UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------------
FORM 10-Q/A
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For quarter ended Commission file number
June 16, 1998 0-19907
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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 July 21, 1998
Common Stock, $.01 par value 39,217,967 shares
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
Index
Page
Number
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Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations 3
<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 has maintained rapid expansion over the past three fiscal
years during which it opened 45 domestic restaurants in 1995, 45 restaurants in
1996 and 60 restaurants in 1997. The Company is slowing its development of Lone
Star Steakhouse & Saloon restaurants and expects to open up to 20 locations in
the fiscal year ended December 29, 1998. All units are expected to be
Company-owned and operated. As of June 16, 1998, the Company has opened two of
the 1998 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 continuing to develop its upscale steakhouse concepts. The
Company is currently operating three Del Frisco's Double Eagle Steak House
restaurants where the check average is approximately $65. The Company has one
additional Del Frisco's Double Eagle Steak House restaurant with approximately
16,000 square feet of space in Rockefeller Plaza in New York City under
construction which it expects to open in the fourth quarter of 1998.
The Company operates a second upscale steak restaurant concept, Sullivan's
Steakhouse, where the average check per customer is approximately $50. The
Company is operating six Sullivan's Steakhouse restaurants and expects to
develop three to five additional Sullivan's Steakhouse restaurants in 1998.
Internationally, the Company, through a joint venture, operates 38 Lone
Star Steakhouse & Saloon restaurants in Australia, five of which opened this
year, and expects to open an additional three to five units in 1998.
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<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 Consolidated Statement of Income
bear to net sales, and (ii) other selected operating data:
<TABLE>
<CAPTION>
Twelve weeks ended (1) Twenty-four weeks ended
June 16, June 17, June 16, June 17,
1998 1997 1998 1997
---- ---- ---- ----
(dollars in thousands)
Income Statement Data:
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Costs of sales............................................ 37.9 35.1 37.6 35.2
Restaurant operating expenses............................. 44.0 35.2 41.8 35.0
Depreciation and amortization............................. 6.0 5.1 5.8 5.0
----- ----- ----- -----
Restaurant costs and expenses........................ 88.1 75.4 85.2 75.2
----- ----- ----- -----
Restaurant operating income..................................... 11.9 24.6 14.8 24.8
General and administrative expenses............................. 5.4 3.6 4.4 3.6
----- ----- ----- -----
Income from operations.......................................... 6.6 21.0 10.4 21.2
Other income, principally interest and minority interest........ .9 .9 .9 .8
----- ----- ----- -----
Income before provision for income taxes ....................... 7.5 21.9 11.3 22.0
Provision for income taxes...................................... 2.5 8.0 3.9 8.1
----- ----- ----- -----
Net income ..................................................... 5.0% 13.9% 7.4% 13.9%
===== ===== ===== =====
Restaurant Operating Data:
Average sales per restaurant on an annualized basis (2) $1,945 $2,344 $2,044 $2,374
Number of restaurants at end of the period 316 255 316 255
</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.
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<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
Twelve Weeks Ended June 16, 1998 Compared to Twelve Weeks Ended June 17, 1997
Net sales increased $7,663,000 (5.7%) to $141,023,000 for the twelve weeks
ended June 16, 1998, compared to $133,360,000 for the twelve weeks ended June
17, 1997, mostly attributable to $18,234,000 in sales from the 43 new domestic
Lone Star restaurants opened since June 1997, additional sales from the three
Sullivan's restaurants opened since June 1997 and sales from the 15 additional
units opened in the Australian joint venture. The increase was partially offset
by an 11.2% decrease in same-store sales which resulted from lower customer
counts during the quarter while guest check averages remained consistent.
Costs of sales, primarily food and beverages, increased as a percentage of
sales to 37.9% from 35.1% due to higher beef and produce prices, and the higher
cost of sales of new entree's introduced in the fourth quarter of 1997. Since
September, 1997, the Company has not purchased beef under contracted prices,
although there may be a possibility of contracting prices in the future.
Restaurant operating expenses for the twelve weeks ended June 16, 1998,
increased $15,294,000 (32.6%) from $46,942,000 in the twelve weeks ended June
17, 1997, to $62,236,000, and increased as a percentage of net sales from 35.2%
to 44.1%. This increase is attributable to higher labor costs and higher costs
for building and equipment maintenance on the domestic Lone Star restaurants and
higher labor and occupancy costs in the Australian units, and the effect of
fixed cost components on lower average restaurant sales.
Depreciation and amortization increased $1,793,000 (26.6%) in the twelve
weeks ended June 16, 1998, over the twelve weeks ended June 17, 1997, and
increased as a percentage of net sales from 5.1% to 6.0%. The additional fixed
assets and capitalized pre-opening expenses for 46 new restaurants opened
domestically as well as 15 restaurants opened in Australia since June 1997
increased the depreciation and amortization for the second quarter of 1998 over
the prior year.
General and administrative expenses for the twelve weeks ended June 16,
1998, increased $2,839,000 (59.8%) from the comparable period in 1997, primarily
due to additional multi-unit managers and increased travel expenses associated
with the recertification process and training materials for the management teams
of all domestic Lone Star locations.
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 $2,010,000, plus an additional fee of $440 per restaurant per
28-day accounting period and reimbursement of out-of-pocket costs and expenses
during the fiscal year ended December 30, 1997. The service agreement was
renewed for fiscal 1998 with the fixed annual charge increasing to $3,737,000
and the per restaurant, per accounting period fee increasing to $466. 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 such direct
costs would not be materially different than the costs under the contractual
arrangement.
