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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 25, 2003 0-19907
-------------- -------
LONE STAR STEAKHOUSE & SALOON, INC.
(Exact name of registrant as specified in its charter)
Delaware 48-1109495
-------- ----------
(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 by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.)
/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 May 2, 2003
----- --------------------------
Common Stock, $.01 par value 20,730,267 shares
LONE STAR STEAKHOUSE & SALOON, INC.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
- ------- ---------------------
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
at March 25, 2003 and December 31, 2002 2
Condensed Consolidated Statements of
Income for the twelve weeks ended
March 25, 2003 and March 19, 2002 3
Condensed Consolidated Statements of
Cash Flows for the twelve weeks ended
March 25, 2003 and March 19, 2002 4
Notes to Condensed Consolidated
Financial Statements 5
ITEM 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations 9
ITEM 3. Quantitative and Qualitative
Disclosures about Market Risks 14
ITEM 4. Controls and Procedures 14
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 14
-1-
LONE STAR STEAKHOUSE & SALOON, INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
March 25, 2003 December 31, 2002
-------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 74,792 $ 65,369
Inventories 12,305 12,390
Other current assets 8,363 9,312
--------- ---------
Total current assets 95,460 87,071
Property and equipment 522,120 520,513
Less accumulated depreciation and amortization (187,278) (181,778)
--------- ---------
334,842 338,735
Other assets:
Deferred income taxes 14,588 13,171
Intangible and other assets, net 34,228 34,336
--------- ---------
Total assets $ 479,118 $ 473,313
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,695 $ 16,084
Other current liabilities 25,410 26,412
--------- ---------
Total current liabilities 38,105 42,496
Long term liabilities, principally defered compensation obligations 15,153 11,058
Stockholders' equity:
Preferred stock -- --
Common stock 213 210
Additional paid-in capital 193,169 189,908
Retained earnings 247,146 241,601
Common stock held by Trust (3,663) --
Accumulated other comprehensive loss (11,005) (11,960)
--------- ---------
Total stockholders' equity 425,860 419,759
--------- ---------
Total liabilities and stockholders' equity $ 479,118 $ 473,313
========= =========
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 25, 2003 March 19, 2002
-------------- --------------
Net sales $ 144,478 $ 147,908
Costs and expenses:
Costs of sales 49,237 48,017
Restaurant operating expenses 66,360 63,073
Depreciation and amortization 5,288 5,893
--------- ---------
Restaurant costs and expenses 120,885 116,983
--------- ---------
Restaurant operating income 23,593 30,925
General and administrative expenses 10,046 9,967
Non-cash stock compensation expense 393 809
--------- ---------
Income from operations 13,154 20,149
Other income, net 118 383
--------- ---------
Income from continuing operations before income taxes
and cumulative effect of accounting change 13,272 20,532
Provision for income taxes 4,542 7,813
--------- ---------
Income from continuing operations before cumulative
effect of accounting change 8,730 12,719
Discontinued operations:
Loss from operations of discontinued restaurants -- (327)
Income tax benefit -- 119
--------- ---------
Loss on discontinued operations -- (208)
--------- ---------
Income before cumulative effect of accounting change 8,730 12,511
Cumulative effect of accounting change, net of tax -- (318)
--------- ---------
Net income $ 8,730 $ 12,193
========= =========
Basic earnings per share:
Continuing operations $ 0.41 $ 0.53
Discontinued operations -- (0.01)
Cumulative effect of accounting change -- (0.02)
--------- ---------
Basic earnings per share $ 0.41 $ 0.50
========= =========
Diluted earnings per share:
Continuing operatons $ 0.36 $ 0.46
Discontinued operations -- (0.01)
Cumulative effect of accounting change -- (0.01)
--------- ---------
Diluted earnings per share $ 0.36 $ 0.44
========= =========
See accompanying notes
-3-
LONE STAR STEAKHOUSE & SALOON, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
For the twelve weeks ended
-------------------------------
March 25, 2003 March 19, 2002
-------------- --------------
Cash flows from operating activities:
Net income $ 8,730 $ 12,193
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 6,077 6,771
Non-cash stock compensation expense 393 809
Cumulative effect of accounting change -- 508
Deferred income taxes (1,417) (1,497)
Loss from discontinued operations -- 208
Net change in operating assets and liabilities:
Change in operating assets 1,061 1,830
Change in operating liabilities (3,528) (1,269)
--------- ---------
Net cash provided by operating activities of continuing operations 11,316 19,553
Cash flows from investing activities:
Purchases of property and equipment (1,330) (403)
Proceeds from sale of assets 25 1,151
Other 446 (28)
--------- ---------
Net cash provided by (used in) investing activities of continuing operations (859) 720
Cash flows from financing activities:
Net proceeds from issuance of common stock 1,838 2,475
Cash dividends (3,185) (3,619)
--------- ---------
Net cash used in financing activities of continuing operations (1,347) (1,144)
Effect of exchange rate changes on cash 313 101
Net cash used in discontinued operations -- (103)
--------- ---------
Net increase in cash and cash equivalents 9,423 19,127
Cash and cash equivalents at beginning of period 65,369 82,919
--------- ---------
Cash and cash equivalents at end of period $ 74,792 $ 102,046
========= =========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 227 $ 4,773
========= =========
See accompanying notes.
