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The following is an excerpt from a 10-K SEC Filing, filed by LONE STAR STEAKHOUSE & SALOON INC on 3/14/2005.
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LONE STAR STEAKHOUSE & SALOON INC - 10-K - 20050314 - PART_I


                                     PART I

This Annual  Report on Form 10-K  contains  certain  forward-looking  statements
within the meaning of Section 27A of the Securities  Act, and Section 21E of the
Exchange  Act,  which are  intended  to be covered by the safe  harbors  created
thereby.  Stockholders are cautioned that all forward-looking statements involve
risks and uncertainty,  including without limitation,  changes in costs of food,
retail  merchandise,   labor,  and  employee  benefits,  risks  associated  with
litigation,  our ability to continue to acquire and retain  prime  locations  at
acceptable  lease or purchase  terms,  the impact of specific events such as the
outbreak of "mad cow disease" or "foot/mouth disease", as well as general market
conditions,  competition,  and pricing. Although we believe that the assumptions
underlying the  forward-looking  statements  included in this Annual Report will
prove to be accurate, in light of the significant  uncertainties inherent in the
forward-looking  statements  included herein,  the inclusion of such information
should not be regarded as a  representation  by us or any other  person that our
objectives  and plans will be achieved.  Our  forward-looking  statements may be
identified by words such as  "believes,"  "expects,"  "anticipates,"  "intends,"
"estimates" or similar expressions.



ITEM 1.   BUSINESS

BACKGROUND

     As of March 7, 2005,  Lone Star  Steakhouse &  Saloon,  Inc. (the "Company")
owned and operated 251  mid-priced,  full  service,  casual  dining  restaurants
located  in the  United  States,  which  operate  under the trade name Lone Star
Steakhouse &  Saloon or Lone Star Cafe ("Lone  Star" or " Lone Star  Steakhouse &
Saloon"), 20 Texas Land &  Cattle Co. ("Texas Land &  Cattle") restaurants, and 20
upscale  steakhouse  restaurants,  five  operating as Del Frisco's  Double Eagle
Steak  House  ("Del  Frisco's")  restaurants  and  15  operating  as  Sullivan's
Steakhouse  ("Sullivan's")  restaurants.  The Company also operates a mid-priced
restaurant operating as Frankie's Italian Grille  ("Frankie's").  In addition, a
licensee  operates  three Lone Star  restaurants  in  California  and a licensee
operates  a  Del  Frisco's  restaurant  in  Orlando,  Florida.  Internationally,
licensees operate 12 Lone Star Steakhouse & Saloon  restaurants in Australia
and one in Guam.

     The Texas Land &  Cattle  restaurants  were  purchased  out of bankruptcy on
January 28, 2004,  and their  operating  results are  included in the  Company's
accompanying financial information for the year ended December 28, 2004 from the
date of acquisition.

     Steak continues to be one of the most frequently  ordered dinner entrees at
restaurants.  In 2004, the United States Department of Agriculture estimated the
average  annual per capita  consumption of beef to be 66.3 pounds an increase of
2.1 pounds  over 2003.  Company  management  believes  the  limited  menu of its
restaurants,  which features high quality USDA graded, well aged steaks, and the
appeal of its roadhouse  ambiance and excellent service  distinguishes Lone Star
restaurants.  Texas Land & Cattle  restaurants are distinguished by warm and
comfortable  Texas  ranch  house  ambiance  featuring  fireplaces,  a broad menu
featuring  high  quality  USDA  choice and prime  graded  steaks  and  attentive
service. Company management believes Sullivan's restaurants are distinguished by
featuring high quality,  top end choice of beef whereas Del Frisco's restaurants
are  distinguished  by featuring  high  quality,  USDA prime graded  steaks.  In
addition,   Sullivan's  and  Del  Frisco's  feature   specialized  new  entrees,
award-winning wine lists, an exciting ambiance and attentive team service.

     The Company's  focus on selection,  training and in-store  execution  along
with Lone Star's continued marketing initiatives,  the successful integration of
Texas Land &  Cattle into the Company's operations, the successful development of
the Sullivan's upscale concept, and the development of the Del Frisco's concept,
differentiate   the  Company  from  other  restaurant   companies  that  operate
steakhouse restaurants.  The Company believes that through its operation of four
(4) distinct steak restaurant  concepts,  it has positioned itself as "The Steak
Company."

