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
JUNE 13, 2006 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 by check mark whether the Registrant is a large accelerated filer
an accelerated filer or a non-accelerated filer. See definition of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act.
LARGE ACCELERATED FILER | | ACCELERATED FILER |X| NON-ACCELERATED FILER | |
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 July 17, 2006
----- ----------------------------
COMMON STOCK, $.01 PAR VALUE 21,297,174 SHARES
LONE STAR STEAKHOUSE & SALOON, INC.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
-------------------------------
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS 2
AT JUNE 13, 2006 AND DECEMBER 27, 2005
CONDENSED CONSOLIDATED STATEMENTS OF 3
INCOME FOR THE TWELVE WEEKS ENDED
JUNE 13, 2006 AND JUNE 14, 2005
CONDENSED CONSOLIDATED STATEMENTS OF INCOME 4
FOR THE TWENTY-FOUR WEEKS ENDED JUNE 13, 2006 AND
JUNE 14, 2005
CONDENSED CONSOLIDATED STATEMENTS OF 5
CASH FLOWS FOR THE TWENTY-FOUR WEEKS ENDED
JUNE 13, 2006 AND JUNE 14, 2005
NOTES TO CONDENSED CONSOLIDATED 6
FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND 13
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE 19
DISCLOSURES ABOUT MARKET RISKS
ITEM 4. CONTROLS AND PROCEDURES 19
PART II. OTHER INFORMATION
---------------------------
ITEMS 3, 4 AND 5 HAVE BEEN OMITTED
SINCE THE ITEMS ARE EITHER INAPPLICABLE OR THE
ANSWER IS NEGATIVE
ITEM 1A. RISK FACTORS 19
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 20
ITEM 6. EXHIBITS 20
- 1 -
LONE STAR STEAKHOUSE & SALOON, INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
June 13, 2006 December 27, 2005
------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 25,140 $ 18,390
Short-term investments 33,033 45,212
--------- ---------
58,173 63,602
Inventories 11,267 12,859
Prepaid insurance deposits 13,433 16,346
Assets held for sale 21,335 22,614
Other current assets 19,717 17,764
--------- ---------
Total current assets 123,925 133,185
Property and equipment 553,184 532,930
Less accumulated depreciation and amortization (222,381) (214,416)
--------- ---------
330,803 318,514
Other assets:
Deferred income taxes 21,886 24,013
Intangible and other assets, net 41,813 42,101
--------- ---------
Total assets $ 518,427 $ 517,813
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,009 $ 17,484
Accrued self insurance 21,004 21,406
Other current liabilities 26,769 31,026
--------- ---------
Total current liabilities 64,782 69,916
Long term liabilities, principally deferred compensation obligations 24,444 24,290
Deferred rent obligations 10,300 11,266
--------- ---------
Total liabilities 99,526 105,472
Stockholders' equity:
Preferred stock -- --
Common stock 212 207
Additional paid-in capital 149,488 143,797
Retained earnings 272,864 272,000
Common stock held by Trust (3,663) (3,663)
--------- ---------
Total stockholders' equity 418,901 412,341
--------- ---------
Total liabilities and stockholders' equity $ 518,427 $ 517,813
========= =========
See accompanying notes.
- 2 -
LONE STAR STEAKHOUSE & SALOON, INC.
Condensed Consolidated Statements of Income
(In thousands, except for per share amounts)
(Unaudited)
For the twelve weeks ended
--------------------------
June 13, 2006 June 14, 2005
------------- -------------
Net sales $ 147,367 $ 144,607
Costs and expenses:
Costs of sales 52,552 51,589
Restaurant operating expenses 75,238 68,137
Depreciation and amortization 4,504 4,093
--------- ---------
Restaurant costs and expenses 132,294 123,819
General and administrative expenses 9,571 11,833
--------- ---------
Income from operations 5,502 8,955
Other income, net 674 55
--------- ---------
Income from continuing operations before income taxes 6,176 9,010
Provision for income taxes 1,721 3,070
--------- ---------
Income from continuing operations 4,455 5,940
Discontinued operations:
Income (loss) from operations before income tax 474 (936)
Income tax benefit (provision) (134) 253
--------- ---------
Income (loss) from discontinued operations 340 (683)
--------- ---------
Net income $ 4,795 $ 5,257
========= =========
Basic earnings (loss) per share:
Continuing operations $ 0.21 $ 0.29
Discontinued operations 0.02 (0.03)
--------- ---------
Basic earnings per share $ 0.23 $ 0.26
========= =========
Diluted earnings (loss) per share:
Continuing operations $ 0.18 $ 0.27
Discontinued operations 0.02 (0.03)
--------- ---------
Diluted earnings per share $ 0.20 $ 0.24
========= =========
Dividends per share $ 0.205 $ 0.195
========= =========
See accompanying notes.
- 3 -
LONE STAR STEAKHOUSE & SALOON, INC.
