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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 23, 2004 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 April 23, 2004
COMMON STOCK, $.01 PAR VALUE 21,286,402 SHARES
------------
LONE STAR STEAKHOUSE & SALOON, INC.
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
AT MARCH 23, 2004 AND DECEMBER 30, 2003 .................................2
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME FOR THE TWELVE WEEKS ENDED
MARCH 23, 2004 AND MARCH 25, 2003 .......................................3
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS FOR THE TWELVE WEEKS ENDED
MARCH 23, 2004 AND MARCH 25, 2003 .......................................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 23, 2004 December 30, 2003
-------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 102,921 $ 96,230
Inventories 12,335 12,955
Other current assets 10,040 11,880
--------- ---------
Total current assets 125,296 121,065
Property and equipment 525,397 507,268
Less accumulated depreciation and amortization (199,583) (195,048)
--------- ---------
325,814 312,220
Other assets:
Deferred income taxes 22,464 16,228
Intangible and other assets, net 38,936 38,982
--------- ---------
Total assets $ 512,510 $ 488,495
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,946 $ 12,166
Other current liabilities 41,771 36,955
--------- ---------
Total current liabilities 61,717 49,121
Long term liabilities, principally defered compensation obligations 19,587 18,275
Stockholders' equity:
Preferred stock -- --
Common stock 213 211
Additional paid-in capital 180,524 177,844
Retained earnings 254,132 246,707
Common stock held by Trust (3,663) (3,663)
--------- ---------
Total stockholders' equity 431,206 421,099
--------- ---------
Total liabilities and stockholders' equity $ 512,510 $ 488,495
========= =========
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 23, 2004 March 25, 2003
-------------- --------------
Net sales $ 160,596 $ 139,373
Costs and expenses:
Costs of sales 55,953 47,464
Restaurant operating expenses 72,823 63,515
Depreciation and amortization 4,616 5,050
--------- ---------
Restaurant costs and expenses 133,392 116,029
General and administrative expenses 10,295 9,651
Non-cash stock compensation expense 910 393
--------- ---------
Income from operations 15,999 13,300
Other income, net 447 50
--------- ---------
Income from continuing operations before income taxes 16,446 13,350
Provision for income taxes 5,399 4,379
--------- ---------
Income from continuing operations 11,047 8,971
Discontinued operations:
Income (loss) from operations before income tax 51 (78)
Income tax benefit (expense) 15 (163)
--------- ---------
Income (loss) from discontinued operations 66 (241)
--------- ---------
Net income $ 11,113 $ 8,730
========= =========
Basic earnings per share:
Continuing operations $ 0.53 $ 0.43
Discontinued operations -- (0.02)
--------- ---------
Basic earnings per share $ 0.53 $ 0.41
========= =========
Diluted earnings per share:
Continuing operatons $ 0.47 $ 0.37
Discontinued operations -- (0.01)
--------- ---------
Diluted earnings per share $ 0.47 $ 0.36
========= =========
Dividends per share $ 0.175 $ 0.15
========= =========
See accompanying notes.
-3-
LONE STAR STEAKHOUSE & SALOON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
For the twelve weeks ended
------------------------------------
March 23, 2004 March 25, 2003
-------------- --------------
Cash flows from operating activities:
Net income $ 11,113 $ 8,730
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 5,256 5,819
Non-cash stock compensation expense 910 393
Gain on sale of assets (63) --
Deferred income taxes (1,994) (1,417)
(Income) loss from discontinued operations (66) 241
Net change in operating assets and liabilities:
Change in operating assets 4,041 1,061
Change in operating liabilities 5,135 (3,528)
--------- ---------
Net cash provided by operating activities of continuing operations 24,332 11,299
Cash flows from investing activities:
Acquisition of TX.C.C. Inc., net of cash acquired (12,505) --
Purchases of property and equipment (3,804) (1,330)
Proceeds from sale of assets 69 25
Other 778 446
--------- ---------
Net cash used in investing activities of continuing operations (15,462) (859)
Cash flows from financing activities:
Net proceeds from issuance of common stock 672 1,838
Cash dividends (3,688) (3,185)
--------- ---------
Net cash used in financing activities of continuing operations (3,016) (1,347)
Effect of exchange rate changes on cash -- 313
Net cash provided by discontinued operations 837 17
--------- ---------
Net increase in cash and cash equivalents 6,691 9,423
Cash and cash equivalents at beginning of period 96,230 65,369
--------- ---------
Cash and cash equivalents at end of period $ 102,921 $ 74,792
========= =========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 900 $ 227
========= =========
Non cash investing activities:
Issuance of common stock $ 1,542 $ --
========= =========
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 23, 2004 are not
necessarily indicative of the results to be expected for the full year ending
December 28, 2004. 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 30, 2003.
