FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter ended June 28, 2000
Commission File No. 0-10943
RYAN'S FAMILY STEAK HOUSES, INC.
(Exact name of registrant as specified in its charter)
South Carolina No. 57-0657895
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
405 Lancaster Avenue (29650)
P. O. Box 100
Greer, South Carolina 29652
(Address of principal executive
offices, including zip code)
864-879-1000
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 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.
Yes X No ________
The number of shares outstanding of each of the registrant's
classes of common stock as of June 28, 2000:
32,487,000 shares of common stock, $1.00 Par Value
PART I. FINANCIAL INFORMATION
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share data)
Quarter Ended
June 28, June 30,
2000 1999
Restaurant sales $180,960 174,248
Operating expenses:
Food and beverage 67,300 66,779
Payroll and benefits 53,310 50,621
Depreciation 6,948 6,553
Other operating expenses 22,630 21,117
Total operating expenses 150,188 145,070
General and administrative
expenses 9,272 10,207
Interest expense 3,595 1,854
Revenues from franchised
restaurants (315) (312)
Other income, net (550) (325)
Earnings before income taxes 18,770 17,754
Income taxes 6,833 6,497
Net earnings $ 11,937 11,257
Net earnings per common share:
Basic $ .37 .30
Diluted .36 .29
Weighted-average shares:
Basic 32,475 37,555
Diluted 32,836 38,286
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share data)
Six Months Ended
June 28, June 30,
2000 1999
Restaurant sales $349,232 333,827
Operating expenses:
Food and beverage 130,580 128,519
Payroll and benefits 103,893 97,907
Depreciation 13,673 12,907
Other operating expenses 44,116 40,921
Total operating expenses 292,262 280,254
General and administrative
expenses 17,573 17,763
Interest expense 6,675 3,619
Revenues from franchised
restaurants (613) (603)
Other income, net (1,312) (1,087)
Earnings before income taxes 34,647 33,881
Income taxes 12,612 12,403
Net earnings $22,035 21,478
Net earnings per common share:
Basic $ .65 .56
Diluted .65 .55
Weighted-average shares:
Basic 33,734 38,324
Diluted 34,064 39,100
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 28, December 29,
2000 1999
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 12,782 642
Receivables 3,420 3,027
Inventories 5,324 4,663
Deferred income taxes 4,342 4,342
Prepaid expenses 1,298 500
Total current assets 27,166 13,174
Property and equipment:
Land and improvements 123,157 119,950
Buildings 344,389 333,337
Equipment 184,952 177,857
Construction in progress 34,060 35,074
686,558 666,218
Less accumulated depreciation 168,406 157,439
Net property and equipment 518,152 508,779
Other assets 6,698 3,874
$552,016 525,827
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable 13,538 11,891
Income taxes payable 2,708 2,997
Accrued liabilities 38,292 30,436
Total current liabilities 54,538 45,324
Long-term debt 199,000 172,375
Deferred income taxes 24,861 24,735
Total liabilities 278,399 242,434
Shareholders' equity:
Common stock of $1.00 par
value; authorized
100,000,000 shares;
issued 32,487,000 shares
in 2000 and 35,855,000
shares in 1999 32,487 35,855
Additional paid-in capital 136 703
Retained earnings 240,994 246,835
Total shareholders' equity 273,617 283,393
Commitments
$552,016 525,827
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
June 28, June 30,
2000 1999
Cash flows from operating
activities:
Net earnings $ 22,035 21,478
Adjustments to reconcile
net earnings to net
cash provided by
operating activities:
Depreciation and
amortization 14,530 13,721
Gain on sale of property
and equipment (98) (94)
Decrease (increase) in:
Receivables (393) (623)
Inventories (661) (369)
Prepaid expenses (798) (393)
Other assets (2,961) 50
Increase (decrease) in:
Accounts payable 1,647 7,329
Income taxes payable (289) (1,725)
Accrued liabilities 7,856 3,332
Deferred income taxes 126 124
Net cash provided by operating
activities 40,994 42,830
Cash flows from investing
activities:
Proceeds from sale of property
and equipment 4,398 3,692
Capital expenditures (28,066) (26,205)
Net cash used in investing
activities (23,668) (22,513)
Cash flows from financing
activities:
Net proceeds from (repayment
of) notes payable (91,000) 4,700
Repayment of long-term debt (81,375) -
Proceeds from issuance of
long-term debt 199,000 -
Proceeds from issuance of
common stock 495 1,870