                                      -3-


RESTAURANT CONCEPTS

     Lone Star  restaurants  are positioned as  "destination  restaurants"  that
attract loyal  clientele.  Lone Star restaurants  embrace a Texas-style  concept
that  features  Texas  artifacts  and country and western  music.  The authentic
roadhouse  concept was  developed to  capitalize  on the enduring  popularity of
Texas related themes.  Lone Star is further  distinguished  by its high quality,
USDA graded, well aged steaks which are hand-cut fresh daily at each  restaurant
and mesquite  grilled to order.  Meals are generous  "Texas-sized"  portions and
full bar service is available.  The exciting and vibrant  atmosphere  created by
the  restaurants'  roadhouse  ambiance  includes  neon beer signs and  specially
selected  upbeat  country and western music.  The decor includes  planked wooden
floors, dim lighting,  flags and other Texas  memorabilia,  all of which enhance
the casual  dining  experience  and  establish  a distinct  identity.  Lone Star
restaurants are open seven days a week and most serve both lunch and dinner with
an average  check per  customer  for 2004 of  approximately  $12.00 at lunch and
$18.50 at dinner.

     Texas  Land  &   Cattle  restaurants  are  mid-priced  full  service  dining
restaurants  located in Texas  (19) and New Mexico  (1).  The  concept  features
authentic  Texas ranch house settings with large  fireplaces,  serving lunch and
dinner  seven days per week.  The average  check per  customer is  approximately
$13.00 at lunch and $19.00 at dinner.

     Sullivan's  was named after the  legendary  boxer,  John L.  Sullivan,  and
embraces a Chicago style 1940's steakhouse theme with nostalgic  influences that
feature jazz and swing music.  In 1997,  Sullivan's was named the hot concept of
the year by Nation's  Restaurant  News. The bar features live jazz music several
nights a week. The decor includes an open kitchen,  separate dining rooms,  dark
wood paneling, carpeted floors, warm lighting, and white tablecloths. Sullivan's
is distinguished by its high quality, well aged, USDA inspected beef, chops, and
seafood.  Most Sullivan's  restaurants serve lunch and dinner, and are generally
open seven days a week with an average guest check per customer of approximately
$60.00.

     Del  Frisco's  is designed to serve a  sophisticated  clientele,  including
business related dining occasions, is the recipient of the prestigious Ivy Award
and has been elected to the fine dining hall of fame.  The Del Frisco's  concept
embraces an elegant and timeless  early  twentieth  century  motif.  The concept
features old ways of cooking, such as master broiling and roasting. Del Frisco's
decor and ambiance include dark woods, fabric walls, fireplaces, separate dining
rooms and soft background  music.  These elements enhance the dining  experience
and  establish a distinct  identity  for Del  Frisco's.  Del Frisco's is further
distinguished by featuring high quality,  USDA  prime-graded  steaks hand cut in
each restaurant. Del Frisco's restaurants serve dinner only, except the New York
City and Denver  restaurants  which are also open for lunch,  and are  generally
open Monday through Saturday with an average dinner guest check of approximately
$84.00.

     Frankie's Italian Grille is a mid-priced casual dining restaurant featuring
traditional Italian cuisine in large portions. Frankie's features a high energy,
vibrant atmosphere and is open seven days a week, serving lunch and dinner, with
check averages of approximately $13.00 at lunch and $29.00 at dinner.

CORPORATE STRATEGY

In January 2004 the Company  made a  significant  acquisition  of the Texas Land
& Cattle restaurants,  a 20-unit chain. These restaurants give the Company a
greatly increased presence in the state of Texas where the Company also operates
three Sullivan's and two Del Frisco's Double Eagle Steak Houses, but has no Lone
Star Steakhouse & Saloon restaurants.

During 2004 several different  remodelings of restaurants were completed.  These
remodelings  can be  described  as  ranging  from  a  minor  refurbishment  to a
completely  new look for the interior and exterior of the building.  The Company
now believes that all future remodelings need to be considered on a unit-by-unit
basis;  consequently,  there is not a singular  remodeling  package that will be
utilized with broad application.

As in past years,  the Company  continues its focus on operational  consistency,
with the primary emphasis on improved management  staffing and retention,  which
is  expected  to result  in  greater  employee  and  guest  satisfaction  in our
restaurants.  The marketing effort for all concepts  continues to emphasize both
direct mail and print advertising in prestigious local and internationally known
publications.

Significant  progress was made in real estate development during the year and we
have  secured  a  meaningful  number of future  restaurant  sites,  which are in
various stages of the development process.

