<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 31, 1996
REGISTRATION NO. 33-80821
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
LONE STAR STEAKHOUSE & SALOON, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 5812 48-1109495
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
224 EAST DOUGLAS, SUITE 700
WICHITA, KANSAS 67202
(316) 264-8899
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------
JAMIE B. COULTER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
LONE STAR STEAKHOUSE & SALOON, INC.
224 EAST DOUGLAS, SUITE 700
WICHITA, KANSAS 67202
(316) 264-8899
(Name, address, including zip code, and telephone number, including area
code, of agent of service)
------------
Copies to:
Steven Wolosky, Esq.
Kenneth A. Schlesinger, Esq.
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
(212) 753-7200
------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. [X]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
==============================================================================
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K Showing Location
in Prospectus of Information Required by Items of Form S-1
<TABLE>
<CAPTION>
Item Number and Heading in Form S-1 Registration Statement Caption or Location in Prospectus
- - ------------------------------------------------------------- -------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus.................... Forepart of the Registration Statement; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus ...................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges ....................... Prospectus Summary; Risk Factors
4. Use of Proceeds ................................. Use of Proceeds
5. Determination of Offering Price ................. Plan of Distribution
6. Dilution ........................................ *
7. Selling Security Holders ........................ Principal and Selling Stockholders
8. Plan of Distribution ............................ Plan of Distribution
9. Description of Securities to be Registered ...... Description of Capital Stock; Dividend Policy
10. Interests of Named Experts and Counsel .......... Legal Matters; Experts
11. Information with Respect to the Registrant ...... Front Cover Page of Prospectus; Prospectus
Summary; Risk Factors; The Company; Use of
Proceeds; Dividend Policy; Capitalization;
Selected Historical and Pro Forma Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Certain Relationships and Related
Transactions; Principal and Selling Stockholders;
Description of Capital Stock; Underwriting;
Available Information; Experts; Legal Matters;
Consolidated Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities ... *
</TABLE>
- - ------
* Not applicable.
This Post-Effective Amendment Number 1 relates to a Registration
Statement on Form S-1 (file No. 33-80821) previously filed by Lone Star
Steakhouse & Saloon, Inc. (the "Company") which was declared effective by the
Securities and Exchange Commission on December 28, 1995. Such registration
statement related to an aggregate of 786,683 shares (the "Shares") of Common
Stock, $.01 par value ("Common Stock"), of which 447,500 have subsequently been
offered and sold pursuant to the Registration Statement. In addition, an
additional 215,961 shares are being offered pursuant to a separate Registration
Statement on Form S-1 (File No. 333-04129).
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED MAY 31, 1996
123,222 SHARES
(LOGO)
COMMON STOCK
This Prospectus relates to 123,222 shares (the "Shares") of Common
Stock, par value $.01 per share (the "Common Stock"), of Lone Star Steakhouse &
Saloon, Inc. (the "Company" or "Lone Star") previously issued to certain
stockholders of the Company (the "Selling Stockholders"). Of such Shares, 94,472
Shares were issued in connection with an acquisition consummated in August 1995
and 28,750 Shares were issued in connection with an acquisition consummated in
September 1995. The Company will not receive any proceeds from the sale of the
Shares by the Selling Stockholders.
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "STAR." On May 29, 1996, the last sale price of the Common Stock
as reported on the Nasdaq National Market was $40 1/8 per share. See "Price
Range of Common Stock."
See "Risk Factors" beginning on page 6 for a discussion of certain factors
that should be considered by prospective purchasers of the Common Stock
offered hereby.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Shares may be offered by or for the account of the Selling
Stockholders from time to time on Nasdaq, in negotiated transactions, or a
combination of such methods of sale, at fixed prices which may be changed or at
negotiated prices. The Selling Stockholders may effect such transactions by
selling the Shares to or through broker-dealers who may receive compensation in
the form of discounts, concessions or commissions from the Selling Stockholders
and/or the purchasers of Shares for whom such broker-dealers may act as agent or
to whom they sell as principal, or both (which compensation as to a particular
broker-dealer may be in excess of customary commissions). Any broker-dealer
acquiring Shares from the Selling Stockholders may sell such securities in its
normal market making activities, through other brokers on a principal or agency
basis, in negotiated transactions, to its customers or through a combination of
such methods.
<PAGE>
THE TRADENAME LOGOS OF THE COMPANY
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME. IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS
MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF THE
COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10b-6A UNDER
THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
Consolidated Financial Statements (including the notes thereto) appearing
elsewhere in this Prospectus. In August 1995, the Company acquired 11 Lone Star
Steakhouse & Saloon restaurants. All financial and restaurant information herein
reflects this acqisition. In addition, on May 24, 1996, the Company's
Registration Statement on Form S-1 (File No. 333-04129) relating to 4,000,000
shares of Common Stock of the Company (the "May 1996 Offering") was declared
effective by the Securities and Exchange Commission. The May 1996 Offering is
anticipated to close on or about June 4, 1996. Accordingly, certain share
information included herein has been adjusted to reflect the closing of the May
1996 Offering.
THE COMPANY
Lone Star Steakhouse & Saloon, Inc. ("Lone Star" or the "Company") has
positioned itself as "The Steak Company" which will operate three distinct
steakhouse restaurant concepts. The primary growth vehicle will be the Lone
Star Steakhouse & Saloon restaurant concept which operates in the mid-scale
steak segment ("Lone Star Restaurants"). The Company is also developing two
restaurant concepts in the upscale steakhouse market, Del Frisco's Double
Eagle Steak House ("Del Frisco's") and Sullivan's Steakhouse ("Sullivan's").
The Company currently owns and operates 170 Lone Star Restaurants in the
United States. Internationally, the Company's Australian joint venture owns
and operates 11 restaurants in Australia. The Lone Star Restaurants are
mid-priced, full service casual dining restaurants which embrace a
Texas-style concept featuring Texas artifacts and country and western music.
The Lone Star Restaurants serve mesquite grilled steaks, ribs, chicken and
fish. The exciting and vibrant atmosphere created by the Lone Star
Restaurants' "Texas Roadhouse" ambiance is enhanced by free buckets of
roasted peanuts, neon beer signs and peanut-shell-littered floors. Lone Star
Restaurants are further distinguished by its high quality, USDA choice-graded
steaks which are hand- cut fresh daily at each restaurant and mesquite
grilled to order. Meals are served in generous "Texas-sized" portions and
full liquor and bar service is available. The Lone Star Restaurants serve
both lunch and dinner with an average check per customer for 1995 of
approximately $8.50 at lunch and $18.50 at dinner.
Lone Star opened its first restaurant in 1989 and currently operates in 32
states.The Company is continuing its domestic expansion program pursuant to
which it opened 36 Lone Star Restaurants in 1993, 48 restaurants in 1994 and
45 restaurants in 1995. In addition, in August 1995, the Company acquired 11
Lone Star Restaurants which had been operated under the Lone Star name
pursuant to a trademark license granted by the Company with respect to
certain areas of North Carolina (the "1995 Lone Star Acquisition"). As of May
28, 1996, the Company had opened ten of the 45 restaurants it intends to
open in 1996. New restaurants are expected to be located within the Company's
existing markets as well as in new markets. In addition, the Company expects
that its Australian joint venture will open seven to nine new restaurants in
1996.
The Company currently operates three Lone Star Restaurants in Europe pursuant
to a joint venture agreement. On May 20, 1996, the Company's Board of Directors
approved a plan to discontinue the European joint venture. The Company
anticipates closing its European restaurants as early as the second quarter of
fiscal 1996; however, the Company may seek to sell or license such restaurants.
The Company expects to incur a non-recurring pre-tax charge as early as the
second quarter of fiscal 1996 in the range of $9,000,000 to $11,000,000. See
"Risk Factors -- Discontinuance of European Operations."
3
<PAGE>
In connection with the Company's strategy to become "The Steak Company," the
Company recently decided to develop additional steak restaurant concepts in the
upscale segment. The Company entered this market in September 1995 by acquiring
the intellectual property rights, marks and tradename of Del Frisco's Double
Eagle Steak House restaurant, the existing Del Frisco's located in Dallas,
Texas, and a Del Frisco's under construction in Fort Worth, Texas (collectively,
the "Del Frisco's Acquisition") which opened in April 1996. The average check
per customer for the Del Frisco's concept is approximately $60. The Company
expects to open one or two additional Del Frisco's in the United States in 1996.
The Company is developing another upscale steak restaurant concept under
the tradename Sullivan's Steakhouse. The average check per customer for the
Sullivan's concept is anticipated to be $35 to $40. The Company opened its
first Sullivan's in May 1996 and expects to open one to three additional
Sullivan's in the United States in 1996.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the Selling
Stockholders............................... 123,222 shares
Common Stock to be outstanding after
the Offering .............................. 40,427,580 shares (1)
Nasdaq National Market symbol .............. STAR
</TABLE>
- - ------
(1) Assumes that the May Public Offering has closed. Does not include as of May
21, 1996 (i) 6,623,284 shares reserved for issuance under the Company's
1992 Stock Option Plan (the "Plan"), of which options to purchase 4,726,636
shares are currently outstanding, (ii) 329,334 shares reserved for issuance
under the Company's 1992 Directors Stock Option Plan (the "Directors
Plan"), of which options to purchase 146,000 shares are currently
outstanding, and (iii) 200,000 shares reserved for issuance pursuant to
options granted in connection with the Australian joint venture. See
"Capitalization."
4
<PAGE>
SUMMARY PRO FORMA AND CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Twelve Weeks Ended(1)
Year Ended December 31,(1) ---------------------------
--------------------------------------------------------------------- March 21, March 19,
1991 1992(2) 1993 1994 1995(3) 1995 1996
--------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales .............. $ 9,231 $ 40,602 $ 112,263 $ 215,800 $ 340,857 $ 69,393 $ 106,375
Income from operations . 209 6,918 23,643 45,810 70,773 14,393 20,094
Net income ............. 128 4,512 16,371 30,173 47,568 9,237 12,936
Primary net income per
share ................ $ 0.22 $ 0.16 $ 0.49 $ 0.87 $ 1.27 $ 0.26 $ 0.33
Primary weighted average
shares outstanding .. 580,433 28,872,151 33,339,007 34,608,610 37,537,891 34,931,291 38,797,073
Pro Forma Income
Statement Data(4): .....
Income before income taxes,
net of minority interest $ 128 $ 7,277 $ 25,483 $ 47,073 $ 74,388 $ 14,552
Pro forma provision for
income taxes ........ 50 2,813 9,696 17,884 27,653 5,682
--------- ------------ ------------ ------------ ------------ ------------
Pro forma net income ... 78 4,464 15,787 29,189 46,735 8,870
Pro forma primary net
income per share .... $ 0.14 $ 0.15 $ 0.47 $ 0.84 $ 1.25 $ 0.25
Restaurant Operating Data:
Average sales per
restaurant on an
annualized basis .... $ 1,556 $ 2,389 $ 2,502 $ 2,481 $ 2,536 $ 2,587 $ 2,664
Number of restaurants
at end of period(5) .. 7 32 68 116 175 121 180
Number of full restaurant
periods open(6) ..... 78 241 569 1,114 1,675 351 529
</TABLE>
March 19, 1996
----------------------------------
Actual
---------
Balance Sheet Data:
Working capital .......................... $ 54,972
Total assets ............................. 370,530
Stockholders' equity ..................... 336,238
- - ------
(1) The Company operates on a 52 or 53 week fiscal year ending the last
Tuesday in December. The fiscal quarters for the Company consist of
accounting periods of 12, 12, 12, and 16 or 17 weeks, respectively. The
Company's 1991 fiscal year ended on December 31 and its 1992, 1993, 1994,
and 1995 fiscal years ended on December 29, 28, 27 and 26, respectively.
(2) Reflects the operations of eight restaurants acquired on March 19, 1992
from Lone Star Steakhouse & Saloon Group concurrently with the Company's
initial public offering in an exchange transaction whereby the Company
issued 5,308,432 shares of its Common Stock. The acquisition was
accounted for using the purchase method of accounting.
(3) In June 1995, the Company increased its ownership interest in the
Australian joint venture from 50% to 65%. The operations of the joint
venture are included in the Company's consolidated operating results
since the date of the change of control.
(4) Pro Forma Income Statement Data is based upon unaudited information
providing for income taxes on pooled S Corporations from a group of
related entities which were operated under common control (collectively,
the "CCC Group") prior to acquisition at the estimated effective tax
rate.
(5) Includes all restaurants for which restaurant sales are included in the
Company's net sales amounts for the period.
(6) Full restaurant periods are four-week accounting periods within the
fiscal year (excluding the first partial accounting period of operations)
that a restaurant was open.
5
<PAGE>
RISK FACTORS
Prospective purchasers should carefully consider the following risk
factors in addition to the other information contained in this Prospectus in
evaluating an investment in the Common Stock of the Company.
Aggressive Expansion Strategy. The Company opened its first restaurant in
October 1989 and to date has opened 168 Lone Star Restaurants in the United
States. In addition, the Company's Australian joint venture has opened 11
restaurants in Australia and its European joint venture has opened three
restaurants in Holland. The Company's ability to expand will depend on a
number of factors, including identification of suitable locations,
negotiation of favorable real estate acquisition or lease terms,
availability, staffing, training and retention of skilled management
personnel, securing required governmental approvals and permits, adequately
supervising construction, securing adequate financing and other factors, some
of which are beyond the control of the Company. There can be no assurance
that the Company will be able to open all of its planned new restaurants or
that such newly opened restaurants can be operated profitably. While the
Company has experienced significant growth in net sales and net income since
inception, there can be no assurance that the Company will be able to sustain
such growth or profitability in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business --
Expansion Strategy."
New Upscale Strategy. The Company has recently decided to develop two
upscale steak restaurant concepts, Del Frisco's and Sullivan's. Prior to the
Del Frisco's Acquisition in September 1995, the Company did not operate in
the upscale segment. The Sullivan's concept has been internally developed by
the Company and the first Sullivan's opened in May 1996. There can be no
assurance that the Company will choose to develop additional Del Frisco's or
Sullivan's beyond those currently planned, or that any such restaurants, if
and when developed or operated, will achieve profitability or prove to be
successful. See "Business -- Expansion into Upscale Markets."
International Operations. The Company intends to selectively evaluate
international expansion opportunities through joint ventures licensing or other
corporate partnership arrangements. The Australian joint venture (the
"Australian Joint Venture") presently owns and operates 11 restaurants in
Australia and expects to open an additional seven to nine restaurants in 1996. A
licensed Lone Star Restaurant opened in Guam in mid-1995. There can be no
assurance that the Australian Joint Venture or any other joint venture will
be successful. In addition, it is unlikely that the profit margins or return on
investment of the Company's international operations will be at the levels of
the Company's domestic operation. There can be no assurance that any such
restaurants developed and operated in foreign countries, whether through the
Australian Joint Venture or otherwise, will achieve profitability. See "Business
- - -- Expansion Strategy."
Discontinuance of European Joint Venture. The Company currently operates
three Lone Star Restaurants in Europe pursuant to a joint venture agreement (the
"European Joint Venture"). The first two restaurants opened by the European
Joint Venture in Amsterdam in 1995 have operated substantially below the
Company's expectations, and are currently incurring losses at the restaurant
level. The European Joint Venture opened a third restaurant in Rotterdam in May
1996. In addition, the European Joint Venture is scheduled to open a fourth
restaurant in Cologne, Germany in June 1996. On May 20, 1996, the Board of
Directors of the Company approved a plan to discontinue the European Joint
Venture. The Company anticipates closing its European restaurants as early as
the second quarter of fiscal 1996; however, the Company may seek to sell or
license such restaurants. The Company expects to incur a non-recurring pre-tax
charge as early as the second quarter of fiscal 1996 in the range of $9,000,000
to $11,000,000. The actual amount and the timing of such charge may vary
depending upon the timing and methods the Company utilizes in exiting its
current European operations. In addition, at the current time, the Company is
unable to determine what contingent liabilities, if any, may be associated with
the discontinuance of such operations, including resolution of any disputes with
its European Joint Venture partner. The Company has been unable to reach an
understanding with its European Joint Venture partner on the discontinuance of
the European operations, and absent such agreement, it is likely that litigation
will result. The Company is unable, at the present time, to estimate the
additional liability, if any, potentially resulting from such litigation. The
proposed closing of the Company's European restaurants reflects the risks
associated with international operations.
6
<PAGE>
Competition. Competition in the restaurant industry is increasingly
intense. The Company competes primarily on the basis of quality of food and
service, ambiance, location and price-value relationship. The Company
believes that its concepts, attractive price-value relationship and quality
of food and service differentiate the Company from its competitors. The
Company also competes with restaurants and retail establishments for sites.
The Company is only a recent entrant in the upscale steakhouse segment and has
recently begun operating two different upscale steakhouse concepts and,
consequently, has not theretofore competed directly in such markets. Many of the
Company's competitors are well established in the upscale and mid-scale steak
segments and certain competitors have substantially greater financial, marketing
and other resources than the Company. See "Business -- Competition."
Restaurant Industry. The restaurant industry is often affected by changes
in consumer tastes, national, regional and local economic conditions,
demographic trends, traffic patterns, weather and the type, number and
location of competing restaurants. In addition, factors such as inflation,
increased food, labor and employee benefit costs and the availability of
experienced management and hourly employees may also adversely affect the
restaurant industry in general and the Company's restaurants in particular.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Business -- Competition."
Changes in Food Costs. The Company's profitability is dependent in large
measure on its ability to anticipate and react to changes in food costs.
Various factors beyond the Company's control, including adverse weather
conditions, may affect food costs. While management has been able to
anticipate and react to changing food costs to date through its purchasing
practices and menu price adjustments, there can be no assurance that it will
be able to do so in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Government Regulation. The restaurant industry is subject to various
federal, state and local government regulations, including those relating to
the sale of food and alcohol beverages. While the Company to date has not
experienced any material difficulties in obtaining necessary governmental
approvals, the failure to obtain or retain food and liquor licenses or any
other governmental approvals could have a material adverse effect on the
Company's operating results. In addition, restaurant operating costs are
affected by increases in the minimum hourly wage, unemployment tax rates,
sales taxes and similar matters over which the Company has no control. In
this regard, there are proposals under consideration in the United States
Congress to increase the minimum wage hourly requirements from $4.25 to $5.15
per hour. These and other initiatives could adversely affect the Company's
operating results. The Company also may be subject in certain states to "dram
shop" statutes, which generally provide a person injured by an intoxicated
person the right to recover damages from an establishment that wrongfully
served alcoholic beverages to the intoxicated person. Additionally, "tied-
house" laws in certain states may limit or delay the Company in obtaining
liquor licenses. See "Business -- Government Regulation."
Dependence on Senior Management. The success of the Company's business
will continue to be highly dependent upon the services of Jamie B. Coulter,
Chairman of the Board and Chief Executive Officer, and certain other
executive officers of the Company. The loss of the services of Mr. Coulter or
other executive officers could adversely affect the Company's business and
development. The Company's growth will also continue to depend upon its
ability to attract and retain additional skilled management personnel. See
"Management."
