UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended Commission file number
March 25, 1997 0-19907
- -------------- -------
LONE STAR STEAKHOUSE & SALOON, INC.
(Exact name of registrant as specified in its charter)
Delaware 48-1109495
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
224 EAST DOUGLAS, SUITE 700
WICHITA, KANSAS 67202
(Address of principal executive offices) (Zip code)
(316) 264-8899
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
documents and reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
/X/ YES / / NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at April 22, 1997
----- -----------------------------
Common Stock, $.01 Par Value 40,997,119 Shares
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
Index
Page
Number
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PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
AT MARCH 25, 1997 AND DECEMBER 31, 1996 2
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME FOR THE TWELVE WEEKS ENDED
MARCH 25, 1997 AND MARCH 19, 1996 3
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS FOR THE TWELVE WEEKS ENDED
MARCH 25, 1997 AND MARCH 19, 1996 4
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS 5
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 6
PART II. OTHER INFORMATION
- ---------------------------
ITEMS 1 THROUGH 5 HAVE BEEN OMITTED
SINCE THE ITEMS ARE EITHER INAPPLICABLE OR THE
ANSWER IS NEGATIVE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
PART III. EXHIBITS
- -------------------
11.1 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
-1-
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 25, 1997 December 31, 1996
-------------- -----------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 157,992,396 $ 150,721,286
Accounts receivable 2,060,776 2,233,119
Inventories 6,718,187 4,728,071
Pre-opening costs - net 5,765,153 6,250,241
Deferred income taxes 954,383 584,780
Other current assets 1,346,414 783,557
----------- -----------
Total current assets 174,837,309 165,301,054
Property and equipment, net 367,865,568 350,588,246
Intangible and other assets, net (principally goodwill) 26,521,246 26,262,455
----------- -----------
Total assets $ 569,224,123 $ 542,151,755
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,964,804 $ 8,202,116
Other current liabilities 33,111,073 30,854,934
------------ ------------
Total current liabilities 43,075,877 39,057,050
Deferred income taxes 6,613,528 7,306,978
Other non-current liabilities 228,692 247,510
Minority interest 134,449 301,384
Stockholders' Equity:
Preferred stock - -
Common stock 409,590 407,027
Additional paid-in capital 347,123,784 341,158,492
Retained earnings 172,411,048 154,207,532
Translation adjustment (772,845) (534,218)
------------ ------------
Total stockholders' equity 519,171,577 495,238,833
------------ ------------
Total liabilities and stockholders' equity $ 569,224,123 $ 542,151,755
============ ============
</TABLE>
See accompanying notes.
- 2 -
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the Twelve Weeks Ended
-------------------------------------
March 25, 1997 March 19, 1996
-------------- --------------
<S> <C> <C>
Net sales $ 130,255,616 $ 106,375,328
Costs and expenses:
Costs of sales 45,957,040 37,584,027
Restaurant operating expenses 45,389,594 37,718,967
Depreciation and amortization 6,430,554 6,313,030
------------ ------------
Restaurant costs and expenses 97,777,188 81,616,024
------------ ------------
Restaurant operating income 32,478,428 24,759,304
General and administrative expenses 4,643,388 4,665,802
------------ ------------
Income from operations 27,835,040 20,093,502
Other income, principally interest 986,147 634,194
------------ ------------
Income before income taxes and minority interest 28,821,187 20,727,696
Provision for income taxes (10,602,788) (8,183,856)
Minority interest (14,883) 392,241
------------ ------------
Net income $ 18,203,516 $ 12,936,081
============ ============
Primary net income per share $ 0.44 $ 0.33
============ ============
</TABLE>
See accompanying notes.