Condensed Consolidated Statements of Income
(In thousands, except for per share amounts)
(Unaudited)
For the twenty-four weeks ended
-------------------------------
June 13, 2006 June 14, 2005
------------- -------------
Net sales $ 308,148 $ 299,864
Costs and expenses:
Costs of sales 111,223 104,161
Restaurant operating expenses 151,432 138,091
Depreciation and amortization 8,709 8,140
--------- ---------
Restaurant costs and expenses 271,364 250,392
General and administrative expenses 22,995 23,979
--------- ---------
Income from operations 13,789 25,493
Other income, net 937 211
--------- ---------
Income from continuing operations before income taxes 14,726 25,704
Provision for income taxes 4,564 8,612
--------- ---------
Income from continuing operations 10,162 17,092
Discontinued operations:
Loss from operations before income tax (2,600) (1,249)
Income tax benefit 1,019 322
--------- ---------
Loss from discontinued operations (1,581) (927)
--------- ---------
Income before cumulative effect of accounting change 8,581 16,165
Cumulative effect of accounting change, net of tax 601 --
--------- ---------
Net Income $ 9,182 $ 16,165
========= =========
Basic earnings (loss) per share:
Continuing operations $ 0.49 $ 0.84
Discontinued operations (0.08) (0.04)
Cumulative effect of accounting change 0.03 --
--------- ---------
Basic earnings per share $ 0.44 $ 0.80
========= =========
Diluted earnings (loss) per share:
Continuing operations $ 0.46 $ 0.77
Discontinued operations (0.08) (0.04)
Cumulative effect of accounting change 0.03 --
--------- ---------
Diluted earnings per share $ 0.41 $ 0.73
========= =========
Dividends per share $ 0.40 $ 0.37
========= =========
See accompanying notes.
- 4 -
LONE STAR STEAKHOUSE & SALOON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the twenty-four weeks ended
-------------------------------
June 13, 2006 June 14, 2005
------------- -------------
Cash flows from operating activities:
Net income $ 9,182 $ 16,165
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 10,204 9,505
Non-cash stock compensation expense 1,346 1,642
Loss (gain) on sale of assets (8) 179
Cumulative effect of accounting change (619) --
Deferred income taxes 3,563 (858)
Loss from discontinued operations 1,581 927
Tax benefits from stock option exercises (793) 940
Net change in operating assets and liabilities:
Change in operating assets 1,116 1,949
Change in operating liabilities (3,892) (4,551)
-------- --------
Net cash provided by operating activities of continuing operations 21,680 25,898
Cash flows from investing activities:
Acquisitions, net of cash acquired -- (1,200)
Sales (purchases) of short-term investments 12,179 (21,111)
Purchases of property and equipment (25,879) (17,847)
Proceeds from sale of assets 36 113
Other (406) 278
-------- --------
Net cash used in investing activities of continuing operations (14,070) (39,767)
Cash flows from financing activities:
Net proceeds from issuance of common stock 4,465 1,629
Tax benefits from stock option exercises 793 --
Cash dividends (8,318) (7,575)
-------- --------
Net cash used in financing activities of continuing operations (3,060) (5,946)
Cash flow of discontinued operations:
Operating cash flows (1,597) (227)
Investing cash flows 3,797 449
-------- --------
Total 2,200 222
-------- --------
Net increase (decrease) in cash and cash equivalents 6,750 (19,593)
Cash and cash equivalents at beginning of period 18,390 38,515
-------- --------
Cash and cash equivalents at end of period $ 25,140 $ 18,922
======== ========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 2,927 $ 9,447
======== ========
See accompanying notes.
- 5 -
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 twenty-four weeks ended June 13, 2006 are not necessarily
indicative of the results to be expected for the full year ending December 26,
2006. 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 27, 2005.
Certain amounts for the prior year have been reclassified to conform with
the current year's presentation.
2. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In October 2005, the FASB issued FASB Staff Position No. FAS 13-1,
ACCOUNTING FOR RENTAL COSTS INCURRED DURING A CONSTRUCTION PERIOD (FSP 13-1).
FSP 13-1 requires rental costs associated with ground or building operating
leases incurred during a construction period to be recognized as rental expense.
FSP 13-1 is effective for reporting periods beginning after December 15, 2005.
Retroactive application is permitted, but not required. The Company adopted the
provision FSP 13-1 effective December 28, 2005 on a prospective basis, and its
adoption had no significant effect upon the Company's financial statements.
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.
The effect of shares issuable to settle the deferred compensation liabilities
are included for the twelve weeks ended June 13, 2006 and excluded from all
other periods as their effect would have been anti-dilutive.
