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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, 2002.
Commission file number 000-22150
LANDRY'S RESTAURANTS, INC.
(Exact name of the registrant as specified in its charter)
DELAWARE
(State or other
jurisdiction of 74-00405386
incorporation or ( I.R.S. Employer
organization) Identification No.)
1510 West Loop South, Houston, TX 77027
(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 12, 2002 THERE WERE
27,868,750 SHARES OF $0.01 PAR VALUE
COMMON STOCK OUTSTANDING.
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LANDRY'S RESTAURANTS, INC.
INDEX
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements................................................................... 2
Condensed Unaudited Consolidated Balance Sheets at June 30, 2002 and December 31, 2001...... 3
Condensed Unaudited Consolidated Statements of Income for the Three and Six Months Ended
June 30, 2002 and June 30, 2001........................................................... 4
Condensed Unaudited Consolidated Statement of Stockholders' Equity for the Six Months Ended
June 30, 2002............................................................................. 5
Condensed Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30,
2002 and June 30, 2001.................................................................... 6
Notes to Condensed Unaudited Consolidated Financial Statements................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 9
Item 3. Quantitative and Qualitative Disclosures About Market Risks............................ 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................................... 13
Item 2. Changes in Securities.................................................................. 13
Item 3. Defaults Upon Senior Securities........................................................ 13
Item 4. Submission of Matters to a Vote of Security Holders.................................... 13
Item 5. Other Information...................................................................... 14
Item 6. Exhibits and Reports on Form 8-K....................................................... 14
Signatures..................................................................................... 15
Exhibit 99.1 Certification..................................................................... 16
1
LANDRY'S RESTAURANTS, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
We have prepared the accompanying condensed unaudited consolidated financial
statements 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 our opinion, all adjustments (consisting only of
normal recurring entries) necessary for fair presentation of our results of
operations, financial position and changes therein for the periods presented
have been included.
In this report, we have made forward-looking statements. Our forward-looking
statements are subject to risks and uncertainty, including without limitation,
our ability to continue our expansion strategy, our ability to make projected
capital expenditures, as well as general market conditions, competition, and
pricing. Forward-looking statements include statements regarding:
. future capital expenditures (including the amount and nature thereof);
. business strategy and measures to implement such strategy;
. competitive strengths;
. expansion and growth of our 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.
Although we believe that the assumptions underlying our forward-looking
statements are reasonable, any of the assumptions could be inaccurate and,
therefore, we cannot assure you 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 us
or any other person that the objectives and plans will be achieved.
2
LANDRY'S RESTAURANTS, INC.
CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2002 2001
------------ ------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents............................................... $ 25,944,546 $ 31,081,008
Accounts receivable--trade and other.................................... 18,186,050 13,518,828
Inventories............................................................. 31,618,044 33,562,608
Deferred taxes.......................................................... 5,621,459 5,621,459
Other current assets.................................................... 9,614,320 10,336,996
------------ ------------
Total current assets................................................ 90,984,419 94,120,899
------------ ------------
PROPERTY AND EQUIPMENT, net................................................ 643,685,906 587,828,723
GOODWILL, net.............................................................. 2,434,547 2,438,996
OTHER ASSETS, net.......................................................... 7,553,829 5,782,578
------------ ------------
Total assets........................................................ $744,658,701 $690,171,196
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................................ $ 61,052,292 $ 45,027,820
Accrued liabilities..................................................... 72,504,839 55,109,685
Current portion of long-term debt....................................... 50,000 --
------------ ------------
Total current liabilities........................................... 133,607,131 100,137,505
------------ ------------
LONG-TERM DEBT, NET OF CURRENT PORTION..................................... 36,204,200 175,000,000
DEFERRED TAXES............................................................. 6,904,979 4,126,948
OTHER LIABILITIES.......................................................... 17,254,169 17,236,120
------------ ------------
Total liabilities................................................... $193,970,479 $296,500,573
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value, 60,000,000 shares authorized, 27,864,200
and 21,996,369, issued and outstanding, respectively.................. 278,642 219,964
Additional paid-in capital.............................................. 443,080,349 305,598,659
Retained earnings....................................................... 107,329,231 87,852,000
------------ ------------
Total stockholders' equity.......................................... 550,688,222 393,670,623
------------ ------------
Total liabilities and stockholders' equity.......................... $744,658,701 $690,171,196
============ ============
The accompanying notes are an integral part of these condensed unaudited
consolidated financial statements.
3
LANDRY'S RESTAURANTS, INC.