7
<PAGE>
Staggered Board; Blank-Check Preferred Stock. The Company's Certificate of
Incorporation provides for three classes of directors, to be elected on a
staggered basis, which also enables existing management to exercise
significant control over the Company's affairs. In addition, the Board of
Directors has the authority without further action by the stockholders to
issue up to 2,000,000 shares of Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions thereof. See
"Description of Capital Stock -- Preferred Stock."
Stock Price Volatility. Quarterly operating results of the Company or
other restaurant companies, changes in general conditions in the economy, the
financial markets or the restaurant industry, natural disasters, changes in
earnings estimates or recommendations by research analysts, or other
developments affecting the Company or its competitors could cause the market
price of the Common Stock to fluctuate substantially. In addition, in recent
years the stock market and the restaurant industry in particular have
experienced extreme price and volume fluctuations. This volatility has had a
significant effect on the market prices of securities issued by many
companies for reasons unrelated to the operating performance of these
companies.
Risks Associated with Forward Looking Statements. This Prospectus contains
certain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which
are intended to be covered by the safe harbors created thereby. Investors are
cautioned that all forward-looking statements involve risks and uncertainty,
including without limitation, the ability of the Company to continue its
aggressive expansion strategy, changes in costs of food, labor, and employee
benefits, the ability of the Company to continue to acquire prime locations
at acceptable lease or purchase terms, as well as general market conditions,
competition and pricing. Although the Company believes that the assumptions
underlying the forward-looking statements contained herein are reasonable,
any of the assumptions could be inaccurate, and therefore, there can be no
assurance that the forward-looking statements included in this Prospectus
will prove to be accurate. In light of the significant uncertainties inherent
in the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.
THE COMPANY
The Company was incorporated in February 1991 as Texas Lone Star, Ltd., a
Nevada corporation ("Lone Star-Nevada"). Lone Star Steakhouse & Saloon, Inc.,
a Delaware corporation ("Lone Star Delaware"), was formed in January 1992 as
part of a corporate reorganization, pursuant to which Lone Star-Nevada was
merged into Lone Star-Delaware, with the successor corporation changing its
name to Lone Star Steakhouse & Saloon, Inc. The Company currently operates
separate subsidiary corporations in the states in which it has restaurants.
Unless the context requires otherwise, references to the Company and Lone
Star in this Prospectus shall mean Lone Star Steakhouse & Saloon, Inc. and
its subsidiaries. The Company's principal executive offices are located at
224 East Douglas, Suite 700, Wichita, Kansas 67202. The Company's telephone
number is (316) 264-8899.
Lone Star Steakhouse & Saloon(R), Lone Star Cafe(R), Del Frisco's(R) and
Double Eagle Steak House(R) are registered marks of the Company. This
Prospectus also includes trademarks of corporations other than the Company.
8
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of shares of
Common Stock offered by the Selling Stockholders hereby.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "STAR." The following table sets forth, for the periods indicated,
the high and low sale prices for the Common Stock, as reported on the Nasdaq
National Market.
Calendar 1994 High Low
- - ------------- ------ -----
First Quarter ........................ $ 29 1/4 $ 19 1/2
Second Quarter ....................... 24 1/4 16 1/2
Third Quarter ........................ 26 1/2 17 1/2
Fourth Quarter ....................... 27 1/2 18 1/4
Calendar 1995
- - -------------
First Quarter ........................ $ 30 3/8 $ 18 1/2
Second Quarter ....................... 34 27 1/8
Third Quarter ........................ 45 29 7/8
Fourth Quarter ....................... 42 3/4 34 7/8
Calendar 1996
- - -------------
First Quarter ........................ $ 41 1/4 $ 30 1/2
Second Quarter (through May 29, 1996).. 45 36 7/8
On May 28, 1996, the last reported sale price of the Common Stock on the
Nasdaq National Market was $40.125. As of May 28, 1996, there were
approximately 750 holders of record of the Company's Common Stock. The
Company believes that there are in excess of 7,000 beneficial owners of the
Company's Common Stock.
9
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
19, 1996.
<TABLE>
<CAPTION>
March 19, 1996
---------------------------
Actual
----------
(Dollars in thousands)
<S> <C>
Long-term debt ............................................................. $ 372
--------
Stockholders' equity:
Preferred Stock, $0.01 par value, 2,000,000 shares
authorized; none outstanding ........................................ --
Common Stock, $0.01 par value, 98,000,000 shares authorized;
37,635,158 shares issued and outstanding;(1) ........................ 377
Additional paid-in capital ............................................ 229,207
Retained earnings ..................................................... 107,076
Translation adjustment ................................................ (422)
---------
Total stockholders' equity ........................................... 336,238
---------
Total capitalization ........................................ $ 336,610
=========
</TABLE>
- - ------
(1) Does not include at March 19, 1996: (i) 6,873,509 shares reserved for
issuance under the Plan, of which options to purchase 5,276,692 shares
were outstanding, (ii) 344,334 shares reserved for issuance under the
Directors Plan, of which options to purchase 155,000 shares were
outstanding, and (iii) 220,000 shares reserved for issuance pursuant to
options granted in connection with the Australian Joint Venture.
DIVIDEND POLICY
The Company anticipates that all future earnings will be retained to
support operations and to finance expansion. The Company does not intend to
pay cash dividends on its Common Stock for the foreseeable future. The
payment of cash dividends in the future will be at the discretion of the
Company's Board of Directors and will depend upon such factors as earnings
levels, capital requirements, the Company's financial condition and other
factors deemed relevant by the Company's Board of Directors.
10
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The following table sets forth selected consolidated financial data. The
selected consolidated data of the Company as of December 29, 1992, December
28, 1993, December 27, 1994, and December 26, 1995, and for each of the four
years in the period ended December 26, 1995, were derived from the Company's
audited consolidated financial statements. The selected consolidated
financial data as of December 31, 1991 and for the year then ended and as of
March 19, 1996 and for the 12 weeks ended March 19, 1996 and March 21, 1995
are derived from unaudited consolidated financial statements of the Company.
In the opinion of management, the unaudited consolidated financial statements
reflect all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the consolidated financial position and
results of operations for the unaudited periods. The pro forma data set forth
below for the periods presented are unaudited and have been prepared by
management solely to facilitate period-to-period comparison and do not
represent the actual results of operations for the periods presented. Said
pro forma adjustments reflect the income tax provisions at the estimated
effective federal and state income tax rates applicable to the operations of
the CCC Group (see Note 2 to the Company's Consolidated Financial Statements)
which were taxed as S Corporations for income tax purposes prior to their
acquisition by the Company in August 1995. Operations for the 12 week period
ended March 19, 1996 are not necessarily indicative of the results that may
be expected for the remainder of fiscal 1996.
11
<PAGE>
The following table should be read in conjunction with the Consolidated
Financial Statements including the notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Twelve Weeks Ended(1)
Year Ended December 31,(1) ------------------------
---------------------------------------------------------------------- March 21, March 19,
1991 1992(2) 1993 1994 1995(3) 1995 1996
--------- ------------ ------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales ..................... $ 9,231 $ 40,602 $ 112,263 $ 215,800 $ 340,857 $ 69,393 $ 106,375
Costs and expenses:
Costs of sales .............. 3,512 14,941 40,981 76,888 120,871 24,845 37,584
Restaurant operating expenses 5,125 15,726 36,979 71,996 116,703 23,212 37,719
General and administrative
expenses ................. 216 1,359 3,916 8,117 12,693 2,978 4,665
Depreciation and amortization 169 1,658 6,744 12,989 19,817 3,965 6,313
-------- ----------- ----------- ----------- ----------- ----------- ---------
Total costs and expenses ...... 9,022 33,684 88,620 169,990 270,084 55,000 86,281
-------- ----------- ----------- ----------- ----------- ----------- ---------
Income from operations ........ 209 6,918 23,643 45,810 70,773 14,393 20,094
Other income (expense), net ... (81) 359 1,840 1,263 2,910 159 634
-------- ----------- ----------- ----------- ----------- ----------- ---------
Income before provision for
income taxes and minority
interest .................... 128 7,277 25,483 47,073 73,683 14,552 20,728
Provision for income taxes .... -- 2,765 9,112 16,900 26,820 5,315 8,184
Minority interest ............. -- -- -- -- 705 -- 392
-------- ----------- ----------- ----------- ----------- ----------- ---------
Net income .................... $ 128 $ 4,512 $ 16,371 $ 30,173 $ 47,568 $ 9,237 $ 12,936
======== =========== =========== =========== =========== =========== =========
Primary net income per share .. $ 0.22 $ 0.16 $ 0.49 $ 0.87 $ 1.27 $ 0.26 $ 0.33
======== =========== =========== =========== =========== =========== =========
Primary weighted average shares
outstanding ................. 580,433 28,872,151 33,339,007 34,608,610 37,537,891 34,931,291 38,797,073
Pro Forma Income Statement
Data(4):
Income before income taxes, net
of minority interest ........ $ 128 $ 7,277 $ 25,483 $ 47,073 $ 74,388 $ 14,552
Pro forma provision for
income taxes ................ 50 2,813 9,696 17,884 27,653 5,682
--------- ----------- ----------- ----------- ----------- -----------
Pro forma net income .......... $ 78 $ 4,464 $ 15,787 $ 29,189 $ 46,735 $ 8,870
======== =========== =========== =========== =========== ===========
Pro forma primary net income per
share ....................... $ 0.14 $ 0.15 $ 0.47 $ 0.84 $ 1.25 $ 0.25
======== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31,(1)
-------------------------------------------------------------- March 19,
1991 1992 1993 1994 1995 1996
---------- --------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) .......... $(2,066) $39,131 $ 83,606 $ 37,618 $ 59,880 $ 54,972
Total assets ....................... 3,062 71,029 164,763 204,028 358,218 370,530
Long-term debt, including current
portion ........................... 2,412 3,350 2,953 4,318 387 372
Stockholders' equity (deficit) ..... (442) 61,891 151,768 180,072 322,811 336,238
</TABLE>
- - ------
(1) The Company operates on a 52 or 53 week fiscal year ending the last
Tuesday in December. The fiscal quarters for the Company consist of
accounting periods of 12, 12, 12, and 16 or 17 weeks, respectively. The
Company's 1991 fiscal year ended on December 31 and its 1992, 1993, 1994
and 1995 fiscal years ended on December 29, 28, 27 and 26, respectively.
(2) Reflects the operations of eight restaurants acquired on March 19, 1992,
from Lone Star Steakhouse & Saloon Group concurrently with the Company's
initial public offering in an exchange transaction whereby the Company
issued 5,308,432 shares of its Common Stock. The acquisition was
accounted for using the purchase method of accounting.
(3) In June 1995, the Company increased its ownership interest in the
Australian joint venture from 50% to 65%. The operations of the joint
venture are included in the Company's consolidated operating results
since the date of the change of control.
(4) Pro Forma Income Statement Data is based upon unaudited information based
upon providing for income taxes on pooled S Corporations of the CCC Group
prior to acquisition at the estimated effective tax rate.
12
<PAGE>
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 information set forth under "Selected Historical and Pro Forma Financial
Data" and the Consolidated Financial Statements and notes thereto included
elsewhere herein.
The Company began 1993 with 32 domestic restaurants, opened 36 restaurants
during 1993, 48 restaurants during 1994 and 45 restaurants during the year
ended December 26, 1995 and five restaurants during the 12 week period ended
March 19, 1996. In August 1995, the Company completed the 1995 Lone Star
Acquisition, pursuant to which it acquired 11 licensed Lone Star Restaurants
as well as three additional restaurants, from a group of related entities
which were operated under common control (collectively, the "CCC Group"). The
transaction was accounted for as a pooling of interests and, accordingly, the
accompanying consolidated financial statements and Management's Discussion
and Analysis of Financial Condition and Results of Operations have been
restated to include the accounts and operations of the CCC Group for all
periods prior to the acquisition.
In September 1995, the Company acquired the rights to operate the Del
Frisco's located in Dallas, Texas, a Del Frisco's under construction in Fort
Worth, Texas (which opened in April 1996), and the right to further develop Del
Frisco's. The Company also became the licensor of two Del Frisco's in Houston,
Texas and Orlando, Florida. In consideration for these transactions, the Company
paid $14.6 million in cash and issued an aggregate of 206,250 shares of Common
Stock. The Company expects to open one or two additional Del Frisco's in 1996.
The average check per customer at Del Frisco's is approximately $60.
The Company is developing another upscale steak restaurant concept under
the tradename Sullivan's Steakhouse. The average check per customer at a
Sullivan's is anticipated to be $35 to $40. The Company opened its first
Sullivan's in May 1996 and expects to develop one to three additional
Sullivan's in 1996.
Pre-opening costs include labor costs, costs of hiring and training
personnel and certain other costs relating to opening new restaurants, and
are capitalized and amortized over a 12 month period, beginning in the period
that the restaurants opens.
13
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated (i) the
percentages which certain items included in the Consolidated Statements of
Income bear to net sales, and (ii) other selected operating data:
<TABLE>
<CAPTION>
Years Ended(1) Twelve Weeks Ended(1)
------------------------------------------------ ------------------------
December 28, December 27, December 26, March 21, March 19,
1993 1994 1995 1995 1996
-------------- -------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales .................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Costs of sales ........................... 36.5 35.6 35.5 35.8 35.3
Restaurant operating expense ............. 32.9 33.4 34.2 33.5 35.5
Depreciation and amortization ............ 6.0 6.0 5.8 5.7 5.9
-------------- -------------- -------------- ----------- -----------
Restaurant costs and expenses ............ 75.4 75.0 75.5 75.0 76.7
-------------- -------------- -------------- ----------- -----------
Restaurant operating income ................ 24.6 25.0 24.5 25.0 23.3
General and administrative expenses ........ 3.5 3.8 3.7 4.2 4.4
-------------- -------------- -------------- ----------- -----------
Income from operations ..................... 21.1 21.2 20.8 20.8 18.9
Other income, and minority interest ........ 1.6 0.6 1.0 0.2 1.0
-------------- -------------- -------------- ----------- -----------
Income before provision for income taxes ... 22.7 21.8 21.8 21.0 19.9
Pro forma and historical provision for income
taxes(2) ................................. 8.6 8.3 8.1 8.2 7.7
-------------- -------------- -------------- ----------- -----------
Pro forma and historical net income(2) ..... 14.1% 13.5% 13.7% 12.8% 12.2%
============== ============== ============== =========== ===========
Restaurant Operating Data:
Average sales per restaurant on an annualized
basis($000s)(3) .......................... $2,502 $2,481 $2,536 $2,587 $2,664
Number of restaurants at end of period(4) .. 68 116 175 121 180
Number of full restaurant periods open(5) .. 569 1,114 1,675 351 529
</TABLE>
- - ------
(1) The Company operates on a 52 or 53 week fiscal year ending the last
Tuesday in December. The fiscal quarters for the Company consist of
accounting periods of 12, 12, 12 and 16 or 17 weeks, respectively.
(2) Gives pro forma effect to providing for income taxes on pooled S
Corporations of the CCC Group prior to the August 1995 Lone Star
Acquisition at the estimated effective tax rate; thus the provision for
income taxes and net income amounts are pro forma for all periods
presented except for the 12 weeks ended March 19, 1996, which is
historical.
(3) Average sales per restaurant on an annualized basis are computed by
dividing a restaurant's total sales for full accounting periods by the
number of full accounting periods open in the reporting period, and
annualizing the result.
(4) Includes all restaurants for which restaurant sales are included in the
Company's net sales amounts for the period.
(5) Full restaurant periods are four-week accounting periods within the
fiscal year (excluding the first partial accounting period of operations)
that a restaurant was open.
TWELVE WEEKS ENDED MARCH 19, 1996 COMPARED TO TWELVE WEEKS ENDED MARCH 21,
1995
Net sales increased $36,982,000 (53%) for the 12 weeks ended March 19,
1996 compared to the comparable period in 1995 principally attributable to
$28,897,000 in sales from the 45 new domestic restaurants opened since March
1995, in addition to sales from the Australian Joint Venture and the European
Joint Venture. Same store sales increased 0.9% primarily due to growth in
customer counts.
Costs of sales, primarily food and beverages, decreased as a percentage of
net sales to 35.3% for the 12 weeks ended March 19, 1996, from 35.8% for the
comparable period in 1995 due to slightly lower beef prices.
Restaurant operating expenses for the 12 weeks ended March 19, 1996
increased $14,507,000 (63%) to $37,719,000, and such expenses increased as a
percentage of net sales from 33.5% to 35.5%. Labor costs increased as a
percentage of net sales due to staffing requirements for the opening of new
restaurants.
14
<PAGE>
Depreciation and amortization increased $2,349,000 (59%) in the 12 weeks
ended March 19, 1996 from the comparable period in 1995, principally
reflecting the amortization of capitalized pre-opening expenses relating to
the opening of 45 new restaurants since March 1995 and increases in
depreciation related to additional owned properties. General and
administrative expenses for the 12 weeks ended March 19, 1996, increased
$1,688,000 (57%) from the comparable period in 1995, reflecting costs
associated with the additional locations as well as increased legal and third
party consulting expenses.
Certain accounting and administrative services are contracted from Coulter
Enterprises, Inc. ("Coulter Enterprises"), a restaurant management services
company owned by the Company's Chairman of the Board and Chief Executive
Officer. The service agreement provides for specified accounting and
administration services to be provided on a cost pass-through basis under
which the Company paid a fixed annual charge of $837,000, plus an additional
fee of $406 per restaurant per 28-day accounting period and reimbursement of
out-of-pocket costs and expenses during the fiscal year ended December 26,
1995. The service agreement was renewed for fiscal 1996 with the fixed annual
charge increasing to $1,272,000 and the per restaurant, per accounting period
fee increasing to $416. The increase in the fixed charge is due to the
increase in the number of restaurants operated by the Company. Should the
service agreement not be renewed in the future, the Company would incur
direct costs for accounting and administration, personnel, rent and other
costs associated with a separate office; however, the Company believes that
such direct costs would not be materially different than the costs under the
contractual arrangement.
Other income, principally interest, for the 12 weeks ended March 19, 1996,
was $634,000, an increase of $476,000 from the comparable period in 1995,
reflecting increased interest income from the investment of the net proceeds
of the Company's public offering in April 1995.
The effective income tax rate for the 12 weeks ended March 19, 1996 and
the effective pro forma tax rate for the 12 weeks ended March 21, 1995 was
38.7% and 39.0%, respectively. The decrease in the rate is primarily the
result of an increase in tax-exempt interest income.
YEAR ENDED DECEMBER 26, 1995 COMPARED TO YEAR ENDED DECEMBER 27, 1994
Net sales increased $125,057,000 (58%) for the year ended December 26,
1995 compared to the fiscal year ended December 27, 1994. A 1.6% increase in
the comparable sales of restaurants open more than 18 months, plus
$71,075,000 in additional sales for the 48 restaurants which were opened in
1994, and $41,324,000 in sales for the 45 new domestic restaurants opened in
1995 accounted for the increase. Price increases were negligible. In
addition, since June 1995, the Company included the results of its Australian
Joint Venture in its Consolidated Financial Statements.