- 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 weeks ended For the twenty-four weeks ended
-------------------------- -------------------------------
June 13, 2006 June 14, 2005 June 13, 2006 June 14, 2005
------------- ------------- ------------- -------------
Basic earnings per share computation:
Numerator:
Income from continuing operations $ 4,455 $ 5,940 $ 10,162 $ 17,092
Discontinued operations, net of
income tax 340 (683) (1,581) (927)
Cumulative effect of accounting change -- -- 601 --
-------- -------- -------- --------
Net Income $ 4,795 $ 5,257 $ 9,182 $ 16,165
======== ======== ======== ========
Denominator:
Weighted average number of shares
outstanding 20,818 20,370 20,735 20,333
======== ======== ======== ========
Basic earnings per share:
Continuing operations $ 0.21 $ 0.29 $ 0.49 $ 0.84
Discontinued operations 0.02 (0.03) (0.08) (0.04)
Cumulative effect of accounting
change -- -- 0.03 --
-------- -------- -------- --------
Basic earnings per share $ 0.23 $ 0.26 $ 0.44 $ 0.80
======== ======== ======== ========
Diluted earnings per share computation:
Numerator:
Income from continuing operations $ 4,455 $ 5,940 $ 10,162 $ 17,092
Adjustment for assumed settlement of
deferred compensation liabilities (308) -- -- --
-------- -------- -------- --------
Diluted income from continuing
operations 4,147 5,940 10,162 17,092
Discontinued operations, net of
income tax 340 (683) (1,581) (927)
Cumulative effect of accounting
change -- -- 601 --
-------- -------- -------- --------
Diluted net income $ 4,487 $ 5,257 $ 9,182 $ 16,165
======== ======== ======== ========
Denominator:
Weighted average number of shares
outstanding 20,818 20,370 20,735 20,333
Effect of dilutive employee stock
options 1,486 1,885 1,534 1,901
Effect of shares issuable to settle
deferred compensation liabilities 177 -- -- --
-------- -------- -------- --------
22,481 22,255 22,269 22,234
======== ======== ======== ========
Diluted earnings per share:
Continuing operations $ 0.18 $ 0.27 $ 0.46 $ 0.77
Discontinued operations 0.02 (0.03) (0.08) (0.04)
Cumulative effect of accounting
change -- -- 0.03 --
-------- -------- -------- --------
Diluted earnings per share $ 0.20 $ 0.24 $ 0.41 $ 0.73
======== ======== ======== ========
- 7 -
4. STOCK-BASED COMPENSATION
In December 2004, the stockholders of the Company approved the 2004 Stock
Option Plan (the "2004 Plan"). The 2004 Plan provides for grants of incentive
and nonqualified stock options to employees, directors, consultants, and
advisors. A total of 3,000,000 shares are available for issuance pursuant to the
2004 Plan, of which 500,000 are available for nonemployee directors. The maximum
number of shares that may be granted under the 2004 Plan to any individual shall
not exceed 600,000. Options granted under the 2004 Plan have ten-year terms and
generally vest equally over a four-year period commencing one year after the
date of grant.
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
deferred compensation obligations. At June 13, 2006, the Trust held 177,145
shares of the Company's common stock. Included in general and administrative
expenses was non-cash stock compensation expense for the twelve weeks ended June
13, 2006 and June 14, 2005 which was a (credit) and a charge of $(492) and $450,
respectively, relating to the changes in market price for such shares. The
charge for the twenty-four weeks ended June 13, 2006 and June 14, 2005 was $289
and $654, respectively.
Prior to December 28, 2005, the Company elected to expense the cost of
employee stock options in accordance with the fair value method contained in
Statement of Financial Accounting Standards (SFAS) No. 123, "ACCOUNTING AND
DISCLOSURE OF STOCK-BASED COMPENSATION." Under SFAS No. 123, the fair value for
options is estimated at the date of grant using a Black-Scholes-Merton
("Black-Scholes") option-pricing model, which requires the input of highly
subjective assumptions including the expected stock price volatility. The
election was retroactively applied to all awards granted to employees after
December 28, 1994.
In December 2004, the FASB issued SFAS No. 123(R), "SHARE-BASED PAYMENT,"
(SFAS 123R) which is a revision of FASB Statement No. 123. As required, we
adopted the provisions of SFAS 123(R) effective at the beginning of our fiscal
year 2006, using the modified-prospective method. Upon adoption of SFAS 123R, we
elected to continue using the Black-Scholes option-pricing model. If we had
adopted SFAS 123R in prior years, the impact on our 2005 net income of that
standard would have been a credit to income of $601, net of tax. This amount is
reflected in the accompanying statement of income as a cumulative effect of
change in accounting as required by the new standard. This cumulative effect
resulted from the Company not estimating forfeitures as required by the new
standard but recording these forfeitures at actual amounts as they occurred
which was allowed under SFAS No. 123. SFAS 123(R) also requires the benefits of
tax deductions in excess of recognized compensation cost to be reported as a
financing cash flow, rather than as an operating cash flow as required prior to
the adoption of SFAS 123(R). For the 24-week period ended June 13, 2006, the
$793 excess tax benefit classified as a financing cash inflow would have been
classified as an operating cash inflow if the Company had not adopted SFAS
123(R). Operating income and cash flow operating results for 2005 have not been
restated for the adoption of SFAS 123(R).