During 2004 the Company opened one new and remodeled  seven Lone Star Steakhouse
&  Saloon  restaurants.  Current  plans  call  for  an  acceleration  of  new
development and restaurant remodels for all brands during 2005.

As in past  years,  the Company  will look for  opportunities  to  continue  the
previously  announced Stock Repurchase  Program as part of its ongoing effort to

                                      -4-


increase  shareholder  value.  Any  repurchases  of common  stock are subject to
prevailing market prices, may be made in open market or in privately  negotiated
transactions  and may occur or be discontinued  at any time. In addition,  there
can be no  assurance  that the Company will  repurchase  any shares or as to the
amount,  if any,  of any  cash  dividends.  Subject  to the  availability  of an
adequate  number of financially  attractive  real estate sites,  meat prices and
other  economic  considerations,  the Company's  overall  strategy  continues to
include  a  combination  of  share  repurchase,   dividend   payment,   improved
operational efficiencies, new unit development and opportunistic acquisitions.

UNIT ECONOMICS

     The  Company's  management  team  focuses on selecting  locations  with the
potential  of  producing   significant   revenues  while   controlling   capital
expenditures and occupancy  costs. The Company's Lone Star restaurants  averaged
approximately  $1.9 million in sales on an annualized  basis during 2004. Of the
251 Lone Star restaurants  open at March 7, 2005, 90 were leased  facilities and
had an average cash investment of approximately  $1.0 million and 161 were owned
and had an average  cost for land  acquisition,  construction  and  equipment of
approximately $1.9 million.

     The Company  anticipates the average total  investment per restaurant for a
typical Del Frisco's  restaurant and Sullivan's  restaurant will range from $3.0
million to $5.0 million, excluding the cost of land.

MENU

     The dinner menu at a Lone Star restaurant  features a limited  selection of
high quality,  specially seasoned and mesquite grilled steaks,  prime rib, ribs,
chicken, fish, king crab, shrimp and various combinations.  Most dinners consist
of a  complete  meal  including  salad,  bread and  butter and a choice of baked
potato,  baked sweet potato,  steak fries, steamed vegetables or Texas rice. The
lunch menu  offers a  selection  of  hamburgers,  chicken  sandwiches,  luncheon
steaks,  ribs,  soups and salads.  Depending on local  availability and quality,
fish  selections are also offered at lunch and dinner.  Appetizers and desserts,
together  with a full bar  service  is  available.  Alcoholic  beverage  service
accounts for approximately 11% of Lone Star's net sales.

     The menu at Texas Land &  Cattle  restaurants  features a selection  of high
quality,  mesquite grilled steaks,  smoked sirloin,  as well as prime rib, ribs,
chicken, fish, shrimp and combinations.  Most dinners consist of a complete meal
including  salad,  bread and butter  and a choice of side  dish.  The lunch menu
offers a selection of hamburgers, sandwiches, luncheon steaks, soups and salads.
Appetizers  and  desserts,  together  with  a full  bar  service  is  available.
Alcoholic beverage service accounts for approximately 11% of Texas Land &  Cattle
net sales.

     The menu at Sullivan's  features high quality,  well aged,  USDA  inspected
beef, chops, seafood and quality side dishes.  Sullivan's also features a number
of high quality wines and a full bar.  Alcoholic  beverage  service accounts for
approximately 38% of Sullivan's net sales.

     The menu at Del Frisco's  features high quality USDA  prime-graded  steaks,
chops,  seafood,  and quality  side dishes.  Del Frisco's  wine list offers over
1,000 high quality wines and a full bar. Alcoholic beverage service accounts for
approximately 36% of Del Frisco's net sales.

SITE SELECTION

     The Company  believes site selection is critical for the potential  success
of a particular  restaurant and senior management  devotes  significant time and
resources to analyzing each prospective  site.  Among the factors  considered in
site selection are the specific steakhouse concept to be developed, local market
demographics,  and site visibility.  Consideration is given to accessibility and
proximity  to  significant  generators  of  potential  customers  such as  major
retailers, retail centers and office complexes, office and hotel concentrations,
and entertainment centers (stadiums,  arenas, theaters,  etc.). The Company also
reviews potential competition and attempts to analyze the profitability of other
national chain restaurants operating in the area.

     Leases are  negotiated  generally  with short  initial  terms with multiple
renewal  options.  The Company has generally  required  between 150 and 280 days
after  the  signing  of a  lease  or  the  closing  of a  purchase  to  complete
construction and open a new restaurant. Additional time is sometimes required to
obtain certain government approvals and licenses, such as liquor licenses.