- 3 -
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
For the twelve weeks ended
-------------------------------------
March 25, 1997 March 19, 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 18,203,516 $ 12,936,081
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,522,664 6,313,030
Net change in operating assets and liabilities:
Change in operating assets (3,993,942) 2,342,621
Change in operating liabilities 3,139,624 (1,122,428)
------------- -------------
Net cash provided by operating activities 23,871,862 20,469,304
Cash flows from investing activities:
Purchases of property and equipment (21,423,374) (23,890,992)
Other (906,606) 1,608,009
------------- -------------
Net cash used in investing activities (22,329,980) (22,282,983)
Cash flows from financing activities:
Net proceeds from issuance of common stock 5,967,855 628,411
------------- -------------
Net cash provided by financing activities 5,967,855 628,411
------------- -------------
Effect of exchange rate on cash (238,627) (284,363)
Net increase in cash and cash equivalents 7,271,110 (1,469,631)
Cash and cash equivalents at beginning of period 150,721,286 67,424,884
------------- -------------
Cash and cash equivalents at end of period $ 157,992,396 $ 65,955,253
============= =============
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 4,690,690 $ 869,920
</TABLE>
See accompanying notes.
- 4 -
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited Condensed Consolidated Financial Statements include all
adjustments, consisting of normal, recurring accruals, which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for the periods presented. The results of the twelve weeks
ended March 25, 1997, are not necessarily indicative of the results to be
expected for the full year ending December 30, 1997. This quarterly report on
Form 10-Q should be read in conjunction with the Company's audited consolidated
financial statements in its 1996 Form 10-K.
2. STOCK OPTIONS
During the twelve week period ended March 25, 1997, the Company granted
stock options for 3,491,040 shares of Common Stock at exercise prices ranging
from $26.13 to $28.38 per share pursuant to its 1992 stock option plan for
employees.
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 the 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 25, 1997 and March 19, 1996 was 41,334,247 and
38,797,073, respectively.
Fully diluted computations are not presented as the dilutive effect was not
significant.
4. RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS
128"), which specifies the computation, presentation, and disclosure
requirements for earnings per share with the objective to simplify the
computation of earnings per share. FAS 128 is effective for financial statements
for periods ending after December 15, 1997 and earlier application is not
permitted. After the effective date, all prior period earnings per share data
shall be restated to conform with the provisions of FAS 128. The adoption of FAS
128 is not expected to have a material impact on the Company's earnings per
share data.
-5-
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto included elsewhere in this Form 10-Q.
The Company is continuing its rapid expansion under which it has opened 36
restaurants in 1993, 48 restaurants in 1994, 45 restaurants in 1995, 45
restaurants in 1996 and intends to open at least 60 Lone Star Steakhouse &
Saloon restaurants in 1997, all of which are expected to be Company-owned and
operated. As of March 25, 1997 the Company has opened 10 of the 1997 development
restaurants.
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 open.
The Company is expanding its upper-end steakhouse presence, where average
checks are $60 or more, by developing the Del Frisco's Double Eagle Steak House
concept ("Del Frisco's") in addition to its Lone Star Steakhouse & Saloon
restaurants. The Company opened its third Del Frisco's in Denver, Colorado in
January, 1997 and expects to open two or three additional Del Frisco's in 1997.
The Company is also developing its upscale steak restaurant concept under
the tradename Sullivan's Steakhouse. The average check per Sullivan's Steakhouse
customer is approximately $35 to $40. The Company opened two Sullivan's
Steakhouses in 1996 and expects to develop four to six additional Sullivan's
restaurant in 1997.
Internationally, the Company, through a joint venture, operates twenty-two
Lone Star Steakhouse & Saloon restaurants in Australia, one of which opened this
year, and expects to open an additional eight to ten units in 1997.