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 23, 2004 March 25, 2003
-------------- --------------
Net income $11,113 $ 8,730
Foreign currency translation adjustments -- 955
------- -------
Comprehensive income $11,113 $ 9,685
======= =======
3. EARNINGS PER SHARE
Basic earnings per share amounts are computed based on the weighted average
number of shares outstanding during the periods. 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 effect of shares issuable
to settle the deferred compensation liabilities has not been included for any
periods as their effect would have been antidilutive.
The weighted average shares outstanding for the periods presented are as
follows (in thousands):
For the twelve weeks ended
--------------------------
March 23, 2004 March 25, 2003
-------------- --------------
Basic average shares outstanding 20,995 21,059
Diluted average shares outstanding 23,682 24,299
-5-
4. 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 in August 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 23, 2004 and
at December 30, 2003, 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 23, 2004 and at
December 30, 2003. The loan commitment matures in August 2004 and required
interest only payments through April 2003, at which time the loan converted 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 23, 2004, or during the twelve weeks ended
March 25, 2003. 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 affect
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"). Accordingly,
shares issued to the 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
-6-
adjustments to compensation expense and deferred compensation obligations. At
March 23, 2004, the Trust held 177,145 shares of the Company's common stock.
Included in non-cash stock compensation expense for the twelve weeks ended March
23, 2004 was a charge of $760 relating to the changes in market price for such
shares.
6. ACQUISITION OF TEXAS LAND AND CATTLE STEAK HOUSE
On January 28, 2004, the Company's Joint Plan of Reorganization ("the Plan") to
purchase TX.C.C., Inc. and affiliated entities, TXCC-Preston and
TXLC-Albuquerque, (collectively, "TXCC") was confirmed by the United States
Bankruptcy Court for the District of Texas, Dallas Division and the Company
acquired 100% of TXCC on that date. The Company's consolidated financial
statements include TXCC's results of operations from January 28, 2004. TXCC
presently operates 20 Texas Land & Cattle Steak House(R) restaurants located
primarily in Texas. The acquisition of TXCC allows the Company to expand its
steakhouse concepts, provides strategic growth opportunities and significantly
increases its presence in the Texas market. Pursuant to the Plan, the
prepetition creditors at their option were entitled to receive either cash or
common stock of Lone Star Steakhouse & Saloon, Inc. in settlement of their
claims. The cash portion of the acquisition was funded from the Company's
existing cash balances.
The preliminary aggregate purchase price was $23,870, including cash acquired of
$2,145. The Company's purchase price consisted of $14,650 in cash, 68,747 shares
of the Company's common stock valued at $1,542, and liabilities assumed of
$7,678.
The following table summarizes the preliminary estimated fair values of the
assets acquired and liabilities assumed at the date of acquisition. The Company
is in the process of determining the final settlement amounts with certain
prepetition creditors; thus additional adjustments to the purchase price
allocation, including estimated assumed liabilities, may still be required.
AT JANUARY 28, 2004
-------------------
Current assets (net of cash acquired of $2,145) $ 1,581
Property and equipment 15,561
Other assets 4,583
-------
Total assets acquired 21,725
-------
Current liabilities 7,678
-------
Total liabilities assumed 7,678
-------
Net assets acquired $14,047
=======
Pro forma results giving effect to the acquisition of TXCC are not presented for
the periods as such amounts are not significant.