- 8 -
During the twenty-four weeks ended June 13, 2006 and June 14, 2005, we
recorded $1,346 and $1,642 respectively, in aggregate stock-based employee
compensation expense which includes amounts attributable to noncash stock
compensation arising from the common shares held by the Trust as described
above. This compensation expense is included in the general and administration
expenses in the accompanying statements of income. At June 13, 2006, there was
$5,815 of unrecognized compensation cost related to nonvested option awards, of
which the Company expects to recognize over the remaining weighted average
vesting period of 2.7 years.
During the twenty-four weeks ended June 13, 2006 and June 14, 2005, a total
of 527 and 165 options were exercised, respectively. The total intrinsic value
of the options exercised during the twenty-four weeks ended June 13, 2006 and
June 14, 2005 was $9,519 and $3,219, respectively. Cash received upon the
exercise of these stock options was $4,465 and $1,629 during the twenty-four
weeks ended June 13, 2006 and June 14, 2005, and the related tax benefits
realized were $3,570 and $1,207 during the corresponding periods.
The weighted average fair value per option at the date of grant for options
granted in the twenty-four weeks ended June 13, 2006 and June 14, 2005 was $5.76
and $7.05, respectively, as valued using the Black-Scholes option-pricing model
with the following weighted average assumptions:
For the twenty-four weeks ended
June 13, 2006 June 14, 2005
------------- -------------
Risk-free interest rate 4.50% 3.99%
Expected dividend yield 2.60% 2.50%
Expected volatility .28 .30
Expected term (in years) 4.96 5.00
The estimated volatility is based on the historical volatility of our stock
and other factors. The expected term of options represents the period of time
that options granted are expected to be outstanding. The risk free interest rate
is based upon the Treasury Constant Maturity Rate as quoted by the Federal
Reserve at the time of the grant for a term equivalent to the expected term of
the grant.
Information pertaining to option activity for the twenty-four weeks ended
June 13, 2006 is as follows (number of options and aggregate intrinsic value in
thousands):
Weighted
Number Average Aggregate
of Exercise Price Intrinsic
Options Per Option Value
------- -------------- ---------
Outstanding-beginning of year 4,429 $ 16.61
Granted 167 $ 23.43
Exercised (527) $ 8.47
Cancelled (254) $ 27.47
------ -------- --------
Outstanding at June 13, 2006 3,815 $ 17.31 $32,526*
====== ======== ========
Vested or expected to vest at
June 13, 2006 3,628 $ 20.34 $32,473*
====== ======== ========
Exercisable at June 13, 2006 2,650 $ 13.07 $32,243*
====== ======== ========
* The intrinsic value of a stock option is the amount by which the market value
of the underlying stock exceeds the exercise price of the option. The market
value of our stock was $24.93 per share at June 13, 2006.
- 9 -
A summary of the status of the Company's nonvested shares as of June 13, 2006,
and changes during the twenty-four weeks ended June 13, 2006, is presented below
(number of options in thousands):
Weighted
Average
Number of Grant-Date
Nonvested Options Options Fair Value
----------------- --------- ----------
Nonvested at December 27, 2005 1,511 $ 6.81
Granted 167 $ 5.76
Vested (263) $ 6.90
Forfeited (250) $ 6.65
-----
Nonvested at June 13, 2006 1,165 $ 6.68
===== =======
For options outstanding as of June 13, 2006, the number of options,
weighted-average exercise price, and weighted-average remaining contract life
for each group of options are as follows:
Options Outstanding
------------------------------------------------------------------------------------------
Number Weighted Weighted
Outstanding At Average Average
June 13, Exercise Remaining
Range of Prices 2006 Price Contract Life
------------------------------------------------------------------------------------------
(In Thousands)
$ 7.43 to $ 9.00 969 $ 8.58 1.98 years
$12.47 to $18.81 1,375 $13.01 1.05 years
$22.25 to $31.24 1,471 $27.07 8.71 years
The number of shares and weighted-average exercise price of options
exercisable at June 13, 2006, are as follows:
Options Exercisable
------------------------------------------------------------------------------------------
Number Weighted
Exercisable At Average
June 13, Exercise
Range of Prices 2006 Price
------------------------------------------------------------------------------------------
(In Thousands)
$ 7.43 to $ 9.00 969 $ 8.58
$12.47 to $18.81 1,375 $ 13.01
$22.25 to $31.24 306 $ 27.51
5. 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 June 13, 2006 and at December
27, 2005, there were no borrowings outstanding under the credit facility.
- 10 -
The Company also has entered into a $5,000 revolving term loan agreement
with a bank, under which no borrowings were outstanding at June 13, 2006 and
December 27, 2005. 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.
