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
September 5, 2000 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 October 16, 2000
Common Stock, $.01 par value 24,982,319 shares
<PAGE>
Lone Star Steakhouse & Saloon, Inc.
Index
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
at September 5, 2000 and December 28, 1999 2
Condensed Consolidated Statements of
Income (Loss) for the twelve weeks ended
September 5, 2000 and September 7, 1999 3
Condensed Consolidated Statements of
Income for the thirty-six weeks ended
September 5, 2000 and September 7, 1999 4
Condensed Consolidated Statements of
Cash Flows for the thirty-six weeks ended
September 5, 2000 and September 7, 1999 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative
Disclosures about Market Risk 14
PART II. OTHER INFORMATION
Items 1 through 5 have been omitted
since the items are either inapplicable or the
answer is negative
Item 6. Exhibits and Reports on Form 8-K 14
-1-
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 5, 2000 December 28, 1999
----------------- -----------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 27,960 $ 50,673
Inventories 12,656 11,440
Other current assets 6,707 7,256
----------- -----------
Total current assets 47,323 69,369
Property and equipment, net 420,191 430,482
Intangible and other assets, net 33,870 33,682
----------- -----------
Total assets $ 501,384 $ 533,533
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,354 $ 11,726
Other current liabilities 31,131 37,428
------------ ------------
Total current liabilities 50,485 49,154
Long-term debt - -
Stockholders' equity:
Preferred stock - -
Common stock 257 299
Additional paid-in capital 199,310 238,000
Retained earnings 262,923 253,923
Accumulated other comprehensive loss (11,591) (7,843)
------------ ------------
Total stockholders' equity 450,899 484,379
------------ ------------
Total liabilities and stockholders' equity $ 501,384 $ 533,533
============ ============
</TABLE>
See accompanying notes.
-2-
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
Condensed Consolidated Statements of Income (Loss)
(In thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the twelve weeks ended
---------------------------------------
September 5, 2000 September 7, 1999
---------------------------------------
<S> <C> <C>
Net sales $ 130,953 $ 134,801
Costs and expenses:
Costs of sales 46,904 47,314
Restaurant operating expenses 64,504 62,418
Depreciation and amortization 6,589 7,483
Provision for impaired assets and restaurant closings 541 19,365
------- ---------
Restaurant costs and expenses 118,538 136,580
------- ---------
Restaurant operating income (loss) 12,415 (1,779)
General and administrative expenses 8,747 7,651
------- ---------
Income (loss) from operations 3,668 (9,430)
Other income, net 271 639
------- ---------
Income (loss) before income taxes 3,939 (8,791)
Provision (benefit) for income taxes 1,392 (3,475)
------- ---------
Net income (loss) $ 2,547 $ (5,316)
======= =========
Basic earnings (loss) per share $ 0.10 $ (0.15)
======= =========
Diluted earnings (loss) per share $ 0.10 $ (0.15)
======= =========
</TABLE>
See accompanying notes.
-3-
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
Condensed Consolidated Statements of Income
(In thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the thirty-six weeks ended
--------------------------------------------
September 5, 2000 September 7, 1999
-------------------- -------------------
<S> <C> <C>
Net sales $ 404,395 $ 409,492
Costs and expenses:
Costs of sales 141,790 145,504
Restaurant operating expenses 190,275 185,135
Depreciation and amortization 19,749 21,535
Provision for impaired assets and restaurant closings 541 19,365
---------- --------
Restaurant costs and expenses 352,355 371,539
---------- --------
Restaurant operating income 52,040 37,953
General and administrative expenses 29,102 24,040
---------- --------
Income from operations 22,938 13,913
Other income, net 1,080 1,219
---------- --------
Income before income taxes 24,018 15,132
Provision for income taxes 8,510 5,583
---------- --------
Net income $ 15,508 $ 9,549
========== ========
Basic earnings per share $ 0.58 $ 0.26
========== ========
Diluted earnings per share $ 0.57 $ 0.26
========== ========
</TABLE>
See accompanying notes.