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- --------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
REVENUES...................................... $231,938,099 $207,415,463 $424,108,097 $383,370,426
OPERATING COSTS AND EXPENSES:
Cost of revenues........................... 66,443,465 61,881,566 121,844,259 113,936,215
Restaurant labor........................... 64,742,711 58,997,056 120,024,556 110,689,226
Other restaurant operating expenses........ 56,786,174 50,036,869 106,696,613 95,339,173
General and administrative expenses........ 10,936,837 9,661,817 20,458,522 18,696,800
Depreciation and amortization.............. 11,337,625 8,541,835 21,222,782 17,143,909
Restaurant pre-opening expenses............ 576,088 502,132 1,858,325 1,583,908
------------ ------------ ------------ ------------
Total operating costs and expenses..... 210,822,900 189,621,275 392,105,057 357,389,231
------------ ------------ ------------ ------------
OPERATING INCOME.............................. 21,115,199 17,794,188 32,003,040 25,981,195
OTHER EXPENSE (INCOME):
Interest expense, net...................... 912,031 2,598,082 3,000,629 5,383,102
Other, net................................. (1,600,567) (173,577) (1,762,714) (133,968)
------------ ------------ ------------ ------------
Total other expense.................... (688,536) 2,424,505 1,237,915 5,249,134
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES.................... 21,803,735 15,369,683 30,765,125 20,732,061
PROVISION FOR INCOME TAXES.................... 6,759,158 4,764,602 9,537,189 6,426,939
------------ ------------ ------------ ------------
NET INCOME.................................... $ 15,044,577 $ 10,605,081 $ 21,227,936 $ 14,305,122
============ ============ ============ ============
EARNINGS PER SHARE INFORMATION:
BASIC--
Net income................................. $ 0.58 $ 0.49 $ 0.88 $ 0.66
Weighted average number of common
shares outstanding....................... 26,000,000 21,700,000 24,075,000 21,600,000
DILUTED--
Net income................................. $ 0.56 $ 0.47 $ 0.85 $ 0.64
Weighted average number of common
share equivalents outstanding............ 27,000,000 22,400,000 25,100,000 22,200,000
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, 2001.......... 21,996,369 $219,964 $305,598,659 $ 87,852,000 $393,670,623
Net income.......................... -- -- -- 21,227,936 21,227,936
Dividends paid...................... -- -- -- (1,106,711) (1,106,711)
Issuance of common stock, net of
offering costs.................... 5,297,500 52,975 132,524,341 -- 132,577,316
Purchase of common stock held for
treasury.......................... (108,400) (1,084) (2,422,642) (643,994) (3,067,720)
Exercise of stock options and income
tax benefit....................... 678,731 6,787 7,379,991 -- 7,386,778
---------- -------- ------------ ------------ ------------
Balance, June 30, 2002.............. 27,864,200 $278,642 $443,080,349 $107,329,231 $550,688,222
========== ======== ============ ============ ============
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,
---------------------------
2002 2001
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................ $ 21,227,936 $ 14,305,122
Adjustments to reconcile net income to net cash provided by operating
activities--
Depreciation and amortization..................................... 21,222,782 17,143,909
Change in assets and liabilities-net and other.................... 28,658,931 1,480,018
------------- ------------
Total adjustments................................................. 49,881,713 18,623,927
------------- ------------
Net cash provided by operating activities...................... 71,109,649 32,929,049
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions...................................... (40,661,485) (38,888,573)
Payment of acquisition integration liabilities........................ (3,706,700) --
Purchase of Muer Seafood Restaurants, net of cash acquired............ (27,652,773) --
------------- ------------
Net cash used in investing activities............................. (72,020,958) (38,888,573)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock................................ 132,577,316 --
Proceeds from exercise of stock options............................... 6,371,962 1,745,208
Borrowings (payments) under credit line, net.......................... (139,000,000) (9,051,006)
Dividends paid........................................................ (1,106,711) (1,076,069)
Repurchase of common stock for treasury............................... (3,067,720) --
------------- ------------
Net cash provided by (used in) financing activities............... (4,225,153) (8,381,867)
------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................... (5,136,462) (14,341,391)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD......................... 31,081,008 26,159,525
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................... $ 25,944,546 $ 11,818,134
============= ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments during the period for--
Income taxes...................................................... $ 2,001,036 $ 563,000
Interest.......................................................... $ 3,789,320 $ 6,514,000
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, The Crab House, Charley's Crab and Chart House. In addition, the Company
owns and operates domestic and licenses international rainforest themed
restaurants under the trade name Rainforest Cafe.