-4-
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. BASIS OF PRESENTATION
---------------------
The unaudited condensed consolidated financial statements include all
adjustments, consisting of normal, recurring accruals, which Lone Star
Steakhouse & Saloon, Inc. (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 25, 2003 are not
necessarily indicative of the results to be expected for the full year ending
December 30, 2003. 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 31, 2002.
Certain amounts for the prior year have been reclassified to conform with
the current year's presentation.
2. COMPREHENSIVE INCOME
--------------------
Comprehensive income is comprised of the following:
For the twelve weeks ended
--------------------------
March 25, 2003 March 19, 2002
-------------- --------------
Net income $ 8,730 $12,193
Foreign currency translation adjustments 955 413
-------- -------
Comprehensive income $ 9,685 $12,606
======== =======
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, average shares outstanding has been adjusted to reflect (1) the
number of shares that would be issued from the exercise of stock options,
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 and (2) the number of shares that may be issuable to effect the
settlement of certain deferred compensation liabilities pursuant to the
Company's Stock Option Deferred Compensation Plan.
The weighted average shares outstanding for the periods presented are as
follows (in thousands):
For the twelve weeks ended
--------------------------
March 25, 2003 March 19, 2002
-------------- --------------
Basic average shares outstanding 21,059 24,198
Diluted average shares outstanding 24,299 27,562
-5-
4. LONG - TERM REVOLVER
--------------------
The Company has a credit facility pursuant to an unsecured revolving
credit agreement with a group of banks led by SunTrust Bank. The credit facility
allows the Company to borrow up to $50,000. The commitment terminates at June
30, 2004; however, it is subject to acceleration in the event of a change of
control of the Company as that term is defined in the credit agreement. At the
time of each borrowing, the Company may elect to pay interest at either SunTrust
Bank's published prime rate or a rate determined by reference to the Adjusted
LIBOR rate. The Company is required to achieve certain financial ratios and to
maintain certain net worth amounts as defined in the credit agreement. The
Company is required to pay on a quarterly basis a facility fee equal to .25% per
annum on the daily unused amount of the credit facility. At March 25, 2003 and
at December 31, 2002, there were no borrowings outstanding pursuant to the
credit facility.
The Company also has entered into a $5,000 revolving term loan agreement
with a bank, under which no borrowings were outstanding at March 25, 2003 and at
December 31, 2002. The loan commitment matures in August 2004 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 .50% below
the daily prime rate as published in the Wall Street Journal. In addition, the
Company pays a facility fee of .25% per annum on the daily unused portion of the
credit facility.
5. COMMON STOCK TRANSACTIONS
-------------------------
The Board of Directors has from time to time authorized the Company to
purchase shares of the Company's common stock in the open market or in privately
negotiated transactions. The Company made no purchases of its common stock
during the twelve weeks ended March 25, 2003, or during the twelve weeks ended
March 19, 2002. 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.