-4-
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the thirty-six weeks ended
-------------------------------------------
September 5, 2000 September 7, 1999
------------------- ---------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 15,508 $ 9,549
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 22,020 23,112
Provision for impaired assets and restaurant closings 541 19,365
Net change in operating assets and liabilities:
Change in operating assets (827) 5,729
Change in operating liabilities 790 (11,662)
--------- ----------
Net cash provided by operating activities 38,032 46,093
Cash flows from investing activities:
Purchases of property and equipment (19,012) (26,970)
Proceeds from sale of assets 5,697 -
Other (2,182) 148
--------- ----------
Net cash used in investing activities (15,497) (26,822)
Cash flows from financing activities:
Net proceeds from issuance of common stock 181 12
Common stock repurchased and retired (38,913) (37,774)
Proceeds from long-term borrowings 6,955 -
Payments on long-term borrowings (6,955) -
Cash dividends paid (6,508) -
--------- ----------
Net cash used in financing activities (45,240) (37,762)
Effect of exchange rate on cash (8) 33
--------- ----------
Net decrease in cash and cash equivalents (22,713) (18,458)
Cash and cash equivalents at beginning of period 50,673 89,847
--------- ----------
Cash and cash equivalents at end of period $ 27,960 $ 71,389
========= ==========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 11,028 $ 11,353
========= ==========
</TABLE>
See accompanying notes.
-5-
<PAGE>
Lone Star Steakhouse & Saloon, Inc.
Notes to Condensed Consolidated Financial Statements
(All amounts in thousands, except share data)
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 for the thirty-six
weeks ended September 5, 2000 are not necessarily indicative of the results to
be expected for the full year ending December 26, 2000. This quarterly report on
Form 10-Q should be read in conjunction with the Company's audited consolidated
financial statements in its 1999 Form 10-K.
2. Comprehensive Income
Comprehensive income (loss) is comprised of the following:
<TABLE>
<CAPTION>
For the twelve weeks ended For the thirty-six weeks ended
-------------------------- ------------------------------
September 5, 2000 September 7, 1999 September 5, 2000 September 7, 1999
----------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Net income (loss) $ 2,547 $(5,316) $15,508 $ 9,549
Foreign currency translation
adjustments (1,044) 679 (3,548) 2,228
------- -------- ------- --------
Comprehensive income(loss) $ 1,503 $(4,637) $11,960 $ 11,777
======== ========= ======= ========
</TABLE>
3. Earnings Per Share
Basic earnings per share amounts are computed based on the weighted
average number of shares actually outstanding. For purposes of diluted
computations, 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 the proceeds at the average market price of the Company's stock
or price of the Company's stock on the exercise date if options were exercised
during the period presented.
The weighted average shares outstanding for the periods presented are as
follows:
<TABLE>
<CAPTION>
For the twelve weeks ended For the thirty-six weeks ended
-------------------------- ------------------------------
September 5, 2000 September 7, 1999 September 5, 2000 September 7, 1999
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Basic average shares outstanding 25,680 35,395 26,763 36,241
Diluted average shares outstanding 26,227 35,395(a) 27,299 36,394
</TABLE>
(a) Basic and diluted shares outstanding are the same for the twelve weeks ended
September 7, 1999, since the diluted share computations would be anti-dilutive.
-6-
<PAGE>
4. Long - Term Debt
The Company has entered into a $20,000 revolving term loan agreement with
a bank, under which no borrowings were outstanding at September 5, 2000. The
loan commitment matures in April 2005 and requires interest only payments
through April 2003, at which time the loan will convert to a term note with
monthly principal and interest payments sufficient to amortize the loan over its
remaining term. The interest rate is at the daily prime rate as published in the
Wall Street Journal. In addition, the Company pays a facility fee of 1/4 of one
percent on the unused portion of the facility.
