sec document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended Commission file number
March 20, 2001 0-19907
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LONE STAR STEAKHOUSE & SALOON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 48-1109495
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
224 EAST DOUGLAS, SUITE 700
WICHITA, KANSAS 67202
(Address of principal executive offices) (Zip code)
(316) 264-8899
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
documents and 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.
/X/ YES / / NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at April 27, 2001
Common Stock, $.01 par value 24,032,464 shares
LONE STAR STEAKHOUSE & SALOON, INC.
INDEX
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
AT MARCH 20, 2001 AND DECEMBER 26, 2000 2
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME FOR THE TWELVE WEEKS ENDED
MARCH 20, 2001 AND MARCH 21, 2000 3
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS FOR THE TWELVE WEEKS ENDED
MARCH 20, 2001 AND MARCH 21, 2000 4
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS 5
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 8
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISKS 12
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 5 HAVE BEEN OMITTED
SINCE THE ITEMS ARE EITHER INAPPLICABLE OR THE
ANSWER IS NEGATIVE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
-1-
LONE STAR STEAKHOUSE & SALOON, INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
March 20, 2001 December 26, 2000
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ASSETS
Current assets:
Cash and cash equivalents $ 39,453 $ 29,029
Inventories 12,621 12,704
Other current assets 4,310 5,415
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Total current assets 56,384 47,148
Property and equipment, net 398,276 406,761
Intangible and other assets, net 34,887 35,014
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Total assets $ 489,547 $ 488,923
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,954 $ 12,918
Other current liabilities 31,848 35,946
----------- ------------
Total current liabilities 47,802 48,864
Deferred compensation obligation 2,882 2,276
Stockholders' equity:
Preferred stock - -
Common stock 240 243
Additional paid-in capital 186,726 188,976
Retained earnings 265,659 260,423
Accumulated other comprehensive loss (13,762) (11,859)
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Total stockholders' equity 438,863 437,783
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Total liabilities and stockholders' equity $ 489,547 $ 488,923
=========== ============
See accompanying notes.
-2-
LONE STAR STEAKHOUSE & SALOON, INC.
Condensed Consolidated Statements of Income
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
For the twelve weeks ended
------------------------------------------------
March 20, 2001 March 21, 2000
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Net sales $ 143,753 $ 139,254
Costs and expenses:
Costs of sales 49,703 47,657
Restaurant operating expenses 67,904 63,109
Depreciation and amortization 6,455 6,550
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Restaurant costs and expenses 124,062 117,316
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Restaurant operating income 19,691 21,938
General and administrative expenses 9,158 11,342
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Income from operations 10,533 10,596
Other income, net 1,699 416
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Income before income taxes 12,232 11,012
Provision for income taxes 3,992 3,910
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Net income $ 8,240 $ 7,102
======== ============
Basic earnings per share $ 0.34 $ 0.25
======== ============
Diluted earnings per share $ 0.34 $ 0.25
======== ============
See accompanying notes.
-3-
LONE STAR STEAKHOUSE & SALOON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
For the twelve weeks ended
--------------------------
March 20, 2001 March 21, 2000
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Cash flows from operating activities:
Net income $ 8,240 $ 7,102
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 7,383 7,350
Gain on sale of assets (1,381) -
Net change in operating assets and liabilities:
Change in operating assets 1,096 209
Change in operating liabilities (1,062) 6,625
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Net cash provided by operating activities 14,276 21,286
Cash flows from investing activities:
Purchases of property and equipment (459) (11,709)
Proceeds from sale of assets 1,780 -
Other 79 (2,382)
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Net cash provided (used) in investing activities 1,400 (14,091)
Cash flows from financing activities:
Net proceeds from issuance of common stock 12 -
Common stock repurchased and retired (2,265) (26,332)
Proceeds from revolver - 8,750
Cash dividends (3,004) -
------- --------
Net cash used in financing activities (5,257) (17,582)
Effect of exchange rate on cash 5 (4)
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Net increase (decrease) in cash and cash equivalents 10,424 (10,391)
Cash and cash equivalents at beginning of period 29,029 50,673
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Cash and cash equivalents at end of period $ 39,453 $ 40,282
======= ========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 257 $ 1,804
======= ========
See accompanying notes.
-4-
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
---------------------
The unaudited condensed consolidated financial statements include all
adjustments, consisting of normal, recurring accruals, which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for the periods presented. The results for the twelve
weeks ended March 20, 2001 are not necessarily indicative of the results to be
expected for the full year ending December 25, 2001. This quarterly report on
Form 10-Q should be read in conjunction with the Company's audited consolidated
financial statements in its annual report on Form 10-K for the year ended
December 26, 2000.