6. 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 twenty-four weeks ended June 13, 2006 or during the twenty-four weeks
ended June 14, 2005. 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 June 13, 2006, the Company may purchase
up to 2,026,190 shares of its common stock pursuant to its current authorization
by the Board of Directors.
7. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
During the first quarter of fiscal 2006, the Company closed 30
underperforming Lone Star Steakhouse & Saloon ("Lone Star") restaurants. In
addition, during the second quarter of fiscal 2006, the Company permanently
closed its three New Orleans restaurants. The group of restaurants closed
consisted of 16 owned locations and 17 leased locations. The restaurant closings
were the result of management's analysis of not only the performance of these
restaurants, but also the related return on investment targets, the geographical
location of these restaurants as compared to other Company owned restaurant
locations and the impact of demographic changes in the local markets surrounding
these restaurant locations. As of June 13, 2006, the Company has completed the
sale of two of the owned restaurants. All of the remaining closed owned
locations are currently held for sale. The Company is seeking to minimize its
losses for all closed leased locations through either negotiated lease
termination arrangements with the landlords or the sublease of the restaurant
location. In connection with the restaurant closings, the Company incurred a
pretax loss of $1,260 including impairment losses of approximately $2,468
related to assets abandoned or to be sold offset by a credit of $1,208 to
reflect the estimated fair value of the remaining lease liabilities less the
recognition of the remaining deferred rent obligations related to the leased
locations. All of the losses incurred are included in discontinued operations.
The Company will account for its remaining exit costs in accordance with the
provisions of SFAS No. 146 ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL
ACTIVITIES, which requires that such costs be expensed in the period such costs
are incurred. The Company believes that such additional costs will not be
significant. At June 13, 2006 and December 27, 2005, the Company classified
$21,335 and $22,614, respectively, of net property and equipment, consisting
primarily of real estate, as "Assets Held for Sale" which are recorded at the
lower of cost or fair value less estimated selling costs.
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 twelve week and
twenty-four week periods for fiscal 2006 include gains from sale of assets of
$1,475. The table below reflects as discontinued operations the applicable
operations of the Company's closed restaurants which meet the criteria for such
presentation.
- 11 -
For the twelve weeks For the twenty-four
-------------------- -------------------
ended weeks ended
----- -----------
June 13, June 14, June 13, June 14,
2006 2005 2006 2005
---- ---- ---- ----
Income (loss) from operations $ 474 $ (936) $(2,600) $(1,249)
Income tax benefit (provision) (134) 253 1,019 322
------- ------- ------- -------
Net income (loss) from discontinued
operations $ 340 $ (683) $(1,581) $ (927)
======= ======= ======= =======
Net sales from discontinued operations $ -- $ 8,974 $ 6,941 $19,071
======= ======= ======= =======
8. INCOME TAX
The effective income tax rate from continuing operations was 27.9% and
34.1% for the twelve weeks ended June 13, 2006 and June 14, 2005, respectively,
and 31.0% and 33.5% for the twenty-four weeks ended June 13, 2006 and June 14,
2005, 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 taxable income, 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 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 decrease in the effective tax
rate for fiscal 2006 reflects the impact of FICA Tip and other credits on the
lower pre-tax income and an increase in non-taxable interest income for fiscal
2006 compared with 2005.
9. DIVIDEND DECLARED
On June 14, 2006, the Board of Directors declared the Company's quarterly
cash dividend of $.205 per share payable July 10, 2006 to shareholders of record
on June 26, 2006.
- 12 -
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 four restaurants in the twenty-four weeks ended June 13,
2006 and one restaurant during the twenty-four weeks ended June 14, 2005.
The Company has plans to open an additional 16 Lone Star Steakhouse &
Saloon ("Lone Star") restaurants throughout the reminder of 2006 or 2007. The
Company also plans to open five Texas Land & Cattle restaurants, four Sullivan's
Steakhouse restaurants and two Del Frisco's Double Eagle Steak House restaurants
during the remainder of 2006 or early 2007. This time frame is predicated by our
experience that, assuming the Company can obtain certain governmental approvals
and licenses, such as liquor licenses, it generally takes from 9 to 12 months
after the signing of a lease or the closing of a purchase to complete
construction and open a new restaurant.
There were 221 operating domestic Lone Star restaurants as of June 13,
2006. In addition, a licensee operates four Lone Star restaurants in California.
As of June 13, 2006, the Company operates five Del Frisco's Double Eagle
restaurants. In addition, a licensee operates one Del Frisco's restaurant. The
Company also operates 15 Sullivan's Steakhouse restaurants, 20 Texas Land and
Cattle Steak House(R) restaurants and one Frankie's Italian Grille restaurant.
Internationally, licensees operate 12 Lone Star Steakhouse & Saloon
restaurants in Australia and one in Guam.