7. SUBSEQUENT EVENTS
On April 13, 2004, the Board of Directors declared the Company's quarterly
cash dividend of $.175 per share payable May 7, 2004 to stockholders of record
on April 23, 2004.
-7-
8. DISCONTINUED OPERATIONS
The Company accounts for its closed restaurants in accordance with the
Provisions of SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF
LONG-LIVED ASSETS. Therefore, when a restaurant is closed and the restaurant is
either held for sale or abandoned, the restaurant's operations are eliminated
from ongoing operations. Accordingly, the operations of such restaurants, net of
applicable income taxes, are presented as discontinued operations and prior
period consolidated financial statements are reclassified. The table below
reflects as discontinued operations the applicable operations of the Company's
Australian business and certain other domestic restaurants closed which meet the
criteria for such presentation.
For the twelve weeks ended
--------------------------
March 23, March 23,
2004 2003
------- -------
Income (loss) from operations $ 51 $ (78)
Income tax benefit (expense) 15 (163)
------- -------
Net income (loss) from
discontinued operations $ 66 $ (241)
======= =======
Net sales from discontinued
operations $ -- $ 5,105
======= =======
9. INCOME TAX
The effective income tax rate was 32.8% for each of the twelve weeks ended
March 23, 2004 and March 25, 2003. The factors which cause the effective tax
rates to vary from the federal statutory rate of 35% include state income taxes,
the impact of FICA Tip and other credits, certain non-deductible expenses, and
the tax effect of incentive stock options. There is generally no tax impact to
the Company associated with incentive stock options and the related amortization
associated with such options in the income statement. However, tax benefits may
arise related to the incentive stock options at the time the options are
exercised to the extent that the exercise is followed by a disqualifying
disposition of the shares by the optionee.
-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 opened one restaurant during the twelve weeks ended March 23,
2004 and none during the twelve weeks ended March 25, 2003.
There were 250 operating domestic Lone Star restaurants as of March 23,
2004. In addition, a licensee operates three Lone Star restaurants in
California.
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, 20 Texas Land and Cattle Steak House(R) ("TXLC")
restaurants and one Frankie's Italian Grille restaurant.
Internationally, licensees operate 13 Lone Star Steakhouse & Saloon
restaurants in Australia and one in Guam. During fiscal 2003, the Company sold
13 restaurants to a licensee in Australia and closed an additional seven
restaurants in Australia.
On January 28, 2004, the Company acquired 20 TXLC restaurants which are
located primarily in Texas. The operating results of those restaurants are
included in the Company's consolidated operating results from the date of
acquisition.
-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 the percentages
which certain items included in the condensed consolidated statement of
operations bear to net sales:
TWELVE WEEKS ENDED (1)
MARCH 23, 2004 MARCH 25, 2003
STATEMENT OF OPERATIONS DATA:
Net sales ................................................. 100.0% 100.0%
Costs and expenses:
Costs of sales ...................................... 34.8 34.0
Restaurant operating expenses ....................... 45.3 45.6
Depreciation and amortization ....................... 2.9 3.6
----- -----
Restaurant costs and expenses .................. 83.0 83.2
General and administrative expenses ....................... 6.4 6.9
Non-cash stock compensation expense ...................... 0.6 0.3
----- -----
Income from operations .................................... 10.0 9.6
Other income, net ......................................... 0.3 --
----- -----
Income from continuing operations before income taxes ..... 10.3 9.6
Provision for income taxes ................................ 3.4 3.1
----- -----
Income from continuing operations ......................... 6.9 6.5
Income (loss) from discontinued operations, net of
applicable income taxes ................................. -- (0.2)
----- -----
Net income ................................................ 6.9% 6.3%
===== =====
(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 23, 2004 COMPARED TO TWELVE WEEKS ENDED MARCH 25, 2003
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales increased $21,223 or 15.2% to $160,596 for the twelve weeks ended
March 23, 2004, compared to $139,373 for the twelve weeks ended March 25, 2003.
