sec document
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 6, 2005 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 by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.) /X/ YES /_/ NO
Indicate by check mark whether the registrant is a shell Company (as defined in
Rule 12b-2 of the Exchange Act). /_/ YES /X/ 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 10, 2005
----- -------------------------------
Common Stock, $.01 Par Value 20,668,226 Shares
LONE STAR STEAKHOUSE & SALOON, INC.
INDEX
Page
Number
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PART I. FINANCIAL INFORMATION
-------------------------------
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS 2
AT SEPTEMBER 6, 2005 AND DECEMBER 28, 2004
CONDENSED CONSOLIDATED STATEMENTS OF 3
INCOME FOR THE TWELVE WEEKS ENDED
SEPTEMBER 6, 2005 AND SEPTEMBER 7, 2004
CONDENSED CONSOLIDATED STATEMENTS OF 4
INCOME FOR THE THIRTY-SIX WEEKS ENDED
SEPTEMBER 6, 2005 AND SEPTEMBER 7, 2004
CONDENSED CONSOLIDATED STATEMENTS OF 5
CASH FLOWS FOR THE THIRTY-SIX WEEKS ENDED
SEPTEMBER 6, 2005 AND SEPTEMBER 7, 2004
NOTES TO CONDENSED CONSOLIDATED 6
FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND 11
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE 17
DISCLOSURES ABOUT MARKET RISKS
ITEM 4. CONTROLS AND PROCEDURES 17
PART II. OTHER INFORMATION
---------------------------
ITEMS 3 AND 5 HAVE BEEN OMITTED
SINCE THE ITEMS ARE EITHER INAPPLICABLE OR THE
ANSWER IS NEGATIVE
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 18
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF STOCKHOLDERS 19
ITEM 6. EXHIBITS 19
-1-
LONE STAR STEAKHOUSE & SALOON, INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
September 6, 2005 December 28, 2004
----------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 12,963 $ 38,515
Short-term investments 54,825 33,500
----------------- -----------------
67,788 72,015
Inventories 11,904 12,765
Prepaid insurance deposits 15,629 14,537
Other current assets 14,110 13,757
----------------- -----------------
Total current assets 109,431 113,074
Property and equipment 567,572 539,087
Less accumulated depreciation and amortization (232,596) (217,837)
----------------- -----------------
334,976 321,250
Other assets:
Deferred income taxes 22,495 24,434
Intangible and other assets, net 42,285 39,534
----------------- -----------------
Total assets $ 509,187 $ 498,292
================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,472 $ 13,845
Accrued self insurance 18,527 15,094
Other current liabilities 35,207 44,813
----------------- -----------------
Total current liabilities 73,206 73,752
Long term liabilities, principally deferred compensation obligations 23,576 21,263
Deferred rent obligations 10,864 10,496
----------------- -----------------
Total liabilities 107,646 105,511
Stockholders' equity:
Preferred stock - -
Common stock 207 205
Additional paid-in capital 142,799 139,570
Retained earnings 262,198 256,669
Common stock held by Trust (3,663) (3,663)
----------------- -----------------
Total stockholders' equity 401,541 392,781
----------------- -----------------
Total liabilities and stockholders' equity $ 509,187 $ 498,292
================= ===============
See accompanying notes.
-2-
LONE STAR STEAKHOUSE & SALOON, INC.
Condensed Consolidated Statements of Income
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
For the twelve weeks ended
-------------------------------------------
September 6, 2005 September 7, 2004
----------------- -----------------
As Restated
Net sales $ 148,802 $ 148,045
Costs and expenses:
Costs of sales 51,776 54,271
Restaurant operating expenses 78,405 72,147
Depreciation and amortization 4,535 4,696
--------------- --------------
Restaurant costs and expenses 134,716 131,114
General and administrative expenses 10,585 11,431
Hurricane disaster relief donation 1,853 -
Provision for casualty losses 800 -
Non-cash stock compensation expense (credit) 36 (290)
--------------- --------------
Income from operations 812 5,790
Other income, net 584 787
--------------- --------------
Income from continuing operations before income taxes 1,396 6,577
Provision for income taxes 472 2,109
--------------- --------------
Income from continuing operations 924 4,468
Discontinued operations:
Income (loss) from operations before income tax 42 (30)
Income tax provision (2) (29)
--------------- --------------
Income (loss) from discontinued operations 40 (59)
--------------- --------------
Net income $ 964 $ 4,409
=============== ==============
Basic earnings per share:
Continuing operations $ 0.05 $ 0.21
Discontinued operations - -
--------------- --------------
Basic earnings per share $ 0.05 $ 0.21
=============== ==============
Diluted earnings per share:
Continuing operatons $ 0.02 $ 0.17
Discontinued operations - -
--------------- --------------
Diluted earnings per share $ 0.02 $ 0.17
=============== ==============
Dividends per share $ 0.195 $ 0.175
=============== ==============
See accompanying notes.
-3-
LONE STAR STEAKHOUSE & SALOON, INC.