In September 2002, the Company adopted a Stock Option Deferred
Compensation Plan (the "Plan"), which allows certain key executives to defer
compensation arising from the exercise of stock options granted under the
Company's 1992 Incentive and Nonqualified Stock Option Plans. During the twelve
weeks ended March 25, 2003, the Company issued 300,000 shares of its common
stock to effect the exercise of such stock options in exchange for 122,855
shares of the Company's common stock as payment for such shares. The 122,855
shares received by the Company were cancelled. The Company issued 122,855 shares
to the optionee and pursuant to the terms of the Plan, the Company issued
177,145 shares to a Rabbi trust (the "Trust") with Intrust Bank, NA serving as
the trustee. The Trust holds the shares for the benefit of the participating
employees ("Participant(s)"). Under the terms of the Plan, Participants may
elect to change the Plan's investments from time to time which may result in the
sale of the shares. Since the shares held by the Trust are held pursuant to a
deferred compensation arrangement whereby amounts earned by an employee are
invested in the stock of the employer and placed in the Trust, the Company
accounts for the arrangement as required by Emerging Issues Task Force ("EITF")
consensus on Issue No. 97-14, ACCOUNTING FOR DEFERRED COMPENSATION ARRANGEMENTS
WHERE AMOUNTS EARNED ARE HELD IN A RABBI TRUST AND INVESTED ("EITF No. 97-14").
-6-
Accordingly, shares issued to the Rabbi trust were recorded at fair market value
at the date issued by the Company in the amount of $3,663, which is reflected in
the accompanying Condensed Consolidated Balance Sheets as Common Stock Held By
Trust. The corresponding amount was credited to deferred compensation
obligations. Each period, the shares owned by the Trust are valued at the
closing market price, with corresponding changes in the underlying shares being
reflected as adjustments to compensation expense and deferred compensation
obligations. At March 25, 2003, the Trust held 177,145 shares of the Company's
common stock.
6. STOCK BASED COMPENSATION
------------------------
In December 2002, the Financial Accounting Standards Boards ("FASB")
issued Financial Accounting Standards ("SFAS") No. 148, ACCOUNTING FOR STOCK
BASED COMPENSATION TRANSITION AND DISCLOSURE, AN AMENDMENT OF SFAS NO. 123.
Accordingly, effective with the first quarter of fiscal 2002, the Company
changed its method of accounting as the Company adopted the fair value
recognition provision of SFAS No. 123 for employee stock based compensation. The
Company now values stock options based upon an option pricing model and
recognizes their value as an expense over the period in which options vest. The
Company elected to apply the retroactive restatement method as provided in SFAS
No. 148 and as a result all prior periods presented have been restated to
reflect the compensation expense that would have been recognized had SFAS No.
123 been applied to all awards granted to employees after January 1, 1995. The
effect of this change was to increase net income $16,019 ($0.66 per share for
basic earnings and $.60 per share for diluted earnings) for the twelve weeks
ended March 19, 2002.
7. ACCOUNTING CHANGES
------------------
During the first quarter of fiscal 2002, the Company adopted the
provisions of SFAS No. 142, Goodwill and Other Intangible Assets, requiring that
goodwill and intangible assets deemed to have indefinite lives will no longer be
amortized. The application of the impairment provisions of SFAS No. 142 resulted
in a charge for the cumulative effect of an accounting change of $318,000 or
$.02 per basic share, net of income taxes of $190,000, to reflect impairment of
certain goodwill related to Australian investments.
In August 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. SFAS NO. 144 supersedes SFAS No.
121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF and resolves significant implementation issues that had
evolved since the issuance of SFAS No. 121. SFAS No. 144 established a single
accounting model for long-lived assets to be disposed of by sale or abandonment.
Additionally, SFAS No. 144 expanded the scope of financial accounting and
reporting of discontinued operations previously addressed in APB No. 30 to
require that all components of an entity that have either been disposed of (by
sale, by abandonment, or in a distribution to owners) or are held for sale and
whose operations and cash flows can be clearly distinguished, operationally and
for financial reporting purposes from the rest of the entity, should be
presented as discontinued operations. SFAS No. 144 is effective for financial
statements issued for fiscal years beginning after December 15, 2001. The
provisions for presenting the components of an entity as discontinued operations
are effective only for disposal activities initiated by the Company after the
effective date of the Statement. The Company adopted the provisions of SFAS No.
144, effective December 26, 2001. Pursuant to SFAS No. 144, each Company
-7-
restaurant is a component of the entity whose operations can be distinguished
from the rest of the Company; therefore, when a restaurant is closed and the
restaurant is either held for sale or abandoned, the restaurant's operations
will be eliminated from the ongoing operations of the Company. Accordingly, the
operations of such restaurants, net of applicable income taxes, have been
presented as discontinued operations and prior period financial statements have
been reclassified.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement requires that a
liability for a cost associated with an exit or disposal activity be recognized
only when the liability is incurred and measured at fair value. SFAS No. 146 is
effective for exit or disposal activities initiated after December 31, 2002. The
Company has adopted this Statement effective January 1, 2003, and it did not
have a material impact on its results of operations or financial position.