                                      -5-


RESTAURANT LAYOUT

     The  Company  believes  the decor and  interior  design of its  restaurants
significantly  contribute to its success. The Lone Star restaurants' open layout
permits customers to view the bar and Texas  memorabilia,  thereby enhancing the
casual  dining  atmosphere.  The Company  also  designs  its  kitchen  space for
efficiency of workflow, thereby minimizing the amount of space required.

     Lone Star restaurants currently average approximately 5,800 square feet and
include a dining area with seating for approximately 220 customers. In addition,
a bar area is located  adjacent  to the dining  room  primarily  to  accommodate
customers  waiting  for  dining  tables  or to  accommodate  overflow.  In  some
restaurants, an outside patio area provides additional seating.

     A new prototype  Lone Star building has been  developed  which  features an
open view kitchen,  with the interior decor  utilizing  newer and vibrant colors
and quality materials of granite and stone. The building exterior features earth
tones  with  cultured  stone and a stucco  finish.  The  prototype  building  is
approximately 6,800 sq. ft. with a seating count of 260 people.

     Texas Land &  Cattle  restaurants  average  approximately  7,300 sq. ft. and
have seating for approximately 280 customers.

     The first  Sullivan's  restaurant in Austin,  Texas was expanded in 1997 by
4,500 square feet to 12,000 square feet and now seats 320  customers.  The other
Sullivan's  restaurants  range from 7,000 to 9,000  square  feet,  with  seating
capacity  for  approximately  250  customers.  A separate  jazz bar area  called
"Ringside"  is utilized at the Baton Rouge,  Louisiana,  and Dallas and Houston,
Texas  Sullivan's  restaurants.  The  Sullivan's  bar area is separate  from the
dining room and is designed to be a destination unto itself, featuring live jazz
music and an upbeat, convivial atmosphere.

     The original  Del Frisco's  restaurant  in Dallas,  Texas is  approximately
12,000  square  feet and seats  approximately  440  customers  and  includes  an
extended wine cellar, with private dining available.  In addition,  Del Frisco's
features  a bar area  adjacent  to the  dining  room  primarily  to  accommodate
customers  waiting for tables.  The Ft.  Worth,  Texas and Denver,  Colorado Del
Frisco's  restaurants are  approximately  11,000 and 12,000 square feet and seat
approximately 320 and 360 customers, respectively. The New York City location is
approximately  16,500 square feet, with seating capacity for  approximately  460
customers and the Las Vegas location is  approximately  11,000 square feet, with
seating capacity for approximately 320 customers.

MARKETING

     Lone Star restaurants are "destination  location restaurants" that focus on
the  mid-priced  full service  casual  dining  market  segments.  The Company is
committed to customer service,  providing an excellent price-value  relationship
and  coupled  with the unique  "Texas  Roadhouse"  ambiance  of its  restaurants
attracts  and  retains  customers.  Accordingly,  the  Company  has  focused its
resources on providing  customers with superior  service,  value and an exciting
and vibrant  atmosphere,  and relied  primarily  on word of mouth to attract new
customers.  The  Company  also  utilizes  billboard  advertising  to promote its
restaurants  and build  customer  awareness.  The Company  utilizes  direct mail
featuring  new  products  and  limited   price   promotions  in  lieu  of  media
advertising.  This marketing  strategy enables the Company to provide  marketing
support for all its Lone Star restaurants.

     The Company  utilizes  high quality  print ads  featuring  all of its steak
concepts in Cigar Aficionado and Wine Spectator, which are national publications
and reach the Company's  target audience.  Special  promotions are also utilized
featuring a specific wine vineyard and local charitable event promotions.  Texas
Land &  Cattle  utilizes local store marketing and local print  publications.  In
addition, radio is utilized in the Dallas/Ft.  Worth market sponsoring a popular
local sports talk program.


                                      -6-


RESTAURANT OPERATIONS AND MANAGEMENT

     The Company  strives to  maintain  quality  and  consistency  in all of its
restaurants  through careful  hiring,  training and supervision of personnel and
the  establishment  of  standards  relating  to food and  beverage  preparation,
maintenance of facilities and conduct of personnel.