Condensed Consolidated Statements of Income
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
For the thirty-six weeks ended
--------------------------------------------
September 6, 2005 September 7, 2004
----------------- -----------------
As Restated
Net sales $ 467,737 $ 464,171
Costs and expenses:
Costs of sales 162,792 168,051
Restaurant operating expenses 229,094 219,361
Depreciation and amortization 13,376 14,028
--------------- --------------
Restaurant costs and expenses 405,262 401,440
General and administrative expenses 32,922 32,351
Hurricane disaster relief donation 1,853 -
Provision for casualty losses 800 -
Non-cash stock compensation expense 1,677 505
--------------- --------------
Income from operations 25,223 29,875
Other income, net 785 814
--------------- --------------
Income from continuing operations before income taxes 26,008 30,689
Provision for income taxes 8,756 10,015
--------------- --------------
Income from continuing operations 17,252 20,674
Discontinued operations:
Income (loss) from operations before income tax (115) 13
Income tax provision (8) (15)
--------------- --------------
Loss from discontinued operations (123) (2)
--------------- --------------
Net income $ 17,129 $ 20,672
=============== ==============
Basic earnings per share:
Continuing operations $ 0.85 $ 0.97
Discontinued operations (0.01) -
--------------- --------------
Basic earnings per share $ 0.84 $ 0.97
=============== ==============
Diluted earnings per share:
Continuing operatons $ 0.77 $ 0.87
Discontinued operations (0.01) -
--------------- --------------
Diluted earnings per share $ 0.76 $ 0.87
=============== ==============
Dividends per share $ 0.565 $ 0.525
=============== ==============
See accompanying notes.
-4-
LONE STAR STEAKHOUSE & SALOON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
For the thirty-six weeks ended
--------------------------------------------
September 6, 2005 September 7, 2004
----------------- -----------------
Cash flows from operating activities: As Restated
Net income $ 17,129 $ 20,672
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 15,465 15,983
Non-cash stock compensation expense 1,677 505
Loss (gain) on sale of assets 155 (1,271)
Provision for asset impairments 122 -
Provision for casualty loss 800 -
Deferred income taxes (1,375) 458
Loss from discontinued operations 123 2
Net change in operating assets and liabilities:
Change in operating assets 985 2,016
Change in operating liabilities 321 (8,999)
--------------- --------------
Net cash provided by operating activities of continuing operations 35,402 29,366
Cash flows from investing activities:
Acquisitions, net of cash acquired (1,200) (12,579)
Purchases of short-term investments, net (21,325) -
Purchases of property and equipment (30,704) (16,399)
Proceeds from sale of assets 113 1,816
Other 191 1,317
--------------- --------------
Net cash used in investing activities of continuing operations (52,925) (25,845)
Cash flows from financing activities:
Net proceeds from issuance of common stock 2,038 5,855
Common stock repurchased and retired - (15,607)
Cash dividends (11,600) (11,205)
--------------- --------------
Net cash used in financing activities of continuing operations (9,562) (20,957)
Net cash provided by discontinued operations 1,533 1,434
--------------- --------------
Net decrease in cash and cash equivalents (25,552) (16,002)
Cash and cash equivalents at beginning of period 38,515 96,230
--------------- --------------
Cash and cash equivalents at end of period $ 12,963 $ 80,228
=============== ==============
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 12,089 $ 13,758
=============== ==============
Non cash investing activities:
Issuance of common stock in connection with acquisition $ - $ 2,679
=============== ==============
Non cash financing activities:
Impact of litigation settlement on deferred taxes and additional
paid-in capital $ 1,744 $ -
=============== ==============
See accompanying notes.
-5-
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management all adjustments, consisting
of normal, recurring accruals, which Lone Star Steakhouse & Saloon, Inc. (the
"Company") considers necessary for a fair presentation of the financial position
and the results of operations for the periods presented have been included. The
results for the thirty-six weeks ended September 6, 2005 are not necessarily
indicative of the results to be expected for the full year ending December 27,
2005. This quarterly report on Form 10-Q should be read in conjunction with the
Company's audited consolidated financial statements in its annual report on Form
10-K for the year ended December 28, 2004.
Certain amounts for the prior year have been reclassified to conform with
the current year's presentation.
2. RESTATEMENT OF PRIOR FINANCIAL INFORMATION
In December 2004, the Company commenced a review of its lease accounting
and leasehold depreciation policies. As a result of that review, the Company
determined it appropriate to restate its prior financial statements. The
information for the twelve weeks and the thirty-six weeks ended September 7,
2004, has been restated to reflect depreciation for certain leasehold
improvements and to recognize rent expense on a straight line basis over the
expected lease term, including renewal option periods where failure to exercise
such options would result in an economic penalty to the Company. See Note 1 to
the Consolidated Financial Statements in the Company's 2004 Form 10-K for
further discussion.
3. EARNINGS PER SHARE
Basic earnings per share amounts are computed based on the weighted average
number of shares outstanding during the periods. For purposes of diluted
computations, average shares outstanding have been adjusted to reflect in
accordance with the treasury stock method (1) the number of shares that would be
issued from the exercise of stock options, reduced by the number of shares which
could have been purchased from the proceeds at the average market price of the
Company's stock or price of the Company's stock on the exercise date if options
were exercised during the period presented and (2) the number of shares that may
be issuable to effect the settlement of certain deferred compensation
liabilities pursuant to the Company's Stock Option Deferred Compensation Plan.
In addition, for purposes of diluted computations, net income has been adjusted
for all periods presented to reflect the dilutive effect on net income of the
assumed settlement of certain deferred compensation liabilities.
