30, 2001, compared to the six months ended June 30, 2000. The increase in revenues was primarily attributable to revenues from new restaurant openings, same store sales increases for the Company's seafood restaurants, and the inclusion of revenues from Rainforest Cafe restaurants in the 2001 period. As a primary result of increased revenues, cost of revenues increased $38,659,554, or 51.4%, from $75,276,661 to $113,936,215 in the six months ended June 30, 2001, compared to the same period in the prior year. Cost of revenues as a percentage of revenues for the six months ended June 30, 2001, decreased to 29.7%, from 30.7% in 2000. The decrease in cost of revenues as a percentage of revenues primarily reflects the inclusion of Rainforest Cafe restaurants with lower cost of revenues margins, menu changes and lower product costs in 2001 as compared to 2000. Restaurant labor expenses increased $42,452,854 or 62.2%, from $68,236,372 to $110,689,226 in the six months ended June 30, 2001, compared to the same period in the prior year, principally as a result of increased revenues. Restaurant labor expenses as a percentage of revenues for the six months ended June 30, 2001, increased to 28.9% from 27.9% in 2000. The increase in labor expense as a percentage of revenues was primarily caused by the inclusion of Rainforest Cafe units, which generally incur higher labor costs, and by large initial labor staffing and training costs incurred following the opening of the Rainforest Cafe restaurant in Anaheim, California during the six months ended June 30, 2001. Other restaurant operating expenses increased $38,742,689, or 68.5%, from $56,596,484 to $95,339,173 in the six months ended June 30, 2001, compared to the same period in the prior year, principally as a result of increased revenues. Such expenses increased as a percentage of revenues to 24.9% in 2001 from 23.1% in 2000, as a primary result of higher advertising and utility costs and the inclusion of Rainforest Cafe restaurants with higher occupancy expenses. General and administrative expenses increased $7,052,507, or 60.6%, from $11,644,293 to $18,696,800 in the six months ended June 30, 2001, compared to the same period in the prior year, and increased as a percentage of revenues to 4.9% in 2001 from 4.8% in 2000. The dollar increase resulted primarily from increased personnel to support the Rainforest Cafe concept. Depreciation and amortization expense increased $4,551,520, or 36.1%, from $12,592,389 to $17,143,909 in the six months ended June 30, 2001, compared to the same period in the prior year. The increase was primarily due to the addition of new restaurants and equipment and the inclusion of the Rainforest Cafe restaurants in the 2001 period. 12 The increase in net interest expense in the six months ended June 30, 2001, as compared to the prior year, is substantially due to increased borrowings for the Rainforest Cafe acquisition and treasury stock purchases. The Company's average borrowing rate declined by approximately 2.5% from December 31, 2000, to June 30, 2001. The change in other expense (income), net was not deemed material. Provision for income taxes increased by $1,528,414 to $6,426,939 in the six months ended June 30, 2001 from $4,898,525 in 2000 primarily due to changes in the Company's pre-tax income, offset by a reduction in the accrual rate from 34.5% to 31.0%. Effective in the third quarter of 2000, the Company's provision for income taxes as a percentage of income before income taxes was reduced from 34.5% to 31.0% to reflect continuing favorable Federal tax credits for tipped employees. LIQUIDITY AND CAPITAL RESOURCES The Company has a $200.0 million line of credit from a syndicate of banks which expires in June 2003. The line of credit is available for expansion, acquisitions, stock repurchases and general corporate purposes. At June 30, 2001, the Company had $146.0 million outstanding (with availability of $54.0 million) under this credit facility at an average interest rate of 6.4% and had cash and cash equivalent balances aggregating approximately $11.8 million. The Company's average borrowing rate declined by 2.5% from December 31, 2001 to June 30, 2001. For the six months ended June 30, 2001, the capital expenditures of the Company were $38.9 million, funded out of existing cash balances, cash flow from operations and borrowings. On October 28, 2000 the Company completed the purchase of approximately 60% of the outstanding common stock of Rainforest Cafe for approximately $40.5 million through a cash tender offer. The funds were provided by an existing bank credit facility. The shares not tendered as of October 28, 2000 were subsequently acquired by a merger on December 1, 2000. Approximately $12.0 million was paid in 2000 and $18.0 million was paid in 2001 for these shares, funded by available cash balances and borrowings on the bank line of credit. These amounts exclude the dissenting shareholders demand for supplemental payment in excess of $3.25 per share. The Company believes that the Rainforest Cafe merger consideration of $3.25 per share was not below fair value of Rainforest Cafe and will pursue its determination of fair value in an appraisal proceeding. The Company expects to expend approximately $70.0 to $75.0 million on capital expenditures in 2001. Included in such amounts are the remaining costs of opening seven Joe's Crab Shack restaurants and one Rainforest Cafe restaurant for 2001, partial construction costs on an estimated 10 new seafood restaurants and a new Aquarium restaurant, all expected to open in 2002, remaining construction costs of the new corporate headquarters and additional warehouse, further land acquisition costs and other capital expenditures. The Company has entered into an agreement to construct and operate a convention center in the City of Galveston, Texas. The Galveston convention center's estimated construction costs of approximately $25.0 million and subsequent operating expenses will be funded by governmental agency bonds issued by the City of Galveston and serviced by certain hotel occupancy taxes. In connection with the convention center development and related management contract, the Company is obligated to purchase and donate, with a reversionary interest, land required for use by the Galveston convention center. Under the agreements, the Company will have the rights to one-half of any profits generated by the operation of the convention center. The Company has entered into a contract to purchase property, including a multi-story building, adjacent to the new Enron Field (professional baseball park) and close to the Houston Convention Center. The property is also near the proposed new professional basketball arena and other major venues under development and construction in the downtown area of Houston, Texas. The Company plans to renovate the existing building into a 200-room hotel, and build a stand-alone restaurant. Renovation and construction costs are expected to be approximately $28 million, which would be expended over 3 years. The Company plans to fund 2001 capital expenditures and remaining Rainforest Cafe acquisition costs out of existing cash balances, cash flow from operations and availability under the Company's existing credit facility. As a result of the Company's tax carryforwards and deferred tax assets, including amounts attributable to the acquisition of Rainforest Cafe, the Company's cash flow from operations is expected to be subject to reduced Federal income tax payments for the foreseeable future, and therefore provide additional cash flow for funding the Company's business activities and debt service. 