-----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, GDoFzmJrGTb/vDAoWn9Nzka8g2grqp7RF77ZTYUYB1UhDL1ChJhfH9D9on6MqPKU w6Q5u4xx3XGs0Ntxm9ynAg== 0000899243-97-002207.txt : 19971117 0000899243-97-002207.hdr.sgml : 19971117 ACCESSION NUMBER: 0000899243-97-002207 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD 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: SEC FILE NUMBER: 000-22150 FILM NUMBER: 97717876 BUSINESS ADDRESS: STREET 1: 1400 POST OAK BLVD STREET 2: STE 1010 CITY: HOUSTON STATE: TX ZIP: 77056 BUSINESS PHONE: 7138501010 10-Q 1 FORM 10-Q 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 September 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 November 11, 1997 there were 25,886,637 shares of $0.01 par value common stock outstanding. LANDRY'S SEAFOOD RESTAURANTS, INC. INDEX
PAGE NUMBER PART I. FINANCIAL INFORMATION Item 1. Financial Statements 2 Condensed Unaudited Consolidated Balance Sheets at September 30, 1997 and December 31, 1996 3 Condensed Unaudited Consolidated Statements of Income for the Three Months and Nine Months ended September 30, 1997 and September 30, 1996 4 Condensed Unaudited Consolidated Statements of Stockholders' Equity for the Nine Months Ended September 30, 1997 5 Condensed Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997 and September 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 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 LANDRY'S SEAFOOD RESTAURANTS, INC. CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS
September 30, December 31, ASSETS 1997 1996 - ------ ------------- ------------ (Unaudited) CURRENT ASSETS: Cash and cash equivalents $21,885,533 $ 57,267,986 Accounts receivable--trade and other 9,149,136 10,575,874 Inventory 11,769,345 11,965,894 Other current assets 8,136,705 5,602,727 ------------ ------------ Total current assets 50,940,719 85,412,481 PROPERTY AND EQUIPMENT, net 288,267,184 189,895,392 GOODWILL, net of amortization of $1,087,000 and $1,006,000, respectively 2,967,373 3,047,950 OTHER ASSETS, net 3,635,450 2,842,892 ------------ ------------ Total assets $345,810,726 $281,198,715 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY - -------------------------------------- CURRENT LIABILITIES: Accounts payable $ 20,364,383 $ 10,655,053 Accrued liabilities 13,195,489 9,888,159 Income taxes payable 4,533,766 --- Short-term borrowings 15,000,000 --- Current portion of long-term notes and other obligations 318,643 492,555 ------------ ------------ Total current liabilities 53,412,281 21,035,767 LONG-TERM NOTES AND OTHER OBLIGATIONS, NON-CURRENT 253,600 221,184 DEFERRED INCOME TAXES & OTHER LIABILITIES 3,494,353 3,494,353 ------------ ------------ Total liabilities 57,160,234 24,751,304 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, $0.01 par value, 2,000,000 shares authorized, 2,730 and 28,398 issued and outstanding, respectively 28 284 Common stock, $0.01 par value, 60,000,000 shares authorized, 25,829,880 and 25,225,356 issued and outstanding, respectively 258,298 252,253 Additional paid-in capital 247,909,826 238,083,067 Retained earnings 40,482,340 18,111,807 ------------ ------------ Total stockholders' equity 288,650,492 256,447,411 ------------ ------------ Total liabilities and stockholders' equity $345,810,726 $281,198,715 ============ ============
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements. 3 LANDRY'S SEAFOOD RESTAURANTS, INC. CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended ------------------------- ------------------------- September 30, September 30, 1997 1996 1997 1996 -------- -------- -------- -------- REVENUES: Restaurant $89,807,731 $ 64,390,122 $235,290,982 $180,235,734 Processing Plant --- --- --- 3,510,368 ----------- ------------ ------------ ------------ Total revenues 89,807,731 64,390,122 235,290,982 183,746,102 OPERATING COSTS AND EXPENSES: Cost of sales 27,592,948 20,200,265 72,190,678 56,187,614 Restaurant labor 22,958,261 16,224,236 60,374,500 46,035,797 Other restaurant operating expenses 18,755,733 14,631,769 49,444,683 39,264,193 Merger costs --- 25,971,815 --- 25,971,815 Depreciation and amortization 4,769,967 3,117,885 11,923,349 9,750,756 Processing plant cost of sales and other operating expenses --- --- --- 3,857,224 General and administrative expenses 2,693,761 1,916,579 7,538,746 7,299,380 ----------- ------------ ------------ ------------ Total operating costs and expenses 76,770,670 82,062,549 201,471,956 188,366,779 ----------- ------------ ------------ ------------ OPERATING INCOME (LOSS) 13,037,061 (17,672,427) 33,819,026 (4,620,677) OTHER (INCOME) EXPENSE: Interest (income) expense, net (251,980) (1,222,863) (1,004,930) (1,449,701) Other, net (108,294) 123,741 (129,993) 244,208 ----------- ------------ ------------ ------------ Total other (income) expense (360,274) (1,099,122) (1,134,923) (1,205,493) ----------- ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES 13,397,335 (16,573,305) 34,953,949 (3,415,184) PROVISION FOR INCOME TAXES 4,823,036 (5,994,382) 12,583,416 (1,272,595) ----------- ------------ ------------ ------------ NET INCOME (LOSS) $ 8,574,299 $(10,578,923) $ 22,370,533 $ (2,142,589) =========== ============ ============ ============ NET INCOME PER SHARE $0.32 $(0.40) $0.84 $(0.09) ===== ====== ===== ====== WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON SHARE EQUIVALENTS OUTSTANDING 27,200,000 26,500,000 26,700,000 23,437,685 =========== ============ ============ ============