5. Treasury Stock Transactions
The Board of Directors has authorized the Company to purchase shares of
the Company's common stock in the open market or in privately negotiated
transactions. Pursuant to the authorization, the Company purchased 4,202,475
shares of its common stock during the thirty-six weeks ended September 5, 2000
at an average price of $ 9.26 per share and 4,093,000 shares of its common stock
during the thirty-six weeks ended September 7, 1999 at an average price of $9.23
per share. The Company is accounting for the purchases using the constructive
retirement method of accounting wherein the aggregate par value of the stock is
charged to the common stock account and the excess of cost over par value is
charged to paid-in capital.
6. Stock Options
During the thirty-six weeks ended September 5, 2000, the Company granted
stock options to purchase 1,730,258 shares of common stock at exercise prices
ranging from $8.47 to $8.88 per share pursuant to its 1992 stock option plan for
employees.
7. Provision for Restaurant Closings
In August 2000, the Company closed 9 Australian Lone Star Steakhouse &
Saloon restaurants and recorded a charge of $541 for severance pay, rent and
certain other costs associated with closing the restaurants.
8. Accounting Change - Stock Options
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB No. 25. The Interpretation requires that
stock option modifications made after December 15, 1998 where the stock options
have been modified to reduce the exercise price must be accounted for as
variable. The Company has adopted the accounting change for modified stock
options on a prospective basis effective July 1, 2000 as required by the
Interpreation. Pursuant to the rules for the initial application of the
Interpretation, imputed non-cash compensation expense is to be recognized on a
prospective basis to the extent that the market price of the Company's common
stock after July 1, 2000 exceeds the common stock price on July 1, 2000 of
$10.125. The Company has repriced options during fiscal 1999 and in January 2000
which are subject to the Interpretation. At September 5, 2000 there were
approximately 4,734,000 shares under options subject to the Interpretation.
These options are accounted for as variable from July 1, 2000 until the options
are exercised, forfeited or expire unexercised. Prior to the Interpretation, the
Company accounted for these repriced options as fixed. Because the market price
of the Company's common stock has declined since July 1, 2000, the adoption of
the Interpretation had no effect upon the Company's net income for the quarter
ended September 5, 2000.
-7-
<PAGE>
9. Recently Issued Accounting Standards
In June 1998 the Financial Accounting Statements Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133 Accounting for
Derivative Instruments and Hedging Activities, which is required to be adopted
in years beginning after September 7, 2000. The statement permits early adoption
as of the beginning of any fiscal quarter after its issuance. The Company
expects to adopt the new statement effective December 27, 2000. The statement
will require the Company to recognize all derivatives on the balance sheet at
fair value. Derivatives not considered hedges must be adjusted to fair value
through income. If a derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of the derivative will either be offset against
the change in fair value of the hedged asset, liability or firm commitment
through earnings, or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. The Company does not
anticipate the adoption of SFAS No. 133 will have a significant effect on its
results of operations or financial position.
10. Subsequent Event
On September 19, 2000, the Board of Directors declared the Company's
quarterly cash dividend of $.125 per share payable October 13, 2000, to
stockholders of record on September 29, 2000.
-8-
<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 condensed consolidated financial statements including the notes thereto
included elsewhere in this Form 10-Q.
The Company opened one of the eleven completed Lone Star Steakhouse &
Saloon (Lone Star) restaurants during the third quarter of 2000 and intends to
open the remaining units during the fourth quarter of 2000 and the first quarter
of 2001.
In addition, the Company has eight sites available for future development,
six of which are owned and two of which are under lease. There were 242
operating domestic Lone Star restaurants as of September 5, 2000. In addition,
licensees operate three Lone Star restaurants in California, one in Guam, and
one in Canada.
The Company is currently operating five Del Frisco's Double Eagle Steak
Houses including Las Vegas, Nevada which opened in July 2000. A licensee
operates a Del Frisco's Steak House in Orlando, Florida.
As of September 5, 2000 the Company was operating fourteen Sullivan's
Steakhouse restaurants. The Company expects to open a Sullivan's Steakhouse
restaurant in the fall of 2000 in Tucson, Arizona.