2. COMPREHENSIVE INCOME
--------------------
Comprehensive income is comprised of the following (in thousands):
For the twelve weeks ended
--------------------------
March 20, 2001 March 21, 2000
-------------- --------------
Net income $8,240 $7,102
Foreign currency translation adjustments (1,903) (1,839)
---------- -------
Comprehensive income $6,337 $5,263
====== ======
3. EARNINGS PER SHARE
------------------
Basic earnings per share amounts are computed based on the weighted
average number of shares actually outstanding. For purposes of diluted
computations, the number of shares that would be issued from the exercise of
stock options has been reduced by the number of shares which could have been
purchased from the proceeds at the average market price of the Company's stock
or price of the Company's stock on the exercise date if options were exercised
during the period presented.
The weighted average shares outstanding for the periods presented are as
follows (in thousands):
For the twelve weeks ended
--------------------------
March 20, 2001 March 21, 2000
-------------- --------------
Basic average shares outstanding 24,033 28,376
Diluted average shares outstanding 24,435 28,567
4. LONG - TERM REVOLVER
--------------------
The Company has entered into a $20 million revolving term loan agreement
with a bank, under which no borrowings were outstanding at March 20, 2001. The
loan commitment matures in April 2005 and requires interest only payments
through April 2003, at which time the loan will convert to a term note with
monthly principal and interest payments sufficient to amortize the loan over its
remaining term. The interest rate is at the daily prime rate as published in the
Wall Street Journal.
-5-
In addition, the Company pays a facility fee of 1/4 of one percent on the unused
portion of the facility.
5. TREASURY STOCK TRANSACTIONS
---------------------------
The Board of Directors has authorized the Company to purchase shares of
the Company's common stock in the open market or in privately negotiated
transactions. Pursuant to the authorization, the Company purchased 245,700
shares of its common stock during the twelve weeks ended March 20, 2001, at an
average price of $9.22 per share and 2,970,600 shares of its common stock during
the twelve weeks ended March 21, 2000, at an average price of $8.86 per share.
The Company is accounting for the purchases using the constructive retirement
method of accounting wherein the aggregate par value of the stock is charged to
the common stock account and the excess of cost over par value is charged to
paid-in capital.
6. STOCK OPTIONS
-------------
Financial Accounting Standard Board Interpretation No. 44 ("FIN No. 44"),
ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION, AN
INTERPRETATION OF APB NO. 25 became effective July 1, 2000. FIN No. 44 requires,
among other things, that stock options, which have been modified after December
15, 1998 to reduce the exercise price, be accounted for as variable. Under
variable plan accounting, compensation expense is adjusted for increases or
decreases in the fair market value of the Company's common stock based upon the
changes in the common stock price from the value of $10.125 at July 1, 2000.
Variable plan accounting is applied to the modified awards until the options are
exercised, forfeited or expire unexercised. The Company has repriced options in
fiscal 1999 and 2000 which are subject to the accounting provisions of FIN No.
44, and at March 20, 2001, there were options outstanding for approximately
4,730,000 shares affected by this accounting requirement. Because the market
price of the Company's common stock was lower on December 26, 2000 and March 20,
2001 than July 1, 2000, the application of FIN No. 44 had no effect on the
Company's net income for the twelve weeks ended March 20, 2001.
At the end of the quarter when the Company's common stock price first
exceeds $10.125, the Company will record a non-cash compensation charge for the
excess over $10.125 for each of the repriced options outstanding. In each
subsequent quarter, the Company will record an additional non-cash charge or
benefit related to the repriced options then outstanding based upon the change
in the Company's common stock price as compared to the price at the beginning of
the previous quarter.
7. RECENTLY ISSUED ACCOUNTING STANDARDS
------------------------------------
In June 1998, the Financial Accounting Statements Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133 "ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES," which the Company adopted
effective December 27, 2000. The statement requires the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives not considered
hedges must be adjusted to fair value through income. If a derivative is a
hedge, depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value of the hedged
asset, liability or firm commitment through earnings, or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Company's adoption of SFAS No. 133 did not have a
significant effect on its results of operations or financial position.
-6-
8. SUBSEQUENT EVENT
----------------
In April 2001, the Board of Directors declared the Company's quarterly cash
dividend of $.125 per share payable April 27, 2001 to stockholders of record on
April 13, 2001.
-7-
LONE STAR STEAKHOUSE & SALOON, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
the condensed consolidated financial statements including the notes thereto
included elsewhere in this Form 10-Q.