-6-
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated (i) the
percentages which certain items included in the Condensed Consolidated Statement
of Income bear to net sales, and (ii) other selected operating data:
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED (1)
MARCH 25, MARCH 19,
1997 1996
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
INCOME STATEMENT DATA:
Net Sales 100.0% 100.0%
Costs and expenses:
Costs of sales 35.3 35.3
Restaurant operating expenses 34.8 35.5
Depreciation and amortization 4.9 5.9
----- -----
Restaurant costs and expenses 75.0 76.7
----- -----
Restaurant operating income 25.0 23.3
General and administrative expenses 3.6 4.4
----- -----
Income from operations 21.4 18.9
Other income, principally interest,
and minority interest 0.7 1.0
----- -----
Income before provision for income taxes 22.1 19.9
Provision for income taxes 8.1 7.7
----- -----
Net income 14.0% 12.2%
===== =====
RESTAURANT OPERATING DATA:
Average sales per restaurant on an annualized basis (2) $ 2,479 $ 2,664
Number of restaurants at end of the period 244 180
</TABLE>
(1) The Company operates on a fifty-two or fifty-three week fiscal year ending
the last Tuesday in December. The fiscal quarters for the Company consist
of accounting periods of twelve, twelve, twelve and sixteen or seventeen
weeks, respectively.
(2) Average sales per restaurant on an annualized basis are computed by
dividing a restaurant's total sales for full accounting periods open
during the period by the number of full accounting periods open, and
multiplying the result by thirteen.
-7-
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
TWELVE WEEKS ENDED MARCH 25, 1997 COMPARED TO TWELVE WEEKS ENDED MARCH 19, 1996
Net sales increased $23,880,000 (22.4%) to $130,255,616 for the twelve
weeks ended March 25, 1997 compared to $106,375,328 for the twelve weeks ended
March 19, 1996 principally attributable to $25,254,000 in sales from the 52 new
domestic Lone Star restaurants opened since March 1996, additional sales from
the Sullivan's and Del Frisco's restaurants opened in 1996 and sales from the
Australian joint venture. Same store sales were down 5.1% in the first quarter.
Costs of sales, primarily food and beverages were consistent, at 35.3% of
sales for both periods. During these periods, the Company purchased beef under
contracted prices which allowed the company to maintain consistent beef prices.
Such contracts have now been extended through September 1997.
Restaurant operating expenses for the twelve weeks ended March 25, 1997
increased $7,671,000 (20.3%) from $37,719,000 in the twelve weeks ended March
19, 1996 to $45,390,000, and such expenses decreased as a percentage of net
sales from 35.5% to 34.8%. Most of this improvement is attributable to improved
labor controls in the domestic Lone Star Steakhouse & Saloon restaurants.
Depreciation and amortization increased $118,000 (1.9%) in the twelve
weeks ended March 25, 1997 over the twelve weeks ended March 19, 1996, and such
expenses decreased as a percentage of net sales from 5.9% to 4.9%. The reduction
of capitalized pre-opening expenses for 64 new restaurants opened since March
1996 versus the restaurants opened in 1995 and the first quarter of 1996
resulted in a reduction of pre-opening expense amortization. This improvement
offset the additional depreciation and amortization expenses related to the new
units opened since March 1996. General and administrative expenses for the
twelve weeks ended March 25, 1997, decreased $22,000 (.5%) from the comparable
period in 1996.
Certain accounting and administrative services are contracted from Coulter
Enterprises, Inc, 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 $1,272,000, plus an additional fee of $416 per restaurant per
28-day accounting period and reimbursement of out-of-pocket costs and expenses
during the fiscal year ended December 31, 1996. The service agreement was
renewed for fiscal 1997 with the fixed annual charge increasing to $2,010,000
and the per restaurant, per accounting period fee increasing to $440. 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 twelve weeks ended March 25,
1997, was $986,000, a $352,000 increase from the comparable period in 1996,
reflecting increased interest income from the investment of the net proceeds of
the 1996 public offering.
The effective income tax rate for the twelve weeks ended March 25, 1997
and the effective income tax rate for the twelve weeks ended March 19, 1996 was
36.8% and 38.7%, respectively. The decrease in the rate is primarily due to an
increase in interest income nontaxable at the federal level.