     The typical Lone Star  management  team consists of one general manager and
four managers.  Each restaurant also employs a staff consisting of approximately
50 to 90 hourly  employees,  many of whom work part-time.  The regional managers
report to a regional  vice-president.  Typically,  each general  manager reports
directly to a district  manager who  reports to a regional  manager.  Restaurant
managers  complete  an  eight-week   training  program  during  which  they  are
instructed in all areas of the  operation  including  food  quality,  safety and
preparation,  customer  satisfaction,  alcoholic beverage service,  governmental
regulations  compliance,  liquor  liability  avoidance  and employee  relations.
Restaurant  management is also provided  with a  proprietary  operations  manual
relating to food and beverage  preparation,  all areas of restaurant  management
and compliance with governmental regulations. Working in concert with restaurant
managers,  the Company's senior  management  defines  operations and performance
objectives for each  restaurant and monitors  implementation.  An incentive cash
bonus program has been  established in which each  restaurant's  management team
participates.  Awards  under  the  incentive  plan  are tied to  achievement  of
specified  revenue and operating  targets.  Senior  management  regularly visits
Company restaurants and meets with the respective management teams to ensure the
Company's  strategies  and  standards  of  quality  are met in all  respects  of
restaurant operations and personnel development.

     The Company's  commitment to customer service and satisfaction is evidenced
by several  practices  and  policies,  including  periodic  visits by restaurant
management to customers' tables,  active involvement of restaurant management in
responding to customer comments,  and assigning wait persons to a limited number
of tables, generally three for dinner and four for lunch. Teamwork is emphasized
through a runner  system for  delivering  food to the tables that is designed to
serve customers in an efficient and timely manner.

     Each new  restaurant  employee  of the Company  participates  in a training
program  during  which the  employee  works  under the  close  supervision  of a
restaurant  manager.  Management strives to instill enthusiasm and dedication in
its employees and create a stimulating and rewarding  working  environment where
employees  know  what  is  expected  of  them in  measurable  terms.  Management
continuously  solicits employee feedback  concerning  restaurant  operations and
strives to be responsive to employee concerns.

PURCHASING

     Approximately  54% of the consumable  products used in the  restaurants are
distributed  through and delivered by a single  vendor.  The Company  negotiates
directly  with  suppliers  for food and beverage  products to ensure  consistent
quality and freshness of products and to obtain competitive  prices. The Company
purchases  substantially  all food and beverage  products from local or national
suppliers.  Food and supplies are shipped directly to the restaurants,  although
invoices for purchases are sent to the Company for payment. The Company does not
maintain  a  central  product  warehouse  or  commissary.  The  Company  has not
experienced  any  significant  delays  in  receiving   restaurant  supplies  and
equipment.  From time to time,  the  Company  may engage in  forward  pricing or
consider other risk management strategies with regard to its meat and other food
costs to minimize  the impact of potential  price  fluctuations.  This  practice
could help  stabilize  the  Company's  food costs  during  times of  fluctuating
prices. The Company did not engage in any forward pricing or hedging in 2004. As
of March 7, 2005, the Company had no significant forward pricing contracts.

MANAGEMENT INFORMATION SYSTEMS

     The Company continually monitors its management  information system to take
advantage of technological improvements. Its point-of-sale system is designed to


                                      -7-


improve labor scheduling and food cost management,  provide corporate management
quicker  access  to  financial   data  and  reduce  the   restaurant   manager's
administrative  time.  Each  general  manager  uses the  system  for  production
planning, labor scheduling and food cost variance analysis. The system generates
daily reports for the Company's management on sales, check average, guest counts
and labor.

     The Company  maintains  financial and  accounting  controls for each of its
restaurants through the use of centralized accounting and management information
systems.  Sales  information  is  collected  daily  from  each  restaurant,  and
restaurant  managers are provided with daily, weekly and twenty-eight day period
operating  statements  for their  locations.  Cash is  controlled  through daily
deposits  of  sales  proceeds  in  local  operating   accounts  which  are  wire
transferred periodically to the Company's principal operating account.

     The Company generates weekly, consolidated sales reports and food and labor
cost variance  reports at its corporate  headquarters,  and detailed  profit and
loss statements for each restaurant every four weeks. Additionally,  the Company
monitors the average check,  customer count,  product mix and other sales trends
on a daily basis.

     The  Company  expects to continue  to develop  its  management  information
systems to improve  efficiencies  and assist  management  in analyzing  business
results and opportunities.