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements. 4 LANDRY'S SEAFOOD RESTAURANTS, INC. CONDENSED UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Preferred Stock Common Stock Additional --------------- ------------------ Paid-In Retained Shares Amount Shares Amount Capital Earnings Total ------ ------ ------- ------ ------------- ---------- -------- Balance, December 31, 1996 28,398 $ 284 25,225,356 $252,253 $238,083,067 $18,111,807 $256,447,411 Net income --- --- --- --- --- 22,370,533 22,370,533 Exercise of stock options and income tax benefit --- --- 578,856 5,789 9,826,759 --- 9,832,548 Conversion of preferred stock into common stock (25,668) (256) 25,668 256 --- --- --- ------- ----- ---------- -------- ------------ ----------- ------------ Balance, September 30, 1997 2,730 $ 28 25,829,880 $258,298 $247,909,826 $40,482,340 $288,650,492 ======= ===== ========== ======== ============ =========== ============
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements. 5 LANDRY'S SEAFOOD RESTAURANTS, INC. CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended ---------------------------- September 30, 1997 1996 ------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ 22,370,533 $ (2,142,589) Adjustments to reconcile net income (loss) to net cash provided by operating activities-- Depreciation and amortization 11,923,349 9,780,756 Non-cash merger costs --- 17,623,337 Change in assets and liabilities-net and other 16,475,394 (8,772,071) ------------- ------------ Total adjustments 28,398,743 18,632,022 ------------- ------------ Net cash provided by operating activities 50,769,276 16,489,433 ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Property and equipment additions (107,272,447) (44,121,127) Other assets, including goodwill (817,160) (982,560) ------------- ------------ Net cash used in investing activities (108,089,607) (45,103,687) ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Payments on notes payable and other long-term obligations (141,497) (28,730,253) Borrowings on notes payable and short-term borrowings 15,000,000 10,747,621 Net proceeds from sale of common stock --- 105,513,000 Proceeds from exercise of stock options 7,079,395 3,020,864 ------------- ------------ Net cash provided by financing activities 21,937,898 90,551,232 ------------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (35,382,433) 61,936,978 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 57,267,986 17,701,721 ------------- ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 21,885,553 $ 79,638,699 ============= ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash payments during the period for-- Income taxes $ 420,895 $ 5,315,927 Interest $ 290,431 $ 148,749
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 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 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 nine months ended September 30, 1996 and 1997. 2. Accrued Liabilities Accrued liabilities are comprised of the following:
September 30, 1997 December 31, 1996 ------------------ ----------------- Payroll and related costs $ 3,593,344 $1,431,765 Deferred income taxes 300,000 300,000 Taxes, other than payroll and income taxes 4,237,999 2,352,870 Other 5,064,146 5,803,524 ----------- ---------- $13,195,489 $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. At September 30, 1997 the Company had $15 million outstanding under this credit facility at an interest rate of 6.54%. 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 September 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 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 (the Woodlands Corporation, a subsidiary of Mitchell Energy and Development Corp.) owner/lessor. 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. Separately, in June 1997 the Company loaned $300,000 to another officer of the Company. 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 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 September 30, 1997 the Company operated approximately 107 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 enactment of staged increases to federally mandated minimum wage has increased the Company's labor costs. Effective October 1, 1996, the federal minimum wage increased from $4.25/hour to $4.75/hour, and effective September 1,1997, increased to $5.15/hour. 