During the twenty-four weeks ended June 13, 2006, the Company closed 33
underperforming Lone Star restaurants, including three restaurants in New
Orleans previously closed due to Hurricane Katrina. In the second quarter of
fiscal 2006, the Company decided to sell the New Orleans restaurants. The
restaurants closed were the result of management's analysis of not only the
performance of these restaurants, but also the related return on investment
targets, the geographical location of these restaurants as compared to other
Company owned restaurant locations and the impact of demographic changes in the
local markets surrounding these restaurant locations. All of the owned locations
are currently held for sale. The Company is seeking to minimize its losses for
all leased locations through either negotiated lease termination arrangements
with the landlords or is seeking to sublease the restaurant locations. See Note
7 to the condensed consolidated financial statements for additional information.
- 13 -
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) Twenty-four Weeks Ended
---------------------- -----------------------
June 13, 2006 June 14, 2005 June 13, 2006 June 14, 2005
------------- ------------- ------------- -------------
STATEMENT OF OPERATIONS DATA:
Net sales................................................ 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Costs of sales....................................... 35.7 35.7 36.1 34.7
Restaurant operating expenses........................ 51.0 47.1 49.1 46.1
Depreciation and amortization........................ 3.1 2.8 2.8 2.7
---- ---- ---- ----
Restaurant costs and expenses................... 89.8 85.6 88.0 83.5
General and administrative expenses...................... 6.5 8.2 7.5 8.0
---- ---- ---- ----
Income from operations................................... 3.7 6.2 4.5 8.5
Other income, net........................................ 0.5 -- 0.3 0.1
---- ---- ---- ----
Income from continuing operations before income taxes.... 4.2 6.2 4.8 8.6
Provision for income taxes............................... 1.2 2.1 1.5 2.9
---- ---- ---- ----
Income from continuing operations........................ 3.0 4.1 3.3 5.7
Income (loss) from discontinued operations, net of
applicable income taxes................................. 0.3 (0.5) (0.5) (0.3)
Cumulative effect of accounting change, net of tax....... -- -- 0.2 --
---- ---- ---- ----
Net income............................................... 3.3% 3.6% 3.0% 5.4%
==== ==== ==== ====
(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.
- 14 -
LONE STAR STEAKHOUSE & SALOON, INC.
TWELVE WEEKS ENDED JUNE 13, 2006 COMPARED TO TWELVE WEEKS ENDED JUNE 14, 2005
(In thousands, except per share amounts)
Net sales increased $2,760 or 1.9% to $147,367 for the twelve weeks ended
June 13, 2006, compared to $144,607 for the twelve weeks ended June 14, 2005.
The increase in sales is due primarily to the opening of new restaurants since
June 14, 2005. 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 .3%. The
Company's average check decreased 3.1% and guest counts increased 2.8%.
Costs of sales, primarily food and beverages, as a percentage of net sales
was 35.7% for both twelve week periods. Beef costs decreased slightly, but the
decrease was offset by increased costs in produce.
Restaurant operating expenses for the twelve weeks ended June 13, 2006
increased $7,101 to $75,238 compared to $68,137 in the prior year period and
increased as a percentage of net sales to 51.0% from 47.1%. Labor costs
increased .6% primarily as the result of increased management staffing at the
restaurants. Advertising costs increased 2.1% as the result of increased media
print costs related to direct marketing and costs related to the Company's
sponsorship of a NASCAR car beginning in 2006. Utility costs, primarily
electricity, increased .2%. Preopening costs increased by .5%.
Depreciation and amortization increased $411 for the twelve weeks ended
June 13, 2006 compared with the prior period. The increase is attributable
primarily to the depreciation related to the new stores opened by the Company.
General and administrative expenses decreased $2,262 for the twelve weeks
ended June 13, 2006 compared to the prior period. General and administrative
expense reflects a decrease in bonus compensation expense. Additionally,
non-cash stock compensation expense for the twelve weeks ended June 13, 2006 was
$135 compared to $949 for the prior year period. The change primarily relates to
a credit of ($493) in the 2006 period compared to a charge of $450 in the prior
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 4 to condensed financial statements).
Other income, net for the twelve weeks ended June 13, 2006 was $674
compared to $55 for the prior year. The increase for 2006 primarily reflects an
increase in interest income and foreign exchange gains compared to 2005.
The effective income tax rate from continuing operations was 27.9% and
34.1% for the twelve weeks ended June 13, 2006 and June 14, 2005, 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-taxable income, 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 decrease in the effective tax rate for fiscal 2006 reflects the
impact of FICA Tip and other credits on the lower pre-tax income and an increase
in non-taxable interest income for fiscal 2006 compared with 2005.
Discontinued operations reflect the operations of the 33 Lone Star
restaurants closed during the twenty-four weeks ended June 13, 2006 and two Lone
Star restaurants closed in fiscal 2005 which are required to be reported as
discontinued operations pursuant to SFAS No. 144 (see Note 7 to the condensed
consolidated statements). The twelve weeks ended June 13, 2006 includes gains
from sale of assets of $1,475.