8. SUBSEQUENT EVENTS
-----------------
On April, 8, 2003, the Board of Directors declared the Company's quarterly
cash dividend of $.165 per share payable May 2, 2003 to stockholders of record
on April 18, 2003.
During the period beginning March 26, 2003 through May 2, 2003, the
Company has purchased 705,000 shares of its common stock at an average price of
$20.44 per share or an aggregate cost of $14,413.
9. DISCONTINUED OPERATIONS
-----------------------
Pursuant to the provisions of SFAS No. 144 as previously described in Note
7 to the condensed consolidated financial statements, the Company closed certain
restaurants during the year ended December 31, 2002 which met the criteria for
the operations of the restaurants to be accounted for as discontinued
operations. The components of the loss from discontinued operations are as
follows:
For the twelve weeks ended
--------------------------
March 25, March 19,
2003 2002
Loss from operations $ - $ 327
Income tax benefit - (119)
------- ---------
Net loss from discontinued
operations $ - $ 208
======= ========
Net sales from discontinued
operations $ - $ 900
======= ========
-8-
LONE STAR STEAKHOUSE & SALOON, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollar amounts in thousands, except per share amounts)
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.
The Company did not open any restaurants during the twelve weeks ended
March 25, 2003 or during the year ended December 31, 2002.
There were 249 operating domestic Lone Star restaurants as of March 25,
2003. In addition, a licensee operates three Lone Star restaurants in
California. The Company closed one domestic Lone Star restaurant in February
2002, and a domestic Lone Star restaurant was destroyed by fire in March 2002
and was not rebuilt.
The Company currently operates five Del Frisco's Double Eagle ("Del
Frisco's") restaurants. In addition, a licensee operates one Del Frisco's
restaurant. The Company currently operates fifteen Sullivan's Steakhouse
("Sullivan's") restaurants and one Frankie's Italian Grille restaurant.
Internationally, the Company currently operates 20 Lone Star restaurants
in Australia and a licensee operates one Lone Star restaurant in Guam. The
Company closed five Lone Star restaurants in Australia during the year ended
December 31, 2002.
-9-
LONE STAR STEAKHOUSE & SALOON, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollar amounts in thousands, except per share amounts)
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 operations bear to net sales, and (ii) other selected operating data:
Twelve Weeks Ended (1)
----------------------
March 25, 2003 March 19, 2002
-------------- --------------
STATEMENT OF OPERATIONS DATA:
Net sales ................................................. 100.0% 100.0%
Costs and expenses:
Costs of sales ...................................... 34.1 32.5
Restaurant operating expenses ....................... 45.9 42.6
Depreciation and amortization ....................... 3.7 4.0
----- -----
Restaurant costs and expenses .................. 83.7 79.1
----- -----
Restaurant operating income ............................... 16.3 20.9
General and administrative expenses ....................... 7.0 6.8
Non-cash stock compensation expense ...................... 0.3 0.5
----- -----
Income from operations .................................... 9.0 13.6
Other income, net ......................................... 0.1 0.3
----- -----
Income from continuing operations before income taxes
and cumulative effect of accounting change .............. 9.1 13.9
Provision for income taxes ................................ 3.1 5.3
----- -----
Income from continuing operations before cumulative
effect of accounting change ............................. 6.0 8.6
Loss from discontinued operations, net of applicable
income taxes ............................................ -- (0.1)
----- -----
Income before cumulative effect of accounting change ...... 6.0 8.5
Cumulative effect of accounting change, net of tax ........ -- (0.2)
----- -----
Net income ................................................ 6.0% 8.3%
===== =====
(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.
-10-
LONE STAR STEAKHOUSE & SALOON, INC.
Twelve weeks ended March 25, 2003 compared to Twelve weeks ended March 19, 2002
(Dollar amounts in thousands, except per share amounts)
Net sales decreased $3,430 or 2.3% to $144,478 for the twelve weeks ended
March 25, 2003, compared to $147,908 for the twelve weeks ended March 19, 2002.