Costs of sales, primarily food and beverages, decreased slightly as a
percentage of sales to 35.5% for the year ended December 26, 1995, from 35.6%
due to slightly lower beef prices.
Restaurant operating expenses for the year ended December 26, 1995
increased $44,707,000 (62%) to $116,703,000. Such expenses increased as a
percentage of net sales to 34.2% from 33.4%. The increase is due in part to
slightly higher labor rates, and the consolidation of the Company's
international operations which have higher restaurant operating expense rates
than domestic units. Prior to the third quarter of 1995, international
operations were accounted for using the equity method.
Depreciation and amortization increased $6,828,000 (53%) in the year ended
December 26, 1995, principally reflecting the amortization of capitalized
pre-opening expenses relating to the opening of 45 new restaurants in 1995
and increases in depreciation related to additional owned properties. General
and administrative expenses for the year ended December 26, 1995 increased
$4,576,000 (56%), reflecting the costs associated with new store opening
personnel and the district manager positions being in existence for all of
1995 as well as increased legal and third party consulting expenses.
Pursuant to the Company's service agreement with Coulter Enterprises, the
Company paid a fixed annual charge of $837,000, plus an additional fee of
$406 per restaurant per 28-day accounting period and reimbursement of
out-of-pocket costs and expenses during the fiscal year ended December 26,
1995.
15
<PAGE>
Other income, principally interest, for the year ended December 26, 1995,
increased $1,646,000 to $2,910,000 compared to $1,263,000 in 1994. This
increase is attributable to the investment of the net proceeds of the
Company's public offering in April 1995.
The effective pro forma income tax rate for the years ended December 26,
1995 and December 27, 1994 was 37.1% and 38.0%, respectively. The decrease in
the rate is primarily the result of a decrease in the effective state income
tax rate.
YEAR ENDED DECEMBER 27, 1994 COMPARED TO YEAR ENDED DECEMBER 28, 1993
Net sales increased $103,537,000 (92%) in the fiscal year ended December
27, 1994 compared to 1993. A 6.6% increase in the comparable sales of
restaurants open more than 18 months, plus $54,783,000 in additional sales
for the 36 units which were opened in 1993, and $44,684,000 in sales for the
48 new restaurants opened in 1994 accounted for the increase. Price increases
were negligible.
Costs of sales, primarily food and beverages, decreased as a percentage of
net sales from 36.5% in the fiscal year ended December 28, 1993 to 35.6% for
1994. This decrease was primarily attributable to lower beef costs.
Restaurant operating expenses in the fiscal year ended December 27, 1994
increased $35,017,000 (95%) to $71,996,000, and such expenses increased as a
percentage of net sales from 32.9% to 33.4%. Labor costs as a percentage of
net sales increased primarily due to staffing requirements for the opening of
48 restaurants during the year.
Depreciation and amortization increased $6,246,000 (93%) in the fiscal
year ended December 27, 1994, principally reflecting the amortization of
capitalized pre-opening costs relating to the opening of 48 new units since
December 28, 1993, and the increase in depreciation related to additional
owned properties.
Pursuant to the Company's service agreement with Coulter Enterprises, Lone
Star paid a fixed annual charge of $394,000, plus an additional fee of $396
per restaurant per 28 day accounting period and reimbursement of
out-of-pocket costs and expenses.
Other income, principally interest, for the fiscal year ended December 27,
1994 was $1,263,000, a decrease of $577,000 from 1993, reflecting decreased
interest income from the investment of the remaining net proceeds of the
Company's public offering in May 1993.
The effective pro forma income tax rate for the years ended December 27,
1994 and December 28, 1993 was 38.0% in each year.
IMPACT OF INFLATION
The primary inflationary factors affecting the Company's operations
include food and labor costs. A significant number of the Company's
restaurant personnel are paid at federal and state established minimum wage
levels and, accordingly, changes in such wage levels affect the Company's
labor costs. In this regard, there are proposals under consideration in the
United States Congress to increase the minimum wage hourly requirements from
$4.25 to $5.15. As costs of food and labor have increased, the Company has
historically been able to offset these increases through economies of scale
and improved operating procedures, although there is no assurance that such
offsets will continue. To date, inflation has not had a material impact on
operating margins.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following table presents a summary of the Company's cash flows for the
fiscal years 1993, 1994 and 1995 and for the 12 weeks ended March 19, 1996:
<TABLE>
<CAPTION>
Twelve Weeks
Year Ended Year Ended Year Ended Ended
December 28, December 27, December 26, March 19,
1993 1994 1995 1996
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Net cash provided by operating activities .......... $ 18,487,864 $ 41,571,882 $ 63,824,777 $ 20,469,304
Net cash used in investment activities ............. (48,413,943) (78,839,427) (124,028,705) (22,282,983)
Net cash provided by (used in) financing activities . 72,321,775 (504,561) 82,052,141 628,411
Net increase (decrease) in cash .................... 42,395,696 (37,772,106) 21,563,850 (1,469,631)
</TABLE>
During the year ended December 26, 1995, the Company's investment in
property and equipment was $104,787,000 and during the 12-week period ended
March 19, 1996, such investment was $23,891,000.
The Company has opened 129 domestic Lone Star Restaurants in the past
three fiscal years, of which 48 opened in 1994 and an additional 45 opened
during the year ended December 26, 1995. The Company opened an additional
five restaurants during the 12 weeks ended March 19, 1996. The Company does
not have significant receivables or inventory and receives trade credit based
upon negotiated terms in purchasing food and supplies. Because funds
available from cash sales are not needed immediately to pay for food and
supplies, or to finance inventory, they may be considered as a source of
financing for noncurrent capital expenditures.
Through March 19, 1996, the Company had entered into four leases for new
locations. In addition, at such date the Company had acquired 17 sites and
signed contracts or options to purchase 13 sites. The Company was also
actively negotiating the purchase or lease of approximately 16 additional
sites. In the future, the Company anticipates that the vast majority of its
new Lone Star Restaurant locations will be purchased rather than leased. The
Company expects to expend approximately $100,000,000 in development costs to
open new restaurants through the remainder of fiscal 1996.
At March 19, 1996, the Company had $65,955,000 in cash and cash
equivalents. The Company believes that the net proceeds of this offering,
together with its existing cash resources and its cash flow generated from
operations will be sufficient to satisfy its cash needs for at least the next
12 months. While the Company has not established a credit facility, the
Company believes it could establish a facility on suitable terms.
DISCONTINUANCE OF EUROPEAN JOINT VENTURE
The Company currently operates three Lone Star Restaurants in Europe pursuant
to the European Joint Venture. The first two restaurants were opened by the
European Joint Venture in Amsterdam in 1995 have operated substantially below
the Company's expectations, and are currently incurring losses at the restaurant
level. The European Joint Venture opened a third restaurant in Rotterdam in May
1996. In addition, the European Joint Venture is scheduled to open a fourth
restaurant in Cologne, Germany in June 1996. On May 20, 1996 the Board of
Directors of the Company approved a plan to discontinue the European Joint
Venture. The Company anticipates closing its European restaurants as early as
the second quarter of fiscal 1996; however, the Company may seek to sell or
license such restaurants. The Company expects to incur a non-recurring pre-tax
charge as early as the second quarter of fiscal 1996 in the range of $9,000,000
to $11,000,000. The actual amount and the timing of such charge may vary
depending upon the timing and methods the Company utilizes in exiting its
current European operations. In addition, at the current time the Company is
unable to determine what contingent liabilities, if any, may be associated with
the discontinuance of such operations, including resolution of any disputes with
its European Joint Venture partner. The Company has been unable to reach an
understanding with its European Joint Venture partner on the discontinuance of
the European operations, and absent such agreement, it is likely that litigation
will result. The Company is unable, at the present time, to estimate the
additional liability, if any, potentially resulting from such lidigation. The
proposed closing of the Company's European restaurants reflects the risks
associated with international operations. See "Risk Factors -- Discontinuance of
European Joint Venture."
17
<PAGE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company adopted
Statement 121 in the first quarter of 1996 and such adoption had no material
effect to its financial position or results of operations.
FORWARD LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act, and Section 21E of the Exchange
Act which are intended to be covered by the safe harbors created thereby.
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance
that the forward-looking statements included in this Prospectus will prove to
be accurate. Factors that could cause actual results to differ from the
results discussed in the forward-looking statements include, but are not
limited to, those discussed in "Risk Factors." In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by
the Company or any other person that the objectives and plans of the Company
will be achieved.
18
<PAGE>
BUSINESS
BACKGROUND
The Company currently owns and operates 170 mid-priced, full service,
casual dining restaurants located in the United States. Internationally, the
Australian Joint Venture operates 11 restaurants in Australia and the
European Joint Venture owns and operates three restaurants in Holland. The
Lone Star Restaurants embrace a Texas-style concept featuring Texas artifacts
and country and western music. The Lone Star Restaurants serve mesquite grilled
steaks, ribs, chicken and fish. Company management believes that this niche
is a dynamic growth area within the restaurant industry that offers
significant growth opportunity for the Company. To attract and retain
experienced restaurant managers, the Company grants an incentive stock option
with an aggregate exercise price of $50,000 with a five year vesting period
to each general manager of its restaurants. The Company also grants selected
general managers additional options based on their performance.
In connection with the Company's strategy to become "The Steak Company,"
the Company recently decided to develop additional steak restaurant concepts
in the upscale segment. The Company entered the upscale steakhouse market in
September 1995 through the Del Frisco's Acquisition. The Company is
developing another upscale steakhouse concept under the tradename of
Sullivan's Steakhouse. The Company opened its first Sullivan's in May 1996.
Americans consumed an estimated 68 pounds of beef on a per capita basis in
1995 (Source: Agricultural Department), up from an estimated 63 pounds of
beef in 1993 and steak continues to be one of the most frequently ordered
dinner entrees at restaurants. Company management believes the limited menu
of its Lone Star Restaurants, which concentrates primarily on high quality,
USDA choice-graded steaks, and the appeal of its "Texas Roadhouse" ambiance,
distinguishes the Lone Star Restaurants and provides the Company with a
competitive advantage.
CORPORATE STRATEGY
The Company has positioned itself as "The Steak Company," which will
operate three distinct steakhouse restaurant concepts. The primary growth
vehicle will be the Lone Star Restaurant concept which operates in the
mid-scale steak segment. Lone Star Restaurants emphasize the following
strategic elements:
o Positioning in the mid-priced, full-service casual dining segment of
the restaurant industry.
o The popular brand of Texas provides a unique and enduring attraction to
a broad and diverse demographic and socio-economic mix of customers in
the 25 to 54 age group.
o Generous "Texas-sized" portions offered at moderate prices.
o High quality and attentive service with each waitperson generally being
assigned to no more than three tables at dinner to ensure customer
satisfaction.
o Consistent high quality food products through careful ingredient
selection, food preparation and aging of steaks.
The Company believes that it can distinguish itself in the upscale market
by employing many of the strategies that have been successful in the
mid-priced market. The Company will continue to emphasize attentive service
and consistent, high quality food products. The Company expects that it can
successfully apply its restaurant operations and management systems to the
upscale markets, although there can be no assurance in this regard, nor can
there be any assurance that the restaurants it develops in these markets, if
they are successful, will be as successful as those it has developed in the
mid-priced, casual dining market.
19
<PAGE>
RESTAURANT CONCEPTS
Lone Star Restaurants are positioned as "destination restaurants" that
attract loyal clientele. Lone Star Restaurants embrace a Texas-style concept
that features Texas artifacts and country and western music. The authentic
"Texas Roadhouse" concept was developed to capitalize on the enduring
popularity of Texas related themes. The exciting and vibrant atmosphere
created by the restaurants' "Texas Roadhouse" ambiance is enhanced by free
buckets of roasted peanuts, specially selected upbeat country western music,
neon beer signs and peanut-shell-littered floors. The decor includes planked
wooden floors, dim lighting, flags and other Texas memorabilia, all of which
enhance the casual dining experience and establish a distinct identity for
the Lone Star Restaurant chain. Lone Star Restaurants are further
distinguished by their high quality, USDA choice-graded steaks which are
hand-cut fresh daily at each restaurant and mesquite grilled to order. A meat
counter visible from the dining area enables customers to have the
opportunity to view and personally select their own steaks. Meals are served
in generous "Texas-sized" portions and full liquor and bar service is
available. The Lone Star Restaurants serve both lunch and dinner with an
average check per customer for 1995 of approximately $8.50 at lunch and
$18.50 at dinner.
Del Frisco's is designed to serve a sophisticated clientele, including
business related dining occasions. The Del Frisco's concept embraces an
elegant and timeless early twentieth century motif. The concept features
traditional methods of cooking, such as master broiling and roasting. Del
Frisco's decor and ambiance include dark woods, fabric walls, fireplaces, and
soft background music featuring old favorites. All of these elements enhance
the dining experience and establish a distinct identity for Del Frisco's. Del
Frisco's is further distinguished by featuring its high quality, USDA
prime-graded steaks which are hand-cut fresh daily. Del Frisco's serve dinner
only and are open Monday through Saturday with an average guest check of
approximately $60.
Sullivan's embraces a 1940's steakhouse theme with nostalgic art deco
influences that feature music from the big band era. The decor includes wood
paneling, carpeted floors, warm lighting and white table cloths. Sullivan's
is further distinguished by its high quality Certified Angus Beef(TM) steaks,
chops and seafood. Sullivan's serve dinner only and are open Monday through
Saturday. Sullivan's average guest check is anticipated to be between $35 to
$40.
UNIT ECONOMICS
The Company's management team focuses on selecting locations with the
potential of producing significant revenues while controlling capital
expenditures and rent as a percentage of net sales. The Company's Lone Star
Restaurants have historically generated a sales to investment ratio of 1.6:1,
assuming that the average minimum annual rents pursuant to operating leases
were capitalized for purposes of determining the investment. The Company's
restaurants averaged approximately $2.5 million in net sales on an annualized
basis during 1995. Of the 165 domestic Lone Star Restaurants open at March
19, 1996, 85 were leased facilities and had an average cash investment of
$943,000 and 80 were owned and had an average cost for land acquisition,
construction, equipment and pre-opening expenses of $2,018,000. Assuming
average minimum annual rents pursuant to operating leases were capitalized
for 15 years at a rate of 10.5% per annum, total implied capital cost for the
leased units averaged $1,410,000. In the future, the Company anticipates that
a greater proportion of its new Lone Star Restaurant locations will be
purchased rather than leased, and anticipates an average total cost per unit
of between $1.3 million and $2.2 million.
The Company cannot at the present time determine with any certainty what
the average total investment per restaurant for Del Frisco's and Sullivan's
will be, but expects that the sales to investment ratio will be similar to
that of Lone Star Restaurants. The Company anticipates that the majority of
its Del Frisco's and Sullivan's will be leased.
20
<PAGE>
MENU
The dinner menu at a Lone Star Restaurant features a limited selection of
high quality, specially seasoned and mesquite grilled steaks, ribs, chicken
and fish. All dinners offer a complete meal including salad, bread and butter
and a choice of baked potato, baked sweet potato, steak fries or Texas rice.
The lunch menu offers a selection of hamburgers, chicken sandwiches, luncheon
steaks, ribs, soups and salads. Depending on local availability and quality,
a fresh fish selection is also offered at lunch and dinner. The lunch and
dinner menus also include appetizers and desserts, together with a full bar
service. Alcoholic beverage service accounts for approximately 15% of the
Company's net sales.
The menu at Del Frisco's features high quality USDA prime-graded steaks
and seafood. The menu at Sullivan's features high quality Certified Black
Angus(TM) steaks, chops and seafood.
SITE SELECTION
The Company believes the site selection process is critical in determining
the potential success of a particular restaurant and senior management
devotes significant time and resources to analyzing each prospective site. A
variety of factors are considered in the site selection process, including
local market demographics, site visibility and accessibility and proximity to
significant generators of potential customers such as major retailers, retail
centers and office complexes, office and hotel concentrations and
entertainment centers (stadiums, arenas, theaters, etc.). The Company also
reviews potential competition and attempts to analyze the profitability of
other national chain restaurants operating in the area.
Of the 170 existing domestic Lone Star Restaurants at May 28, 1996, 86
were leased and 84 were owned locations. As of May 28, 1996, the Company had
17 restaurants under construction, two of which were leased and 15 owned. As
of that date, the Company had entered into agreements for 25 additional
locations by either lease or purchase, subject to satisfaction of certain
contingencies. Leases are negotiated generally with initial terms of three to
five years, with multiple renewal options. The Company has generally required
approximately 150 to 280 days after the signing of a lease, or the closing of
a purchase to complete construction and open a new restaurant. Additional
time is sometimes required to obtain certain government approvals and
licenses, such as liquor licenses.
RESTAURANT LAYOUT
The Company believes that the decor and interior design of its restaurants
are significant factors in its success. Lone Star Restaurants' open layout
permits dining customers to view the bar and Texas memorabilia and enhance
the casual dining atmosphere. The Company also designs its kitchen space for
efficiency of work flow, thereby minimizing the amount of space required.
Lone Star Restaurants currently average approximately 5,700 square feet
and include a dining area with seating for approximately 190 customers. In
addition, a bar area is located adjacent to the dining room primarily to
accommodate customers waiting for dining tables or to accommodate overflow.
In some restaurants, an outside patio area can provide additional seating.
The Company anticipates that future Lone Star Restaurants will average
approximately 5,500 square feet.
The Del Frisco's located in Dallas, Texas, which was acquired by the
Company in the Del Frisco's Acquisition, is approximately 10,000 square feet
and seats approximately 350 persons. Future Del Frisco's will be
approximately 6,000-7,000 square feet and will include a dining area for
approximately 175-200 customers. Sullivan's are expected to average
approximately 6,000-7,000 square feet and include a dining area for
approximately 180-200 customers. In addition, for both Del Frisco's and
Sullivan's, a bar area is located adjacent to the dining room primarily to
accommodate customers waiting for dining tables.