-6-
The following table sets forth the computation of basic and diluted earnings per share
(amounts in thousands, except per share amounts):
For the twelve For the thirty-six
weeks ended weeks ended
----------------------------- -----------------------------
Sept. 6, Sept. 7, Sept. 6, Sept. 7,
2005 2004 2005 2004
---- ---- ---- ----
Basic earnings per share computation:
Numerator:
Income from continuing operations $ 924 $ 4,468 $ 17,252 $ 20,674
Discontinued operations, net of income tax 40 (59) (123) (2)
-------- -------- -------- --------
Net income $ 964 $ 4,409 $ 17,129 $ 20,672
======== ======== ======== ========
Denominator:
Weighted average number of shares outstanding 20,476 21,452 20,381 21,224
======== ======== ======== ========
Basic earnings per share:
Continuing operations $ 0.05 $ 0.21 $ 0.85 $ 0.97
Discontinued operations -- -- (0.01) --
-------- -------- -------- --------
Basic earnings per share $ 0.05 $ 0.21 $ 0.84 $ 0.97
======== ======== ======== ========
Diluted earnings per share computation:
Numerator:
Income from continuing operations $ 924 $ 4,468 $ 17,252 $ 20,674
Adjustment for assumed settlement of deferred
compensation liabilities (474) (237) (65) 110
-------- -------- -------- --------
Diluted income from continuing operations 450 4,231 17,187 20,784
Discontinued operations, net of income tax 40 (59) (123) (2)
-------- -------- -------- --------
Diluted net income $ 490 $ 4,172 $ 17,064 $ 20,782
======== ======== ======== ========
Denominator:
Weighted average number of shares outstanding 20,476 21,452 20,381 21,224
Effect of dilutive employee stock options 1,799 2,394 1,867 2,567
Effect of shares issuable to settle deferred
compensation liabilities 177 177 177 177
-------- -------- -------- --------
22,452 24,023 22,425 23,968
======== ======== ======== ========
Diluted earnings per share:
Continuing operations $ 0.02 $ 0.17 $ 0.77 $ 0.87
Discontinued operations -- -- (0.01) --
-------- -------- -------- --------
Diluted earnings per share $ 0.02 $ 0.17 $ 0.76 $ 0.87
======== ======== ======== ========
-7-
4. TERM REVOLVER
The Company has an unsecured revolving credit agreement with a group of
banks led by SunTrust Bank. The credit facility allows the Company to borrow up
to $30,000 with an accordian feature permitting for an increase in the credit
facility in an amount up to $20,000 such that the total amount of the credit
facility does not exceed $50,000. The additional borrowing is subject to the
approval of the lenders. The credit agreement terminates in October 2007;
however, it is subject to acceleration in the event of a change of control of
the Company as that term is defined in the credit agreement. At the time of each
borrowing, the Company may elect to pay interest at the higher of SunTrust
Bank's published prime rate or the Federal Funds Rate plus one-half of one
percent (0.50%); or the LIBOR rate plus one and one-half percent (1.50%). The
Company is required to achieve certain financial ratios and to maintain certain
net worth requirements as defined in the credit agreement. The Company is
required to pay on a quarterly basis a facility fee equal to .25% per annum on
the daily unused amount of the credit facility. At September 6, 2005 and at
December 28, 2004, there were no borrowings outstanding under the credit
facility.
The Company also has entered into a $5,000 revolving term loan agreement
with a bank, under which no borrowings were outstanding at September 6, 2005 and
December 28, 2004. The term loan agreement matures in October 2007. The interest
rate is at .50% below the daily prime rate as published in the Wall Street
Journal. In addition, the Company pays a facility fee of .25% per annum on the
daily unused portion of the credit facility.
5. COMMON STOCK TRANSACTIONS
The Board of Directors has from time to time authorized the Company to
purchase shares of the Company's common stock in the open market or in privately
negotiated transactions. The Company made no purchases of its common stock
during the thirty-six weeks ended September 6, 2005. The Company purchased
670,300 shares of its common stock during the thirty-six weeks ended September
7, 2004. The Company is accounting for any 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. At September 6, 2005, the Company may purchase up to
2,026,190 shares of its common stock pursuant to its current authorization by
the Board of Directors.
During the thirty-six weeks ended September 6, 2005, the Company received
net proceeds of $2,038 from the issuance of 198,686 shares of its common stock
due to the exercise of stock options. During the thirty-six weeks ended
September 7, 2004, the Company received net proceeds of $5,855 from the issuance
of 689,565 shares of its common stock in connection with the exercise of stock
options.
In September 2002, the Company adopted a Stock Option Deferred Compensation
Plan (the "Plan"), which allows certain key executives to defer compensation
arising from the exercise of stock options granted under the Company's 1992
Incentive and Nonqualified Stock Option Plan. In fiscal 2003, pursuant to the
terms of the Plan relating to the exercise of certain stock options by a
participant, the Company issued 177,145 shares to a Rabbi trust (the "Trust")
with Intrust Bank, NA serving as the trustee. The Trust holds the shares for the
benefit of the participating employees ("Participants"). Under the terms of the
Plan, Participants may elect to change the Plan's investments from time to time
which may result in the sale of the shares. Since the shares held by the Trust
are held pursuant to a deferred compensation arrangement whereby amounts earned
by an employee are invested in the stock of the employer and placed in the
Trust, the Company accounts for the arrangement as required by Emerging Issues
Task Force ("EITF") consensus on Issue No. 97-14, ACCOUNTING FOR DEFERRED
COMPENSATION ARRANGEMENTS WHERE AMOUNTS EARNED ARE HELD IN A RABBI TRUST AND
INVESTED ("EITF No. 97-14"). Accordingly, shares issued to the Trust were
recorded at fair market value at the date issued by the Company in the amount of
$3,663, which is reflected in the accompanying Condensed Consolidated Balance
Sheets as Common Stock Held By Trust. The corresponding amount was credited to
deferred compensation obligations. Each period, the shares owned by the Trust
are valued at the closing market price, with corresponding changes in the
underlying shares being reflected as adjustments to compensation expense and
-8-
deferred compensation obligations. At September 6, 2005, the Trust held 177,145
shares of the Company's common stock. Included in non-cash stock compensation
expense for the twelve weeks ended September 6, 2005 and September 7, 2004 was a
credit of ($758) and ($379), respectively, relating to the changes in market
price for such shares. The charges (credits) for the thirty-six weeks ended
September 6, 2005 and September 7, 2004 were ($105) and $175, respectively.