COMPETITION

     The  restaurant  industry is intensely  competitive  with respect to price,
service,  location  and  food  quality,  and  there  are  many  well-established
competitors with  substantially  greater  financial and other resources than the
Company.  Some  of the  Company's  competitors  have  been  in  existence  for a
substantially  longer period than the Company and may be better  established  in
the  markets  where  the  Company's  restaurants  are  or may  be  located.  The
restaurant  business is often affected by changes in consumer tastes,  national,
regional or local economic conditions,  demographic trends, traffic patterns and
the type,  number and location of competing  restaurants.  In addition,  factors
such as inflation, increased food, labor and benefits costs and the availability
of  experienced  management  and  hourly  employees  may  adversely  affect  the
restaurant industry in general and the Company's restaurants in particular.  The
Company  believes that its concepts,  attractive  price-value  relationship  and
quality  of  food  and  service  enable  it to  differentiate  itself  from  its
competitors.  The Company  believes that its ability to compete will depend upon
attracting  and retaining  high quality  employees and  continuing to offer high
quality,  competitively  priced  food  in a  full  service,  distinctive  dining
environment.

GOVERNMENT REGULATION

     The Company's restaurants are subject to numerous federal,  state and local
laws affecting  health,  sanitation,  safety and Americans with Disabilities Act
accessibility  standards,  as well as to state and local licensing regulation of
the sale of alcoholic  beverages.  Each restaurant has appropriate licenses from
regulatory  authorities  allowing it to sell liquor, beer and wine, and has food
service licenses from local health  authorities.  The Company's licenses to sell
alcoholic  beverages must be renewed annually and may be suspended or revoked at
any time for cause,  including  violation by the Company or its employees of any
law or  regulation  pertaining  to  alcoholic  beverage  control,  such as those
regulating  the  minimum  age of patrons or  employees,  advertising,  wholesale
purchasing,  and  inventory  control.  The failure of a restaurant  to obtain or
retain liquor or food service  licenses could have a material  adverse effect on
its  operations.  In order to reduce this risk,  each  restaurant is operated in
accordance with standardized  procedures  designed to ensure compliance with all
applicable codes and regulations.

     The Company may be subject in certain states to "dram-shop" statutes, which
generally provide a person injured by an intoxicated person the right to recover
damages from an establishment that wrongfully served alcoholic  beverages to the
intoxicated person. The Company carries liquor liability coverage as part of its
existing comprehensive general liability insurance.

                                      -8-


     Any future  development and construction of additional  restaurants will be
subject  to  compliance  with  applicable  zoning,  land  use and  environmental
regulations. The Company's restaurant operations are also subject to federal and
state minimum wage laws governing such matters as working  conditions,  overtime
and tip credits and other employee matters. Significant numbers of the Company's
food service and preparation  personnel are paid at rates related to the federal
minimum wage and, accordingly,  further increases in the federal, state or local
minimum wage could increase the Company's labor costs.

TRADEMARKS

     The Company  regards its primary marks,  Lone Star  Steakhouse &  Saloon(R),
Lone Star  Cafe(R),  Del  Frisco's(R)  Double Eagle Steak  House(R),  Sullivan's
Steakhouse(R)  and  Texas  Land  &   Cattle  Company  Steak  House(R)  as  having
significant  value  and as being an  important  factor in the  marketing  of its
restaurants.  The  Company is aware of names and marks  similar  to the  service
marks of the Company used by other persons in certain geographic areas. However,
the Company  believes  such uses have not had a material  adverse  effect on the
Company's financial condition or its results of operations. The Company's policy
is to  pursue  registration  of  its  marks  whenever  possible  and  to  oppose
vigorously  infringements of its marks. The Company has obtained registration of
its marks in numerous foreign countries.

EMPLOYEES

     As of March 7, 2005, the Company employed  approximately 19,700 persons, 10
of whom are executive  officers,  93 of whom are office support personnel,  6 of
whom are  regional  managers,  33 of whom are district  managers,  approximately
1,215 of whom are restaurant  management personnel and the remainder of whom are
hourly  restaurant  personnel.  None of the  Company's  employees  are currently
covered by a collective bargaining agreement. The Company considers its employee
relations to be good.

WEBSITE ACCESS

     The Company's website address is www.lonestarsteakhouse.com.  The Company's
filings with the Securities and Exchange  Commission ("SEC") are available at no
cost on its website as soon as practicable after the filing of such reports with
the SEC.




ITEM 2.   PROPERTIES.