The decrease was principally attributable to the fact that sales for the twelve
weeks ended March 19, 2002 included the lucrative New Year's Eve revenues which
were not included in the twelve weeks ended March 25, 2003, due to the Company's
fiscal year for 2002 ending on December 31, 2002. The decline in sales
attributable to the lack of New Year's Eve sales is estimated at $2,100. In
addition, the Company believes that sales were negatively impacted by severe
weather and general economic conditions. Same store sales decreased 2.3%
compared with the prior year period.
Costs of sales, primarily food and beverages, increased as a percentage of
net sales to 34.1% from 32.5% due primarily to an increase in beef costs.
Restaurant operating expenses for the twelve weeks ended March 25, 2003
increased $3,287 to $66,360 for the twelve weeks ended March 25, 2003 compared
to $63,073 in the prior period, and increased as a percentage of net sales to
45.9% from 42.6%. The increase is primarily attributable to (1) approximately
$400 due to increased costs of indirect labor for payroll related taxes and
insurance costs, (2) approximately $750 for increased spending on advertising,
(3) approximately $750 for increased costs in building and equipment repairs,
(4) approximately $275 for increased costs of natural gas and (5) approximately
$100 for increased costs of general liability and property insurance.
Depreciation and amortization decreased $605 for the twelve weeks ended
March 25, 2003 compared with the prior period. The decrease is attributable
primarily to a reduction in depreciation for certain assets that have become
fully depreciated.
General and administrative expenses increased $79 for the twelve weeks
ended March 25, 2003 compared to the prior period. The increase is due primarily
to increased costs of approximately $350 for directors and officers liability
insurance and travel and recruiting costs. The increases were largely offset by
reductions in professional fees.
Non-cash stock compensation expense for the twelve weeks ended March 25,
2003 decreased $416 compared to the prior period. The decrease reflects lower
amortization of such charges arising from the timing of amortization over the
underlying vesting periods of the options.
Other income, net for the twelve weeks ended March 25, 2003 was $118
compared to $383 for the prior period. The decrease is attributable to a decline
in interest income as a result of lower interest rates and reduced amounts of
excess funds available for investment.
The effective income tax rates for the twelve weeks ended March 25, 2003,
and March 19, 2002 were 34.2% and 38.0%, respectively. The difference in the
effective tax rates is primarily attributable to the impact of income taxes
related to amortization of incentive stock options which when amortized do not
generate any tax benefits and the impact of FICA Tip and other tax credits on
lower income for the twelve weeks ended March 25, 2003.
Discontinued operations reflect the operations of restaurants closed
during the year ended December 31, 2002 which are required to be reported as
discontinued operations pursuant to SFAS No. 144. See Note 9 to the Notes to
Condensed Consolidated Financial Statements for additional information.
The cumulative effect of accounting change reflects the effect of adoption
of the provisions of SFAS No. 142, Goodwill and Other Intangible Assets. The
Company adopted the provisions of SFAS No. 142 effective December 26, 2001. The
cumulative effect of the change in accounting resulted in a one-time charge of
-11-
$318, net of income taxes, to reflect the impairment of goodwill related to the
Company's Australian operations. See Note 7 to the Notes to Condensed
Consolidated Financial Statements for additional information.
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 should have
little effect on overall labor costs. Historically as costs of food and labor
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 (AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The following table presents a summary of the Company's cash flows for
each of the twelve weeks ended March 25, 2003 and March 19, 2002:
Twelve weeks ended
------------------
March 25, 2003 March 19, 2002
-------------- --------------
Net cash provided by operating activities .......... $ 11,316 $ 19,553
Net cash provided by (used in) investing activities (859) 720
Net cash used in financing activities .............. (1,347) (1,144)
Effect of exchange rate changes on cash ............ 313 101
Net cash used in discontinued operations ........... -- (103)
-------- --------
Net increase in cash ............................... $ 9,423 $ 19,127
======== ========
The decrease in net cash provided by operating activities for the twelve
week period ended March 25, 2003 compared to the prior period is due to (1) a
decrease in net income and (2) an increase in payments of certain operating
liabilities which reflects the payments for seasonal purchases related to New
Year's Eve business.
During the twelve week period ended March 25, 2003, the Company's
investment in property and equipment was $1,330 compared to $403 for the same
period in 2002. In the twelve week period ended March 25, 2003, the Company
received $25 in proceeds from the sale of assets compared to $1,151 in the first
quarter of fiscal 2002.