6. ACQUISITIONS
On January 28, 2004, the Company's Joint Plan of Reorganization (the
"Plan") to purchase TX.C.C., Inc. and affiliated entities, TXCC-Preston and
TXLC-Albuquerque, (collectively, "TXCC") was confirmed by the United States
Bankruptcy Court for the District of Texas, Dallas Division and the Company
acquired 100% of TXCC on that date. The Company's consolidated financial
statements include TXCC's results of operations from January 28, 2004. TXCC
presently operates 20 Texas Land & Cattle Steak House(R) restaurants located
primarily in Texas. The acquisition of TXCC allows the Company to expand its
steakhouse concepts, provides strategic growth opportunities and significantly
increases its presence in the Texas market. Pursuant to the Plan, the
pre-petition creditors at their option were entitled to receive either cash or
common stock of Lone Star Steakhouse & Saloon, Inc. in settlement of their
claims. The aggregate purchase price was $23,496 and consisted of cash, shares
of the Company's common stock and the assumption of certain liabilities. The
cash portion of the acquisition was funded from the Company's existing cash
balances. In connection with the acquisition, the Company issued an aggregate of
119,485 shares of its common stock valued at $2,679. Pro forma results giving
effect to the acquisition of TXCC are not presented for the periods as such
amounts are not significant.
In May 2005, the Company acquired for $1,200 in cash the remaining 40%
interest of certain limited partners in TXCC-Preston, L.P., a Texas limited
partnership in which the Company owned a 60% interest. The limited partnerships
owned two of the TXCC restaurants which were operated by the Company.
7. DISCONTINUED OPERATIONS
The Company accounts for its closed restaurants in accordance with the
Provisions of SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF
LONG-LIVED ASSETS. Therefore, when a restaurant is closed and the restaurant is
either held for sale or abandoned, the restaurant's operations are eliminated
from ongoing operations. Accordingly, the operations of such restaurants, net of
applicable income taxes, are presented as discontinued operations and prior
period consolidated financial statements are reclassified. The table below
reflects as discontinued operations the applicable operations of the Company's
Australian business and certain other domestic restaurants closed which meet the
criteria for such presentation.
For the Twelve Weeks Ended For the Thirty-six Weeks Ended
-------------------------- ------------------------------
September 6, September 7, September 6, September 7,
2005 2004 2005 2004
---- ---- ---- ----
Income (loss) from operations $ 42 $ (30) $ (115) $ 13
Income tax expense (2) (29) (8) (15)
----------- ----------- ----------- -------------
Income (loss) from
discontinued operations $ 40 $ (59) $ (123) $ (2)
=========== =========== =========== =============
8. INCOME TAX
The effective income tax rate from continuing operations was 33.8% and
32.1% for the twelve weeks ended September 6, 2005 and September 7, 2004,
respectively, and 33.7% and 32.6% for the thirty-six weeks ended September 6,
2005 and September 7, 2004, respectively. The factors which cause the effective
tax rates to vary from the federal statutory rate of 35% include state income
taxes, the impact of FICA Tip and other credits, certain non-deductible
expenses, and the tax effect of incentive stock options. There is generally no
-9-
tax impact to the Company associated with incentive stock options and the
related compensation associated with such options in the income statement.
However, tax benefits may arise related to the incentive stock options at the
time the options are exercised to the extent that the exercise is followed by a
disqualifying disposition of the shares by the optionee. The 2004 effective tax
rates reflect a greater amount of tax benefits arising from disqualifying
dispositions of incentive stock options as compared to 2005.
9. LITIGATION
On August 15, 2005, the Company received an Order and Final Judgment from
the Court of Chancery of the state of Delaware relating to the Stipulation of
Settlement of the class action and derivative lawsuit brought by the California
Public Employees Retirement System ("CalPERS") against the Company. The
settlement resolves all claims raised by the parties in litigation. In
connection with the settlement, the parties agreed to release each other from
any and all current and future claims related to the litigation. As part of the
settlement, certain of the Company's current and former Directors agreed to an
upward repricing of certain stock options or personally make payments to the
Company as additional proceeds in connection with certain options previously
exercised. In addition, the Company's insurance provider made a payment in the
amount of $3,000 under the Company's Directors, Officers and Corporate insurance
policy of which $2,500 was awarded for attorneys' fees and expenses on behalf of
CalPERS. The remaining $500 was paid to the Company for reimbursement of legal
costs and expenses and is included in general and administrative expenses in the
accompanying Condensed Consolidated Statements of Income.
The aggregate effect of the repricing provisions of the settlement will
result in additional proceeds to the Company of approximately $4,700 if all
options are ultimately exercised. The Company received $115 in cash from certain
Directors which represented additional proceeds from options previously
exercised and accordingly, such amounts were recorded as Additional Paid-in
Capital. The upward repricing of the remaining stock options will result in
additional proceeds when the options are exercised which will be credited to
Additional Paid-in Capital. In connection with the upward repricing of the stock
options, the Company recorded a charge to Additional Paid-in Capital in the
amount of $1,744 to reflect a reduction of the related deferred tax assets
applicable to such repricing.
10. HURRICANE RELATED COSTS
In connection with disaster relief for the victims of Hurricane Katrina,
the Company donated to the American Red Cross an amount of $1,853. The amount
donated was 100% of its restaurant sales on Labor Day, September 5, 2005.