Purchases of common stock (32,306) (27,821)
Net cash used in financing
activities (5,186) (21,251)
Increase (decrease) in cash
and cash equivalents 12,140 (934)
Cash and cash equivalents -
beginning of period 642 1,502
Cash and cash equivalents -
end of period $ 12,782 568
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
I. For the Six Months ended June 28, 2000
$1 Par Value Additional
Common Paid-In Retained
Stock Capital Earnings Total
Balances at
December 29, 1999 $35,855 703 246,835 283,393
Net earnings - - 22,035 22,035
Issuance of common
stock under Stock
Option Plans 66 429 - 495
Purchases of common
stock (3,434) (996) (27,876) (32,306)
Balances at
June 28, 2000 $32,487 136 240,994 273,617
II. For the Six Months ended June 30, 1999
$1 Par Value Additional
Common Paid-In Retained
Stock Capital Earnings Total
Balances at
December 30, 1998 $39,158 1,274 239,940 280,372
Net earnings - - 21,478 21,478
Issuance of common
stock under Stock
Option Plans 264 1,606 - 1,870
Purchases of common
stock (2,331) (2,880) (22,610) (27,821)
Balances at
June 30, 1999 $37,091 - 238,808 275,899
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 28, 2000
(Unaudited)
Note 1. Description of Business
Ryan's Family Steak Houses, Inc. operates a single-concept
restaurant chain consisting of 295 Company-owned and 22
franchised restaurants located principally in the southern
and midwestern United States. The Company, organized in
1977, opened its first restaurant in 1978 and completed its
initial public offering in 1982. The Company does not
operate or franchise any international units and has no
individually significant customers.
Note 2. Basis of Presentation
The consolidated financial statements include the financial
statements of Ryan's Family Steak Houses, Inc. and its
wholly-owned subsidiaries and affiliates. All significant
intercompany balances and transactions have been eliminated
in consolidation.
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and
the instructions to Form 10-Q and do not include all of 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) considered necessary for a fair
presentation have been included. Consolidated operating
results for the six months ended June 28, 2000 are not
necessarily indicative of the results that may be expected
for the fiscal year ending January 3, 2001. For further
information, refer to the consolidated financial statements
and footnotes included in the Company's annual report on
Form 10-K for the fiscal year ended December 29, 1999.
Note 3. New Accounting Pronouncement and Reclassification
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS")
No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This statement standardizes the accounting for
derivative instruments, including derivative instruments
embedded in other contracts. Under SFAS No. 133, entities
are required to carry all derivative instruments as either
assets or liabilities on the balance sheet at fair value.
The accounting for changes in the fair value (i.e., gains
and losses) of a derivative instrument depends on its
intended use. The provisions of SFAS No. 133 must be
adopted by the beginning of 2001. The Company has not yet
assessed the impact this standard will have on its financial
condition or results of operations; however, the impact will
ultimately depend on the amount and type of derivative
instruments held at the time of adoption. As noted in
"Liquidity and Capital Resources", the Company was not a
party to any interest rate derivative agreements at June 28,
2000. The Company does not enter into derivative instrument
agreements for trading or speculative purposes.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter ended June 28, 2000 versus June 30, 1999
Restaurant sales during the second quarter of 2000 increased
by 3.9% over the comparable quarter of 1999. The sales
growth resulted from the 3.5% unit growth of Company-owned
restaurants, which totaled 295 at June 28, 2000 and 284 at
June 30, 1999, and from a 0.2% increase in same-store sales.
The Company calculates same-store sales using average unit
sales in units that have been open for at least 18 months
and operating during comparable weeks during the current and
prior years. The second quarter's sales results represent
the 10th consecutive quarter of higher same-store sales.
The same-store sales increase of 0.2% was less than the
1.6% increase experienced in the second quarter of 1999.