Sales for the twelve weeks ended March 23, 2004 include approximately $9,800
attributable to the acquisition of Texas Land & Cattle ("TXLC"). The Company
experienced sales growth in all its restaurant concepts as blended same store
sales representing net sales, by store, for all the Company owned restaurant
concepts, excluding TXLC, opened for more than 18 months in the current and
comparable prior year period increased 8.0%. The Company's average check
increased 3.3% and guest counts increased 4.8%. In addition, sales for the
twelve weeks ended March 23, 2004 include revenues from New Year's Eve. There
were no New Year's Eve sales in the twelve weeks ended March 25, 2003.
Costs of sales, primarily food and beverages, increased as a percentage of
net sales to 34.8% from 34.0% due primarily to increased costs of beef and dairy
products and to a lesser extent produce and chicken.
Restaurant operating expenses for the twelve weeks ended March 23, 2004
increased $8,489 to $55,953 compared to $47,464 in the prior year period but
decreased as a percentage of net sales to 45.3% from 45.6%. The percentage
decrease for the twelve weeks ended March 23, 2004 compared to the prior year
period reflects the leverage from higher sales volumes in 2004 on the fixed cost
components of restaurant operating expenses. Labor costs decreased .2% primarily
as a result of increased sales leverage. Advertising costs were up approximately
..2% reflecting increased costs for coupon printing costs. Building and
maintenance costs decreased .3% while natural gas costs increased .1%. Occupancy
costs were up .1%, due primarily to the impact of rent expenses applicable to
the TXLC stores. In addition, restaurant operating expenses for the twelve weeks
ended March 23, 2004 include approximately $271 of pre-opening costs.
Depreciation and amortization decreased $434 for the twelve weeks ended
March 23, 2004 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 $644 for the twelve weeks
ended March 23, 2004 compared to the prior year period. The primary reason for
the increase is attributable to the additional general and administrative costs
applicable to TXLC. In addition, the Company incurred increased expenses for
travel related costs and for certain contracted services.
Non-cash stock compensation expense for the twelve weeks ended March 23,
2004 increased $517 compared to the prior year period. The increase is primarily
attributable to a charge of $760 relating to the accounting for certain shares
of the Company's common stock held by a Rabbi Trust pursuant to a deferred
compensation arrangement (See Note 5 to the Notes to Condensed Consolidated
Financial Statements for additional information). The impact of the charge was
partially offset by a decrease of $243 in the amortization of other stock based
compensation expense.
Other income, net for the twelve weeks ended March 23, 2004 was $447
compared to $50 for the prior year. The increase is primarily attributable to an
increase in interest income and to a lesser extent an increase in gains arising
from the sale of assets.
The effective income tax rate was 32.8% for the twelve weeks ended March
23, 2004 and for the prior year period. The factors which cause the effective
tax rates to vary from the federal statutory rate of 35% include state income
taxes, the impact of FICA Tip and other credits, certain non-deductible
expenses, and the tax effect of incentive stock options. There is generally no
tax impact to the Company associated with incentive stock options and the
related amortization associated with such options in the income statement.
However, tax benefits may arise at the time the incentive options are exercised
to the extent that the exercise is followed by a disqualifying disposition of
the shares by the optionee.