The Company is also the developer and operator of the Kemah Boardwalk,
located near Houston, Texas. The Kemah Boardwalk is a thirty acre waterfront
restaurant development including seven restaurants, a boutique hotel, retail
shops, amusement attractions, and a marina.
In February 2002, the Company acquired C.A. Muer, Inc. ("Muer Acquisition"),
the owner and operator of 16 seafood restaurants for approximately $28.0
million. In August 2002, the Company acquired, in an asset purchase
transaction, 39 Chart House seafood restaurants located primarily on the East
and West coasts of the United States from Angelo and Maxie's, Inc. for
approximately $45.5 million in cash, as well as assumption of certain trade
payable related liabilities. The impact on the Company's financial statements
related to the acquisitions is not material. The acquisitions are accounted for
under SFAS 141 and results of operations are included in the accompanying
financial statements from the date of acquisition.
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, 2001. 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, 2001, consolidated financial statements filed with the
Securities and Exchange Commission on Form 10-K.
The Company adopted two financial accounting standards addressing accounting
for business combinations, goodwill and other intangible assets and adopted
SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets",
which superseded a previous pronouncement. Management believes these
pronouncements will not have a material effect on the Company's financial
statements.
2. ACCRUED LIABILITIES
Accrued liabilities are comprised of the following:
June 30, December 31,
2002 2001
----------- ------------
Payroll and related costs..................................... $17,601,862 $14,137,640
Rent, insurance and taxes, other than payroll and income taxes 29,791,879 24,845,811
Acquisition accruals (Rainforest Cafe and Muer)............... 1,816,633 3,569,111
Other......................................................... 23,294,465 12,557,123
----------- -----------
$72,504,839 $55,109,685
=========== ===========
7
LANDRY'S RESTAURANTS, INC.
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the six months ended June 30, 2002, accrued Rainforest Cafe
acquisition costs were reduced by cash payments aggregating $1,941,661. In
connection with the preliminary purchase price allocation for the Muer
Acquisition, the Company recorded $1,900,000 in acquisition integration
liabilities, of which $1,765,000 was paid during the six months ended June 30,
2002.
3. DEBT
The Company has a $205.0 million credit line from a syndicate of banks. The
credit line may be increased to $220.0 million at the request of the Company,
subject to the addition of participating banks. The credit line matures in July
2004, 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 4.65% at June 30, 2002). The credit line is governed by certain
financial covenants. In July 2002, the credit line was amended to allow the
Chart House restaurants and other additional acquisitions.
4. CONTINGENCIES
Dissenters Rights Litigation
Eighty-one former shareholders (holding 4,406,655 shares) of Rainforest
Cafe, Inc. 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 fair value per share, along with a check in the
amount of $3.25 per share, which was the original acquisition price per share.
Subsequently, 78 of the dissenting shareholders have made a demand for
supplemental payment based on their belief that the fair value per share of
common stock of 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 inflated. The Company is
vigorously pursuing its determination of fair value in an appraisal proceeding
in a Minnesota District Court.
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 these matters will have a material adverse effect on the Company's
financial position, results of operations or cash flows.
5. STOCKHOLDERS' EQUITY
In April 2002, the Company completed a public offering of 5,297,500 shares
of the Company's common stock. Net proceeds of the offering were approximately
$132.6 million and were used to repay outstanding borrowings, finance
expansion, acquisitions, and for other corporate purposes.
A reconciliation of the amounts used to compute net income per common
share-diluted is as follows:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net income................................... $15,044,577 $10,605,081 $21,227,936 $14,305,122
----------- ----------- ----------- -----------
Weighted average common shares outstanding... 26,000,000 21,700,000 24,075,000 21,600,000
Dilutive common stock equivalents--stock
options.................................... 1,000,000 700,000 1,025,000 600,000
Weighted average common and common equivalent
shares outstanding--diluted................ 27,000,000 22,400,000 25,100,000 22,200,000
=========== =========== =========== ===========
Net income per share--diluted................ $ 0.56 $ 0.47 $ 0.85 $ 0.64
=========== =========== =========== ===========
8
LANDRY'S RESTAURANTS, INC.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
We own and operate full-service, casual dining restaurants. As of June 30,
2002, we operated 214 restaurants.
In February 2002, we acquired 16 seafood restaurants located primarily in
Michigan and Florida resulting from the C.A. Muer, Inc., (the "Muer
Acquisition"). In August 2002, we purchased 39 Chart House seafood restaurants,
located primarily on the East and West Coasts of the United States.