     As of March 7, 2005,  the Company  leased 90 and owned 161 of its Lone Star
restaurant  locations.  At such date, the Company leased three and owned two Del
Frisco's restaurants locations. Of the 15 Sullivan's restaurants,  13 are leased
and two are owned. The Company leases 18 Texas Land &  Cattle restaurants and two
are owned.  Lease terms are generally five years, with multiple renewal options.
All of the Company's  leases  provide for a minimum annual rent and some provide
for  additional  rent  based on sales  volume at the  particular  location  over
specified  minimum levels.  Generally,  the leases are triple net leases,  which
require the Company to pay the costs of insurance,  taxes and  maintenance.  The
Company   intends  to   continue   to  purchase   restaurant   locations   where
cost-effective.  In addition to the operating  restaurant  properties  described
above, during the past two years, the Company has acquired land sites in Dundee,
Michigan, Pearl,  Mississippi,  Kansas City, Kansas, and Clayton, North Carolina
and entered into leases for sites in Mitchell, South Dakota, Columbia,  Missouri
and Oklahoma  City,  Oklahoma for  construction  of Lone Star  Restaurants.  The
Company has acquired a site in Englewood, Colorado for a Sullivan's restaurant.

                                      -9-





                    RESTAURANT LOCATIONS AS OF MARCH 7, 2005

     The following table sets forth the location of the Company's existing, open
domestic  Lone Star  Steakhouse  &  Saloon  (251)  Restaurants,  Del Frisco's (5)
restaurants,  Sullivan's (15) restaurants, Texas Land &  Cattle (20) restaurants,
and (1) Frankie's Restaurant


LONE STAR           Effingham        Dearborn Heights     NORTH DAKOTA     Sugarhouse
---------           Hodgkins         Detroit (6)          Fargo
                    Mt. Vernon       Flint                                 VIRGINIA
ALABAMA             Peoria           Grand Rapids         OHIO             Alexandria
Anniston            Rockford         Jackson              Akron            Centreville
Birmingham (2)      Springfield      Mt. Pleasant         Canton           Chesapeake
Huntsville                           Saginaw              Cincinnati (2)   Fairfax
Mobile              INDIANA          Ypsilanti            Cleveland (3)    Fredericksburg
Montgomery          Anderson                              Columbus (4)     Hampton
Trussville          Evansville       MISSISSIPPI          Dayton (2)       Herndon
Tuscaloosa          Ft. Wayne        Hattiesburg          Findlay          Norfolk
                    Indianapolis (4) Jackson              Lancaster        Potomac Mills
ALASKA              Lafayette                             Mentor           Richmond (3)
Anchorage           Merrillville     MISSOURI             Middletown       Sterling
                    South Bend       Branson              Niles            Virginia Beach
ARIZONA             Terre Haute      Independence         Springfield
Mesa                                 Kansas City          Toledo (2)       WEST VIRGINIA
Phoenix (4)         IOWA             Springfield          Youngstown       Beckley
                    Cedar Rapids     St. Louis (5)                         Charleston
ARKANSAS            Coralville                            OKLAHOMA         Huntington
Ft. Smith           Davenport        NEBRASKA             Lawton
Little Rock (2)     Des Moines       Lincoln              Oklahoma City    WISCONSIN
Springdale          Waterloo         Omaha (2)            Tulsa (2)        Racine

COLORADO            KANSAS           NEVADA               PENNSYLVANIA     SULLIVAN'S
Colorado Springs    Garden City      Las Vegas (4)        Allentown        ----------
Denver  (6)         Hutchinson                            Easton           Anchorage, AK
Ft. Collins         Overland Park    NEW JERSEY           Harrisburg       Austin, TX
Loveland                             Atlantic City        Johnstown        Baton Rouge, LA
                    KENTUCKY         Bridgewater          King of Prussia  Charlotte, NC
DELAWARE            Bowling Green    Cherry Hill          Lancaster        Chicago, IL
Dover               Florence         Delran               Middletown       Dallas, TX
Wilmington (2)      Lexington        Hanover Township     Philadelphia     Denver, CO
                    Louisville       Hazlet               Pittsburgh (5)   Houston, TX
FLORIDA                              Marlton              Pottstown        Indianapolis, IN
Bradenton           LOUISIANA        Ocean County         Reading          King of Prussia, PA
Clearwater          Baton Rouge (2)  Scotch Plains        Scranton         Naperville, IL
Ft. Lauderdale      Houma            Turnersville         Wilkes-Barre     Palm Desert, CA
Ft. Myers           Lafayette        Voorhees             York             Raleigh, NC
Lakeland            Monroe           Wayne                                 Tucson, AZ
Ocala               New Orleans (3)                       RHODE ISLAND     Wilmington, DE
Orlando                              NEW MEXICO           Warwick
Pensacola           MAINE            Albuquerque                           TEXAS LAND &  CATTLE
Port Orange         South Portland                        SOUTH CAROLINA   ------------------------
Port Richey                          NEW YORK             Greenville       Dallas, TX (7)
Sarasota            MARYLAND         Albany               Myrtle Beach (2) Austin, TX (4)
St. Petersburg      Bel Air                                                Houston, TX (4)
Tampa               Columbia                                               San Antonio, TX (3)
                    Frederick        NORTH CAROLINA       SOUTH DAKOTA     Lubbock, TX
GEORGIA             Gaithersburg     Asheville            Sioux Falls      Albuquerque, NM
Atlanta             Laurel           Boone
Augusta             Lexington Park   Charlotte (4)        TENNESSEE        DEL FRISCO'S
                    Waldorf          Durham               Jackson          ------------
IDAHO               Westminster      Fayetteville         Johnson City     Denver, CO
Boise                                Greensboro (2)       Memphis (2)      Dallas, TX
                    MASSACHUSETS     Greenville                            Fort Worth, TX
ILLINOIS            Boston           Jacksonville                          Las Vegas, NV
Bloomington                          Raleigh (3)          UTAH             New York, NY
Bradley             MICHIGAN         Rocky Mount          Centerville
Carbondale          Battle Creek     Salisbury            Layton           FRANKIE'S
Champaign           Bay City         Southern Pines       Salt Lake City   Charlotte, NC
Chicago (10)        Brighton         Winston-Salem
Decatur