21
<PAGE>
RESTAURANT LOCATIONS
The following table sets forth the locations of the Company's existing 168
domestic Lone Star Restaurants as of May 28, 1996:
ALABAMA ILLINOIS MISSOURI OKLAHOMA
Birmingham Bloomington Branson Oklahoma City
Huntsville Chicago (8) Springfield Tulsa
Mobile Peoria St. Louis (4)
Montgomery Rockford PENNSYLVANIA
Tuscaloosa Springfield NEBRASKA Allentown
Lincoln Harrisburg
ALASKA INDIANA Omaha (2) Lancaster
Anchorage Evansville Pittsburgh (3)
Fort Wayne NEVADA Pottstown
ARIZONA Indianapolis (4) Las Vegas (4) Wilkes-Barre
Phoenix (2) Lafayette York
South Bend NEW JERSEY
ARKANSAS Bridgewater S. CAROLINA
Ft. Smith IOWA Cherry Hill Greenville
Little Rock (2) Cedar Rapids Hanover Township Myrtle Beach (2)
Springdale Coralville Hazlet
Davenport Marlton S. DAKOTA
COLORADO Des Moines Turnersville Sioux Falls
Colorado Springs Waterloo Wayne
Denver (4) TENNESSEE
Fort Collins KENTUCKY N. CAROLINA Johnson City
Loveland Bowling Green Asheville Memphis (3)
Florence Charlotte (4)
DELAWARE Lexington Durham UTAH
Dover Louisville Fayetteville Layton
Wilmington (2) Greensboro (2) Salt Lake City
LOUISIANA Greenville
FLORIDA Baton Rouge Jacksonville VIRGINIA
Bradenton New Orleans Raleigh (3) Alexandria
Clearwater Shreveport Winston-Salem Centreville
Coral Springs Chesapeake
Fort Lauderdale MARYLAND N. DAKOTA Falls Church
Fort Myers Laurel Fargo Fredericksburg
Gainesville Waldorf Herndon
Lakeland OHIO Norfolk
Ocala MICHIGAN Akron Potomac Mills
Pensacola Ann Arbor Canton Richmond (2)
Port Richey Detroit (6) Cincinnati (3) Virginia Beach
Sarasota Grand Rapids Cleveland (3)
St. Petersburg Columbus (4) W. VIRGINIA
Tampa Dayton (2) Charleston
Orlando MISSISSIPPI Middletown
Jackson Niles WISCONSIN
GEORGIA Toledo (2) Appleton
Augusta Youngstown Racine
22
<PAGE>
EXPANSION STRATEGY
The Company is continuing its domestic Lone Star Restaurant expansion
program pursuant to which it opened 36 restaurants in 1993, 48 restaurants in
1994, 45 restaurants in 1995 and intends to open at least 45 Lone Star
Restaurants in 1996, all of which are expected to be Company-owned and
operated. The Company plans to develop such new restaurants in its existing
markets and expand into new markets that meet the Company's criteria. As of
May 28, 1996, the Company had 17 restaurants under construction, two of which
were leased and 15 owned. As of that date, the Company had entered into
agreements for 25 additional locations by either lease or purchase, subject
to satisfaction of certain contingencies. In addition to the Lone Star
Restaurants opened by the Company in 1995, the Company in August 1995,
acquired 11 Lone Star Restaurants in the 1995 Lone Star Acquisition. These
restaurants had been operated by a group of corporations which had been
granted, pursuant to a trademark license agreement, the exclusive right by
the Company to operate restaurants under the "Lone Star Steakhouse & Saloon"
name in the designated marketing areas of Wilmington, Greenville, New Bern,
Washington, Raleigh/Durham and Charlotte, North Carolina.
The Company intends to selectively evaluate international expansion
opportunities. The Australian Joint Venture owns and operates 11 restaurants and
expects to open an additional seven to nine restaurants in 1996. A licensed Lone
Star Restaurant opened in Guam in mid-1995. It is unlikely that international
profit margins or return on investment on the Company's international operations
will be at the levels of the Company's domestic operations. The Company is also
contemplating entering into restaurant development joint venture, licensing or
other corporate partnership arrangements in other foreign countries. The
European Joint Venture owns and operates three Lone Star Restaurants in Holland
and is scheduled to open a fourth restaurant in Cologne, Germany in June 1996.
On May 20, 1996, the Board of Directors of the Company approved a plan to
discountinue the European Joint Venture. See "Risk Factors-Discountinuance of
European Joint Venture."
EXPANSION INTO UPSCALE MARKETS
While the Company intends to continue to have a substantial and increasing
presence in the mid-priced, full service, casual dining steakhouse
restaurant market, the Company believes that expansion opportunities exist in
the upscale steakhouse markets.
To enter the upscale market, in September 1995, the Company acquired the
intellectual property rights, marks and tradename of Del Frisco's Steak House,
the existing Del Frisco's located in Dallas, Texas, and a Del Frisco's under
construction in Fort Worth, Texas (which opened in April 1996). The Company also
became the licensor of two Del Frisco's in Houston, Texas and Orlando, Florida.
The Company plans to develop the Del Frisco's concept, where the average check
is approximately $60. The Company expects to open either one or two
additional Del Frisco's in the United States in 1996.
The Company is also developing a second upscale steak restaurant concept
under the tradename Sullivan's Steakhouse, where the average check per
customer is anticipated to be $35 to $40 and its first
Sullivan's in May 1996. The Company expects to develop one to three
additional Sullivan's in the United States in 1996.
MARKETING
Lone Star Restaurants are "destination location restaurants." The Company has
relied principally on its commitment to customer service, an excellent
price-value relationship and the unique "Texas Roadhouse" ambiance of its Lone
Star Restaurants to attract and retain customers. Accordingly, the Company has
focused its resources on providing its customers with superior service, value
and an exciting and vibrant atmosphere, and has relied primarily on word of
mouth to attract new customers. The Company also utilizes radio and billboard
advertising to promote its restaurants and build customer awareness. The Company
intends to utilize a similar strategy for Del Frisco's and Sullivan's. The
Company also employs some print and direct mail advertising, and conducts some
23
<PAGE>
local restaurant promotions. To create additional Lone Star name recognition
and customer identification, the Company sells T-shirts and other items bearing
the Lone Star name and logo. In 1995, the Company's marketing expenses were less
than 1% of net sales.
RESTAURANT OPERATIONS AND MANAGEMENT
The Lone Star Restaurant concept has evolved from various steakhouse
restaurants that certain of the Company's principal stockholders have
operated since 1985. In addition, the restaurant operations and management
systems are an outgrowth of systems and controls that were developed by the
Company's senior management and have been successfully used to manage a large
number of affiliated restaurants located in numerous states. Management
intends to apply the restaurant operations and management systems, as
appropriate, to its new Del Frisco's and Sullivan's upscale concepts.
The Company strives to maintain quality and consistency in its restaurants
through careful hiring, training and supervision of personnel and the
establishment of standards relating to food and beverage preparation,
maintenance of facilities and conduct of personnel.
The Company maintains financial and accounting controls for each of its
restaurants through the use of centralized accounting and management
information systems. Sales information is collected daily from each
restaurant, and restaurant managers are provided with daily, weekly and
28-day period operating statements for their locations. Cash is controlled
through daily deposits of sales proceeds in local operating accounts, the
balances of which are wire transferred weekly to the Company's principal
operating account. Most of the Company's Lone Star Restaurants are open daily
from 11:00 A.M. to 10:00 P.M. weekdays and until 11:00 P.M. on weekends. The
bar customarily remains open for an additional hour.
The management team for a typical Lone Star Restaurant consists of one
general manager and four managers. Newly-developed Lone Star Restaurants will
have one general manager and three managers. Each restaurant also employs a
staff consisting of approximately 50 to 90 hourly employees, many of whom
work part-time. Typically, each general manager reports directly to a
district manager who, in turn, reports to the Company's senior vice president
of operations. Restaurant managers complete an eight week training program
during which they are instructed in areas including food quality and
preparation, customer satisfaction, alcoholic beverage service, governmental
regulations compliance, liquor liability avoidance and employee relations.
Restaurant management is also provided with a proprietary operations manual
relating to food and beverage preparation, all areas of restaurant management
and compliance with governmental regulations. Working in concert with
restaurant managers, the Company's senior management defines operations and
performance objectives for each restaurant and monitors implementation. An
incentive cash bonus program has been established in which each restaurant's
management team participates. Awards under the incentive plan are tied to
achievement of specified operating targets. Senior management regularly
visits the Company's restaurants and meets with the respective management
teams to ensure that the Company's strategies and standards of quality are
being met in all respects of restaurant operations and personnel development.
The Company utilizes a comprehensive peer review reporting system for its
general managers and district managers. Within seven days after the close of
each 28-day accounting period, profit and loss statements are produced and,
subsequently, the district managers and the Company's senior management meet
in person to review operating results for each district. The next week a
meeting is arranged during which the general manager of each restaurant
reviews the profit and loss statement of the restaurant with a district
manager and other general managers who report to the district manager. The
participants offer each other feedback on their respective performances and
suggest ways of improving profitability. The Company believes that the peer
review system enables each general manager to benefit from the collective
experience of all of the Company's management.
24
<PAGE>
The Company believes that customer service and satisfaction are keys to
the success of restaurant operations. The Company's commitment to customer
service and satisfaction is evidenced by several Company practices and
policies, including periodic visits by restaurant management to customers'
tables, active involvement of restaurant management in responding to customer
comments and assigning waitpersons to a limited number of tables, generally
three for dinner and four for lunch. Teamwork is emphasized through a runner
system for delivering food to the tables that is designed to serve customers
in an efficient and timely manner.
Each new restaurant employee of the Company participates in a training
program during which the employee works under the close supervision of a
restaurant manager, or experienced key employee. Management strives to
instill enthusiasm and dedication in its employees and to create a
stimulating and rewarding working environment where employees know what is
expected of them in measurable terms. Management continuously solicits
employee feedback concerning restaurant operations and strives to be
responsive to the employees' concerns.
PURCHASING
The Company negotiates directly with suppliers for food and beverage
products to ensure consistent quality and freshness of products and to obtain
competitive prices. The Company purchases substantially all food and beverage
products from local or national suppliers. Food and supplies are shipped
directly to the restaurants, although invoices for purchases are sent to the
Company for payment. The Company does not maintain a central product
warehouse or commissary. The Company has not experienced any significant
delays in receiving restaurant supplies and equipment.
From time to time, the Company engages in forward pricing and may consider
other hedging strategies with regard to its meat and other food costs in
order to minimize the impact of potential fluctuations in prices. This
practice could help stabilize the Company's food costs during times of
fluctuating prices.
MANAGEMENT INFORMATION SYSTEMS
The Company utilizes an in-store computer-based management support system
which is designed to improve labor scheduling and food cost management,
provide corporate management quicker access to financial data and reduce the
restaurant manager's administrative time. Each general manager uses the
system for production planning, labor scheduling and food cost variance
analysis. The system generates reports on sales, bank deposit data and
variance data to the Company's management on a daily basis.
The Company generates weekly consolidated sales reports and food and labor
cost variance reports at its corporate headquarters, as well as detailed
profit and loss statements for each restaurant every four weeks.
Additionally, the Company monitors the average check, customer count, product
mix and other sales trends on a daily basis.
ACCOUNTING AND ADMINISTRATIVE SERVICES
The Company utilizes certain accounting and administrative services
provided by Coulter Enterprises pursuant to the terms of a services
agreement. These services were provided to the Company during 1995 at an
annual fee of $837,000, plus an additional fee of $406 per restaurant per
28-day period, and reimbursement of all out-of-pocket costs and expenses. For
1996, the fixed annual charge is $1,272,000 and the per restaurant per 28-day
period fee is $416. The increase in the fixed charge is due to an increase in
the number of restaurants operated by the Company. In the future, the Company
may satisfy its accounting and administrative needs by hiring employees
directly; however, the Company believes that such direct costs would not be
materially different than the costs under the contractual arrangement. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
25
<PAGE>
COMPETITION
Competition in the restaurant industry is increasingly intense. The
Company competes primarily on the basis of quality of food and service,
ambiance, location and price-value relationship. The Company also competes
with a number of restaurants within its markets, including both locally owned
restaurants and regional or national chains. The Company believes that its
"Texas Roadhouse" concept, attractive price-value relationship and quality of
food and service enable it to differentiate itself from its competitors. The
Company has limited operating experience in the upscale steakhouse markets.
While the Company believes that its restaurants are distinctive in design and
operating concept, it is aware of restaurants that operate with similar
concepts. The Company also competes with other restaurants and retail
establishments for sites. Many of the Company's competitors are well-
established in the mid-priced and upscale dining segments and certain
competitors have substantially greater financial, marketing and other
resources than the Company. The Company believes that its ability to compete
effectively will continue to depend upon its ability to offer high quality,
competitively priced food in a full service, distinctive dining environment.
GOVERNMENT REGULATION
The Company's restaurants are subject to numerous federal, state and local
laws affecting health, sanitation, safety and ADA accessibility standards, as
well as to state and local licensing regulation of the sale of alcoholic
beverages. Each restaurant has appropriate licenses from regulatory
authorities allowing it to sell liquor, beer and wine, and each restaurant
has food service licenses from local health authorities. The Company's
licenses to sell alcoholic beverages must be renewed annually and may be
suspended or revoked at any time for cause, including violation by the
Company or its employees of any law or regulation pertaining to alcoholic
beverage control, such as those regulating the minimum age of patrons or
employees, advertising, wholesale purchasing, and inventory control. The
failure of a restaurant to obtain or retain liquor or food service licenses
could have a material adverse effect on its operations. In order to reduce
this risk, each restaurant is operated in accordance with standardized
procedures designed to assure compliance with all applicable codes and
regulations.
The Company may be subject in certain states to "dram-shop" statutes,
which generally provide a person injured by an intoxicated person the right
to recover damages from an establishment that wrongfully served alcoholic
beverages to the intoxicated person. The Company carries liquor liability
coverage as part of its existing comprehensive general liability insurance
and has never been named as a defendant in a lawsuit involving "dram-shop"
statutes.
A stockholder of the Company is also the owner of a wholesale liquor
distributorship in the State of Kansas. Because of this relationship,
"tied-house" laws may prohibit the Company from obtaining liquor licenses in
certain states. However, the Company has not experienced difficulties in
obtaining licenses except in the State of Kansas, where it has not been able
to obtain a license. The Company does not believe that its relationship with
such stockholder will have a material adverse effect on the Company's future
operations.
The development and construction of additional restaurants will be subject
to compliance with applicable zoning, land use and environmental regulations.
The Company's restaurant operations are also subject to federal and state
minimum wage laws governing such matters as working conditions, overtime and
tip credits and other employee matters. Significant numbers of the Company's
food service and preparation personnel are paid at rates related to the
federal minimum wage which is currently $4.25 per hour and, accordingly,
further increases in the minimum wage, such as the proposed increase in the
minimum wage to $5.15 per hour, could increase the Company's labor costs.
TRADEMARKS
The Company regards its marks, Lone Star Steakhouse & Saloon(R), Lone Star
Cafe(R), Del Frisco's(R) and Double Eagle Steak House(R), as having significant
value and as being important factors in the marketing of its restaurants. The
26
<PAGE>
Company also has an application pending for its Sullivan's service mark. The
Company is aware of names and marks similar to the service marks of the Company
used by other persons in certain geographic areas. However, the Company believes
such uses will not have a material adverse effect on the Company. The Company's
policy is to pursue registration of its marks whenever possible and to oppose
vigorously any infringement of its marks.
In April 1996, the Company settled a declaratory judgment action brought
by the Company against Max Shayne, Inc., a licensee of the Company, who had
certain rights to operate up to two nightclub restaurants in the New York
City metropolitan area utilizing the mark Lone Star Cafe. The settlement
terminates the Trademark License Agreement dated January 22, 1992 entered
into between the Company and Max Shayne, Inc. and provides that Max Shayne,
Inc. assign all of its rights, title and interest in the Lone Star Cafe mark
to the Company.
In December 1993, the Company filed a trademark infringement suit against
a restaurant operator who operated two steakhouse restaurants in metropolitan
Atlanta utilizing the mark and tradename Lone Star Steaks. By Order dated
April 24, 1995, the United States District Court for the Northern District of
Georgia, entered a permanent injunction barring the Company from using or
displaying the "Lone Star Steakhouse & Saloon name, trademark or service
mark" or any similar imitation of that mark or the "Lone Star Steaks" mark in
connection with the operation of any restaurant in Georgia. The permanent
injunction also encompasses any other acts within that state that unfairly
compete with Lone Star Steaks, Inc., trade off that company's reputation or
goodwill, or unlawfully injure its business reputation in any manner. The
permanent injunction also encompasses the Company's use of its mark in
connection with clothing within the state of Georgia. The Court further
awarded $60,000 in compensatory and liquidated damages and approximately
$113,000 in attorney's fees and costs. The Company is permitted to continue
to operate its restaurant in Augusta, Georgia, under the name Lone Star Cafe.
The Company has filed an appeal with the United States Court of Appeals for
the Eleventh Circuit, and briefing has been completed.
LEGAL MATTERS
Other than litigation in the ordinary course of business, the Company is
not a party to any material litigation.
EMPLOYEES
As of May 20, 1996, the Company employed approximately 14,000 persons,
eight of whom are executive officers, 15 of whom are district managers,
approximately 940 of whom are restaurant management personnel and the
remainder of whom are hourly restaurant personnel. None of the Company's
employees are covered by a collective bargaining agreement. The Company
considers its employee relations to be good.
PROPERTIES
As of May 28, 1996, the Company leased 86 and owned 84 of its domestic
Lone Star Restaurant locations. All of the Company's leases provide for a
minimum annual rent, and some leases provide for additional rent based on
sales volume at the particular location over specified minimum levels.
Generally, the leases are net leases which require the Company to pay the
costs of insurance, taxes and a pro rata portion of lessors' common area
costs. The Company anticipates that the majority of its Del Frisco's and
Sullivan's will be leased.
The Company's executive offices are located at 224 East Douglas, Suite
700, Wichita, Kansas, which space is provided pursuant to the terms of the
existing management agreement with Coulter Enterprises. The Company believes
that there is sufficient office space available at favorable leasing terms in
the Wichita, Kansas area to satisfy the additional needs of the Company that
may result from future expansion.
27
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the
executive officers and Directors of the Company:
<TABLE>
<CAPTION>
Term of Office
Name Age Position as Director Expires
---- --- -------- -------------------
<S> <C> <C> <C>
Jamie B. Coulter ....... 55 Chairman of the Board and Chief Executive 1998
Officer
John D. White .......... 48 Chief Financial Officer, Executive Vice 1997
President, Treasurer and Director
Scott M. Somes (1) ..... 38 Chief Operating Officer --
Michael J. Archer ...... 35 Senior Vice President of Operations --
Dennis L. Thompson ..... 52 Senior Vice President of Real Estate and 1998
Director
Gerald T. Aaron ........ 55 Senior Vice President, Counsel and --
Secretary
Robert M. Kendall ...... 35 Senior Vice President of Operations --
Frank E. Furstenberg, Jr . 49 Vice President of New Store Development --
Clark R. Mandigo (2) ... 52 Director 1996
C. Robert Buford (2) ... 62 Director 1997
Fred B. Chaney (2) ..... 59 Director 1996
</TABLE>
- - ------
(1) Mr. Somes is the son-in-law of Jamie B. Coulter.
(2) Member of Audit Committee and Compensation Committee.
Jamie B. Coulter has served as Chairman and Chief Executive Officer of the
Company since January 1992 (and has been a director and executive officer of
various subsidiaries of the Company since 1991) and President of the Company
from January 1992 to June 1995. Between 1965 and 1980, Mr. Coulter and his
partners developed and operated Pizza Hut and Kentucky Fried Chicken
restaurants as one of the largest franchisees of both systems. From 1980 to
the present, Mr. Coulter has been and continues to be the sole stockholder,
Chairman, Chief Executive Officer and President of various Pizza Hut entities
operating more than 100 Pizza Hut restaurants in 11 states. Since 1980, Mr.
Coulter has been the sole stockholder and President of Coulter Enterprises
(and its predecessor company), a management company that provides management,
accounting and administrative services for Mr. Coulter's Pizza Hut
franchises, other affiliated and non-affiliated businesses and the Company.