During 1998, the Company completed the construction of twelve Lone Star
Steakhouse & Saloon ("Lone Star") restaurants. The Company opened one restaurant
in 1999, one in 2000 and two to date in fiscal 2001. The Company intends to open
the remaining eight restaurants during fiscal 2001.
The Company has seven sites available for future development, five of which
are owned and two of which are under lease. There were 243 operating domestic
Lone Star restaurants as of March 20, 2001. In addition, licensees operate three
Lone Star restaurants in California, one in Guam, and one in Canada.
The Company currently operates five Del Frisco's Double Eagle Steak House
("Del Frisco's") restaurants, including the New York City and Las Vegas, Nevada
restaurants which opened in 2000. A licensee operates a Del Frisco's in Orlando,
Florida.
The Company currently operates fifteen Sullivan's Steakhouse ("Sullivan's")
restaurants, including the Sullivan's restaurant opened in Tucson, Arizona in
November 2000.
Internationally, the Company currently operates 26 Lone Star restaurants in
Australia. The Company closed nine restaurants in Australia during 2000 and an
additional five restaurants in January 2001.
-8-
LONE STAR STEAKHOUSE & SALOON, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated (i) the
percentages which certain items included in the condensed consolidated statement
of income bear to net sales, and (ii) other selected operating data:
TWELVE WEEKS ENDED (1)
----------------------
MARCH 20, 2001 MARCH 21, 2000
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(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Net sales 100.0% 100.0%
Costs and expenses:
Costs of sales................................. 34.6 34.2
Restaurant operating expenses.................. 47.2 45.3
Depreciation and amortization.................. 4.5 4.7
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Restaurant costs and expenses............. 86.3 84.2
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Restaurant operating income.......................... 13.7 15.8
General and administrative expenses.................. 6.4 8.1
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Income from operations............................... 7.3 7.7
Other income, net.................................... 1.2 0.3
----- ----
Income before provision for income taxes ............ 8.5 8.0
Provision for income taxes........................... 2.8 2.8
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Net income........................................... 5.7% 5.2%
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RESTAURANT OPERATING DATA:
Average sales per restaurant on an annualized basis (2) $2,149 $ 2,003
Number of restaurants at end of the period 289 300
(1) The Company operates on a fifty-two or fifty-three week fiscal year ending
the last Tuesday in December. The fiscal quarters for the Company consist
of accounting periods of twelve, twelve, twelve and sixteen or seventeen
weeks, respectively.
(2) Average sales per restaurant on an annualized basis are computed by
dividing a restaurant's total sales for full accounting periods open
during the reporting period, and annualizing the result.
-9-
LONE STAR STEAKHOUSE & SALOON, INC.
TWELVE WEEKS ENDED MARCH 20, 2001 COMPARED TO TWELVE WEEKS ENDED MARCH 21, 2000
(DOLLAR AMOUNTS IN THOUSANDS)
Net sales increased $4,499 (3.2%) to $143,753 for the twelve weeks ended
March 20, 2001 compared to $139,254 for the twelve weeks ended March 21, 2000.
The increase was principally attributable to the additional sales of $5,709 from
three new domestic Lone Star restaurants, one new Sullivan's restaurant and one
new Del Frisco's restaurant opened since March 2000. The increase was partially
offset by the impact of the 14 Australian Lone Star's closed subsequent to
August 2000. Same store sales increased 2.3% compared with the comparable prior
year period.
Costs of sales, primarily food and beverages, increased as a percentage of
sales to 34.6% from 34.2% due primarily to a higher mix of sales from Del
Frisco's and Sullivan's which tend to have slightly higher food and beverage
costs.
Restaurant operating expenses for the twelve weeks ended March 20, 2001
increased $4,795 from $63,109 in 2000, to $67,904 and increased as a percentage
of net sales from 45.3% to 47.2%. The increase in restaurant operating expenses
is attributable to increases in labor, advertising, maintenance of buildings and
equipment, and increased utility rates, primarily natural gas. The increases in
labor were attributable to increased hourly labor costs created by a continuing
tight labor market as well as costs associated with adding and training new
managers. In addition, labor costs increased as a result of new store openings.
The increases in restaurant operating expenses were offset in part by a decrease
in pre-opening expenses.
Depreciation and amortization decreased $95 in the twelve weeks ended
March 20, 2001 compared to the same period in 2000. The decrease is attributable
primarily to the restaurants closed since August 2000.
General and administrative expenses decreased $2,184 compared to the same
period in 2000. The decreases in general and administrative expenses were
attributable primarily to decreases in professional fees, software consulting
and development costs, and travel expenses.
Other income, net, for the twelve weeks ended March 20, 2001 was $1,699,
compared to $416 in 2000. The increase is attributable to a gain on sale of
assets of $1,381.