                                      -10-






ITEM 3.   LEGAL PROCEEDINGS

     California  Public  Employees   Retirement   System   ("CalPERS")  filed  a
shareholders  derivative  action on October 16, 2001 against certain present and
former  Directors  alleging  breach of fiduciary  duties by certain  present and
former  Directors and that certain of such  defendants  were  unjustly  enriched
through  related  party  transactions  and by the  re-pricing  of stock  options
previously  issued.  The lawsuit  also seeks to prevent  enforcement  of certain
change of control agreements granted to executive officers of the Company, seeks
declaratory  and injunctive  relief and seeks damages to be paid to the Company.
The Company is a nominal defendant.

     The Company has  indemnified  present and former  Directors with respect to
the shareholders derivative action filed by CalPERS by contractual agreement, as
well  as by  the  Articles  of  Incorporation  of the  Company  as  provided  in
accordance with the Delaware General Corporation Law.

     On January 9, 2002,  CalPERS  filed an amended  complaint and added a class
action claim to attempt to certify a class action based on their allegation that
a provision in the change of control agreements  violates Delaware law. A motion
to dismiss was filed by all  defendants on February 8, 2002,  seeking to dismiss
all claims of  CalPERS.  Discovery  was stayed  pending a court  decision on the
motion to dismiss.

     The Vice  Chancellor  issued his decision on December  18, 2002  dismissing
numerous counts and also  substantially  reducing the scope of two other claims,
both  involving the repricing of stock options.  Two of the counts  sustained by
the court  involve  challenges  to change of control  agreements  which have now
expired. On January 17, 2003, the Vice Chancellor agreed to permit the plaintiff
to proceed with its  discovery to obtain  certain  documents  from certain third
parties and the named  defendants,  and ordered the plaintiff to timely file its
motion to amend its complaint.

     On April 16, 2003,  CalPERS  filed a Motion for Leave to Amend  Plaintiff's
First Amended  Complaint,  which complaint added no additional  causes but added
allegations  which  are  subsequent  to the  date  of the  first  complaint  and
allegations  which  also  address  counts  which  were  dismissed  by  the  Vice
Chancellor  on December 18, 2002.  All  defendants  filed  objections to CalPERS
attempt to amend and oral  argument was heard by the Vice  Chancellor  on August
21, 2003. On May 26, 2004, the Court  rendered its decision and allowed  CalPERS
to amend their complaint. The parties are involved in pre-trial discovery.

     The  Company is  involved  from time to time in  litigation  arising in the
ordinary  course of business as well as the matter set forth above.  The Company
believes the outcome of such matters will not have a material  adverse effect on
its consolidated financial position or results of operations.




ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     On December 15, 2004, the Company held a Special Meeting of Stockholders to
vote upon the proposed  Lone Star  Steakhouse &  Saloon,  Inc.  2004 Stock Option
Plan, (the "2004 Plan"). A majority of the Company's outstanding shares voted to
approve the 2004 Plan with 11,486,660 votes "For", 6,006,619 votes "Against" and
37,817 votes "Abstaining".


                                      -11-




BROKERAGE PARTNERS