- 15 -
LONE STAR STEAKHOUSE & SALOON, INC.
TWENTY-FOUR WEEKS ENDED JUNE 13, 2006 COMPARED TO TWENTY-FOUR WEEKS ENDED JUNE 14, 2005
(In thousands, except per share amounts)
Net sales increased $8,284 or 2.8% to $308,148 for the twenty-four weeks
ended June 13, 2006, compared to $299,864 for the twenty-four weeks ended June
14, 2005. The increase in sales is due primarily to the opening of new
restaurants since June 14, 2005. 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 .9%. The Company's average check decreased 1.0% and guest counts
increased 2.0%.
Costs of sales, primarily food and beverages, increased as a percentage of
net sales to 36.1% from 34.7% due primarily to increased costs for beef and
produce items.
Restaurant operating expenses for the twenty-four weeks ended June 13, 2006
increased $13,341 to $151,432 compared to $138,091 in the prior year period and
increased as a percentage of net sales to 49.1% from 46.1%. Labor costs
increased .7% primarily as the result of increased management staffing at the
restaurants. Advertising costs increased 1.4% as the result of increased media
print costs related to direct marketing and costs related to the Company's
sponsorship of a NASCAR car beginning in 2006. Utility costs, for gas and
electricity, increased .5% and preopening costs increased by .3%.
Depreciation and amortization increased $569 for the twenty-four weeks
ended June 13, 2006 compared with the prior period. The increase is attributable
primarily to the depreciation related to the new stores opened by the Company.
General and administrative expenses decreased $984 for the twenty-four
weeks ended June 13, 2006 compared to the prior period. General and
administrative expense reflects a decrease in bonus compensation expense and
travel expenses offset in part by an increase in professional fees.
Additionally, non-cash stock compensation expense for the twenty-four weeks
ended June 13, 2006 was $1,346 compared to $1,642 for the prior year period. The
change primarily relates to a charge of $289 in the 2006 period compared to $654
in the prior 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 4 to Condensed Financial Statements).
Other income, net for the twenty-four weeks ended June 13, 2006 was $937
compared to $211 for the prior year. The increase for 2006 primarily reflects an
increase in interest income and foreign exchange gains as compared to 2005.
The effective income tax rate from continuing operations was 31.0% and
33.5% for the twenty-four weeks ended June 13, 2006 and June 14, 2005,
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-taxable income, 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 decrease in the effective tax rate for fiscal 2006 reflects the
impact of FICA Tip and other credits on the lower pre-tax income and an increase
in non-taxable interest income for fiscal 2006 compared with 2005.
Discontinued operations reflect the operations of the 33 Lone Star
restaurants closed during the twenty-four weeks ended June 13, 2006 and two Lone
Star restaurants closed in fiscal 2005 which are required to be reported as
discontinued operations pursuant to SFAS No. 144 (see Note 7 to the condensed
consolidated statements). The twenty-four weeks ended June 13, 2006 includes
gains from sale of assets of $1,475.
The cumulative effect of the accounting change reflects the adoption of the
provisions of SFAS 123R. The Company adopted the provisions of SFAS 123R
effective at the beginning of fiscal 2006. The cumulative effect of the change
- 16 -
in accounting resulted in a one time credit of $601, net of income tax (see Note
4 to the condensed consolidated financial 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 the past twenty-four month
period, the Company experienced significant volatility in beef prices as such
prices for the periods were generally above historical levels. To the extent
that beef prices continue to be above historical levels, it will have a material
negative impact on operating margins.
LIQUIDITY AND CAPITAL RESOURCES (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The following table presents a summary of the Company's cash flows for each
of the twenty-four week periods ended June 13, 2006 and June 14, 2005:
Twenty-four weeks ended
-----------------------
June 13, 2006 June 14, 2005
------------- -------------
Net cash provided by operating activities......................... $ 21,680 $ 25,898
Net cash used in investing activities............................. (14,070) (39,767)
Net cash used in financing activities............................. (3,060) (5,946)
Net cash provided by discontinued operations...................... 2,200 222
----------- -----------
Net increase (decrease) in cash and cash equivalents.............. $ 6,750 $ (19,593)
=========== ===========
The decrease in net cash provided by operating activities for the
twenty-four week period ended June 13, 2006 compared to the prior period is due
primarily to a decrease in net income during fiscal 2006 as compared to fiscal
2005 which is offset in part by a decrease in deferred tax assets.
Net cash used in investing activities decreased primarily due to the
Company selling $12,179 of its investments in short-term securities during the
twenty-four weeks ended June 13, 2006 as compared to investment purchases of
$21,111 in the comparable period of 2005. This decrease was partially offset by
increases in property and equipment additions. During the twenty-four week
period ended June 13, 2006, the Company's investment in property and equipment
was $25,879 compared to $17,847 for the same period in 2005.