In addition, the Company provided $800 as a casualty loss provision
associated with its restaurants which were damaged by Hurricane Katrina. The
principal amount of such losses relate to estimated property damages for which
insurance recoveries will not be available due to limitations of insurance
deductible amounts.
11. SUBSEQUENT EVENTS
On October 4, 2005, the Board of Directors declared the Company's quarterly
cash dividend of $.195 per share payable October 28, 2005 to shareholders of
record on October 14, 2005.
-10-
LONE STAR STEAKHOUSE & SALOON, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
GENERAL
The following discussion and analysis should be read in conjunction with
the condensed consolidated financial statements including the notes thereto
included elsewhere in this Form 10-Q.
The Company opened one restaurant in each of thirty-six week periods ended
September 6, 2005 and September 7, 2004. In June 2005, a domestic Lone Star
restaurant was destroyed by fire.
There were 251 operating domestic Lone Star restaurants as of September 6,
2005 including three restaurants in New Orleans, temporarily closed due to
Hurricane Katrina. These restaurants will not likely be repaired and reopened
until 2006. In addition, a licensee operates four Lone Star restaurants in
California.
The Company currently operates five Del Frisco's Double Eagle ("Del
Frisco's") restaurants. In addition, a licensee operates one Del Frisco's
restaurant. The Company currently operates 15 Sullivan's Steakhouse
("Sullivan's") restaurants, 20 Texas Land and Cattle Steak House(R) ("TXCC")
restaurants and one Frankie's Italian Grille restaurant.
Internationally, licensees operate 12 Lone Star Steakhouse & Saloon
restaurants in Australia and one in Guam.
On January 28, 2004, the Company acquired 20 TXCC restaurants which are
located primarily in Texas. The operating results of those restaurants are
included in the Company's consolidated operating results from the date of
acquisition.
RESTATEMENT OF PRIOR FINANCIAL INFORMATION
In December 2004, the Company commenced a review of its lease accounting
and leasehold depreciation policies. As a result of that review, the Company
determined it appropriate to restate its prior financial statements. The
information for the twelve weeks and thirty-six weeks ended September 7, 2004,
has been restated to reflect depreciation for certain leasehold improvements and
to recognize rent expense on a straight line basis over the expected lease term,
including renewal option periods where failure to exercise such options would
result in an economic penalty. See Note 1 to the Consolidated Financial
Statements in the Company's 2004 Form 10-K for further discussion.
-11-
LONE STAR STEAKHOUSE & SALOON, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentages
which certain items included in the condensed consolidated statement of
operations bear to net sales:
Twelve Weeks Ended (1) Thirty-six Weeks Ended
----------------------------- ------------------------------
Sept. 6, 2005 Sept. 7, 2004 Sept. 6, 2005 Sept. 7, 2004
------------- ------------- ------------- -------------
As Restated As Restated
STATEMENT OF OPERATIONS DATA:
Net sales.................................................. 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Costs of sales ...................................... 34.8 36.7 34.8 36.2
Restaurant operating expenses ....................... 52.7 48.7 49.0 47.3
Depreciation and amortization ....................... 3.0 3.2 2.8 3.0
----- ----- ----- -----
Restaurant costs and expenses ................. 90.5 88.6 86.6 86.5
General and administrative expenses ....................... 7.1 7.7 7.0 7.0
Hurricane disaster relief donation ........................ 1.3 -- 0.4 --
Provision for casualty losses ............................. 0.5 -- 0.2 --
Non-cash stock compensation expense (credit) .............. -- (0.2) 0.4 0.1
----- ----- ----- -----
Income from operations .................................... 0.6 3.9 5.4 6.4
Other income, net ......................................... 0.4 0.5 0.2 0.2
----- ----- ----- -----
Income from continuing operations before income taxes ..... 1.0 4.4 5.6 6.6
Provision for income taxes ................................ 0.3 1.4 1.9 2.1
----- ----- ----- -----
Income from continuing operations ......................... 0.7 3.0 3.7 4.5
Income (loss) from discontinued operations, net of
applicable income taxes .................................. -- -- -- --
----- ----- ----- -----
Net income ................................................ 0.7% 3.0% 3.7% 4.5%
===== ===== ===== =====
(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
-12-
LONE STAR STEAKHOUSE & SALOON, INC.
TWELVE WEEKS ENDED SEPTEMBER 6, 2005 COMPARED TO TWELVE WEEKS ENDED
SEPTEMBER 7, 2004 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales increased $757 or 0.5% to $148,802 for the twelve weeks ended
September 6, 2005, compared to $148,045 for the twelve weeks ended September 7,
2004. The Company's blended same store sales, representing net sales, by store,
for all the Company owned restaurant concepts opened for more than 18 months in
the current and comparable prior year period increased 0.4%. The Company's
average check increased 1.9% and guest counts decreased 1.4%.
Costs of sales, primarily food and beverages, decreased as a percentage of
net sales to 34.8% from 36.7% due primarily to decreased costs for beef partly
offset by increased costs for seafood items as a result of changes in the
menu-mix.
Restaurant operating expenses for the twelve weeks ended September 6, 2005
increased $6,258 to $78,405 compared to $72,147 in the prior year period and
increased as a percentage of net sales to 52.7% from 48.7%. Labor costs
increased 1.2% primarily as the result of increased management staffing at the
restaurants. Advertising costs increased 1.2% as the result of increased media
print costs related to direct marketing. Building maintenance costs increased
.6% and utility costs, primarily for electricity, increased .3%. Remodel
expenses increased .2%.