In this report, we have made forward-looking statements. Our forward-looking
statements are subject to risks and uncertainty, including without limitation,
our ability to continue our expansion strategy, our ability to make projected
capital expenditures, as well as general market conditions, competition, and
pricing. Forward-looking statements include statements regarding:
. future capital expenditures (including the amount and nature thereof);
. business strategy and measures to implement such strategy;
. competitive strengths;
. expansion and growth of our 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.
Although we believe that the assumptions underlying our forward-looking
statements are reasonable, any of the assumptions could be inaccurate and,
therefore, we cannot assure you 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 us
or any other person that the objectives and plans will be achieved.
Results of Operations
Restaurant Profitability
The following table sets forth the percentage relationship to total revenues
of certain operating data for the periods indicated:
Three Months Six Months
Ended June 30, Ended June 30,
------------ ------------
2002 2001 2002 2001
----- ----- ----- -----
Revenues............................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues....................... 28.6% 29.8% 28.7% 29.7%
Restaurant labor....................... 27.9% 28.5% 28.3% 28.9%
Other restaurant operating expenses (1) 24.5% 24.1% 25.2% 24.9%
----- ----- ----- -----
Restaurant level profit (1)............ 19.0% 17.6% 17.8% 16.5%
===== ===== ===== =====
- --------
(1) Excludes depreciation, amortization and pre-opening expenses.
9
Three Months Ended June 30, 2002 Compared to the Three Months Ended June 30,
2001
Revenues increased $24,522,636, or 11.8%, from $207,415,463 to $231,938,099
for the three months ended June 30, 2002, compared to the three months ended
June 30, 2001. The increase in revenues was primarily attributable to revenues
from new restaurant openings, a same store sales increase of 3.3% for the
Company's seafood restaurants, and the inclusion of 2002 revenues from the Muer
Acquisition.
As a primary result of increased revenues, cost of revenues increased
$4,561,899, or 7.4%, from $61,881,566 to $66,443,465 in the three months ended
June 30, 2002, compared to the same period in the prior year. Cost of revenues
as a percentage of revenues for the three months ended June 30, 2002, decreased
to 28.6%, from 29.8% in 2001. The decrease in cost of revenues as a percentage
of revenues primarily reflects menu changes and lower product costs in 2002 as
compared to 2001.
Restaurant labor expenses increased $5,745,655 or 9.7%, from $58,997,056 to
$64,742,711 in the three months ended June 30, 2002, 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, 2002, decreased to 27.9% from 28.5% in 2001, as a result of
increases in hourly labor productivity.
Other restaurant operating expenses increased $6,749,305, or 13.5%, from
$50,036,869 to $56,786,174 in the three months ended June 30, 2002, 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 24.5% in 2002
from 24.1% in 2001, as a primary result of higher advertising and insurance
costs. The Company anticipates that 2002 advertising and marketing expenses
will increase as a percentage of revenues over the prior year.
General and administrative expenses increased $1,275,020 or 13.2%, from
$9,661,817 to $10,936,837 in the three months ended June 30, 2002, compared to
the same period in the prior year, and was flat as a percentage of revenues at
4.7%. The dollar amount increase was a result of increased revenues and
personnel required to support the Company's operations.
Depreciation and amortization expense increased $2,795,790, or 32.7%, from
$8,541,835 to $11,337,625 in the three months ended June 30, 2002, compared to
the same period in the prior year. The increase for 2002 was primarily due to
the addition of new restaurants and equipment, and an asset impairment charge
of approximately $1,700,000, included in the 2002 amounts.
The decrease in net interest expense in the three months ended June 30,
2002, as compared to the prior year, was primarily due to the Company's lower
borrowings under the credit line and a lower borrowing rate. The Company's
average borrowing rate declined by approximately 1.75% from June 30, 2001, to
June 30, 2002. The change in other expense (income), was primarily due to
additional income of $1,100,000 for a settlement from a vendor and a $500,000
gain on an asset during the three months ended June 30, 2002.
Provision for income taxes increased by $1,994,556 to $6,759,158 in the
three months ended June 30, 2002 from $4,764,602 compared to the same period in
the prior year primarily due to changes in the Company's pre-tax income.
Six Months Ended June 30, 2002 Compared to the Six Months Ended June 30, 2001
Revenues increased $40,737,671, or 10.6%, from $383,370,426 to $424,108,097
for the six months ended June 30, 2002, compared to the six months ended June
30, 2001. The increase in revenues was primarily attributable to revenues from
new restaurant openings, a same store sales increase of 2.9% for the Company's
seafood restaurants, and the inclusion of 2002 revenues from the Muer
Acquisition.