The effective income tax rates for the twelve weeks ended March 20, 2001
and the twelve weeks ended March 21, 2000 were 32.6% and 35.5%, respectively.
The decrease in the effective tax rate is primarily attributable to the impact
of FICA Tip and other tax credits.
-10-
IMPACT OF INFLATION
The primary inflationary factors affecting the Company's operations
include food and labor costs. A number of the Company's restaurant personnel are
paid at the federal and state established minimum wage levels and, accordingly,
changes in such wage levels affect the Company's labor costs. However, since the
majority of personnel are tipped employees, minimum wage changes will have
little effect on overall labor costs. Recently the Company has experienced
significant increases in utility costs, particularly natural gas. Historically
as costs of food, labor, and most recently utility costs have increased, the
Company has been able to offset these increases through menu price increases and
economies of scale; however, there may be delays in the implementation of such
menu price increases or in effecting timely economies of scale, as well as
competitive pressures which may limit the Company's ability to recover any cost
increases in its entirety. To date, inflation has not had a material impact on
operating margins.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents a summary of the Company's cash flows for
each of the twelve weeks ended March 20, 2001 and March 21, 2000 (in thousands):
Twelve weeks ended
------------------
March 20, 2001 March 21, 2000
-------------- --------------
Net cash provided by operating activities $ 14,276 $ 21,286
Net cash provided (used) in investment activities........................... 1,400 (14,091)
Net cash used in financing activities....................................... (5,257) (17,582)
Effect of exchange rate on cash............................................. 5 (4)
------- ----------
Net increase (decrease) in cash............................................. $ 10,424 $ (10,391)
======= ==========
During the twelve week period ended March 20, 2001, the Company's
investment in property and equipment was $459 compared to $11,709 for the same
period in 2000. In the twelve week period ended March 20, 2001, the Company
received $1,780 in proceeds from the sale of assets.
The Company does not have significant receivables or inventory.
At March 20, 2001, the Company had $39,453 in cash and cash equivalents.
The Company has entered into a $20,000 revolving term loan agreement with a
bank. At March 20, 2001, the Company had no outstanding borrowings.
The Company's Board of Directors has authorized the purchase of shares of
the Company's common stock from time to time in the open market or in privately
negotiated transactions. During the twelve weeks ended March 20, 2001, the
Company purchased 245,700 shares at a cost of $2,265 and in the twelve week
period ended March 21, 2000 purchased 2,970,600 shares at a cost of $26,332.
In the second quarter of fiscal 2000, the Company began paying quarterly
dividends on its common stock. During the twelve weeks ended March 21, 2001, the
Company paid out dividends of $3,004 or $.125 per share.
The Company utilizes derivative financial instruments in the form of
commodity futures contracts to manage market risks and reduce its exposure
resulting from fluctuations in the prices of meat. The Company uses live beef
cattle futures contracts to accomplish its objective. Realized and unrealized
changes in the fair values of the derivative instruments are recognized in
-11-
income in the period in which the change occurs. Realized and unrealized gains
and losses for the period were not significant. As of March 20, 2001, the
Company's had no positions in futures contracts.
As described in Note 6 to the Notes to Condensed Consolidated Financial
Statements in this Form 10-Q, the Company has options outstanding for
approximately 4,730,000 shares subject to variable plan accounting. At the end
of the quarter when the Company's common stock price first exceeds $10.125, the
Company will record a non-cash compensation charge for the excess over $10.125
for each of the repriced options outstanding. In each subsequent quarter, the
Company will record an additional non-cash charge or benefit related to the
repriced options then outstanding based upon the change in the Company's common
stock price as compared to the price at the beginning of the previous quarter.
The Company may incur significant volatility in reporting earnings in future
periods as fluctuations in market prices of its common stock may greatly impact
reported compensation expenses on a periodic basis.
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Stockholders are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the ability of the Company to open new restaurants, general market
conditions, competition and pricing and other risks set forth in the Company's
Annual Report on Form 10-K for the fiscal year ended December 26, 2000. Although
the Company believes 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
contained in the report will prove to be accurate.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
-----------------------------------------------------------
THE COMPANY'S EXPOSURE TO MARKET RISKS WAS NOT SIGNIFICANT DURING THE
TWELVE WEEKS ENDED MARCH 20, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(A) REPORTS ON FORM 8-K NONE
-12-
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.
LONE STAR STEAKHOUSE & SALOON, INC.
(Registrant)
Date______________________ /s/ Randall H. Pierce
----------------------------------
Randall H. Pierce
Chief Financial Officer