Depreciation and amortization decreased $161 for the twelve weeks ended
September 6, 2005 compared with the prior period. The decrease is attributable
to the continued reduction in depreciation for certain assets that have become
fully depreciated for the Company's historical concepts. This decrease is
partially offset by the depreciation of assets related to the TXCC acquisition.
General and administrative expenses decreased $846 for the twelve weeks
ended September 6, 2005 compared to the prior period. General and administrative
expense reflects a decrease in bonus compensation expense and professional fees.
In addition, general and administrative expenses were lower as a result of
approximately $500 received from an insurance company in connection with the
settlement of the CalPERS litigation against the Company.
Hurricane disaster relief donation for the twelve weeks ended September 6,
2005 reflects the Company's contribution to the American Red Cross in connection
with disaster relief for the victims of Hurricane Katrina. The Company donated
100% of its restaurant sales of $1,853 on Labor Day, September 5, 2005.
Provision for casualty loss for the twelve weeks ended September 6, 2005
reflects the Company's estimate of losses associated with its restaurants which
were damaged by Hurricane Katrina. The principal amount of such losses relate to
estimated property damages for which insurance recoveries will not be available
due to limitations of insurance deductible amounts.
Non-cash stock compensation expense for the twelve weeks ended September 6,
2005 was $36 compared to a credit of $290 for the prior year period. The change
reflects an increase of $705 related to the amortization of stock based
compensation in 2005 compared to 2004, reflecting the impact of stock options
granted in December 2004 and during 2005. The increase is partially offset by an
increase in the credit arising from the accounting for certain shares of the
Company's common stock held by a Rabbi Trust pursuant to a deferred compensation
arrangement (See Note 5 to Condensed Financial Statements) as the credit was
$758 for 2005 compared to $379 in the prior year.
Other income, net for the twelve weeks ended September 6, 2005 was $584
compared to $787 for the prior year. The decrease for 2005 primarily reflects a
reduction from gains on sale of assets as compared to 2004.
The effective income tax rate from continuing operations was 33.8% and
32.1% for the twelve weeks ended September 6, 2005 and September 7, 2004,
respectively. The factors which cause the effective tax rates to vary from the
federal statutory rate of 35% include state income taxes, the impact of FICA Tip
and other credits, certain non-deductible expenses and the tax effect of
-13-
incentive stock options. There is generally no tax impact to the Company
associated with incentive stock options and the related compensation associated
with such options in the income statement. However, tax benefits may arise at
the time incentive options are exercised to the extent that the exercise is
followed by a disqualifying disposition of the shares by the optionee. The 2004
period reflects a greater amount of tax benefits associated with the impact from
the exercise of incentive stock options as compared to 2005.
Discontinued operations reflect the operations of restaurants closed
subsequent to fiscal 2002 which are required to be reported as discontinued
operations pursuant to SFAS No. 144 (see Note 7 to the Notes to Condensed
Consolidated Statements).
LONE STAR STEAKHOUSE & SALOON, INC.
THIRTY-SIX WEEKS ENDED SEPTEMBER 6, 2005 COMPARED TO THIRTY-SIX WEEKS
ENDED SEPTEMBER 7, 2004
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales increased $3,566 or 0.8% to $467,737 for the thirty-six weeks
ended September 6, 2005, compared to $464,171 for the thirty-six weeks ended
September 7, 2004. Sales for the thirty-six weeks ended September 6, 2005
include thirty-six weeks of sales for TXCC compared with the prior period for
fiscal 2004 which includes sales of TXCC covering a thirty-two week period. The
Company's blended same store sales, representing net sales, by store, for all
the Company owned restaurant concepts opened for more than 18 months in the
current and comparable prior year period decreased 0.5%. The Company's average
check increased 2.4% and guest counts decreased 2.9%.
Costs of sales, primarily food and beverages, decreased as a percentage of
net sales to 34.8% from 36.2% due primarily to decreased costs for beef partly
offset by increased costs for seafood items as a result of changes in the
menu-mix.
Restaurant operating expenses for the thirty-six weeks ended September 6,
2005 increased $9,733 to $229,094 compared to $219,361 in the prior year period
and increased as a percentage of net sales to 49.0% from 47.3%. Labor costs
increased .8% primarily as the result of increased management staffing at the
restaurants. Advertising costs increased .2%. Building maintenance costs
increased .4% and utility costs increased .2%. Remodel expenses increased .1%.
The increases were partially offset by a decrease in certain insurance costs and
a decrease in preopening expenses.
Depreciation and amortization decreased $652 for the thirty-six weeks ended
September 6, 2005 compared with the prior period. The decrease is attributable
to the continued reduction in depreciation for certain assets that have become
fully depreciated for the Company's historical concepts. This decrease is
partially offset by the depreciation of assets related to the TXCC acquisition.
General and administrative expenses increased $571 for the thirty-six weeks
ended September 6, 2005 compared to the prior period. General and administrative
expenses reflect an increase of approximately $300 for increases related to the
TXCC acquisition for the additional four week period included in fiscal 2005 as
compared with the prior period. In addition, general and administrative costs
reflect higher travel expenses, increased Sarbanes-Oxley compliance costs as
well as increased costs for legal services. The increases are offset in part by
approximately $500 received from an insurance company in connection with the
settlement of the CalPERS litigation against the Company.
Hurricane disaster relief donation for the thirty-six weeks ended September
6, 2005 reflects the Company's contribution to the American Red Cross in
connection with disaster relief for the victims of Hurricane Katrina. The
-14-
Company donated 100% of its restaurant sales of $1,853 on Labor Day, September
5, 2005.