10
As a primary result of increased revenues, cost of revenues increased
$7,908,044, or 6.9%, from $113,936,215 to $121,844,259 in the six months ended
June 30, 2002, compared to the same period in the prior year. Cost of revenues
as a percentage of revenues for the six months ended June 30, 2002, decreased
to 28.7%, from 29.7% in 2001. The decrease in cost of revenues as a percentage
of revenues primarily reflects menu changes and lower product costs in 2002 as
compared to 2001.
Restaurant labor expenses increased $9,335,330 or 8.4%, from $110,689,226 to
$120,024,556 in the six months ended June 30, 2002, 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,
2002, decreased to 28.3% from 28.9% in 2001, as a result of increases in hourly
labor productivity.
Other restaurant operating expenses increased $11,357,440, or 11.9%, from
$95,339,173 to $106,696,613 in the six months ended June 30, 2002, 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 25.2% in 2002
from 24.9% in 2001, as a primary result of higher advertising and insurance
costs. The Company anticipates that 2002 advertising and marketing expenses
will increase as a percentage of revenues over the prior year.
General and administrative expenses increased $1,761,722 or 9.4%, from
$18,696,800 to $20,458,522 in the six months ended June 30, 2002, compared to
the same period in the prior year, and decreased slightly as a percentage of
revenues to 4.8% in 2002 from 4.9% in 2001. The dollar amount increase was a
result of increased revenues and personnel required to support the Company's
operations.
Depreciation and amortization expense increased $4,078,873, or 23.8%, from
$17,143,909 to $21,222,782 in the six months ended June 30, 2002, compared to
the same period in the prior year. The increase for 2002 was primarily due to
the addition of new restaurants and equipment, the Muer Acquisition, and asset
impairment charges of $2,200,000, included in the 2002 amounts.
The decrease in net interest expense in the six months ended June 30, 2002,
as compared to the prior year, was primarily due to the Company's lower
borrowings under the credit line and the lower borrowing rate. The Company's
average borrowing rate declined by approximately 1.75% from June 30, 2001, to
June 30, 2002. The change in other expense (income), was primarily due to
additional income of $1,100,000 for a settlement from a vendor and a $1,500,000
gain on an asset, offset by a loss of $1,000,000 on an asset during the six
months ended June 30, 2002.
Provision for income taxes increased by $3,110,250 to $9,537,189 in the six
months ended June 30, 2002, from $6,426,939 in 2001, due to changes in the
Company's pre-tax income.
Liquidity and Capital Resources
In April 2002, we completed a public offering of 5,297,500 shares of common
stock and raised approximately $132.6 million. These proceeds were initially
used to pay down the majority of amounts outstanding on our credit line. Our
$205.0 million line of credit from a syndicate of banks matures in July 2004,
and is available for expansion, acquisitions, share repurchases and other
general corporate purposes. In July 2002, the credit line was amended to permit
the Chart House restaurants and other additional acquisitions. At June 30,
2002, we had $36.0 million outstanding under this credit facility.
For the six months ended June 30, 2002, we funded our capital expenditures
of $40.7 million, out of existing cash balances, cash flow from operations and
borrowings. In February 2002, we completed the Muer Acquisition for
approximately $28.0 million. In August 2002, we acquired Chart House seafood
restaurants for approximately $45.5 million in cash, as well as assumption of
certain trade payable related liabilities.
11
We expect to spend approximately $100 million on capital expenditures in
2002, in addition to the Muer and Chart House Acquisitions. The capital
expenditures include partial construction costs on an estimated 14 to 16 new
seafood restaurants, one new Rainforest Cafe restaurant, and a new Aquarium
restaurant, which are expected to open in 2002 or early 2003, plus further land
acquisition costs and other capital expenditures. We have 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 $28 million and subsequent operating expenses will not
be funded by us, but by proceeds from 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, we are
obligated to purchase and donate, with a reversionary interest, land required
for use by the Galveston Convention Center. Under the agreement, we will have
the right to one-half of any profits generated by the operation of the
convention center.
We have previously purchased property, including a multi-story building,
adjacent to the new Houston professional baseball park and close to the Houston
Convention Center. The property is also near the new professional basketball
arena currently under construction and other major venues under development and
construction in the downtown area of Houston, Texas. We plan to renovate the
existing building into a 200-room hotel. We expect renovation and construction
costs to be approximately $25 million, which would be expended over the next
three years.