Management believes that this deceleration resulted
principally from less aggressive advertising in 2000
compared to 1999. Advertising expenditures during the
second quarter amounted to approximately $1.4 million in
2000 compared to $2.3 million in 1999.
Total costs and expenses of Company-owned restaurants
include food and beverage, payroll, payroll taxes and
employee benefits, depreciation, repairs, maintenance,
utilities, supplies, advertising, insurance, property taxes
and licenses. Such costs, as a percentage of sales, were
83.0% during the second quarter of 2000 compared to 83.3% in
1999. Food and beverage costs decreased to 37.2% of sales
in 2000 from 38.3% of sales in 1999 due to lower seafood,
poultry, vegetable and soybean-based product costs,
partially offset by higher beef costs. Payroll and benefits
increased to 29.5% of sales in 2000 from 29.1% of sales in
1999 due principally to general wage pressures affecting
both hourly and store management wages, partially offset by
lower medical and workers' compensation insurance costs.
All other operating costs, including depreciation, increased
to 16.3% of sales in 2000 from 15.9% of sales in 1999 due
principally to higher utilities, credit card and
repair and maintenance costs. Based on these factors, the
Company's operating margin at the restaurant level increased
to 17.0% of sales in the first quarter of 2000 from 16.7% of
sales in 1999.
General and administrative expenses decreased to 5.1% of
sales in 2000 compared to 5.9% of sales in 1999. As
mentioned above, advertising costs were much lower during
the second quarter of 2000. In addition, performance-based
bonus costs were lower during the quarter.
Interest expense for the second quarters of 2000 and 1999
amounted to 2.0% and 1.1% of sales, respectively. Due to
the Company's stock repurchase program (see "Liquidity and
Capital Resources"), total debt increased from $170.1
million from the second quarter of 1999 to $199.0 million at
June 28, 2000. The effective average interest rate was 8.3%
during the second quarter of 2000 compared to 5.5% in 1999.
The increase in the effective interest rate was due to a
higher interest rate environment and higher lender spreads
resulting from the refinancing of all existing debt balances
in January 2000 (see "Liquidity and Capital Resources").
Effective income tax rates of 36.4% and 36.6% were used for
the second quarters of 2000 and 1999, respectively. The
lower rate in 2000 resulted from the favorable impact of
various tax-planning strategies.
Net earnings for the second quarter amounted to $11.9
million in 2000 compared to $11.3 million in 1999. Due to a
14.2% reduction in weighted-average shares (diluted)
resulting from the Company's stock repurchase program (see
"Liquidity and Capital Resources"), earnings per share
(diluted) increased 24.1% to 36 cents in 2000 compared to 29
cents in 1999.
Six months ended June 28, 2000 versus June 30, 1999
For the six months ended June 28, 2000, restaurant sales
were up 4.6% compared to the same period in 1999. Average
unit growth for the first six months of 2000 was 3.2%,
and same-store sales increased 0.7% in 2000 compared to
a 1.6% increase in 1999.
Six-month costs and expenses as detailed above were 83.7%
and 84.0% of sales for 2000 and 1999, respectively. During
the first six months of 2000, costs and expenses were most
affected by lower food and beverage costs (down 1.1% of
sales) resulting from lower poultry, pork, soup, vegetable
and soy-based product costs, partially offset by higher beef
prices. Payroll and benefits increased by 0.4% of sales due
to general wage pressures affecting both hourly and
management personnel and higher management bonuses. Other
operating expenses also increased 0.4% of sales due to
higher repairs and maintenance costs, credit card fees and
pre-opening expenditures. Based on these factors, the
Company's operating margin at the restaurant level increased
to 16.3% of sales for the first six months of 2000 compared
to 16.1% of sales in 1999.
General and administrative expenses decreased 0.3% for the
first six months of 2000 resulting principally from lower
media advertising as noted in the second quarter's
discussion. Other factors for the decrease include lower
performance-based bonus costs offset by higher professional
fees. Additional debt resulting from the Company's stock
repurchase program (see "Liquidity and Capital Resources")
and higher interest rates caused interest expense to increase
by 0.8% of sales over the prior year.
Effective income tax rates of 36.4% and 36.6% were used for
the first six months of 2000 and 1999, respectively. The
lower rate in 2000 resulted from the favorable impact of
various tax-planning strategies.