13 The Company pays an annual $0.10 per share dividend, declared and paid in quarterly amounts. The Company, from time to time, reviews opportunities for investment in the hospitality, entertainment, food service and facilities management and other industries. The Company's exercise of any such investment opportunity may impact the Company's development plans and capital expenditures. The Company believes that adequate sources of capital are available to fund the Company's business activities through December 31, 2001. SEASONALITY AND QUARTERLY RESULTS The Company's business is seasonal in nature, with revenues and, to a greater degree, operating profits being lower in the first and fourth quarters than in other quarters due to the Company's reduced winter volumes. The Company has and continues to open restaurants in highly seasonal tourist markets and has further noted that the Joe's Crab Shack concept restaurants tend to experience even greater seasonality and sensitivity to weather than the Company's other restaurant concepts. The timing of unit openings can and will affect quarterly results. The Company anticipates a decline in revenues from the initial ("honeymoon") volumes of new units, and a decline in 2001 revenues of the majority of Rainforest Cafe restaurants, including the closure of certain restaurant locations. IMPACT OF INFLATION Management does not believe that inflation has had a significant effect on the Company's operations during the past several years. Management believes the Company has historically been able to pass on increased costs through menu price increases, but there can be no assurance that it will be able to do so in the future. Future increases in restaurant labor costs, including expected future increase in federal minimum wages, land and construction costs could adversely affect the Company's profitability and ability to expand. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk primarily related to potential adverse changes in interest rates as discussed below. Management is actively involved in monitoring exposure to market risk and continues to develop and utilize appropriate risk management techniques. The Company is not exposed to any other significant risks from the use of derivative financial instruments. Management does not use derivative financial instruments for trading or to speculate on changes in interest rates or commodity prices. Interest Rate Risk Total debt at June 30, 2001, included $146.0 million of floating-rate debt attributed to bank credit facility borrowings at an average interest rate of 6.4%. As a result, the Company's annual interest cost in 2001 and 2002 will fluctuate based on short-term interest rates. The impact on annual cash flow of a ten percent change in the floating rate (approximately 64 basis points) would be approximately $930,000 annually based on the floating-rate debt outstanding at June 30, 2001. The Company's financing spread and thus aggregate borrowing costs can increase or decrease in relationship to the Company's leverage ratio in accordance with the Company's credit agreements. At June 30, 2001, the Company's floating-rate debt had a book value and a fair market value of $146.0 million. The floating-rate debt will mature in June 2003. 14 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS CLASS ACTION LITIGATION Class action lawsuits were filed in June and July of 1999 against the Company in the United States District Court for the Southern District of Texas, Houston Division. These actions name as defendants the Company, all of its then current executive officers, directors and underwriters that participated in the Company's offering of Common Stock in March 1998. Such lawsuits allege that the defendants violated Federal securities laws during certain periods while individually selling the Company's common stock. The plaintiffs in these actions seek unspecified monetary damages. Although the ultimate outcome of this matter cannot be determined at this time, the Company believes these claims are without merit and intends to defend these claims vigorously. DISSENTERS RIGHTS LITIGATION Eighty-one former shareholders (holding 4,406,655 shares) of Rainforest Cafe common stock dissented to the merger between the Company and Rainforest Cafe. On February 13, 2001, Rainforest Cafe sent each of the 81 dissenting shareholders, Rainforest Cafe's estimate of its fair value per share, along with a check in the amount of $3.25 per share, which was the original acquisition price. Subsequently, approximately 78 of the dissenting shareholders have made a demand for supplemental payment based on their belief that the fair value of each share of common stock in the former Rainforest Cafe was greater than $3.25 per share. The Company believes that its estimate of fair value is correct, and that the dissenting shareholders' estimate of fair value is significantly inflated. The Company will vigorously pursue its determination of fair value in an appraisal proceeding. GENERAL LITIGATION The Company is subject to other legal proceedings and claims that arise in the ordinary course of business. Management does not believe that the outcome of any of those matters will have a material adverse effect on the Company's financial position, results of operations or cash flows. ITEM 2. CHANGES IN SECURITIES Not Applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS One June 5, 2001, the Company held its 2001 Annual Meeting of Stockholders. As such time, the following items were submitted to a vote of stockholders through the solicitation of proxies: (a) Election of Directors. The following persons were elected to serve on the Board of Directors until the 2002 Annual Meeting of Stockholders or until their successors have been duly elected and qualified. The Directors each received at least a minimum of 17,850,000 votes: Tilman J. Fertitta, Steven L. Scheinthal; Paul S. West; James A. Masucci; and Joe Max Taylor. (b) Corporate Name Change Approximately 20,650,000 votes were received in favor of the resolution to amend the Certificate of Incorporation to change the Company's name from `Landry's Seafood Restaurants, Inc.' to `Landry's Restaurants, Inc.' 15 ITEM 5. OTHER INFORMATION Not Applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Not Applicable 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. LANDRY'S 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 14, 2001 17 -----END PRIVACY-ENHANCED MESSAGE-----