John D. White has been an Executive Vice President since June 1995, the
Chief Financial Officer and a Director of the Company since January 1992 and
a director and executive officer of various subsidiaries of the Company since
1991. Prior to joining the Company, Mr. White was employed for 11 years as
Senior Vice President of Finance for Coulter Enterprises. From 1970 to 1980,
Mr. White was a certified public accountant with Arthur Young & Company.
Scott M. Somes, has been Chief Operating Officer since June 1995 and
served as Senior Vice President of Operations of the Company from January
1992 until June 1995. Prior to joining the Company, Mr. Somes was employed in
various capacities, including President, of several Pizza Hut operating
entities owned by Mr. Coulter, and as an officer in various subsidiaries of
the Company.
Michael J. Archer, has been Senior Vice President of Operations of the
Company since April 1995. Prior to joining the Company, Mr. Archer was
employed in various capacities, including President, of Morton's of Chicago,
Inc., a subsidiary of Morton's Restaurant Group, Inc. for 13 years.
28
<PAGE>
Dennis L. Thompson has been Senior Vice President of Real Estate and a
Director of the Company since January 1992 and has been an executive officer
and a director of various subsidiaries of the Company since 1989. From 1985
to August 1995, he had been an executive officer, director and stockholder of
Creative Culinary Concepts, Inc. ("CCC"), a company which along with other
corporate entities owned and operated 11 Lone Star Restaurants. In August
1995, the Company acquired the restaurants owned by CCC and other affiliated
entities. See "Certain Relationships and Related Transactions."
Gerald T. Aaron, has been Senior Vice President, Counsel and Secretary of
the Company since January 1994. From November 1991 to January 1994, Mr. Aaron
was employed as General Counsel for Coulter Enterprises. From March 1989 to
November 1991, Mr. Aaron operated a franchise consultant practice. From 1969
to 1984, Mr. Aaron was Vice President--Counsel for Pizza Hut, Inc. and from
1984 to 1989, Mr. Aaron was President of International Pizza Hut Franchise
Holders Association.
Robert M. Kendall, has been Senior Vice President of Operations since June
1995 and was Vice President of Operations of the Company from September 1993
until June 1995. From March 1992 to September 1993, he assisted in new store
development for the Company. Prior thereto, he was a General Manager of
various restaurants owned or operated by CCC for more than two years.
Frank E. Furstenberg, Jr. has been Vice President of New Store Development
since January 1994. From March 1992 to January 1994, he was involved in
various aspects of new store development for the Company. Mr. Furstenberg has
been a Pizza Hut franchisee since 1979, although his restaurants are operated
under a management contract with Coulter Enterprises.
Clark R. Mandigo has been a Director of the Company since March 1992. Mr.
Mandigo is currently self-employed as a business consultant and has an
interest in a Papa John's Pizza Franchise. From 1986 to 1991, he was
President, Chief Executive Officer and director of Intelogic Trace, Inc., a
corporation engaged in the sale, lease and support of computer and
communications systems and equipment. Mr. Mandigo currently serves on the
board of directors of Physician Corporation of America, a managed healthcare
company, and Palmer Wireless, Inc., a cellular telephone system operator, and
as a Trustee of Accolade Funds.
C. Robert Buford has been a Director of the Company since March 1992. Mr.
Buford has served as Managing Partner of Grand Bluffs Development Company, a
real estate development company, since December 1985. Mr. Buford has served
as Chairman of the Board and President of Zenith Drilling Corporation of
Wichita, Kansas since February 1966 and is its principal stockholder. Mr.
Buford is a director of Intrust Bank, N.A. of Wichita, Kansas and a director
of Barrett Resources Corporation of Denver, Colorado.
Fred B. Chaney, Ph.D has been a Director of the Company since May 1995. Dr.
Chaney is President and Chief Executive Officer of TEC's Parent Company, Vedax
Sciences Corporation. Dr. Chaney through the TEC organization has formed a
network of various management organizations in several countries including the
United States where approximately 4,000 presidents of companies meet on a
quarterly basis. Dr. Chaney's early business career was with the Boeing Company
and Rockwell International, where he implemented management systems and quality
motivational programs. In 1968 he co-authored the book Human Factors in Quality
Assurance with Dr. D. H. Harris. Dr. Chaney has authored numerous publications
and professional papers and has taught management classes for the University of
Southern California. Dr. Chaney is a board member of Hobie Sports.
MEETINGS OF DIRECTORS AND DIRECTORS COMPENSATION
The Board of Directors has created an Audit Committee, a Compensation
Committee and a Stock Option Committee. The Audit Committee is composed of all
of the independent directors and is charged with reviewing the Company's annual
audit and meeting with the Company's independent auditors to review the
Company's internal controls and financial management practices. The Compensation
Committee, which is also composed of all of the independent directors,
recommends to the Board of Directors compensation for the Company's key
29
<PAGE>
employees. The Stock Option Committee also consists of all of the independent
directors and administers the Plan and awards stock options thereunder. The
members of the Audit Committee, Compensation Committee and Stock Option
Committee are Messrs. Buford, Chaney and Mandigo.
Directors who are not employees of the Company receive an annual fee of
$3,000 and a fee of $500 for each Board of Directors meeting attended and are
reimbursed for their expenses. Employees who are Directors are not entitled
to any compensation for their service as a Director. Non-employee Directors
are also entitled to receive grants of options under the Company's 1992
Directors Stock Option Plan (the "Directors Plan"), a formula stock option
plan. As of May 14, 1996, options to purchase 186,000 shares of Common Stock
have been granted to non-employee Directors under the Directors Plan at
exercise prices ranging from $3.375 per share to $40.00 per share, of which
options to purchase 40,000 shares of Common Stock have been exercised. In
1995, the Company's outside Directors were each automatically granted options
to purchase 6,000 shares of Common Stock under the Directors Plan. The
exercise price of such options was $27.00 per share. The Company also granted
options to purchase 40,000 shares to Fred Chaney at an exercise price of
$30.50 per share upon his election to the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years indicated, all
compensation awarded to, earned by or paid to the Chief Executive Officer
("CEO") and the four most highly compensated executive officers of the
Company (collectively with the CEO, the "Named Executive Officers") other
than the CEO whose salary and bonus exceeded $100,000 with respect to the
fiscal year ended December 26, 1995.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation ----------------------
------------------------------ Number of Securities
Name and Principal Position Year Salary Bonus Underlying Options
- - --------------------------- ------ ---------- ------- ----------------------
<S> <C> <C> <C> <C>
Jamie B. Coulter ....................... 1995 $210,000 -- 200,000
Chairman of the Board 1994 175,000 -- 500,000
and Chief Executive Officer 1993 145,000 -- 400,000
S. Douglas Glendenning ................. 1995 $192,000 -- 100,000
Former President(1) 1994 160,000 -- 125,000
1993 135,000 -- 100,000
John D. White .......................... 1995 $186,000 -- 100,000
Chief Financial Officer, Executive Vice 1994 155,000 -- 125,000
President and Treasurer 1993 130,000 -- 100,000
Scott M. Somes ......................... 1995 $180,000 -- 100,000
Chief Operating Officer 1994 150,000 -- 100,000
1993 125,000 -- 100,000
Dennis L. Thompson ..................... 1995 $180,000 -- 100,000
Senior Vice President of 1994 150,000 -- 100,000
Real Estate 1993 108,000 -- 100,000
</TABLE>
- - ------
(1) Mr. Glendenning resigned on April 2, 1996.
30
<PAGE>
OPTION GRANT TABLE
The following table sets forth certain information regarding stock option
grants made to the CEO and the other Named Executive Officers for services
performed during the fiscal year ended December 26, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
--------------------------- Potential Realizable Value
% of Total at Assumed Rates of Stock
Number of Options Price Appreciation for
Securities Granted to Exercise Option Term (1)(2)
Underlying Employees in or Base Expiration ----------------------------
Name Options(3) Fiscal Year Price ($/Sh) Date 5% 10%
- - ---- ---------- ----------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jamie B. Coulter ......... 200,000 12.7% $32.625 1/31/06 $4,103,536 $10,399,168
S. Douglas Glendenning (4) . 100,000 6.3 32.625 1/31/06 2,051,768 5,199,584
John D. White ............ 100,000 6.3 32.625 1/31/06 2,051,768 5,199,584
Scott M. Somes ........... 100,000 6.3 32.625 1/31/06 2,051,768 5,199,584
Dennis L. Thompson ....... 100,000 6.3 32.625 1/31/06 2,051,768 5,199,584
</TABLE>
- - ------
(1) The options indicated vest ratably over a three-year period commencing
January 31, 1997.
(2) The potential realizable portion of the foregoing table illustrates value
that might be realized upon exercise of options immediately prior to the
expiration of their term, assuming the specified compounded rates of
appreciation on the Common Stock over the term of the options. These
numbers do not take into account provisions of certain options providing
for termination of the option following termination of employment,
nontransferability or differences in vesting periods. Regardless of the
theoretical value of an option, its ultimate value will depend on the
market value of the Common Stock at a future date, and that value will
depend on a variety of factors, including the overall condition of the
stock market and the Company's results of operations and financial
condition. There can be no assurance that the values reflected in this
table will be achieved.
(3) Does not include options to purchase Common Stock which were awarded in
January 1995 for services performed in 1994.
(4) Mr. Glendenning resigned April 2, 1996 and these options, which were not
vested, were cancelled in accordance with the terms of the Plan.
OPTION EXERCISE TABLE
No options were exercised by the CEO and the other Named Executive
Officers during the fiscal year ended December 26, 1995. The following table
sets forth certain information concerning unexercised options held as of
December 26, 1995 by the CEO and the other Named Executive Officers.
31
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Unexercised Value of Unexercised In-the-Money
Options at December 26, 1995 Options at December 26, 1995(1)
------------------------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- - ----------- ------------ ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Jamie B. Coulter ...... 333,334 866,666 $ 6,249,994 $ 17,225,000
S. Douglas Glendenning . 83,334 216,666 1,562,494 4,306,256
John D. White ......... 83,334 216,666 1,562,494 4,306,256
Scott M. Somes ........ 83,334 191,666 1,562,494 3,781,256
Dennis L. Thompson .... 83,334 191,666 1,562,494 3,781,256
</TABLE>
- - ------
(1) Based on the closing price of a share of Common Stock ($40.00) as
reported by the Nasdaq National Market on December 26, 1995.
EMPLOYMENT AGREEMENTS
The Company has separate employment agreements with each of Messrs. White
and Somes providing for the employment of such individuals as Chief Financial
Officer and Senior Vice President of Operations, respectively. In June 1995,
Messrs. White and Somes were appointed Executive Vice President and Chief
Financial Officer and Chief Operating Officer, respectively. Each employment
agreement provides that the officer shall devote substantially all of his
professional time to the business of the Company. The agreements provided for
a 1995 annual base salary of $186,000 and $180,000 for Messrs. White and
Somes, respectively. For 1996, the annual base salaries for Messrs. White and
Somes were established at $236,000, and $230,000, respectively. Each
agreement terminates in February 1998, but the Company has the option to
extend the term for an additional one-year period. The Company had a similar
employment agreement with Mr. Glendenning which contained non-competition and
non-solicitation provisions which apply for eighteen months after cessation
of his employment. Messrs. Coulter and Thompson have also entered into
non-competition, confidentiality and non-solicitation agreements with the
Company. Messrs. Coulter's and Thompson's base salaries for 1996 have been
established at $250,000 and $214,000, respectively.
COMPENSATION COMMITTEE INTERLOCKS
The Compensation Committee consists of Messrs. Buford, Chaney and Mandigo.
None of such Directors was a party to any transaction with the Company which
constitutes an interlock with another entity.
32
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SERVICES AGREEMENT
The Company has entered into a services agreement with Coulter Enterprises
pursuant to which the Company utilizes certain accounting and administrative
services provided by Coulter Enterprises. The services agreement initially
expired on December 31, 1992 and is renewable thereafter on a year-to-year
basis. For fiscal year 1995, the fixed annual charge was $837,000 and the per
restaurant per 28-day accounting period fee was $406, plus reimbursement of
all direct out-of-pocket costs and expenses. For the fiscal years ended
December 28, 1993 and December 27, 1994, the Company incurred fees of
$308,057 and $792,913 under the services agreement. For the fiscal year ended
December 26, 1995, the Company incurred fees of $1,443,312 under the services
agreement. For fiscal year 1996, the fixed annual charge is $1,272,000 and
the per restaurant per 28-day accounting period fee is $416, plus
reimbursement of all direct out-of-pocket costs and expenses. All of the
disinterested Directors voted to renew the services agreement and approve the
new fee arrangements thereunder. The amount of the services fee will be
reviewed annually and will be subject to approval by a majority of the
disinterested directors of the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
1995 LONE STAR ACQUISITION
In August 1995, the Company acquired 11 Lone Star Restaurants which had
been operated by a group of corporations which had been granted, pursuant to
a trademark license agreement, the exclusive right by the Company to operate
restaurants under the "Lone Star Steakhouse & Saloon" name in certain
marketing areas of North Carolina. In such transaction, the Company also
acquired three other restaurants. In consideration for these transactions,
the Company issued 580,433 Shares of Common Stock to the stockholders of the
various acquired entities. Dennis Thompson, a Director, executive officer and
5% stockholder of the Company, received 215,961 Shares of Common Stock as
part of such transaction.
OTHER TRANSACTIONS
Jamie B. Coulter, Chairman of the Board and Chief Executive Officer of the
Company, owns, through controlled entities, an aircraft that, on occasion, is
used for Company business. The Company believes that the charges incurred by
the Company for its usage of this aircraft are at least as favorable as the
charges that would have been incurred for similar services received from
unaffiliated third parties. The cost of such services in 1995 was $27,907 and
in 1994 was $70,500. In 1993, the cost of such services was less than
$60,000.
In December 1995, the Company purchased from an unaffiliated third party
an aircraft for $1,550,000 that such party recently acquired from an entity
controlled by Mr. Coulter. The purchase price was at fair market value as
determined by three separate appraisals.
The Company believes that the foregoing transactions were in its best
interests. It is the Company's current policy that all transactions by the
Company with officers, directors, 5% stockholders and their affiliates will
be entered into only if such transactions are approved by a majority of the
disinterested independent Directors, are on terms no less favorable to the
Company than could be obtained from unaffiliated parties and are reasonably
expected to benefit the Company.
33
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of May 20, 1996, and as adjusted to reflect the
closing of the May 1996 Offering and the sale of the Common Stock offered
hereby, by (i) each Director, (ii) each of the Named Executive Officers, (iii)
all Directors and executive officers as a group, (iv) each person known by the
Company to beneficially own 5% or more of its Common Stock and (v) each of the
Selling Stockholders. Unless otherwise indicated, the address for 5%
stockholders, officers and directors of the Company and each of the Selling
Stockholders is 224 E. Douglas, Suite 700, Wichita, Kansas 67202. Except as
specified, the named beneficial owner has sole voting and investment power with
respect to the shares beneficially owned by such person.
<TABLE>
<CAPTION>
Shares to be
Shares Beneficially Owned Sold in Shares Beneficially Owned
Name of Beneficial Owner Prior to Offering Offering After Offering
- - ------------------------------------ ------------------------------ ----------- ------------------------
Number Percentage Number Percentage
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Jamie B. Coulter(1) ........... 3,428,037 8.5% -- 3,428,037 8.5%
John D. White(2) .............. 331,359 * -- 331,359 1.2
Scott M. Somes(3) ............. 298,365 * -- 298,365 *
Clark R. Mandigo(4) ........... 38,000 * -- 38,000 *
C. Robert Buford(5) ........... 84,000 * -- 84,000 *
Dennis L. Thompson(6) ......... 2,390,793 5.8 -- 2,390,793 5.8
Fred B. Chaney(7) ............. 13,333 * -- 13,333 *
Leslie G. Rudd (8) ............. 1,730,712 4.3 1,504 1,729,208 4.3
Dale F. Wamstad(9) ............. 10,000 * 10,000 -- *
Dee Lincoln(10) ................ 18,750 * 18,750 -- *
James F. Haun(11) .............. 88,656 * 66,060 22,596 *
James C. Verney(12) ............ 34,742 * 24,742 10,000 *
Daniel M. Kammerer ............. 1,083 * 1,083 -- --
Thomas A. Hager ................ 1,083 * 1,083 -- --
Janus Capital Corporation
Thomas H. Bailey
Janus Twenty Fund(13) ....... 3,184,640 7.9 -- 3,184,640 7.9
Fred Alger Management, Inc.
Fred M. Alger, III(14) ...... 3,101,618 7.7 -- 3,101,618 7.7
All directors and executive
officer group (11 persons)
(1)(2)(3)(4)(5)(6)(7)(15) ..... 6,889,281 16.4% -- 6,889,281 16.4%
</TABLE>
- - ------
* Less than 1%.
(1) Excludes 359,939 shares held by Gayla W. Coulter, Mr. Coulter's wife. Also
excludes shares held by Mr. Coulter's adult children, Jay Coulter, Christie
Somes and Lynnie Coulter. Mr. Coulter disclaims beneficial ownership of
these shares. Includes presently exercisable options to purchase 733,334
shares of Common Stock.
(2) Includes presently exercisable options to purchase 183,334 shares of Common
Stock.
(3) Excludes 144,911 shares held by Christie Somes who is the daughter of Mr.
Coulter and the wife of Mr. Somes. Mr. Somes disclaims beneficial ownership
of these shares. Includes presently exercisable options to purchase 175,000
shares of Common Stock.
(4) Includes presently exercisable options to purchase 18,000 shares of Common
Stock.
(5) Includes 6,000 shares held by Mr. Buford's wife and presently exercisable
options to purchase 58,000 shares of Common Stock.
(6) Includes shares held by a limited partnership for the benefit of Mr.
Thompson, his wife and minor children. Mr. Thompson has been a Director and
Senior Vice President of the Company since January 1992. Includes presently
exercisable options to purchase 175,000 shares of Common Stock.
(7) Represents presently exercisable options to purchase 13,333 shares of
Common Stock.
(8) Based on a Schedule 13G filed in February 1995 and to reflect previous
sales by Mr. Rudd in this offering.
(9) Mr. Wamstad, the founder of Del Frisco's Double Eagle Steak House, was the
General Manager of the Company's Del Frisco's Double Eagle Steakhouse from
September 1995 until January 1996.
34
<PAGE>
(10) Ms. Lincoln has been employed by the Company since September 1995.
(11) Mr. Haun was a Director of the Company from January 1992 to June 1994.
(12) Mr. Verney has been employed as a director of Mexican Concepts for the
Company since August 1995.
(13) Based on a joint Schedule 13G filed in February 1996, Janus Capital
Corporation ("Janus"), Thomas H. Bailey ("Bailey") and the Janus Twenty
Fund ("Janus Twenty") and related entities collectively beneficially
hold 3,184,640 shares of Common Stock. The address of Janus, Bailey and
Janus Twenty is 100 Filmore Street, Suite 300, Denver, Colorado
80206-4923. Janus and Bailey disclaim beneficial ownership of these
shares.