We plan to fund 2002 capital expenditures and any additional restaurant
acquisitions out of proceeds from existing cash balances, cash flow from
operations and availability under our existing credit facility. As a result of
our tax carryforwards and deferred tax assets, including amounts attributable
to the acquisition of Rainforest Cafe, we expect our cash flow from operations
to be subject to reduced Federal income tax payments for the foreseeable
future, and therefore provide additional cash flow for funding our business
activities and debt service.
We pay an annual $0.10 per share dividend, declared and paid in quarterly
amounts.
From time to time we review opportunities for restaurant acquisitions, and
investments in the hospitality, entertainment, amusement, food service and
facilities management and other industries. Our exercise of any such investment
opportunity may impact our development plans and capital expenditures. We
believe that adequate sources of capital are available to fund our business
activities through December 31, 2002.
Seasonality and Quarterly Results
Our business is seasonal in nature. Our reduced winter volumes cause
revenues and, to a greater degree, operating profits to be lower in the first
and fourth quarters than in other quarters. We have and continue to open
restaurants in highly seasonal tourist markets. We further note that the Joe's
Crab Shack concept restaurants tend to experience even greater seasonality and
sensitivity to weather than our other restaurant concepts. Periodically, our
sales and profitability may be negatively affected by adverse weather. The
timing of unit openings can and will affect quarterly results.
Critical Accounting Policies
Restaurant and other properties are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recovered. The recoverability of properties that are to be held and used
is measured by comparison of the estimated future undiscounted cash flows
associated with the asset to the carrying amount of the asset. If such assets
are considered to be impaired, an impairment charge is recorded in the amount
by which the carrying amount of the assets exceeds their fair value. Properties
to be disposed of are reported at the lower of their carrying amount or fair
value, reduced for estimated disposal costs.
Impact of Inflation
We do not believe that inflation has had a significant effect on our
operations during the past several years. We believe we have historically been
able to pass on increased costs through menu price increases, but there can be
no assurance that we will be able to do so in the future. Future increases in
restaurant labor costs, including expected future increases in federal minimum
wages, land and construction costs could adversely affect our profitability and
ability to expand.
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk primarily related to potential adverse changes
in interest rates as discussed below. We actively monitor exposure to market
risk and continue to develop and utilize appropriate risk management
techniques. We are not exposed to any other significant risks from the use of
derivative financial instruments. We do 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, 2002 primarily included $36.0 million of
floating-rate debt attributed to a bank line of credit facility at an average
interest rate of 4.65%. As a result, our annual interest cost in 2002 will
fluctuate based on borrowings outstanding and short-term interest rates.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Dissenters Rights Litigation
Eighty-one former shareholders (holding 4,406,655 shares) of Rainforest
Cafe, Inc. 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 fair value per share, along with a check in the
amount of $3.25 per share, which was the original acquisition price.
Subsequently, 78 of the dissenting shareholders have made a demand for
supplemental payment based on their belief that the fair value per 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 is vigorously pursuing its determination of fair value in an appraisal
proceeding in a Minnesota District Court.
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
On June 6, 2002, the Company held its 2002 Annual Meeting of Stockholders.
At such time, the election of directors was submitted to a vote of stockholders
through the solicitation of proxies. The following persons were elected to
serve on the Board of Directors until the 2003 Annual Meeting of Stockholders
or until their successors have been duly elected and qualified. The Directors
each received at least a minimum of 20,600,000 votes: Tilman J. Fertitta,
Steven L. Scheinthal, Paul S. West, Michael S. Chadwick; James A. Masucci, and
Joe Max Taylor.
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ITEM 5. Other Information
Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
99.1--Certification by CEO and CFO with respect to Quarterly Report.
(b) Reports on Form 8-K.
1. The Company filed a report on Form 8-K on April 15, 2002 in which it
reported on Item 5 of the issuance of a press release announcing its
financial results for three months ended March 31, 2002.
2. The Company filed a report on Form 8-K on April 22, 2002 in which it
reported on Item 5 on the acquisition of C.A. Muer, Incorporated.
3. The Company filed a report on Form 8-K on May 29, 2002 in which it
reported that it had issued a press release announcing that it had
entered into an agreement to acquire Chart House restaurants.
4. The Company filed a report on Form 8-K on August 2, 2002 announcing
the retention of Ernst & Young LLP as its new independent auditors.
The Company further announced the completion of the Chart House
acquisition.
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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
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Dated: August 14, 2002
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