Provision for casualty loss for the thirty-six weeks ended September 6,
2005 reflects the Company's estimate of losses associated with its restaurants
which were damaged by Hurricane Katrina. The principal amount of such losses
relate to estimated property damages for which insurance recoveries will not be
available due to limitations of insurance deductible amounts.
Non-cash stock compensation expense for the thirty-six weeks ended
September 6, 2005 was $1,677 compared to $505 for the prior year period. The
change is primarily attributable to an increase in the amortization of stock
compensation expense in 2005 compared to 2004, reflecting the impact of stock
options granted in December 2004 and during 2005. In addition, the 2005 period
includes a credit of $105 compared to a charge of $175 in the prior year period
relating to the accounting for certain shares of the Company's common stock held
by a Rabbi Trust pursuant to a deferred compensation arrangement (See Note 5 to
the Notes to Condensed Consolidated Financial Statements).
Other income, net for the thirty-six weeks ended September 6, 2005 was
$785 compared to $814 for the prior year. The decrease in other income results
primarily from a decrease in gains on sale of assets in 2005 as compared to
2004.
The effective income tax rate from continuing operations was 33.7% and
32.6% for the thirty-six weeks ended September 6, 2005 and September 7, 2004,
respectively. The factors which cause the effective tax rates to vary from the
federal statutory rate of 35% include state income taxes, the impact of FICA Tip
and other credits, certain non-deductible expenses and the tax effect of
incentive stock options. There is generally no tax impact to the Company
associated with incentive stock options and the related compensation associated
with such options in the income statement. However, tax benefits may arise at
the time incentive options are exercised to the extent that the exercise is
followed by a disqualifying disposition of the shares by the optionee. The 2004
period reflects a greater amount of tax benefits associated with the impact from
the exercise of incentive stock options as compared to 2005.
Discontinued operations reflect the operations of restaurants closed
subsequent to fiscal 2002 which are required to be reported as discontinued
operations pursuant to SFAS No. 144 (see Note 7 to the Notes to Condensed
Consolidated Statements).
IMPACT OF INFLATION
The primary inflationary factors affecting the Company's operations
include food and labor costs. A number of the Company's restaurant personnel are
paid at the federal and state established minimum wage levels and, accordingly,
changes in such wage levels affect the Company's labor costs. However, since the
majority of personnel are tipped employees, minimum wage changes should have
little effect on overall labor costs. Historically, as costs of food and labor
increased, the Company has been able to offset these increases through menu
price increases and economies of scale; however, there may be delays in the
implementation of such menu price increases or in effecting timely economies of
scale, as well as competitive pressures which may limit the Company's ability to
recover any cost increases in its entirety. Historically, inflation has not had
a material impact on operating margins. During fiscal 2004, the Company
experienced significant volatility in beef prices as such prices for the year
were generally above historical levels. During the first three quarters of 2005,
beef prices were below 2004 levels. However, to the extent that beef prices
during the remainder of fiscal 2005 or in future periods were to rise to 2004
levels or significantly above previous historical levels, it will have a
material negative impact on operating margins.
-15-
LIQUIDITY AND CAPITAL RESOURCES (AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The following table presents a summary of the Company's cash flows for
each of the thirty-six weeks ended September 6, 2005 and September 7, 2004:
Thirty-six Weeks Ended
----------------------
September 6, 2005 September 7, 2004
----------------- -----------------
Net cash provided by operating activities........... $ 35,402 $ 29,366
Net cash used in investing activities............... (52,925) (25,845)
Net cash used in financing activities............... (9,562) (20,957)
Net cash provided by discontinued operations........ 1,533 1,434
----------- ---------
Net decrease in cash and cash equivalents........... $ (25,552) $ (16,002)
=========== =========
The increase in net cash provided by operating activities for the
thirty-six week period ended September 6, 2005 compared to the prior period is
due primarily to the increase in stock compensation, decreases in certain
operating assets and decreases in operating liabilities related to income tax
payments during fiscal 2005 as compared to fiscal 2004.
Net cash used in investing activities increased primarily due to increases
in property and equipment additions and the purchase of short-term investments
partially offset by a reduction in cash used for acquisitions.
During the thirty-six week period ended September 6, 2005, the Company's
investment in property and equipment was $30,704 compared to $16,399 for the
same period in 2004.
During the thirty-six weeks ended September 6, 2005, the Company invested
$21,325 in short term investments primarily consisting of auction rate
securities with contractual maturities of up to 30 years. There were no
investments in short-term investments in the comparable period of 2004. These
auction rate securities have interest re-set dates that occur every 7 to 90 days
and can be actively marketed at ongoing auctions that occur every 7 to 90 days.
These investments are in investment-grade debt instruments such as
government-backed securities. Auction rate securities are classified as
available-for-sale and are reported on the balance sheet at par value, which
equals market value, as the rate on such securities resets every 7 to 90 days.
Consequently, interest rate movements do not affect the balance sheet valuation
of these fixed income investments.
On January 28, 2004, the Company acquired TXCC for an aggregate purchase
price of $23,496 which consisted of cash, shares of the Company's common stock
and the assumption of certain liabilities. The cash portion of the acquisition
was funded from the Company's existing cash balances and was $12,579, net of
cash acquired. In May 2005, the Company acquired for $1,200 in cash, the
remaining minority interest of certain limited partners in TXCC - Preston, L.P.
in which the Company owned a 60% interest.