(14) Based on a joint Schedule 13G filed in February 1996, Fred Alger
Management, Inc. and Fred M. Alger, III collectively beneficially hold
3,101,618 shares of the Company's Common Stock. The Address of Fred
Alger Management, Inc.and Fred M. Alger, III is 75 Maiden Lane, New
York, New York 10038.
(15) Excludes shares held by Christie Somes and Gayla Coulter and includes
22,282 shares of Common Stock and presently exercisable options to purchase
283,112 shares of Common Stock held by executive officers who are not
specified in the above table.
35
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 98,000,000 shares
of Common Stock, $0.01 par value, and 2,000,000 shares of Preferred Stock,
$0.01 par value.
The following summary of certain terms of the Common Stock and Preferred
Stock does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of the Company's Certificate of Incorporation and
By-laws, which are included as exhibits to the Registration Statement of
which this Prospectus is a part, and the provisions of applicable law.
COMMON STOCK
At May 17, 1996, there were 37,927,580 shares of Common Stock outstanding,
owned by approximately 750 stockholders of record. Holders of Common Stock
are entitled to one vote for each share held of record on all matters
submitted to a vote of the stockholders. Subject to preferences that may be
applicable to any then outstanding Preferred Stock, holders of Common Stock
are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding Preferred Stock. Holders of Common Stock have no right to
convert their Common Stock into any other securities. The Common Stock has no
preemptive or other subscription rights. There are no redemption or sinking
fund provisions applicable to the Common Stock. All outstanding shares of
Common Stock are duly authorized, validly issued, fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 2,000,000 shares of Preferred Stock in one or
more series and to fix the rights, preferences, privileges, and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms
of redemption, liquidation preferences and the number of shares constituting
any series or the designation of such series. The issuance of Preferred Stock
could adversely affect the voting power of holders of Common Stock and could
have the effect of delaying, deferring or preventing a change in control of
the Company. The Company has no present plan to issue any shares of Preferred
Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Union
National Bank, Charlotte, North Carolina.
36
<PAGE>
PLAN OF DISTRIBUTION
The Company has not employed an underwriter for the sale of the Shares
of Common Stock by the Selling Stockholders and will bear all expenses of the
Offering, other than discounts, concessions or commissions on the sale of the
Shares.
The Common Stock may be offered for the account of the Selling
Stockholders from time to time in the over-the-counter market or in negotiated
transactions, at fixed prices which may be changed or at negotiated prices. The
Selling Stockholders may effect such transactions by selling shares to or
through broker-dealers, and all such broker-dealers may receive compensation in
the form of discounts, concessions, or commissions from the Selling Stockholders
and/or the purchasers of shares for whom such broker-dealers may act as agent or
to whom they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
Any broker-dealer acquiring shares from the Selling Stockholders may
sell the shares either directly, in its normal market-making activities, through
or to other brokers on a principal or agency basis or to its customers. Any such
sales may be at prices then prevailing in the over-the-counter market or at
prices related to such prevailing market prices or at negotiated prices to its
customers or a combination of such methods. The Selling Stockholders and any
broker-dealers that act in connection with the sale of the Common Stock
hereunder might be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act; any commissions received by them and any profit on
the resale of shares as principal might be deemed to be underwriting discounts
and commissions under the Securities Act. Any such commissions, as well as other
expenses incurred by the Selling Stockholders and applicable transfer taxes, are
payable by the Selling Stockholders.
37
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
as well as at the following regional offices: 14th Floor, Seven World Trade
Center, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can also be obtained from
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Company's Common Stock is traded on the Nasdaq National Market. The foregoing
material also should be available for inspection at the National Association
of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company has also filed with the Commission a Registration Statement on
Form S-1 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act with respect to the shares
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is made to the Registration Statement, copies of which
may be obtained from the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, upon
payment of the fees prescribed by the Commission. Copies of such Registration
Statement may also be requested from the Company, attention Mr. John D.
White, Executive Vice President, Chief Financial Officer and Treasurer, 224
East Douglas, Suite 700, Wichita, Kansas 67202.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited and reported upon by its independent
accounting firm and quarterly reports containing unaudited interim financial
information for the first three quarters of each year.
EXPERTS
The consolidated financial statements of Lone Star Steakhouse & Saloon,
Inc. at December 27, 1994 and December 26, 1995 and for each of the three
years in the period ended December 26, 1995, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and
in the Registration Statement, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Olshan Grundman Frome &
Rosenzweig LLP, New York, New York.
38
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Pages
---------
<S> <C>
Report of Independent Auditors .................................................................. F-2
Consolidated Balance Sheets as of December 27, 1994 and December 26, 1995 ....................... F-3
Consolidated Statements of Income for the years ended December 28, 1993, December 27, 1994, and
December 26, 1995 .............................................................................. F-5
Consolidated Statements of Stockholders' Equity for the years ended December 28, 1993, December
27, 1994, and December 26, 1995 ................................................................ F-6
Consolidated Statements of Cash Flows for the years ended December 28, 1993, December 27, 1994,
and December 26, 1995 .......................................................................... F-7
Notes to Consolidated Financial Statements ...................................................... F-8
Condensed Consolidated Balance Sheets as of December 26, 1995 and March 19, 1996 (unaudited) ..... F-16
Consolidated Statements of Income for the twelve weeks ended March 21, 1995 and March 19, 1996
(unaudited) .................................................................................... F-17
Condensed Consolidated Statements of Cash Flows for the twelve weeks ended March 21, 1995 and
March 19, 1996 (unaudited) ..................................................................... F-18
Notes to Condensed Consolidated Financial Statements (unaudited) ................................ F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Lone Star Steakhouse & Saloon, Inc.
We have audited the accompanying consolidated balance sheets of Lone Star
Steakhouse & Saloon, Inc. as of December 27, 1994 and December 26, 1995, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 26, 1995.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Lone Star
Steakhouse & Saloon, Inc. at December 27, 1994 and December 26, 1995, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 26, 1995, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Wichita, Kansas
January 18, 1996
F-2
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CONSOLIDATED BALANCE SHEETS
December 27, 1994 December 26, 1995
----------------- -----------------
Current assets:
ASSETS
Cash and cash equivalents ........... $ 45,861,034 $ 67,424,884
Accounts receivable ................. 786,722 1,308,865
Inventories ......................... 2,495,134 4,156,355
Pre-opening costs, net .............. 6,593,015 10,328,686
Refundable income taxes ............. 2,638,658 5,006,856
Other current assets ................ 1,016,610 90,092
----------------- ----------------
Total current assets ............. 59,391,173 88,315,738
Property and equipment:
Land ................................ 37,834,664 68,887,543
Buildings ........................... 54,660,662 94,712,993
Leasehold improvements .............. 27,417,209 55,209,000
Equipment ........................... 22,906,565 37,159,906
Furniture and fixtures .............. 5,962,676 8,598,569
----------------- ----------------
148,781,776 264,568,011
Less: accumulated depreciation and
amortization ..................... 10,201,089 19,233,055
----------------- ----------------
138,580,687 245,334,956
Other assets:
Investment in and advances to joint
venture (Note 4) ................. 2,436,614 --
Intangible and other assets, net
(principally goodwill in 1995) ... 3,619,212 24,567,805
----------------- ----------------
Total other assets ............... 6,055,826 24,567,805
----------------- ----------------
Total assets ..................... $204,027,686 $358,218,499
================= ================
See notes to consolidated financial statements.
F-3
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
December 27, 1994 December 26, 1995
----------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: ................
Accounts payable .................. $ 8,744,996 $ 9,245,331
Other current liabilities: ........
Sales tax payable .............. 1,215,295 1,367,263
Accrued payroll ................ 1,868,031 4,824,664
Gift certificates .............. 2,551,699 4,677,964
Deferred income taxes (Note 11) . 875,322 1,817,159
Current portion of long term debt
(Note 10) .................... 3,874,836 --
Current portion of capitalized
lease obligation (Note 8) .... 55,356 64,550
Other .......................... 2,587,509 6,438,362
----------------- -----------------
Total current liabilities .... 21,773,044 28,435,293
Capitalized lease obligation (Note 8). 387,330 322,781
Deferred income taxes (Note 11) ..... 1,795,490 3,966,968
Minority interest ................... -- 2,682,914
Commitments (Note 12) ............... -- --
Stockholders' Equity: (Notes 3, 5, 6)
Preferred stock, $.01 par value,
2,000,000 shares authorized; none
issued (Note 5) ................ -- --
Common stock, $.01 par value,
98,000,000 shares authorized;
37,587,974 shares issued and
outstanding (34,302,568 in 1994). 343,025 375,879
Additional paid-in capital ........ 131,482,689 228,578,790
Retained earnings ................. 48,246,108 94,140,238
Translation adjustment ............ -- (284,364)
----------------- -----------------
Total stockholders' equity ... 180,071,822 322,810,543
----------------- -----------------
Total liabilities and
stockholders' equity ...... $204,027,686 $358,218,499
================= =================
See notes to consolidated financial statements.
F-4
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the year ended
-------------------------------------------------------------
December 28, 1993 December 27, 1994 December 26, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales ............................... $112,263,334 $215,800,477 $340,857,223
Costs and expenses:
Costs of sales ........................ 40,980,953 76,887,928 120,870,646
Restaurant operating expenses ......... 36,979,001 71,996,039 116,703,192
Depreciation and amortization ......... 6,743,650 12,989,178 19,816,823
------------ ------------ ------------
Restaurant costs and expenses ........... 84,703,604 161,873,145 257,390,661
------------ ------------ ------------
Restaurant operating income ............. 27,559,730 53,927,332 83,466,562
General and administrative expenses:
Related parties (Note 7) .............. 308,057 792,913 1,443,312
Other ................................. 3,608,946 7,324,744 11,249,957
------------ ------------ ------------
Income from operations .................. 23,642,727 45,809,675 70,773,293
Other income (expense):
Other income, net (principally interest) 1,976,980 1,538,443 3,137,760
Interest expense ...................... (136,764) (275,033) (228,532)
------------ ------------ ------------
1,840,216 1,263,410 2,909,228
------------ ------------ ------------
Income before income taxes and minority
interest .............................. 25,482,943 47,073,085 73,682,521
Provision for income taxes (Note 11) .... (9,112,078) (16,900,130) (26,819,591)
Minority interest ....................... -- -- 705,160
------------ ------------ ------------
Net income .............................. $ 16,370,865 $ 30,172,955 $ 47,568,090
------------ ------------ ------------
Primary net income per share ............ $ 0.49 $ 0.87 $ 1.27
============ ============ ============
Fully diluted net income per share ...... $ 0.49 $ 0.87 $ 1.26
============ ============ ============
Unaudited pro forma information based on
providing for income taxes on pooled S
Corporations prior to acquisition at
the estimated effective tax rate:
Income before income taxes, net of
minority interest ................ $ 25,482,943 $ 47,073,085 $ 74,387,681
Pro forma provision for income taxes 9,695,820 17,883,699 27,652,784
------------ ------------ ------------
Pro forma net income ............... $ 15,787,123 $ 29,189,386 $ 46,734,897
============ ============ ============
Pro forma primary net income per share $ 0.47 $ 0.84 $ 1.25
============ ============ ============
Pro forma fully diluted net income per
share ............................ $ 0.47 $ 0.84 $ 1.23
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
Preferred ---------------------------- Additional Translation Retained
Stock Number Amount Paid-in-Capital Adjustment Earnings Total
----------- ------------ ----------- --------------- ------------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 29, 1992
as previously reported . $ -- 30,622,728 $306,228 $ 57,571,533 $ -- $ 4,392,343 $62,270,104
Pooling of interests with
CCC Group (Note 2) ..... -- 580,433 5,804 23,535 -- (408,442) (379,103)
--------- ---------- -------- ------------ ----------- ----------- -----------
Balance, as restated .... 31,203,161 312,032 57,595,068 3,983,901 61,891,001
Stock options exercised . -- 210,294 2,102 2,949,324 -- -- 2,951,426
Tax benefit related to
options exercised ...... -- -- -- 787,500 -- -- 787,500
Shares issued in public
offering ............... -- 2,875,000 28,750 69,968,572 -- -- 69,997,322
Dividends paid by pooled
companies .............. -- -- -- -- -- (230,000) (230,000)
Net income .............. -- -- -- -- -- 16,370,865 16,370,865
--------- ---------- -------- ------------ ----------- ----------- -----------
Balance, December 28, 1993 -- 34,288,455 342,884 131,300,464 -- 20,124,766 151,768,114
Stock options exercised . -- 14,113 141 97,666 -- -- 97,807
Capital contributions of
pooled companies ....... -- -- -- 84,559 -- -- 84,559
Dividends paid by pooled
companies .............. -- -- -- -- -- (2,051,613) (2,051,613)
Net income .............. -- -- -- -- -- 30,172,955 30,172,955
--------- ---------- -------- ------------ ----------- ----------- -----------
Balance, December 27, 1994 -- 34,302,568 343,025 131,482,689 -- 48,246,108 180,071,822
Shares issued in public
offering ............... -- 2,906,710 29,067 85,638,616 -- -- 85,667,683
Translation adjustment .. -- -- -- -- (284,364) -- (284,364)
Stock options exercised . -- 172,446 1,724 1,970,382 -- -- 1,972,106
Tax benefit related to
options exercised ...... -- -- -- 1,239,166 -- -- 1,239,166
S Corporation deferred taxes -- -- -- -- -- (16,503) (16,503)
Shares issued for Del Frisco
Group .................. -- 206,250 2,063 8,247,937 -- -- 8,250,000
Dividends paid by pooled
companies .............. -- -- -- -- -- (1,657,457) (1,657,457)
Net income .............. -- -- -- -- -- 47,568,090 47,568,090
--------- ---------- -------- ------------ ----------- ----------- ------------
Balance, December 26, 1995 $ -- 37,587,974 $375,879 $ 228,578,790 $ (284,364) $94,140,238 $322,810,543
========== ========== ======== ============== =========== =========== ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
For the years ended
-----------------------------------------------------------------
December 28, 1993 December 27, 1994 December 26, 1995
-------------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ 16,370,865 $ 30,172,955 $ 47,568,090
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ....................... 6,743,650 12,989,178 19,816,823
Deferred compensation ............................... 306,905 (422,760) --
Equity in net loss from investment in joint venture . -- -- 311,282
Deferred income taxes ............................... 1,198,275 1,322,187 3,113,315
Minority interest ................................... -- -- (705,160)
Net change in operating assets and liabilities:
Accounts receivable ............................... (140,239) (243,028) (467,868)
Inventories ....................................... (818,769) (892,826) (1,510,680)
Pre-opening costs ................................. (6,439,921) (9,480,268) (13,060,622)
Refundable income taxes ........................... (1,370,716) (480,442) (2,368,198)
Other current assets .............................. (111,215) (89,586) 1,491,275
Accounts payable .................................. 720,548 4,773,994 (560,084)
Other current liabilities ......................... 2,028,481 3,922,478 10,196,604
------------ ------------ -------------
Net cash provided by operating activities ........ 18,487,864 41,571,882 63,824,777
Cash flows from investing activities:
Purchases of property and equipment .................... (45,750,421) (76,909,289) (104,787,485)
Purchase of assets of Del Frisco's (Note 13) ........... -- -- (14,600,000)
Contribution to capital by minority interest ........... -- -- 1,748,189
Cash acquired in consolidation of joint venture (Note 4) -- -- 495,873
Investment in joint venture ............................ (521,078) (1,105,198) (2,436,689)
Other .................................................. (2,142,444) (824,940) (4,448,593)
------------ ------------ ------------
Net cash used in investing activities ............ (48,413,943) (78,839,427) (124,028,705)
Cash flows from financing activities:
Net proceeds from issuance of common stock ............. 72,948,748 97,807 87,639,789
Additions to long-term debt ............................ 456,531 2,160,517 --
Payment of notes payable and capital lease obligation on
company acquired .................................... (853,504) (795,831) (3,930,191)
Capital contributions by pooled companies .............. -- 84,559 --
Dividends on prior S Corporation income ................ (230,000) (2,051,613) (1,657,457)
------------ ------------ ------------
Net cash provided by (used in) financing activities 72,321,775 (504,561) 82,052,141
------------ ------------ ------------
Effect of exchange rate changes on cash .................. -- -- (284,363)
Net increase (decrease) in cash and cash equivalents 42,395,696 (37,772,106) 21,563,850
Cash and cash equivalents at beginning of period ......... 41,237,444 83,633,140 45,861,034
------------ ------------ ------------
Cash and cash equivalents at end of period ............... $ 83,633,140 $ 45,861,034 $ 67,424,884
============ ============ =============
Supplemental disclosure of cash flow information:
Cash paid for interest ................................. $ 136,764 $ 275,033 $ 75,170
Cash paid for income taxes ............................. $ 8,736,989 $ 16,058,385 $ 23,282,127
</TABLE>
Supplemental schedule of noncash investing and financing activities:
As described in Note 13, in September 1995, the Company issued 206,250
shares of common stock having a market value of $8,250,000 in connection
with the acquisition of Del Frisco Group.
See notes to consolidated financial statements.
F-7
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES
Background
Lone Star Steakhouse & Saloon, Inc. (the "Company") currently owns and
operates a chain of mid-priced full service, casual dining restaurants in the
United States, as well as in Australia and Europe through participation in
international joint ventures. The restaurants serve mesquite-grilled steaks,
ribs, chicken and fish in a "Texas Roadhouse" atmosphere that are positioned
to attract local clientele. During 1995, the Company expanded into the
upscale steakhouse market with the acquisition of Del Frisco's Double Eagle
Steak House and the development of Sullivan's Steakhouse. As of December 26,
1995, the Company owns and operates 160 Lone Star Steakhouse & Saloons in the
United States as well as nine in connection with the joint venture in
Australia and two in connection with the joint venture in Europe. In
addition, the Company owns and operates one Del Frisco's Double Eagle Steak
House and one Sullivan's Steakhouse is under development.
Significant Accounting Policies
o Principles of Consolidation
The consolidated financial statements include the accounts of Lone Star
Steakhouse & Saloon, Inc., its wholly-owned subsidiaries and its majority
owned foreign joint ventures. All significant intercompany accounts and
transactions have been eliminated in consolidation.
o Concentration of Credit Risk
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of cash and short-term investments (cash
equivalents). The Company places its cash with high credit quality financial
institutions and, at times, such cash may be in excess of the Federal
Depository insurance limit. The Company has cash equivalents in investment
grade securities with municipal, State and U.S. government agencies of
approximately $37,843,000 and $46,361,000 at December 27, 1994 and December
26, 1995, respectively.
o Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from estimates.
o Income Taxes
The Company accounts for income taxes under the liability method in
accordance with FASB Statement No. 109 "Accounting for Income Taxes."
o Cash and Cash Equivalents
The Company considers cash and cash equivalents to include currency on
hand, demand deposits with banks or other financial institutions, and
short-term investments with maturities of three months or less when
purchased. Cash and cash equivalents are carried at cost, which approximates
fair value.
o Inventories
Inventories consist of food and beverages, and are stated at the lower of
cost (first-in, first-out) or market.
o Property and Equipment
Property and equipment are stated at cost. Maintenance, repairs and
renewals which do not enhance the value of, or increase the life of, the
assets are expensed as incurred.