Net earnings for the first six months of 2000 amounted to
$22.0 million compared to $21.5 million in 1999. Due to a
12.9% reduction in weighted-average shares (diluted)
resulting from the Company's stock repurchase program (see
"Liquidity and Capital Resources"), earnings per share
(diluted) increased 17.8% to 65 cents in 2000 compared to 55
cents in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's restaurant sales are primarily derived from
cash. Inventories are purchased on credit and are rapidly
converted to cash. Therefore, the Company does not maintain
significant receivables or inventories, and other working
capital requirements for operations are not significant.
At June 28, 2000, the Company's working capital was a $27.4
million deficit compared to a $32.2 million deficit at
December 29, 1999. The Company does not anticipate any
adverse effects from the current working capital deficit due
to significant cash flow provided by operations, which
amounted to $41.0 million for the first six months of 2000
and $74.8 million for the year ended December 29, 1999.
Total capital expenditures for the first six months of 2000
amounted to $28.1 million. The Company opened nine and
closed three Ryan's restaurants during the first six months
of 2000. These numbers include three openings and three
closings related to relocated restaurants. Management
defines a relocation as a restaurant opened within 18 months
after closing another restaurant in the same marketing area.
A relocation represents a redeployment of assets within a
market. For all of 2000, the Company plans to open 18
Ryan's restaurants, including five relocations. Total
capital expenditures for 2000 are estimated at $56.2
million. Expansion of Company-owned restaurants will occur
in states within the Company's current 22-state operating
area. The Company is currently concentrating its efforts on
Company-owned units and is not actively pursuing any
additional franchised locations, either domestic or
international.
The Company began a stock repurchase program in March 1996
and is currently authorized to repurchase a total of 30.0
million shares of the Company's common stock through
December 2002. Repurchases may be made from time to time on
the open market or in privately negotiated transactions in
accordance with applicable securities regulations, depending
on market conditions, share price and other factors.
Through June 28, 2000, approximately 22.2 million shares, or
42% of total shares available at the beginning of the
repurchase program, had been purchased at an aggregate cost
of $210.4 million. There were no shares repurchased during
the second quarter. Management intends to proceed with
the repurchase program during the remainder of 2000, subject
to the continued availability of capital and the other
factors described below in "Forward-Looking Information".
From June 29, 2000 through August 10, 2000 an additional
600,000 shares were purchased at an aggregate cost of
$4.9 million.
The extent of the Company's external funding requirements
for 2000 is dependent upon the level of stock repurchase
transactions during the year. Based on current target debt
levels, a maximum repurchase scenario would require
approximately $14 million of additional borrowings during
the remainder of 2000. All other funding needs, including
capital expenditures, are expected to be met by internally
generated cash from operations. The Company's debt
structure at June 28, 2000 consisted of $75 million of 9.02%
senior notes and $124 million in outstanding notes under a
$200 million revolving credit facility. The senior notes
are due in 2008 with principal payments commencing in 2005.
The revolving credit facility is due in 2005 and bears
interest at various floating interest rates plus a variable
spread currently set at 1.375%. After allowances for
letters of credit and other items, there was approximately
$65 million in funds available under the revolving credit
facility. However, the Company's ability to draw on these
funds may be limited by restrictions in the loan agreements
governing both the senior notes and the revolving credit
facility. The loan agreements contain minimum net worth
requirements and maximum leverage ratios as well as
restrictions on future stock repurchases, dividends, capital
expenditures, investments and sales of assets. As of June
28, 2000, the Company exceeded the most restrictive minimum
net worth requirement in the agreements by $45.0 million.
Both loans are secured by the stock of the Company's wholly-
owned subsidiaries and affiliates.
Management believes that its current capital structure is
sufficient to meet its 2000 requirements. Interest rates for
the revolving credit facility have not been fixed and
generally change in response to the London Interbank Offered
Rate ("LIBOR"). The Company has entered into interest rate
hedging transactions in the past and, although no such
agreements are currently outstanding, management intends to
continue monitoring the interest rate environment and may
enter into such transactions in the future if deemed
advantageous.