During the twelve week period ended March 25, 2003, the Company received
net proceeds of $1,838 from the issuance of 319,053 shares of its common stock
due to the exercise of stock options compared to proceeds of $2,475 from the
issuance of 292,926 shares in the first quarter of fiscal 2002.
-12-
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 25, 2003 and March
19, 2002, the Company did not purchase any common stock; however, subsequent to
March 25, 2003 through May 2, 2003, the Company has purchased 705,000 shares of
its common stock at an average price of $20.44 per share or an aggregate cost of
$14,413.
The Company has paid quarterly cash dividends on its common stock since
the second quarter of fiscal 2000. In January 2003, the Company increased its
quarterly cash dividend from $.15 to $.165 per share commencing in the second
quarter of fiscal 2003. During the twelve weeks ended March 25, 2003, the
Company paid dividends of $3,185 or $.15 per share as compared to $3,619 or $.15
per share in the first quarter of fiscal 2002.
At March 25, 2003, the Company had $74,792 in cash and cash equivalents.
The Company has available $55,000 in unsecured revolving credit facilities. At
March 25, 2003, the Company has no outstanding borrowings. See Note 4 to the
Notes to Condensed Consolidated Financial Statements in the Form 10-Q for a
further description of the Company's credit facilities.
The Company from time to time may utilize derivative financial instruments
in the form of live beef cattle futures contracts to manage market risks and
reduce its exposure resulting from fluctuations in the price of meat. Realized
and unrealized changes in the fair values of the derivative instruments are
recognized in income in the period in which the change occurs. Realized and
unrealized gains and losses for the period were not significant. As of March 25,
2003, the Company had no positions in futures contracts.
IMPACT OF RECENTLY ISSUED FINANCIAL STANDARDS
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement requires that a
liability for a cost associated with an exit or disposal activity be recognized
only when the liability is incurred and measured at fair value. SFAS No. 146 is
effective for exit or disposal activities that are initiated after December 31,
2002. The Company has adopted this Statement effective January 1, 2003, and it
did not have a material impact on its results of operations or financial
position.
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 31, 2002. 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.
-13-
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 25, 2003.
ITEM 4. CONTROLS AND PROCEDURES
-----------------------
Disclosure controls are procedures that are designed with the
objective of ensuring that information required to be disclosed in
the Company's reports under the Securities Exchange Act of 1934,
such as this for 10-Q is reported in accordance with the Securities
and Exchange Commission's rules. Disclosure controls are also
designed with the objective of ensuring that such information is
accumulated and communicated to management, including the chief
executive officer and chief financial officer as appropriate to
allow timely decisions regarding required disclosure.
Within the 90 days prior to the date of this report, the Company
carried out an evaluation under the supervision and with the
participation of the Company's management, including the Company's
Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to the Securities
Exchange Act Rule 13a-14. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company
(including its consolidated subsidiaries) required to be in the
Company's periodic SEC filings. There were no significant changes in
the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their
evaluation.
Certifications of the Chief Executive Officer and Chief Financial
Officer regarding, among other items, disclosure controls and
procedures are included immediately after the signature section of
this Form 10-Q.
PART II OTHER INFORMATION
- ------- -----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Reports on Form 8-K - None
(b) Exhibits
99.1 Certification of Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act
99.2 Certification of Chief Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act
-14-
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)
/s/ Randall H. Pierce
Date May 8, 2003 ---------------------------------
Randall H. Pierce
Chief Financial Officer
-15-
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Section 302 Certification
I, JAMIE B. COULTER, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of LONE STAR
STEAKHOUSE & SALOON, INC, a Delaware corporation (the "registrant");
(2) Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
(5) The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
(a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
(6) The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
(7) The registrant's other certifying officers and I have indicated
in this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 8, 2003
By: /s/ Jamie B. Coulter
------------------------
Jamie B. Coulter
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Section 302 Certification
I, RANDALL H. PIERCE, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of LONE STAR
STEAKHOUSE & SALOON, INC, a Delaware corporation (the "registrant");
(2) Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
(4) The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
(a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
(6) The registrant's other certifying officers and I have indicated
in this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 8, 2003
By: /s/ Randall H. Pierce
---------------------
Randal H. Pierce
Chief Financial Officer