Other income, principally interest, for the twelve weeks ended June 16,
1998, was $1,206,000, a $54,000 increase from the comparable period in 1997,
reflecting an increase in interest income from the investment of the net
proceeds of the 1996 public offering.
The effective income tax rates for the twelve weeks ended June 16, 1998,
and the twelve weeks ended June 17, 1997 were 33.7% and 36.6%, respectively. The
decrease in the rate is primarily due to a reduction in the tax liability in
certain states and a higher proportion of tax exempt income (primarily interest)
to total income.
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<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
Twenty-four Weeks Ended June 16, 1998 Compared to Twenty-four Weeks Ended June
17, 1997
Net sales increased $30,922,000 (11.7%) to $294,537,000 for the
twenty-four weeks ended June 16, 1998, compared to $263,615,000 for the
twenty-four weeks ended June 17, 1997, mostly attributable to $39,768,000 in
sales from the 43 new domestic Lone Star restaurants opened since June 1997,
additional sales from the three Sullivan's restaurants opened since June 1997
and sales from the 15 additional units opened in the Australian joint venture.
The increase was partially offset by a 8.2% decrease in same-store sales which
resulted from lower customer counts during the period while guest check averages
remained consistent.
Costs of sales, primarily food and beverages, increased as a percentage of
sales to 37.6% from 35.2% due to higher beef and produce prices, and the higher
cost of sales of new entree's introduced in the fourth quarter of 1997. Since
September, 1997, the Company has not purchased beef under contracted prices,
although there may be a possibility of contracting prices in the future.
Restaurant operating expenses for the twenty-four weeks ended June 16,
1998 increased $30,804,000 (33.4%) from $92,332,000 in the twenty-four weeks
ended June 17, 1997, to $123,136,000, and increased as a percentage of net sales
from 35.0% to 41.8%. This increase is attributable to higher labor costs and
higher costs for building and equipment maintenance on the domestic Lone Star
restaurants and higher labor and occupancy costs in the Australian units, and
the effect of fixed cost components on lower average restaurant sales.
Depreciation and amortization increased $3,986,000 (30.3%) in the
twenty-four weeks ended June 16, 1998, over the twenty-four weeks ended June 17,
1997, and increased as a percentage of net sales from 5.0% to 5.8%. The
additional fixed assets and capitalized pre-opening expenses for 46 new
restaurants opened domestically as well as 15 restaurants opened in Australia
since June 1997 increased the depreciation and amortization for the second
quarter of 1998 over the prior year.
General and administrative expenses for the twenty-four weeks ended June
16, 1998 increased $3,638,000 (38.7%) from the comparable period in 1997,
primarily due to additional personnel at the multi-unit management level and
increased travel expenses associated with the recertification process and
training materials for the management teams of all domestic Lone Star locations.
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 $2,010,000, plus an additional fee of $440 per restaurant per
28-day accounting period and reimbursement of out-of-pocket costs and expenses
during the fiscal year ended December 30, 1997. The service agreement was
renewed for fiscal 1998 with the fixed annual charge increasing to $3,737,000
and the per restaurant, per accounting period fee increasing to $466. 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 such direct
costs would not be materially different than the costs under the contractual
arrangement.
Other income, principally interest, for the twenty-four weeks ended June
16, 1998, was $2,744,000, a $606,000 increase from the comparable period in
1997, reflecting an increase in interest income from the investment of the net
proceeds of the 1996 public offering.
The effective income tax rates for the twenty-four weeks ended June 16,
1998, and the twenty-four weeks ended June 17, 1997, were 34.9% and 36.7%,
respectively. The decrease in the rate is primarily due to a reduction in the
tax liability in certain states and a higher proportion of tax exempt income
(primarily interest) to total income.
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<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, minimum wage changes will have
little effect on labor costs. 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 the forward-looking statements contained in the report will
prove to be accurate.
Year 2000 Compliance
The Company currently believes its essential processes, systems and
business functions will be ready for the millennium transition and is taking the
necessary steps to accomplish this objective. The Year 2000 issue is not
anticipated to have a material impact on the Company's results of operations,
financial position or its cash flows.
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<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:
<TABLE>
<CAPTION>
Twenty-four weeks ended
June 16, June 17,
1998 1997
---------------- -----------
<S> <C> <C>
Net cash provided by operating activities............. $ 23,605,951 $ 35,924,229
Net cash used in investment activities................ (32,932,614) (43,861,507)
Net cash provided (used) by financing
activities...................................... (23,962,196) 5,269,433
Effect of exchange rate on cash....................... (264,384) 397,220
Net decrease in cash.................................. (33,553,243) (2,270,625)
</TABLE>
During the twenty-four week period ended June 16, 1998, the Company's investment
in property and equipment was $32,504,131.
The Company has opened 241 restaurants in the past five fiscal years of
which 60 opened in 1997 and an additional 3 opened during the twenty-four weeks
ended June 16, 1998. 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 June 16, 1998, the Company had $102,444,000 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 June 16,
1998, the Company has acquired 14 sites, and has entered into four lease
agreements for future development. In addition, the Company had entered into a
commitment to purchase one additional site. On May 11, 1988 the Company
announced suspension of future development activities for Lone Star Steakhouse &
Saloon Restaurants. Total 1998 development for Lone Star Steakhouse & Saloon
restaurants will be approximately twenty (20) units domesticially. The Company
expects to expend approximately $55,000,000 to open new restaurants through the
remainder of fiscal 1998.
-8-
<PAGE>
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)
Date: /s/ John D. White
--------------------------------
John D. White
Chief Financial and Principal Accounting
Officer, Executive Vice President,
Treasurer and Director
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