The Company believes considerable opportunities exist in the upscale
steakhouse market; however, there are no current commitments to open additional
upscale units beyond the one Sullivan's Steakhouse restaurant scheduled to open
in the fall of 2000.
Internationally, there are 31 Lone Star Steakhouse & Saloon restaurants
operated through a joint venture in Australia. During August 2000, the Company
closed 9 restaurants in Australia.
-9-
<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
statements of income bear to net sales, and (ii) other selected operating data:
<TABLE>
<CAPTION>
Twelve Weeks Ended (1) Thirty-six Weeks Ended
---------------------- ----------------------
September 5, 2000 September 7, 1999 September 5, 2000 September 7, 1999
----------------- ----------------- ----------------- -----------------
(dollars in thousands) (dollars in thousand)
Income Statement Data:
<S> <C> <C> <C> <C>
Net sales.................................... 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Costs of sales......................... 35.8 35.1 35.1 35.5
Restaurant operating expenses.......... 49.3 46.3 47.0 45.2
Depreciation and amortization.......... 5.0 5.5 4.9 5.3
Provision for impaired assets and
restaurant closings.................... 0.4 14.4 0.1 4.7
------ ------- ------ ------
Restaurant costs and expenses.... 90.5 101.3 87.1 90.7
------ ------- ------ ------
Restaurant operating income (loss)........... 9.5 (1.3) 12.9 9.3
General and administrative expenses.......... 6.7 5.7 7.2 5.9
------ ------- ------ ------
Income (loss) from operations............... 2.8 (7.0) 5.7 3.4
Other income, net........................... 0.2 0.5 0.2 0.3
------ ------- ------ ------
Income (loss) before income taxes........... 3.0 (6.5) 5.9 3.7
Provision (benefit) for income taxes........ 1.1 (2.6) 2.1 1.4
------ ------- ------ ------
Net income (loss)........................... 1.9% (3.9)% 3.8% 2.3%
====== ======= ====== ======
Average sales per restaurant
on an annualized basis (2) $1,908 $ 1,810 $1,951 $ 1,830
Number of restaurants at end of the period 292 324 292 324
</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 reporting period, and annualizing the result.
-10-
<PAGE>
Lone Star Steakhouse & Saloon, Inc.
Twelve Weeks Ended September 5, 2000 Compared to Twelve
Weeks Ended September 7, 1999
(Dollar amounts in thousands)
Net sales decreased $3,848 (2.9%) to $130,953 for the twelve weeks ended
September 5, 2000, compared to $134,801 for the twelve weeks ended September 7,
1999. The decrease was principally attributable to the closing of 24 domestic
Lone Star restaurants in January 2000, and 9 Lone Star restaurants in Australia
in August 2000. The decrease was largely offset by additional sales of $4,045
from two new domestic Lone Star restaurants, one Sullivan's restaurant and two
new Del Frisco's restaurants opened since September 1999. Same store sales
decreased 0.8% compared with the comparable prior year period.
Costs of sales, primarily food and beverages, increased as a percentage of
sales to 35.8% from 35.1% due primarily to higher prices on beef offset in part
by lower prices on produce and dairy products.
Restaurant operating expenses for the twelve weeks ended September 5,
2000, increased $2,086 from $62,418 in 1999, to $64,504 and increased as a
percentage of net sales from 46.3% to 49.3%. The increase in restaurant
operating expenses is primarily attributable to a $3,651 increase in media
advertising. The increase was offset in part by the impact of the closed
restaurants and decreases in various operating costs.
Depreciation and amortization decreased $894 in the twelve weeks ended
September 5, 2000, compared to the same period in 1999. The decrease is
primarily attributable to the restaurants closed since September 1999.
Provision for impaired assets and store closings for the twelve weeks
ended September 5, 2000 reflects the costs associated with the closing of 9
restaurants in Australia in August 2000. The provision of $19,365 for the
comparable period in 1999 reflects the asset impairment charge for the write
down of certain under-performing restaurants in 1999.