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). 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 included in this report will prove to be accurate. In light of the 10 LANDRY'S SEAFOOD RESTAURANTS, INC. 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 September 30, 1997 Compared to Three Months Ended September 30, 1996 Revenues increased $25,417,609, or 39.5%, from $64,390,122 to $89,807,731 in the three months ended September 30, 1997, compared to the three months ended September 30, 1996. The increase in revenues was attributable to revenues from new restaurant openings. There was a nominal change in revenues from units opened prior to 1996. As a primary result of increased revenues, cost of sales increased $7,392,683, or 36.6%, from $20,200,265 to $27,592,948 in the three months ended September 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 September 30, 1997 decreased to 30.7% from 31.4% in 1996. The decrease in cost of sales as a percentage of restaurant revenues reflects slightly lower product costs and better management cost controls in 1997. Restaurant labor expenses increased $6,734,025, or 41.5%, from $16,224,236 to $22,958,261 in the three months ended September 30, 1997 compared to the same period in the prior year. Restaurant labor expenses as a percentage of restaurant revenues for the three months ended September 30, 1997 increased to 25.6% from 25.2% in 1996, primarily due to the continued labor pressures attributable in part to the recent increases in the minimum wage. Other restaurant operating expenses increased $4,123,964, or 28.2%, from $14,631,769 to $18,755,733 in the three months ended September 30, 1997, compared to the same period in the prior year, as a result of increased revenues and the opening of new restaurants since September 30, 1996. Such expenses decreased as a percentage of restaurant revenues to 20.9% from 22.7% primarily due to revenue growth of newly opened restaurants exceeding the increase in other restaurant operating expenses. Depreciation and amortization expenses increased $1,652,082 or 53.0% from $3,117,885 to $4,769,967 in the three months ended September 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 September 30, 1997 increased to 5.3% from 4.8% during the same period in 1996 primarily due to a increase in pre-opening amortization expense during the three months ended September 30, 1997. 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. 11 LANDRY'S SEAFOOD RESTAURANTS, INC. General and administrative expenses increased $777,182, or 40.6%, from $1,916,579 to $2,693,761 compared to the same period of the prior year, and remained flat at 3% as a percentage of revenues. The dollar increase resulted primarily from increased personnel, salaries and travel to support the Company's expansion plans. The decrease in net interest income of $970,883 is the result of lower excess cash balances in the three months ended September 30, 1997, as compared to the same period in the prior year. The change in other expense of $232,035 was not deemed significant. Provision for income taxes changed by $10,817,418 from $(5,994,382) in 1996 to $4,823,036 in 1997 primarily due to the change in the Company's income. Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30, 1996 Revenues increased $51,544,880, or 28.1%, from $183,746,102 to $235,290,982 in the nine months ended September 30, 1997, compared to the nine months ended September 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 1996. As a primary result of increased revenues, cost of sales increased $16,003,064, or 28.5%, from $56,187,614 to $72,190,678 in the nine months ended September 30, 1997 compared to the same period in the prior year. Cost of sales as a percentage of restaurant revenues for the nine months ended September 30, 1997 decreased to 30.6% from 31.1% in 1996. The decrease in cost of sales as a percentage of restaurant revenues reflects slightly lower product costs and better management cost controls in 1997. Restaurant labor expenses increased $14,338,703 or 31.1%, from $46,035,797 to $60,374,500 in the nine months ended September 30, 1997 compared to the same period in the prior year. Restaurant labor expenses as a percentage of restaurant revenues for nine months ended September 30, 1997, increased to 25.7% from 25.5% primarily due to the continued labor pressures attributable in part to the recent increases in the minimum wage. Other restaurant operating expenses increased $10,180,490, or 25.9%, from $39,264,193 to $49,444,683 in the nine months ended September 30, 1997, compared to the same period in the prior year, as a result of increased revenues and the opening of new restaurants since September 30, 1996. Such expenses decreased as a percentage of restaurant revenues to 21.0% from 21.8% primarily due to revenue growth of newly opened restaurants exceeding the increase in other restaurant operating expenses. 