The Company's short-term investments primarily consist of auction rate
securities with contractual maturities of up to 30 years. 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.
The Company has opened four Lone Star restaurants during the twenty-four
weeks ended June 13, 2006. The Company has plans to open an additional 16 Lone
Star restaurants throughout the remainder of fiscal 2006 or 2007. In addition,
the Company has plans to open five Texas Land & Cattle restaurants, four
Sullivan's Steakhouse restaurants and two Del Frisco's Double Eagle Steak
- 17 -
House restaurants during the remainder of fiscal 2006 or early 2007. During the
twenty-four weeks ended June 13, 2006, the Company closed 33 underperforming
Lone Star restaurants.
The Company anticipates the remaining aggregate costs to complete the store
development currently in process or planned will range from $55,000 to $75,000
relating primarily to construction and equipment costs for new restaurants, the
acquisition of additional restaurant sites and the installation of the new
web-based POS system in its existing stores.
During the twenty-four week period ended June 13, 2006, the Company
received net proceeds of $4,465 from the issuance of 527,038 shares of its
common stock due to the exercise of stock options compared to proceeds of $1,629
from the issuance of 164,083 shares in the comparable period of 2005.
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 twenty-four weeks ended June 13, 2006 and
June 14, 2005, the Company made no purchases of its common stock. At June 13,
2006, 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 2006, the Company increased its
quarterly cash dividend from $.195 to $.205 per share commencing with the
dividend payment to be paid April 10, 2006. During the twenty-four weeks ended
June 13, 2006, the Company paid dividends of $8,318 or $.40 per share as
compared to $7,575 or $.37 per share in the same period in 2005.
At June 13, 2006, the Company had $58,173 in cash and cash equivalents and
short term investments. As described in Note 5 to the 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 June 13, 2006, 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
twenty-four weeks ended June 13, 2006, the Company had no positions in futures
contracts.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In October 2005, the FASB issued FASB Staff Position No. FAS 13-1,
ACCOUNTING FOR RENTAL COSTS INCURRED DURING A CONSTRUCTION PERIOD (FSP 13-1).
FSP 13-1 requires rental costs associated with ground or building operating
leases incurred during a construction period to be recognized as rental expense.
FSP 13-1 is effective for reporting periods beginning after December 15, 2005.
Retroactive application is permitted, but not required. The Company adopted the
provision FSP 13-1 effective December 28, 2005 on a prospective basis, and its
adoption had no significant effect upon the Company's financial statements.
In December 2004, the FASB issued STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 123 (revised 2004). "SHARE-BASED PAYMENT" (SFAS 123R). SFAS 123R
is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation." Among
other items, SFAS 123R eliminates the use of the intrinsic value method of
accounting, and requires companies to recognize the cost of awards of equity
instruments granted in exchange for employee services received, based on the
grant date fair value of those awards, in the financial statements. In addition,
SFAS 123R also amends SFAS 95, "Statement of Cash Flows," requiring the benefits
of tax deductions in excess of recognized compensation costs to be reported as
financing cash flows, rather than as operating cash flows as previously
required. The effective date of SFAS 123R was the first interim period beginning
after June 15, 2005; however, on April 14, 2005, the Securities and Exchange
- 18 -
Commission announced that the effective date of SFAS 123R was postponed until
the first annual period beginning after June 15, 2005. Prior to the adoption of
SFAS 123R, the Company recognized the cost of its awards of equity instruments
granted in exchange for employee services received, based on the grant date fair
value of those awards in accordance Statement of Financial Accounting Standards
No. 123 in its financial statements. The Company adopted the provisions of SFAS
123R effective December 28, 2005 using the modified prospective method. See Note
4 to condensed consolidated financial statements for additional information.
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 twenty-four weeks ended June 13, 2006.
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.
As of June 13, 2006, we have substantially completed the
installation of the new point of sale (POS) system in the
Company's Lone Star Steakhouse & Saloon Restaurants. The
installation of the new system required only minimal changes to
our current procedures for control over financial reporting.
However, the new system has been subjected to testing and, based
on that testing, appropriate controls are functioning to ensure
that information required to be disclosed by us in the reports
that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and
forms. We have not experienced any significant difficulties in
connection with the installation or operation of the new POS
system.
No other changes 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.
PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
There are no material changes to the Risk Factors included in the
Company's Form 10-K for the fiscal year ended December 27, 2005.
The impact of the circumstances and events described in such Risk
Factors could result in significant adverse effects on our
financial position, results of operations and cash flows.
- 19 -
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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. The Company has not repurchased any shares of its
common stock through June 13, 2006.
(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.
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
- 20 -
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)
/s/ John D. White
Date: July 24, 2006 ----------------------------------
Chief Financial Officer