F-8
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Background and Significant Accounting Policies - (Continued)
Buildings are depreciated using the straight-line method over twenty
years, which is the estimated useful life of the assets. Leasehold
improvements are amortized on the straight-line method over the lesser of the
maximum life of the lease or twenty years, or the estimated useful lives of
the assets. Equipment and furniture and fixtures are depreciated using the
straight-line method over seven years, which is the estimated useful life of
the assets.
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company will adopt
Statement 121 in the first quarter of 1996 and, based on current
circumstances, does not believe the effect of adoption will be material.
o Pre-opening Costs
Labor costs and costs of hiring and training personnel and certain other
costs relating to opening new restaurants are capitalized until the
restaurant is open and then amortized over the subsequent twelve months.
Accumulated amortization related to stores opened during 1994 and 1995 was
approximately $3,141,000 and $9,236,000 at December 27, 1994 and December 26,
1995, respectively.
o Intangibles and Other Assets
Intangibles and other assets principally represent goodwill in 1995. Such
goodwill represents the excess of the cost of companies acquired over the
fair value of their net assets at dates of acquisition and is being amortized
on a straight-line method over twenty years. The remaining intangibles and
other assets are being amortized by the straight-line method over the
estimated useful life of the related assets. Accumulated amortization for
intangibles and other assets as of December 27, 1994 and December 26, 1995,
is $39,165 and $351,144, respectively.
o Stock based compensation
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, "Accounting for Stock Issued to Employees," and intends
to continue to do so.
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. ACQUISITION OF CCC GROUP
On August 6, 1995, the Company completed the acquisition of 11 licensed Lone
Star Steakhouse & Saloon restaurants as well as three additional restaurants
from a group of related entities which were operated under common control,
collectively hereinafter referred to as the "CCC Group." The transaction was
accounted for as a pooling of interests and, accordingly, the accompanying
financial statements have been restated to include the accounts and operations
of the CCC Group for all periods presented prior to the acquisition. The Company
exchanged 580,433 shares of its Common Stock for all of the Common Stock and
related net assets of the various entities acquired. Net sales and net income
included in the Company's consolidated statements of income attributable to the
acquisition are as follows:
F-9
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Acquisition of CCC Group - (Continued)
<TABLE>
<CAPTION>
For the years ended
-------------------------------------------------
December 28, December 27, December 26,
1993 1994 1995
-------------- -------------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
Net Sales:
Lone Star Steakhouse & Saloon, $ 95,767 $194,632 $313,052
Inc. CCC Group ................ 16,496 21,168 27,805
Net Income:
Lone Star Steakhouse & Saloon, Inc. 14,912 27,714 43,934
CCC Group (unaudited pro forma) (1) 875 1,475 2,801
</TABLE>
- - ------
(1) Pro forma net income reflects the pro forma income taxes applicable to
CCC Group as the entities were operated as S Corporations or Partnerships
and were not subject to income taxes.
3. ADDITIONAL PUBLIC OFFERINGS
On June 2, 1993, the Company completed an offering of 2,875,000 additional
shares of its Common Stock (the "June 1993 Offering") at $25.75 per share. Total
net proceeds to the Company of approximately $70 million were used for
restaurant development.
On April 12, 1995, the Company completed an offering of 2,906,710 additional
shares of its Common Stock at $31.00 per share. Total net proceeds to the
Company of approximately $86 million are being used for continued development
and funding of the Company's new upscale steakhouse concept.
4. INVESTMENT IN AND ADVANCES TO JOINT VENTURE
During 1992, the Company, through its wholly-owned subsidiary Lone Star
Steakhouse & Saloon of Las Vegas, Inc., entered into a joint venture agreement
with an unrelated third party to build and operate a chain of restaurants in
Australia under the Company's trademark "Lone Star." The Company owned a 50%
interest in the joint venture and accounted for its investment using the equity
method of accounting. The Company's equity portion of the results of operations,
which are not significant, are included in the accompanying financial statements
for the year ended December 27, 1994 and for the 24 weeks ended June 13, 1995.
In June 1995, the Company increased its ownership interest in the Australian
joint venture from 50% to 65%. The Company consolidated the accounts of the
joint venture effective with the change in control.
During 1995, the Company entered into a second joint venture agreement with
an unrelated third party to build and operate a chain of restaurants in Europe
under the Company's trademark "Lone Star." The Company owns a 65% interest in
the joint venture and, accordingly, its net assets and operations have been
consolidated with the Company in the accompanying consolidated financial
statements.
5. PREFERRED STOCK
The Company's Board of Directors has the authority to issue up to 2,000,000
shares of Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preference
and the numbers of shares constituting any series or the designation of such
series.
F-10
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. STOCK OPTIONS
o 1992 Stock Option Plan
In January 1992, the Board of Directors adopted a stock option plan (the
"Plan") which was amended in May 1995, which provides for incentive and
non-qualified stock options pursuant to which up to 7,000,000 shares of Common
Stock are available for issuance.
o Directors Stock Option Plan
In January 1992, the Board of Directors adopted a stock option plan providing
for nondiscretionary grants to non-employee Directors pursuant to which up to
400,000 shares of Common Stock are available for issuance.
o Other Options
In connection with the Australian joint venture agreement, options to acquire
513,800 shares of Common Stock were granted to certain individuals of the
unrelated third party. The exercise price of such options granted was $14.50 per
share which was the fair market value of the Common Stock on the date of grant.
A summary of changes in Common Stock options during 1993, 1994 and 1995 is as
follows:
Number Price
of shares per share
----------- --------------
Outstanding at December 29, 1992 . 864,914 $ 3.38 - 17.25
Granted ....................... 796,014 16.25 - 28.88
Exercised ..................... (210,294) 3.38 - 15.75
Cancelled ..................... (19,286) 14.50 - 25.75
----------- --------------
Outstanding at December 28, 1993 . 1,431,348 3.38 - 28.88
Granted ....................... 1,317,253 16.25 - 26.88
Exercised ..................... (14,113) 3.38 - 17.25
Cancelled ..................... (77,006) 3.38 - 28.88
----------- --------------
Outstanding at December 27, 1994 . 2,657,482 3.38 - 28.88
Granted ....................... 2,140,937 19.00 - 43.25
Exercised ..................... (172,446) 3.38 - 28.88
Cancelled ..................... (51,386) 14.50 - 39.88
----------- --------------
Outstanding at December 26, 1995 . 4,574,587 3.38 - 43.25
===========
Options exerciseable at: ........
December 26, 1995 ............. 1,208,791
Available for grant at: .........
December 26, 1995 ............. 2,928,560
7. RELATED PARTY TRANSACTIONS
The Company utilizes an affiliate to provide certain accounting, computer and
administrative services. The Company incurred fees of $308,057, $792,913, and
$1,443,312, related to such services for fiscal years 1993, 1994, and 1995,
respectively.
8. LEASES
The Company leases one restaurant facility which is accounted for as a
capital lease and other facilities under noncancelable operating leases having
terms expiring between 1996 and 2022. The leases have renewal clauses of 5 to
F-11
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. Leases - (Continued)
20 years, exercisable at the option of the lessee. In addition, certain leases
contain escalation clauses based upon a fixed percentage increase and provisions
for contingent rentals based on a percentage of gross revenues, as defined.
Total rental expense for the years ended December 28 1993, December 27, 1994,
and December 26, 1995, was $2,485,565, $3,847,077, and $4,962,163, respectively,
including contingent rentals of approximately $254,327, $316,601, and $419,357,
respectively.
Information regarding the Company's leasing activities at December 26, 1995,
are as follows:
Capital Operating
Leases Leases
----------- --------------
1996 ...................................... $ 120,000 $ 4,834,713
1997 ...................................... 120,000 4,057,926
1998 ...................................... 120,000 3,267,919
1999 ...................................... 120,000 2,221,017
2000 ...................................... 60,000 1,830,495
Thereafter ................................ -- 3,473,613
----------- --------------
Total minimum lease payments .............. 540,000 $19,685,683
==============
Less imputed interest ..................... (152,669)
-----------
Present value of capital lease obligations . 387,331
Less current portion ...................... (64,550)
-----------
Long-term portion ......................... $ 322,781
===========
The net carrying value of assets under capital lease at December 27, 1994,
and December 26, 1995, is $322,664, and $267,308, respectively (net of
accumulated amortization of $566,124 and $621,480, respectively).
9. EARNINGS PER SHARE
Primary earnings per share amounts are computed based on the weighted average
number of shares actually outstanding plus the shares that would be outstanding
assuming exercise of dilutive stock options which are considered to be common
stock equivalents. The number of shares that would be issued from the exercise
of stock options has been reduced by the number of shares that could have been
purchased from such proceeds at the average market price of the Company's stock.
The number of shares resulting from this computation for 1993, 1994, and 1995
was 33,339,007, 34,608,610, and 37,537,891, respectively.
For purposes of fully 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 such proceeds at the market price of
the Company's stock on the last day of the fiscal year because that price was
higher than the average market prices during the year. The number of shares
resulting from this computation of fully diluted earnings per share for 1993,
1994, and 1995, were 33,392,556, 34,608,693, and 37,867,716, respectively.
F-12
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. LONG-TERM DEBT
<TABLE>
<CAPTION>
1994
-------------
<S> <C>
The following is a summary of long-term debt at December 27, 1994:
Three unsecured notes payable to bank, due in monthly installments
ranging from $6,667 to $11,667, plus interest payable at the
bank's prime rate; final maturity in August 2000. .................. $1,370,000
Notes payable to stockholders of CCC Group. .......................... 1,548,443
Note payable to bank, due in monthly installments of $6,366 including
interest at 7.25% through November 2005, collateralized by a
building with a carrying value of approximately $642,000 at
December 27, 1994. ................................................. 577,926
Note payable to bank, due in monthly installments of $7,917 plus
interest payable at the bank's prime rate plus 1/2%;
collateralized by accounts receivable, inventory, property and
equipment, and a life insurance policy on a shareholder, payable
in full in November 1996. .......................................... 183,333
Six notes payable to bank, due in monthly installments ranging
from $1,136 to $1,202 plus interest ranging from 8.56% to 10.15%;
collateralized by computer equipment; ultimately payable in
full in September 1997. ............................................ 195,134
------------
3,874,836
Less current portion ................................................. 3,874,836
------------
Long-term portion .................................................... $ --
=============
</TABLE>
All of the related long-term debt described above relates to activities of
the CCC Group prior to its acquisition by the Company. Such indebtedness was
repaid by the Company in August 1995, and accordingly, all such indebtedness at
December 27, 1994 was classified as current in the accompanying consolidated
balance sheet.
11. INCOME TAXES
As discussed in Note 1, the Company accounts for income taxes in accordance
with FAS 109. Income tax expense consists of the following:
<TABLE>
<CAPTION>
For the years ended
-----------------------------------------------------------
December 28, 1993 December 27, 1994 December 26, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Current tax expense:
Federal ....................... $6,423,415 $12,410,595 $20,145,697
State ......................... 1,490,388 3,167,348 3,560,579
---------- ----------- -----------
Total current ............... 7,913,803 15,577,943 23,706,276
Deferred tax expense:
Federal ....................... 1,057,325 1,123,188 2,976,342
State ......................... 140,950 198,999 136,973
---------- ----------- -----------
Total deferred .............. 1,198,275 1,322,187 3,113,315
---------- ----------- -----------
Total provision for income taxes . $9,112,078 $16,900,130 $26,819,591
========== =========== ===========
</TABLE>
F-13
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. Income Taxes - (Continued)
The difference between the reported provision for income taxes and a tax
determined by applying the applicable U.S. federal statutory income tax rate
to income before taxes, is reconciled as follows.
<TABLE>
<CAPTION>
For the years ended
----------------------------------------------------------------------
December 28, 1993 December 27, 1994 December 26, 1995
----------------- ----------------- -----------------
Amount Rate Amount Rate Amount Rate
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Income tax expense at federal statutory rate ...... $8,919,030 35% $16,475,580 35% $25,788,882 35%
State tax expense, net ........................... 1,202,076 5 2,464,990 5 2,403,409 3
Effect of income tax related to CCC Group which
were not taxed because of S Corporation status... (583,742) (2) (983,369) (2) (833,193) (1)
Other items, net, none of which individually
exceeds 5% of federal taxes at statutory rate.... (425,286) (2) (1,057,071) (2) (539,507) (1)
--------- ------ ----------- ------ ----------- -----
Actual provision for income taxes ................ $9,112,078 36% $16,900,130 36% $26,819,591 36%
========== ====== =========== ====== =========== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax liabilities are presented below:
December 27, December 26,
1994 1995
-------------- --------------
Deferred tax liabilities: .....
Pre-opening costs ........ $ 875,322 $1,817,159
Property and equipment ... 1,795,490 3,966,968
-------------- --------------
Total deferred tax
liability .............. $2,670,812 $5,784,127
============== ==============
12. COMMITMENTS
As of December 26, 1995, the Company has entered into purchase or option
contracts to purchase 25 additional sites for future restaurant locations. Such
contracts aggregate approximately $20,089,000. The Company has also entered into
operating lease agreements, subject to certain contingencies, on two additional
sites. Such leases generally have initial lease terms of five years and the
aggregate future minimum lease payments total approximately $520,000.
Subsequent to December 26, 1995, the Company has entered into purchase
contracts, subject to certain contingencies, for ten additional sites totaling
approximately $5,865,000. The Company also has entered into operating lease
agreements on two additional sites. Such leases generally have initial lease
terms of five years and the aggregate future minimum lease payments total
approximately $1,285,000.
13. ACQUISITION OF THE DEL FRISCO GROUP
On September 16, 1995, the Company acquired substantially all the operating
assets, real estate and related operations that comprised Del Frisco's Double
Eagle Steak House Group in Dallas, Texas, including a restaurant under
construction in Fort Worth, Texas, for an aggregate purchase price of $22.8
million, consisting of $14.6 million of internally generated cash and 206,250
shares of the Company's Common Stock. The Company accounted for the transaction
using the purchase method of accounting. In connection with the purchase price
allocation, the Company recorded goodwill of approximately $16.5 million which
is being amortized over a period of twenty years. The following supplemental pro
forma information presents the combined results of operations of the Company as
though the acquisition had occurred at the beginning of periods presented. The
pro forma information is unaudited and not necessarily indicative of the results
of the Company had the acquisition occurred at the beginning of such periods.
F-14
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Acquisition of The Del Frisco Group - (Continued)
For the years ended
-----------------------------------------
December 27, 1994 December 26, 1995
----------------- -----------------
(Dollars in thousands, except per share amounts)
Revenues .................... $ 225,163 $347,630
Net income .................. 31,162 48,494
Primary net income per share . $ .90 $ 1.29
14. QUARTERLY FINANCIAL SUMMARIES (UNAUDITED)
Summarized quarterly financial data for 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1st Quarter(a) 2nd Quarter(a) 3rd Quarter 4th Quarter
---------------- ---------------- --------------- ---------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
1994
Net Sales ................................... $40,335 $45,922 $53,067 $ 76,476
Restaurant operating income ................. 10,014 11,185 12,690 20,038
Pro forma net income (b) .................... 5,575 6,104 6,954 10,556
Pro forma primary net income per share ...... $ 0.16 $ 0.18 $ 0.20 $ 0.30
Pro forma fully diluted net income per share . 0.16 0.18 0.20 0.30
1995
Net Sales ................................... $69,393 $71,695 $81,633 $118,136
Restaurant operating income ................. 17,371 17,498 20,569 28,029
Pro forma net income (b) .................... 8,870 9,615 11,845 16,405
Pro forma primary net income per share ...... $ 0.26 $ 0.26 $ 0.31 $ 0.42
Pro forma fully diluted net income per share . 0.25 0.26 0.30 0.42
</TABLE>
(a) Results for the first and second quarters of 1994 and 1995 differ from
the results issued in the Company's quarterly reports on Form 10-Q, due
to such results being restated to account for the pooling of the CCC
Group which occurred during 1995. The net sales, restaurant operating
income, net income, and earnings per share for these quarters have
increased from amounts previously reported as follows:
Increase resulting from pooling of CCC Group
1st Quarter 2nd Quarter
--------------- ---------------
(In thousands, except per share amounts)
1994
Net sales .............................. $ 4,168 $4,623
Restaurant operating income ............ 885 855
Net income ............................. 321 317
Pro forma primary net income per share .. -- $ 0.01
Pro forma fully diluted net income per
share ................................ -- 0.01
1995
Net sales .............................. $ 6,212 $6,553
Restaurant operating income ............ 1,280 1,125
Net income ............................. 551 442
Pro forma primary net income per share .. $ 0.01 --
Pro forma fully diluted net income per
share ................................ 0.01 --
(b) Pro forma net income gives effect to providing for income taxes at the
estimated tax rate on pooled S Corporations of the CCC Group prior to the
acquisition of the CCC Group in 1995.
F-15
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 26, 1995 March 19, 1996
---------------- --------------
ASSETS
Current assets: ...........................
Cash and cash equivalents ............... $ 67,424,884 $ 65,955,253
Accounts receivable ..................... 1,308,865 1,357,263
Inventories ............................. 4,156,355 5,138,067
Pre-opening costs, net .................. 10,328,686 9,407,344
Refundable income taxes ................. 5,006,856 --
Other current assets .................... 90,092 300,765
---------------- -------------
Total current assets ............ 88,315,738 82,158,692
Property and equipment, net ............... 245,334,956 266,381,463
Intangible and other assets, net .......... 24,567,805 21,989,543
---------------- -------------
Total assets .................... $358,218,499 $370,529,698
================ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: ......................
Accounts payable ........................ $ 9,245,331 $ 7,224,257
Income taxes payable .................... -- 1,527,980
Deferred income taxes ................... 1,817,159 2,053,409
Other current liabilities ............... 17,372,803 16,381,011
---------------- -------------
Total current liabilities ....... 28,435,293 27,186,657
Deferred income taxes ..................... 3,966,968 4,509,818
Minority interest ......................... 2,682,914 2,290,673
Capitalized lease obligation .............. 322,781 305,033
Stockholders' equity: .....................
Preferred stock ......................... -- --
Common stock ............................ 375,879 376,351
Additional paid-in capital .............. 228,578,790 229,206,729
Retained earnings ....................... 94,140,238 107,076,319
Translation adjustment .................. (284,364) (421,882)
---------------- -------------
Total stockholders' equity ...... 322,810,543 336,237,517
---------------- -------------
Total liabilities and stockholders'
equity ........................ $358,218,499 $370,529,698
================ =============
See accompanying notes
F-16
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the twelve weeks ended
--------------------------------------
March 21, 1995 March 19, 1996
---------------- --------------
<S> <C> <C>
Net sales ................................................. $69,392,857 $106,375,328
Costs and expenses: ........................................