IMPACT OF INFLATION
The Company's operating costs that may be affected by
inflation consist principally of food, payroll and utility
costs. A significant number of the Company's restaurant
team members are paid at the Federal minimum wage and,
accordingly, legislated changes to the minimum wage affect
the Company's payroll costs. Although no minimum wage
increases have been signed into law, various proposals are
presently being discussed and voted upon in the U.S.
Congress. Recent legislation in the Congress points to a
probable $1.00 per hour increase to $6.15 per hour with a
multi-step phase-in process, ending in March 2002. The
Company is typically able to increase menu prices to cover
most of the payroll rate increases.
The Company considers its current price structure to be very
competitive. This factor, among others, is considered by
the Company when passing cost increases on to its customers.
Annual menu price increases have consistently ranged from 2%
to 4%.
YEAR 2000
Comprehensive steps were taken during 1998
and 1999 to ensure that the Company's store and corporate
computer systems were operational during the year 2000. No
operational or technological problems related to Year 2000
("Y2K") were encountered at January 1, 2000 and thereafter.
The total cost of the Y2K remediation project amounted to
$521,000, consisting of approximately $261,000 of capital
and $260,000 of expense costs. During 1999, approximately
$261,000 of capital and $199,000 of expense costs were
incurred. Y2K expenditures during 2000 have been
insignificant.
FORWARD-LOOKING INFORMATION
In accordance with the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995, the
Company cautions that the statements in this report and
elsewhere, which are forward-looking and which provide
other than historical information, involve risks and
uncertainties that may impact the Company's actual results
of operations. All statements other than statements of
historical fact that address activities, events or
developments that the Company expects or anticipates will
or may occur in the future, including such things as
deadlines for completing projects, expected financial
results and other such matters are forward-looking
information. The words "estimate", "plans", "anticipate",
"expects", "intend", "believe", and similar expressions
are intended to identify forward-looking statements. All
forward-looking information reflects the Company's best
judgment based on current information. However, there can
be no assurance that other factors will not affect the
accuracy of such information. While it is not possible to
identify all factors, the following could cause actual
results to differ materially from expectations: general
economic conditions; competition; developments affecting
the continued operation of the restaurants' buffet lines;
real estate availability; food and labor supply costs;
food and labor availability; weather fluctuations;
interest rate fluctuations; stock market conditions; and
other risks and factors described from time to time in the
Company's reports filed with the Securities and Exchange
Commission, including the Company's annual report on Form
10-K for the fiscal year ended December 29, 1999. The
ability of the Company to open new restaurants depends
upon a number of factors, including its ability to find
suitable locations and negotiate acceptable land
acquisition and construction contracts, its ability to
attract and retain sufficient numbers of restaurant
managers and team members, and the availability of
reasonably priced capital. The extent of the Company's
stock repurchase program during 2000 and future years
depends upon the financial performance of the Company's
restaurants, the investment required to open new
restaurants, share price, the availability of reasonably
priced capital, the financial covenants contained in loan
agreements, and the maximum debt and share repurchase
levels authorized by the Company's Board of Directors.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None reportable.
Item 2. Changes in
Securities.
None.
Item 3. Defaults Upon Senior
Securities.
None.
Item 4. Submission of
Matters to a Vote of Security Holders.
None reportable.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports
on Form 8-K.
(a)None.
(b) On April 3, 2000, the Company filed a report on Form 8-K
regarding sales information for March 2000.
On May 8, 2000, the Company filed a report on
Form 8-K regarding sales information for April
2000.
On June 6, 2000, the Company filed a report on
Form 8-K regarding sales information for May
2000.
On July 3, 2000, the Company filed a report on
Form 8-K regarding sales information for June
2000.
On August 7, 2000, the Company filed a report on
Form 8-K regarding sales information for July
2000.
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.
RYAN'S FAMILY STEAK HOUSES, INC.
(Registrant)
August 14, 2000 /s/Charles D. Way
Charles D. Way
Chairman, President and Chief
Executive Officer
August 14, 2000 /s/Fred T. Grant, Jr.
Fred T. Grant, Jr.
Vice President-Finance and
Treasurer
August 14, 2000 /s/Richard D. Sieradzki
Richard D. Sieradzki
Controller