-11-
Discontinued operations reflect the operations of restaurants closed
subsequent to fiscal 2002 which are required to be reported as discontinued
operations pursuant to SFAS No. 144, (see Note 8 to the Notes to Condensed
Consolidated 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. Historically, inflation has not had
a material impact on operating margins. During fiscal 2003, the Company
experienced significant increases in beef prices. Although the price of beef
decreased during the twelve weeks ended March 23, 2004, the prices continue to
be above historical levels and have been somewhat volatile. During the month of
April 2004, beef prices continued to increase. To the extent that we continue to
experience significant increases in beef prices, it will have a material
negative 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 23, 2004 and March 25, 2003:
Twelve weeks ended
------------------
March 23, 2004 March 25, 2003
-------------- --------------
Net cash provided by operating activities .......... $ 24,332 $ 11,299
Net cash used in investing activities .............. (15,462) (859)
Net cash used in financing activities .............. (3,016) (1,347)
Effect of exchange rate changes on cash ............ -- 313
Net cash provided by discontinued operations ....... 837 17
-------- --------
Net increase in cash and cash equivalents .......... $ 6,691 $ 9,423
======== ========
The increase in net cash provided by operating activities for the twelve
week period ended March 23, 2004 compared to the prior period is due to (1) an
increase in net income, (2) an increase in certain operating liabilities which
is due to increased business and the timing of the payments and (3) a decrease
in certain operating assets resulting from the timing of payments and a decrease
in inventory since the end of fiscal 2003.
During the twelve week period ended March 23, 2004, the Company's
investment in property and equipment was $3,804 compared to $1,330 for the same
period in 2003.
As more fully described in Note 6 to the Notes to Consolidated Condensed
Financial Statements, on January 28, 2004, the Company acquired TXCC which
operates 20 Texas Land & Cattle Steak House(R) restaurants located primarily in
Texas. The cash portion of the purchase price, net of cash acquired, was $12,505
and was funded from the Company's existing cash balance. The cash portion of the
-12-
purchase price may increase as the Company resolves certain claims of
prepetition creditors.
During the twelve week period ended March 23, 2004, the Company received
net proceeds of $672 from the issuance of 75,213 shares of its common stock due
to the exercise of stock options compared to proceeds of $1,838 from the
issuance of 319,053 shares in the first quarter of fiscal 2003.
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. The most recent authorization was December 23, 2003
when the Board of Directors approved the repurchase of up to 2,122,800 shares of
the Company's common stock. During the twelve weeks ended March 23, 2004 and
March 25, 2003, the Company did not purchase any common stock.
The Company has paid quarterly cash dividends on its common stock since the
second quarter of fiscal 2000. In January 2004, the Company increased its
quarterly cash dividend from $.165 to $.175 per share commencing in the first
quarter of fiscal 2004. During the twelve weeks ended March 23, 2004, the
Company paid dividends of $3,688 or $.175 per share as compared to $3,185 or
$.15 per share in the first quarter of fiscal 2003.
At March 23, 2004, the Company had $102,921 in cash and cash equivalents.
The Company has available $55,000 in unsecured revolving credit facilities which
expire in August 2004. At March 23, 2004, 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 23,
2004, the Company had no positions in futures contracts.
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, the price of beef, competition and pricing and other risks set forth
in the Company's Annual Report on Form 10-K for the fiscal year ended December
30, 2003. 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.
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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 23, 2004.
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 FORM
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.
AS OF THE END OF THE PERIOD COVERED BY THE FORM 10-Q, 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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In connection with the acquisition of TXCC, the Company has issued
68,747 shares of common stock, pursuant to the terms of the Findings of
Fact, Conclusions of Law and Order Confirming First Amended Joint Plan
of Reorganization of TX.C.C., Inc., TX.C.C.-Preston, L.P., TXLC
Albuquerque Restaurant, L.L.C., Debtors, dated January 28, 2004. For
further information with respect to the foregoing, see Note 6 to the
Notes to Condensed Consolidated Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) REPORTS ON FORM 8-K
DURING THE TWELVE WEEKS ENDED MARCH 23, 2004, THE COMPANY FILED
FORM 8-KS ON THE FOLLOWING DATES UNDER ITEM 5 - OTHER EVENTS:
JANUARY 7, 2004, JANUARY 30, 2004 AND MARCH 8, 2004
(b) EXHIBITS
31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT
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31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT
32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT
32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT
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LONE STAR STEAKHOUSE & Saloon, Inc.
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: May 3, 2004 /s/ Randall H. Pierce
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Chief Financial Officer