-8-
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
IMPACT OF INFLATION
The primary inflationary factors affecting the Company's operations
include food and labor costs. A large number of the Company's restaurant
personnel are paid at the federal and state established minimum wage levels and,
accordingly, changes in such wage levels affect the Company's labor costs. Since
the majority of personnel are tipped employees the recent minimum wage changes
will have very little effect on labor costs. As costs of food and labor have
increased, the Company has historically been able to offset these increases
through economies of scale, although there is no assurance that such offsets
will continue. To date, inflation has not had a material impact on operating
margins.
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, amended. Stockholders are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the ability of the Company to open new restaurants, general market
conditions, competition and pricing. Although the Company believes the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements contained in the report will
prove to be accurate.
-9-
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents a summary of the Company's cash flows for
each of the twelve weeks ended March 25, 1997 and March 19, 1996.
Twelve weeks ended
March 25, March 19,
1997 1996
---- ----
Net cash provided by operating activities....... $23,871,862 $20,469,304
Net cash used in investment activities.......... (22,329,980) (22,282,983)
Net cash provided by financing
activities................................ 5,967,855 628,411
Net increase (decrease) in cash................. 7,271,110 (1,469,631)
During the twelve week period ended March 25, 1997, the Company's investment in
property and equipment was $21,423,000.
The Company has opened 230 restaurants in the past five fiscal years of
which 48 opened in 1996 and an additional twelve opened during the twelve weeks
ended March 25, 1997. 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.
At March 25, 1997, the Company had $157,992,396 in cash and cash
equivalents. While the Company has not established a credit facility, the
Company believes it could establish a facility on suitable terms. As of March
25, 1997, the Company has acquired 30 sites for future development, 10 of which
are leased. In addition, as of such date the Company had entered into one new
lease and nine contracts to purchase sites. The Company was also actively
negotiating to purchase or lease nine additional sites. In the future, the
Company anticipates that a greater proportion of its new restaurant locations
will be purchased rather than leased. The Company expects to expend
approximately $110,000,000 to open new restaurants through the remainder of
fiscal 1997.
-10-
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11.1 Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
(b) Forms on 8-K..............None
-11-
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
LONE STAR STEAKHOUSE & SALOON, INC.
(Registrant)
/s/ John D. White
----------------------------------------
John D. White
Chief Financial and Principal Accounting
Officer, Executive Vice President,
Treasurer and Director
-15-
EXHIBIT 11.1
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
For the Twelve Weeks Ended
-----------------------------------
March 25, 1997 March 19, 1996
-------------- --------------
(in thousands, except per share amounts)
Primary:
<S> <C> <C>
Average weighted shares outstanding 40,840 37,597
Net effect of dilutive stock options-based
on the treasury stock method using
average market price 494 1,200
------- -------
Total 41,334 38,797
======= =======
Net Income $18,204 $12,936
======= =======
Per share amount $ 0.44 $ 0.33
======= =======
Fully Diluted:
Average weighted shares outstanding 40,840 37,597
Net effect of dilutive stock options-based
on the treasury stock method using
period-end market price, if higher
than average market price 494 1,536
------- -------
Total 41,334 39,133
======= =======
Net Income $18,204 $12,936
======= =======
Per share amount $ 0.44 $ 0.33
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S FORM 10-Q FOR THE QUARTER ENDED MARCH 25, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-25-1997
<CASH> 157,992
<SECURITIES> 0
<RECEIVABLES> 2,061
<ALLOWANCES> 0
<INVENTORY> 6,718
<CURRENT-ASSETS> 174,837
<PP&E> 367,866
<DEPRECIATION> 0
<TOTAL-ASSETS> 569,224
<CURRENT-LIABILITIES> 43,076
<BONDS> 0
0
0
<COMMON> 409,590
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 569,224
<SALES> 130,256
<TOTAL-REVENUES> 130,256
<CGS> 45,957
<TOTAL-COSTS> 97,777
<OTHER-EXPENSES> 4,643
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 986
<INCOME-PRETAX> 28,821
<INCOME-TAX> 10,603
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,204
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