Costs of sales ........................................... 24,844,939 37,584,027
Restaurant operating expenses ............................ 23,212,444 37,718,967
Depreciation and amortization ............................ 3,964,520 6,313,030
-------------- ------------
Restaurant costs and expenses .............................. 52,021,903 81,616,024
-------------- ------------
Restaurant operating income ................................ 17,370,954 24,759,304
General and administrative expenses ........................ 2,977,621 4,665,802
-------------- ------------
Income from operations ..................................... 14,393,333 20,093,502
Other income, principally interest ......................... 158,584 634,194
-------------- ------------
Income before income taxes and minority interest ........... 14,551,917 20,727,696
Provision for income taxes ................................. (5,315,103) (8,183,856)
Minority interest .......................................... -- 392,241
-------------- ------------
Net income ................................................. $ 9,236,814 $ 12,936,081
============== ============
Primary net income per share ............................... $ 0.26 $ 0.33
============== ============
Fully diluted net income per share ......................... $ 0.26 $ 0.33
============== ============
Unaudited pro forma information based on providing for income
taxes on pooled S Corporations prior to acquisition at the
estimated effective tax rate: ............................
Income before income taxes ........................... $14,551,917
Pro forma provision for income taxes .................. (5,682,332)
-----------
Pro forma net income .................................. $ 8,869,585
===========
Pro forma primary net income per share ................ $ 0.25
===========
Pro forma fully diluted net income per share .......... $ 0.25
===========
</TABLE>
See accompanying notes
F-17
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
For the twelve weeks ended
------------------------------------
March 21, 1995 March 19, 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities: ....................
Net income ............................................. $ 9,236,814 $ 12,936,081
Adjustments to reconcile net income to net cash provided
by operating activities: ............................
Depreciation and amortization ....................... 3,964,520 6,313,030
Net change in operating assets and liabilities: .....
Change in operating assets ........................ (383,418) 2,342,621
Change in operating liabilities ................... 240,090 (1,122,428)
----------- -----------
Net cash provided by operating activities ...... 13,058,006 20,469,304
Cash flows from investing activities: ....................
Purchases of property and equipment .................... (12,700,269) (23,890,992)
Other .................................................. (288,083) 1,608,009
----------- -----------
Net cash used in investing activities .......... (12,988,352) (22,282,983)
Cash flows from financing activities:
Net proceeds from issuance of common stock ............. 84,395 628,411
Payment of notes payable on company acquired ........... (307,130) --
Dividends on prior S Corporation income ................ (270,000) --
----------- -----------
Net cash provided by (used in) financing activities (492,735) 628,411
----------- -----------
Effect of exchange rate changes on cash .................. -- (284,363)
Net decrease in cash and cash equivalents ...... (423,081) (1,469,631)
Cash and cash equivalents at beginning of period ......... 45,861,034 67,424,884
------------ ------------
Cash and cash equivalents at end of period .............. $ 45,437,953 $ 65,955,253
============ ============
Supplemental disclosure of cash flow information: ........
Cash paid for interest ................................ $ 68,484 $ --
Cash paid for income taxes ............................. 3,536,876 869,920
</TABLE>
See accompanying notes
F-18
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(NOTE 1) BASIS OF PRESENTATION
The unaudited 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 of the twelve weeks ended March 19, 1996, are
not necessarily indicative of the results to be expected for the full year
ending December 31, 1996.
(NOTE 2) STOCK OPTIONS
During the twelve week period ended March 19, 1996, the Company granted
stock options for 1,201,394 shares of Common Stock at prices ranging from
$31.75 to $37.75 per share pursuant to its 1992 stock option plan for
employees.
(NOTE 3) EARNINGS PER SHARE
Primary earnings per share amounts are computed based on the weighted
average number of shares actually outstanding plus the shares that would be
outstanding assuming exercise of dilutive stock options which are considered
to be common stock equivalents. The number of shares that would be issued
from the exercise of stock options has been reduced by the number of shares
that could have been purchased from such proceeds at the average market price
of the Company's stock. The number of shares resulting from this computation
for the twelve weeks ended March 21, 1995 and March 19, 1996, was 34,931,291
and 38,797,073, respectively.
For purposes of fully 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 such proceeds at the
market price of the Company's stock on the last day of the fiscal year
because that price was higher than the average market prices during the year.
The number of shares resulting from this computation of fully diluted
earnings per share for the twelve weeks ended March 21, 1995, and March 19,
1996, was 35,203,281 and 39,132,621, respectively.
(NOTE 4) SUBSEQUENT EVENT -- DISCONTINUANCE OF EUROPEAN JOINT VENTURE
The Company currently operates three Lone Star Restaurants in Europe pursuant
to a joint venture agreement (the "European Joint Venture"). On May 20, 1996 the
Board of Directors of the Company approved a plan to discontinue the European
Joint Venture. The Company anticipates closing its European restaurants as early
as the second quarter of fiscal 1996; however, the Company may seek to sell or
license such restaurants. The Company expects to incur a non-recurring pre-tax
charge as early as the second quarter of fiscal 1996 in the range of $9,000,000
to $11,000,000. The actual amount and the timing of such charge may vary
depending upon the timing and methods the Company utilizes in exiting its
current European operations. In addition, at the current time the Company is
unable to determine what contingent liabilities, if any, may be associated with
the discontinuance of such operations, including resolution of any disputes
which may arise with its European Joint Venture partner. The Company has been
unable to reach an understanding with its European Joint Venture partner on the
discontinuance of the European operations, and absent such agreement, it is
likely that litigation will result. The Company is unable, at the present time,
to estimate the additional liability, if any, potentially resulting from such
litigation.
F-19
<PAGE>
==============================================================================
No dealer, salesman or any other person is authorized to give any information
or to make any representations in connection with this offering not contained
in this Prospectus and, if given or made, such information or representations
must not be relied upon as having been authorized by the Company or any
Selling Stockholder. This Prospectus does not constitute an offer to sell or
solicitation of any offer to buy any security other than the registered
securities to which it relates or an offer to sell or solicitation of an
offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or that information contained herein is correct as of any time
subsequent to the date hereof.
------
TABLE OF CONTENTS
------
Page
--------
Prospectus Summary ............................. 3
Risk Factors ................................... 6
The Company .................................... 8
Use of Proceeds ................................ 9
Price Range of Common Stock .................... 9
Capitalization ................................. 10
Dividend Policy ................................ 10
Selected Historical and Pro Forma Financial Data . 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations ........... 13
Business ....................................... 19
Management ..................................... 28
Certain Relationships and Related Transactions . 33
Principal and Selling Stockholders ............. 34
Description of Capital Stock ................... 36
Plan of Distribution ............................ 37
Available Information .......................... 38
Experts ........................................ 38
Legal Matters .................................. 38
Index to Consolidated Financial Statements ..... F-1
==============================================================================
<PAGE>
==============================================================================
123,222 SHARES
[LOGO]
COMMON STOCK
------
PROSPECTUS
------
May , 1996
==============================================================================
<PAGE>
.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses payable by it in connection with
the offering described in this registration statement (other than the
underwriting discount and commissions) will be as follows:
SEC Registration Fee ............................. $ 9,651.50
Printing and engraving expenses .................. 2,000.00
Accounting fees and expenses ..................... 5,000.00
Legal fees and expenses .......................... 7,500.00
Blue sky qualification fees and expenses .......... 1,000.00
Transfer Agent's fees and expenses ................ 1,000.00
----------
Total ............................................ $26,061.50
==========
* To Be Completed By Amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation of the Registrant provides that the
Registrant shall indemnify to the extent permitted by Delaware law any person
whom it may indemnify thereunder, including directors, officers, employees
and agents of the Registrant. Such indemnification (other than an order by a
court) shall be made by the Registrant only upon a proper determination that
the individual met the applicable standard of conduct. Advances of such
indemnification may be made pending such determination. Such determination
shall be made by a majority vote of a quorum consisting of disinterested
directors, or by independent legal counsel or by the stockholders. In
addition, the Registrant's Certificate of Incorporation eliminates, to the
extent permitted by Delaware law, personal liability of directors to the
Registrant and its stockholders for monetary damages for breach of fiduciary
duty as directors.
The Registrant also maintains a directors and officers insurance and
company reimbursement policy. The policy insures directors and officers
against unindemnified loss arising from certain wrongful acts in their
capacities and reimburses the Registrant for such loss for which the
Registrant has lawfully indemnified the directors and officers. The policy
contains various exclusions, none of which relates to the offering hereunder.
Section 145(a) of the Delaware Corporation Law (the "DGCL") provides in
relevant part that "a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the
corporation), by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, unlawful." With respect to derivative actions, Section 145(b) of
the DGCL provides in relevant part that "[a] corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor . . . [by reason of his
service in one of the capacities specified in the preceding sentence] against
expenses (including attorneys' fees) actually and reasonably incurred by him
in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
II-1
<PAGE>
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper."
The Registrant has entered into an Indemnification Agreement with each of
its directors and officers whereby is has agreed to indemnify each director
and officer from and against any and all expenses, losses, claims, damages
and liability incurred by such director or officer for or as a result of
action taken or not taken while such director was acting in his capacity as a
director, officer, employee or agent of the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
1. In connection with the 1995 Lone Star Acquisition, on August 8, 1995,
the Company issued the following shares of Common Stock:
Leslie Rudd ...................... 231,504 shares
Dennis Thompson .................. 215,961 shares
James F. Haun ..................... 76,060 shares
James C. Verney ................... 54,742 shares
Daniel M. Kammerer ................. 1,083 shares
Thomas A. Hager .................... 1,083 shares
2. In connection with the 1995 Del Frisco Acquisition, on September 15,
1995, the Company issued the following shares of Common Stock:
Dale F. Wamstad ................. 181,500 shares
Dee Lincoln ...................... 24,750 shares
Such shares were issued pursuant to the exemption from registration
contained in Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT OF SCHEDULES.
(a) Exhibits:
Exhibit
-------
Number
-------
***3.1 Company's Certificate of Incorporation as amended
***3.2 Company's By-Laws
***4.1 Form of Common Stock Certificate
*4.2 Registration Rights Agreement between the Company, Dale
Wamstad and Dee Lincoln, dated September 15, 1995
*4.3 Registration Rights Agreement between the Company,
Leslie G. Rudd, Dennis L. Thompson, James F. Haun, James C.
Verney, Daniel M. Kammerer, Thomas A. Hager, dated
August 3, 1995
*5.1 Opinion of Olshan Grundman Frome & Rosenzweig LLP with
respect to legality of the Common Stock.
******10.1 Services Agreement as amended between the Company and
Coulter Enterprises, Inc., dated February 8, 1996
*****10.2 Employment Agreement between the Company and John D. White,
dated February 1, 1995
*****10.3 Employment Agreement between the Company and Scott M.
Somes, dated February 1, 1995
****10.4 1992 Lone Star Steakhouse & Saloon, Inc. Incentive and
Non-qualified Stock Option Plan (the "Plan") as amended
***10.5 Form of Indemnification Agreement for officers and
directors of the Company
***10.6 Non-Competition, Confidentiality and Non-Solicitation
Agreement between the Company and Jamie B. Coulter, dated
\ March 12, 1992
II-2
<PAGE>
Exhibit
-------
Number
-------
**10.7 Non-Competition, Confidentiality and Non-Solicitation
Agreement between the Company and Dennis L. Thompson,
dated March 12, 1992
******10.8 Merger between Creative Culinary Concepts, Inc., Steaks of
Raleigh, Inc., Lone Star Steaks of Pineville, Inc., Steaks
of Jacksonville, Inc., Steaks of Greenville, Inc., Steaks
of Cary, Inc. Steaks of Cornelius, Inc., Cowboy Steaks,
Inc. Leslie G. Rudd, Dennis L. Thompson, James F. Haun,
James C. Verney and Lone Star Steakhouse & Saloon, Inc. and
Lone Star Steaks, Inc.
******10.9 Merger between Nacho Mama's, Inc., Mama's Concept, Inc.
Leslie G. Rudd, Dennis L. Thompson, James F. Haun, and Lone
Star Steakhouse & Saloon, Inc.
******10.10 Merger between Morehead Restaurant Group, Inc., Dennis L.
Thompson, Thomas A. Hager, Daniel Kammerer, James Verney,
Lone Star Steakhouse & Saloon, Inc. and Frankie's
Restaurant, Inc.
******10.11 Asset Purchase Agreement among Creative Concepts of North
Carolina LLC, Leslie G. Rudd, Dennis L. Thompson, James F.
Haun, and James C. Verney, and Lone Star Steakhouse
& Saloon, Inc.
*******11.1 Statement regarding Computation of Per Share Earnings
******21.0 Subsidiaries of the Company
********23.1 Consent of Ernst & Young LLP
*23.2 Consent of Olshan Grundman Frome & Rosenzweig LLP,
included in Exhibit No. 5.
*24 Power of Attorney, included in Part II of the Registration
Statement
- - ----------
* Previously filed.
** Incorporated by reference to the Company's Registration Statement on
Form S-1, filed with the Commission on October 1, 1992 (Commission
File No. 33-52678) as amended.
*** Incorporated by reference to the Company's Registration Statement on
Form S-1, filed with the Commission on January 31, 1992 (Commission
File No. 33-45399), as amended.
**** Incorporated by reference to the Company's Registration Statement on
Form S-8, filed with the Commission on January 12, 1996 (Commission
File No. 333-280), as amended.
***** Incorporated by reference to the Company's Form 10-K for the year
ended December 27, 1994.
****** Incorporated by reference to the Company's Form 10-K for the year
ended December 26, 1995.
******* Incorporated by reference to the Company's Registration Statement on
Form S-1, filed with the Commission on May 21, 1996 (Commission File
No. 333-04129), as amended.
******** Filed herewith.
All schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions
or are not applicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of an
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) of
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Wichita, State of Kansas, on the
28th day of May, 1996.
LONE STAR STEAKHOUSE & SALOON, INC.
By: /s/ Jamie B. Coulter
-------------------------------
Jamie B. Coulter, Chairman of
the Board and Chief Executive
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jamie B. Coulter and John D. White, and each
of them, his true nd lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be
done, as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent or
his substitute may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
---------- ----- ----
<S> <C> <C>
/s/ Jamie B. Coulter Chairman of the Board and Chief May 28, 1996
------------------------- Executive Officer (Principal Executive
Jamie B. Coulter Officer)
/s/ John D. White* Executive Vice President, Chief May 28, 1996
------------------------- Financial Officer and (Principal
John D. White Accounting Officer), Treasurer and
Director
/s/ Dennis L. Thompson* Senior Vice President-Real Estate and May 28, 1996
------------------------- Director
Dennis L. Thompson
/s/ Clark R. Mandigo* Director May 28, 1996
-------------------------
Clark R. Mandigo
/s/ C. Robert Buford* Director May 28, 1996
-------------------------
C. Robert Buford
/s/ Fred B. Chaney* Director May 28, 1996
-------------------------
Fred B. Chaney
*By: /s/ Jamie B. Coulter
-------------------------
Jamie B. Coulter
Attorney-in-fact
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Exhibit Page Number
-------------- ------- -----------
<S> <C> <C>
***3.1 Company's Certificate of Incorporation as amended
***3.2 Company's By-Laws
***4.1 Form of Common Stock Certificate
*4.2 Registration Rights Agreement between the Company, Dale
Wamstad and Dee Lincoln, dated September 15, 1995
*4.3 Registration Rights Agreement between the Company,
Leslie G. Rudd, Dennis L. Thompson, James F. Haun, James C.
Verney, Daniel M. Kammerer, Thomas A. Hager, dated
August 3, 1995
*5.1 Opinion of Olshan Grundman Frome & Rosenzweig LLP with
respect to legality of the Common Stock.
******10.1 Services Agreement as amended between the Company and
Coulter Enterprises, Inc., dated February 8, 1996
*****10.2 Employment Agreement between the Company and John D. White,
dated February 1, 1995
*****10.3 Employment Agreement between the Company and Scott M.
Somes, dated February 1, 1995
****10.4 1992 Lone Star Steakhouse & Saloon, Inc. Incentive and
Non-qualified Stock Option Plan (the "Plan") as amended
***10.5 Form of Indemnification Agreement for officers and
directors of the Company
***10.6 Non-Competition, Confidentiality and Non-Solicitation
Agreement between the Company and Jamie B. Coulter, dated
March 12, 1992
**10.7 Non-Competition, Confidentiality and Non-Solicitation
Agreement between the Company and Dennis L. Thompson,
dated March 12, 1992
******10.8 Merger between Creative Culinary Concepts, Inc., Steaks of
Raleigh, Inc., Lone Star Steaks of Pineville, Inc., Steaks
of Jacksonville, Inc., Steaks of Greenville, Inc., Steaks
of Cary, Inc. Steaks of Cornelius, Inc., Cowboy Steaks,
Inc. Leslie G. Rudd, Dennis L. Thompson, James F. Haun,
James C. Verney and Lone Star Steakhouse & Saloon, Inc. and
Lone Star Steaks, Inc.
******10.9 Merger between Nacho Mama's, Inc., Mama's Concept, Inc.
Leslie G. Rudd, Dennis L. Thompson, James F. Haun, and Lone
Star Steakhouse & Saloon, Inc.
******10.10 Merger between Morehead Restaurant Group, Inc., Dennis L.
Thompson, Thomas A. Hager, Daniel Kammerer, James Verney,
Lone Star Steakhouse & Saloon, Inc. and Frankie's
Restaurant, Inc.
******10.11 Asset Purchase Agreement among Creative Concepts of North
Carolina LLC, Leslie G. Rudd, Dennis L. Thompson, James F.
Haun, and James C. Verney, and Lone Star Steakhouse
& Saloon, Inc.
*******11.1 Statement regarding Computation of Per Share Earnings
******21.0 Subsidiaries of the Company
********23.1 Consent of Ernst & Young LLP
*23.2 Consent of Olshan Grundman Frome & Rosenzweig LLP,
included in Exhibit No. 5.
*24 Power of Attorney, included in Part II of the Registration
Statement
</TABLE>
- - ----------
* Previously filed.
** Incorporated by reference to the Company's Registration Statement on
Form S-1, filed with the Commission on October 1, 1992 (Commission
File No. 33-52678) as amended.
*** Incorporated by reference to the Company's Registration Statement on
Form S-1, filed with the Commission on January 31, 1992 (Commission
File No. 33-45399), as amended.
**** Incorporated by reference to the Company's Registration Statement on
Form S-8, filed with the Commission on January 12, 1996 (Commission
File No. 333-280), as amended.
***** Incorporated by reference to the Company's Form 10-K for the year
ended December 27, 1994.
****** Incorporated by reference to the Company's Form 10-K for the year
ended December 26, 1995.
******* Incorporated by reference to the Company's Registration Statement on
Form S-1, filed with the Commission on May 21, 1996 (Commission File
No. 333-04129).
******** Filed herewith.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 18, 1996, with respect to the
consolidated financial statements of Lone Star Steakhouse & Saloon, Inc.
included in the Registration Statement (Form S-1 No. 33-80821) and related
Prospectus of Lone Star Steakhouse & Saloon, Inc. for the registration of
123,222 shares of its common stock.
ERNST & YOUNG LLP
Wichita, Kansas
May 29, 1996