General and administrative expenses increased $1,096 compared to the same
period in 1999. The increases in general and administrative expenses were
primarily attributable to (1) increased salaries and wage related expenses
reflecting the costs associated with the new positions added to strengthen the
Company's corporate infrastructure, general salary increases and the Company
costs related to employee retirement benefit plans, (2) increased costs for
software amortization and (3) increased training and recruiting expenses.
Other income, net for the twelve weeks ended September 5, 2000 was $271,
as compared to $639 in 1999. The decrease is attributable to an increase in the
net loss on the disposition of assets and an increase in interest expense.
The effective income tax rates for the twelve weeks ended September 5,
2000, and the twelve weeks ended September 7, 1999 were 35.3% and 39.5%,
respectively. The difference in the effective tax rate is primarily attributable
to changes in valuation allowances associated with Australian losses.
-11-
<PAGE>
Lone Star Steakhouse & Saloon, Inc.
Thirty-six Weeks Ended September 5, 2000 Compared to Thirty-six Weeks Ended
September 7, 1999
(Dollar amounts in thousands)
Net sales decreased $5,097 (1.2%) to $404,395 for the thirty-six weeks
ended September 5, 2000, compared to $409,492 for the thirty-six weeks ended
September 7, 1999. The decrease was principally attributable to the closing of
two domestic Lone Star restaurants in fiscal 1999, 24 domestic Lone Star
restaurants in January 2000 and 9 Lone Star restaurants in Australia in August
2000. The decrease was partially offset by additional sales of $9,005 from two
new domestic Lone Star restaurants, one Sullivan's restaurant and two new Del
Frisco's restaurants opened since September 1999. Same store sales increased
0.2% compared with the comparable prior year period.
Costs of sales, primarily food and beverages, decreased as a percentage of
sales to 35.1% from 35.5% due primarily to lower prices on produce and dairy
products.
Restaurant operating expenses for the thirty-six weeks ended September 5,
2000, increased $5,140 from $185,135 in 1999, to $190,275 and increased as a
percentage of net sales from 45.2% to 47.0%. The increase in restaurant
operating expenses is primarily attributable to a $7,291 increase in media
advertising and an $859 increase in restaurant preopening expenses. These
increases were offset in part by the impact of the closed restaurants and
decreases in various operating costs.
Depreciation and amortization decreased $1,786 in the thirty-six weeks
ended September 5, 2000, compared to the same period in 1999. The decrease is
primarily attributable to the restaurants closed since September 1999.
Provision for impaired assets and store closings for the thirty-six weeks
ended September 5, 2000 reflects the costs associated with the closing of 9
restaurants in Australia in August 2000. The provision of $19,365 for the
comparable period in 1999 reflects the asset impairment charge for the write
down of certain under-performing restaurants in 1999.
General and administrative expenses increased $5,062 as compared to the
same period in 1999. The increases in general and administrative expenses were
primarily attributable to (1) increased salaries and wage related expenses
reflecting the costs associated with the new positions added to strengthen the
Company's corporate infrastructure, general salary increases and the Company
costs related to employee retirement benefit plans, (2) increased costs for
software amortization and consulting costs related to the Company's information
systems and (3) increased training and recruiting expenses.
Other income, net for the thirty-six weeks ended September 5, 2000, was
$1,080, as compared to $1,219 in 1999. The decrease is primarily attributable to
interest expense incurred under the loan agreement.
The effective income tax rates for the thirty-six weeks ended September 5,
2000, and the thirty-six weeks ended September 7, 1999 were 35.4% and 36.9%,
respectively. The decrease in the effective tax rate is primarily attributable
to the reduction in valuation allowances associated with Australian losses.
-12-
<PAGE>
Impact of inflation
The primary inflationary factors affecting the Company's operations
include food and labor costs, utility rates, real estate taxes, and lease common
area maintenance charges. 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 adversely affect the Company's labor
costs. Many of the Company's personnel are tipped employees, consequently
increases in the minimum wage rate are mitigated. To date, inflation has had a
minor impact on operating margins.