During the thirty-six week period ended September 6, 2005, the Company
received net proceeds of $2,038 from the issuance of 198,686 shares of its
common stock due to the exercise of stock options compared to proceeds of $5,855
from the issuance of 689,565 shares in the comparable period of 2004.
The Company's Board of Directors has authorized the purchase of shares of
the Company's common stock from time to time in the open market or in privately
negotiated transactions. The most recent authorization was November 17, 2004
when the Board of Directors approved the repurchase of up to 2,026,190 shares of
the Company's common stock. During the thirty-six weeks ended September 6, 2005,
the Company made no purchases of its common stock. The Company purchased 670,300
-16-
shares of its common stock at an average cost of $23.28 per share or an
aggregate cost of $15,067 during the thirty-six weeks ended September 7, 2004.
At September 6, 2005, the Company may purchase up to 2,026,190 shares of its
common stock pursuant to its current authorization by the Board of Directors.
The Company has paid quarterly cash dividends on its common stock since the
second quarter of fiscal 2000. In January 2005, the Company increased its
quarterly cash dividend from $.175 to $.195 per share commencing in the second
quarter of fiscal 2005. During the thirty-six weeks ended September 6, 2005, the
Company paid dividends of $11,600 or $0.565 per share as compared to $11,205 or
$0.525 per share in the same period in 2004.
At September 6, 2005, the Company had $12,963 in cash and cash equivalents
and $54,825 in short term investments. As described in Note 4 to the Notes to
Condensed Consolidated Financial Statements in the Form 10-Q, the Company has
unsecured revolving credit facilities that may permit borrowings of up to
$55,000 which expire in October 2007. At September 6, 2005, the Company had no
outstanding borrowings.
The Company from time to time may utilize derivative financial instruments
in the form of live beef cattle futures contracts to manage market risks and
reduce its exposure resulting from fluctuations in the price of meat. Realized
and unrealized changes in the fair values of the derivative instruments are
recognized in income in the period in which the change occurs. As of and for the
thirty-six weeks ended September 6, 2005, the Company had no positions in
futures contracts.
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Stockholders are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the ability of the Company to open new restaurants, general market
conditions, the price of beef, competition and pricing and other risks set forth
in the Company's Annual Report on Form 10-K for the fiscal year ended December
28, 2004. 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 RISKS
The Company's exposure to market risks was not significant during the
thirty-six weeks ended September 6, 2005.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management,
including our principal executive officer and principal financial
officer, we conducted an evaluation of our disclosure controls and
procedures, as such term is defined under Rules 13a-15(e) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Based on this evaluation, our principal executive officer and our
principal financial officer concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this
Form 10-Q.
No change in the Company's internal control over financial reporting
(as defined in Rule 13a-15(f) of the Exchange Act) occurred during the
period covered by this report that materially affected or is
reasonably likely to materially affect the Company's internal control
over financial reporting.
-17-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 15, 2005, the Company received an Order and Final Judgment
from the Court of Chancery of the state of Delaware relating to the
Stipulation of Settlement of the class action and derivative lawsuit
brought by the California Public Employees Retirement System
("CalPERS") against the Company. The settlement resolves all claims
raised by the parties in litigation. In connection with the
settlement, the parties agreed to release each other from any and all
current and future claims related to the litigation. As part of the
settlement, certain of the Company's current and former Directors
agreed to an upward repricing of certain stock options or personally
make payments to the Company as additional proceeds in connection with
certain options previously exercised. In addition, the Company's
insurance provider made a payment in the amount of $3,000 under the
Company's Directors, Officers and Corporate insurance policy of which
$2,500 was awarded for attorneys' fees and expenses on behalf of
CalPERS. The remaining $500 was paid to the Company for reimbursement
of legal costs and expenses.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The table below provides information concerning the repurchase of
shares of the Company's common stock during the twelve weeks ended
September 6, 2005. The Board of Directors on November 17, 2004
authorized the Company to repurchase up to 2,026,190 shares of the
Company's common stock. Since this date, the Company has not
repurchased any shares of its common stock through September 6, 2005.
ISSUER PURCHASES OF EQUITY SECURITIES
(c)Total number
of Shares (d) Maximum
Purchased as Number of shares
(a) Total Part of Publicly that May Yet Be
Number of (b)Average Announced Purchased Under
Shares Price Paid Per Plans or the Plans or
Period Purchased Share Programs Programs
June 15,
through
July 12 - - - 2,026,190
July 13,
through - - - 2,026,190
August 9,
August 10,
through - - - 2,026,190
September 6,
Total - - - 2,026,190
(1) Repurchases are subject to prevailing market prices, may be made in open
market or in privately negotiated transactions, may occur or be
discontinued at any time. There can be no assurance that the Company will
repurchase any shares.
-18-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
On June 21, 2005, the Company held its Annual Meeting of Stockholders
(the "Meeting"). At the Meeting, the stockholders re-elected William
B. Greene, Jr. and Fred B. Chaney, Ph.D. to the Board of Directors to
serve until the 2008 Annual Meeting of Stockholders and until their
successors have been duly elected and qualified. As to the newly
re-elected Directors, there were 19,254,891 votes "For" and 554,079
votes "Abstain" for Mr. Greene, 18,713,150 votes "For" and 1,095,820
votes "Abstain" for Fred B. Chaney, Ph.D. The stockholders ratified
the appointment of Ernst & Young LLP for the year ending December 27,
2005. As to the ratification of auditors, there were 19,485,611 votes
"For", 245,450 votes "Against" and 77,909 votes "Abstained".
ITEM 6. EXHIBITS
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act
32.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act
32.2 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act
-19-
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 17, 2005 /s/ John D. White
-------------------------
Chief Financial Officer