12 LANDRY'S SEAFOOD RESTAURANTS, INC. Depreciation and amortization expenses increased $2,172,593, or 22.3% from $9,750,756 to $11,923,349 in the nine months ended September 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 nine months ended September 30, 1997 decreased to 5.1% from 5.3% during the same period in 1996. The percentage of revenue decrease is primarily due to a decrease in pre- opening amortization expense during the first six months of 1997 partially offset by a subsequent increase in pre-opening expense during the three months ended September 30, 1997. These changes were due to changes in the number of units subject to amortization and changes in the per unit pre-opening expenses. General and administrative expenses increased $239,366, or 3.3%, from $7,299,380 to $7,538,746 compared to the same period of the prior year, and decreased as a percentage of restaurant revenues to 3.2% from 4.0%. During the first seven months of 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, as a percentage revenues, were less than the combined expenses of the separate companies for the nine months ended September 30, 1997 compared to the same period in the prior year. The dollar increase resulted primarily from increased personnel, salaries and travel to support the combined Company's expansion plans offset by the reduction of Bayport general and administrative expenses upon consummation of the merger. The decrease in net interest income of $444,771 is the result of lower excess cash balances in the nine months ended September 30,1997, as compared to the same period in the prior year. The change in other expense of $374,201 was not deemed significant. Provision for income taxes increased by $13,856,011 from $(1,272,595) in 1996 to $12,583,416 in 1997 primarily due to the change in the Company's income. Liquidity and Capital Resources For the nine months ended September 30, 1997 the combined capital expenditures of the Company was approximately $107.2 million which were primarily 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. 13 LANDRY'S SEAFOOD RESTAURANTS, INC. 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 6 to 10 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 4.5 acre undeveloped land parcel in Houston. Exclusive of any additional acquisitions or large real estate purchases, the Company currently expects to incur capital expenditures of up to 130-140 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 locations. Separately, the Company may additionally spend up to $20 million on the Kemah Development and up to $15 million on the Corporate headquarter development, both of which will be spread over the next several fiscal years. The Company is reviewing its alternative options related to the corporate headquarters development, including the viability of a sale-leaseback, an outright sale and other options whereby the Company would reduce its aggregate investment in the project. 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. 14 LANDRY'S SEAFOOD RESTAURANTS, INC. The Company has a $125 million line of credit from a syndicate of banks which expires in September 2000. The line of credit is available for expansions, acquisitions and general corporate purposes. At September 30, 1997 the Company had $15 million outstanding under this credit facility at an interest rate of 6.54%, and had cash balances aggregating approximately $22 million. 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. 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 LANDRY'S SEAFOOD RESTAURANTS, INC. 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 Not Applicable ITEM 5. OTHER INFORMATION Not Applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (A) EXHIBITS 27 FINANCIAL DATA SCHEDULE (B) REPORTS ON FORM 8-K--NONE 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 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: November 14, 1997 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS 9-MOS DEC-31-1997 DEC-31-1997 APR-01-1997 JAN-01-1997 SEP-30-1997 SEP-30-1997 21,885,533 21,885,533 0 0 9,149,136 9,149,136 0 0 11,769,345 11,769,345 50,940,719 50,940,719 316,036,891 316,036,891 (27,769,707) (27,769,707) 345,810,726 345,810,726 53,412,281 53,412,281 0 0 0 0 28 28 258,298 258,298 288,392,166 288,392,166 345,810,726 345,810,726 89,807,731 235,290,982 89,807,731 235,290,982 27,592,948 72,190,678 76,770,670 201,471,956 (360,274) (1,134,923) 0 0 0 0 13,397,335 34,953,949 4,823,036 12,583,416 0 0 0 0 0 0 0 0 8,574,299 22,370,533 0 0 0.32 0.84
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