Liquidity and Capital Resources
The following table presents a summary of the Company's cash flows for
each of the thirty-six weeks ended September 5, 2000 and September 7, 1999 (in
thousands):
<TABLE>
<CAPTION>
Thirty-six weeks ended
----------------------
September 5, 2000 September 7,1999
----------------- ----------------
<S> <C> <C>
Net cash provided by operating activities............... $ 38,032 $ 46,093
Net cash used in investing activities................... (15,497) (26,822)
Net cash used in financing activities................... (45,240) (37,762)
Effect of exchange rate on cash......................... (8) 33
--------------- ---------
Net decrease in cash.................................... $ (22,713) $ (18,458)
=============== ==========
</TABLE>
During the thirty-six week period ended September 5, 2000, the Company's
investment in property and equipment was $19,012 compared to $26,970 for the
same period in 1999.
The Company does not have significant receivables or inventory.
At September 5, 2000, the Company had $27,960 in cash and cash
equivalents. The Company has entered into a $20,000 revolving term loan
agreement with a bank. See Note 4 to Notes to Condensed Consolidated Financial
Statements. At September 5, 2000, the Company had no outstanding borrowings and
had available borrowing capacity of $20,000 pursuant to the revolver.
The Company's Board of Directors has authorized the repurchase of shares
of the Company's common stock from time to time in the open market or in
privately negotiated transactions. During the thirty-six weeks ended September
5, 2000, the Company purchased 4,202,475 shares at a cost of $38,913.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB No. 25. The Interpretation requires that
stock option modifications made after December 15, 1998 where the stock options
have been modified to reduce the exercise price must be accounted for as
variable. The Company has adopted the accounting change for modified stock
options on a prospective basis effective July 1, 2000, as required by the
Interpreation. Pursuant to the rules for the initial application of the
Interpretation, imputed non-cash compensation expense is to be recognized on a
prospective basis to the extent that the market price of the Company's common
stock after July 1, 2000 exceeds the common stock price on July 1, 2000, of
$10.125. The Company has repriced options during fiscal 1999 and in January
2000, which are subject to the Interpretation. At September 5, 2000 there were
approximately 4,734,000 option shares subject to the Interpretation. These
options are accounted for as variable from July 1, 2000, until the options are
excised, forfeited or expire unexercised. Prior to the adoption of the
Interpretation, the Company accounted for these repriced options as fixed.
Because the market price of the Company's common stock has declined since July
1, 2000, the adoption of the Interpretation had no effect upon the
-13-
<PAGE>
Company's net income for the quarter ended September 5, 2000; however, the
Company may incur significant volatility in reporting earnings in future periods
as fluctuations in market prices of its common stock may greatly impact reported
compensation expenses on a periodic basis.
On September 19, 2000, the Board of Directors declared the Company's
quarterly cash dividend of $.125 per share, payable October 13, 2000, to
stockholders of record on September 29, 2000.
From time to time the Company utilizes derivative financial instruments in
the form of commodity futures contracts to manage market risks and reduce its
exposure in the price of meat resulting from fluctuations in the market. The
Company uses live beef cattle futures contracts in an attempt to accomplish its
objective. Realized and unrealized changes in the fair values of the derivative
instruments are recognized in income in the period in which the change occurs.
Realized and unrealized gains and losses for the period were not significant. As
of September 5, 2000, the Company's exposure for open positions in futures
contracts was not significant.
Forward looking statements
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Stockholders are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the ability of the Company to open new restaurants, general market
conditions, competition and pricing and other risks set forth in the Company's
Annual Report on Form 10-K for the fiscal year ended December 28, 1999. 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk was not significant during
the thirty-six weeks ended September 5, 2000.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
Exhibit 27.............................Financial Data Schedule
Reports on Form 8-K:
None
-14-
<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 on its behalf by the
undersigned thereunto duly authorized.
Lone Star Steakhouse & Saloon, Inc.
(Registrant)
Date October 20, 2000 /s/ Randall H. Pierce
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Randall H. Pierce
Chief Financial Officer
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