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 September 27, 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 September 27, 2000:
31,901,000 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
September 27, September 29,
2000 1999
Restaurant sales $ 177,797 170,478
Operating expenses:
Food and beverage 67,050 64,864
Payroll and benefits 53,109 50,278
Depreciation 7,041 6,707
Other operating expenses 23,481 22,160
Total operating expenses 150,681 144,009
General and administrative expenses8,933 7,670
Interest expense 3,507 2,080
Revenues from franchised restaurants(291) (285)
Other income, net (563) (343)
Earnings before income taxes 15,530 17,347
Income taxes 5,653 6,475
Net earnings $ 9,877 10,872
Net earnings per common share:
Basic $ .31 .30
Diluted .31 .29
Weighted-average shares:
Basic 32,037 36,474
Diluted 32,288 36,986
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share data)
Nine Months Ended
September 27, September 29,
2000 1999
Restaurant sales $ 527,029 504,305
Operating expenses:
Food and beverage 197,630 193,383
Payroll and benefits 157,002 148,185
Depreciation 20,714 19,614
Other operating expenses 67,597 63,081
Total operating expenses 442,943 424,263
General and administrative expenses26,506 25,433
Interest expense 10,182 5,699
Revenues from franchised restaurants(904) (888)
Other income, net (1,875) (1,430)
Earnings before income taxes 50,177 51,228
Income taxes 18,265 18,878
Net earnings $ 31,912 32,350
Net earnings per common share:
Basic $ .96 .86
Diluted .95 .84
Weighted-average shares:
Basic 33,168 37,707
Diluted 33,472 38,395
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 27, December 29,
2000 1999
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 6,050 642
Receivables 3,600 3,027
Inventories 5,164 4,663
Deferred income taxes 4,342 4,342
Other current assets 1,219 500
Total current assets 20,375 13,174
Property and equipment:
Land and improvements 125,090 119,950
Buildings 350,551 333,337
Equipment 187,794 177,857
Construction in progress 37,705 35,074
701,140 666,218
Less accumulated depreciation 175,047 157,439
Net property and equipment 526,093 508,779
Other assets 7,221 3,874
$ 553,689 525,827
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 12,491 11,891
Income taxes payable 6,014 2,997
Accrued liabilities 37,589 30,436
Total current liabilities 56,094 45,324
Long-term debt 194,000 172,375
Deferred income taxes 24,918 24,735
Total liabilities 275,012 242,434
Shareholders' equity:
Common stock of $1.00 par value;
authorized 100,000,000 shares;
issued 31,901,000 shares
in 2000 and 35,855,000
shares in 1999 31,901 35,855
Additional paid-in capital 72 703
Retained earnings 246,704 246,835
Total shareholders' equity 278,677 283,393
Commitments
$ 553,689 525,827
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
September 27,September 29,
2000 1999
Cash flows from operating activities:
Net earnings $ 31,912 32,350
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 22,000 20,882
Gain on sale of property
and equipment (111) (115)
Decrease (increase) in:
Receivables (573) (495)
Inventories (501) (363)
Prepaid expenses (719) (157)
Other assets (3,156) 53
Increase in:
Accounts payable 600 4,767
Income taxes payable 3,017 436
Accrued liabilities 7,153 2,416
Deferred income taxes 183 189
Net cash provided by operating
activities 59,805 59,963
Cash flows from investing activities:
Proceeds from sale of property
and equipment 4,665 6,642
Capital expenditures (44,059) (40,190)
Net cash used in investing
activities (39,394) (33,548)
Cash flows from financing activities:
Net proceeds from (repayment of)
notes payable (91,000) 14,513
Repayment of long-term debt (81,375) (5,812)
Proceeds from issuance of
senior notes 75,000 -
Net proceeds from revolving
credit facility 119,000 -
Proceeds from issuance of
common stock 591 1,947
Purchases of common stock (37,219) (37,880)
Net cash used in financing
activities (15,003) (27,232)
Increase (decrease) in cash
and cash equivalents 5,408 (817)
Cash and cash equivalents -
beginning of period 642 1,502
Cash and cash equivalents -
end of period $ 6,050 685
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
I. For the Nine Months ended September 27, 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 - - 31,912 31,912
Issuance of common stock
under Stock Option Plans 80 511 - 591
Purchases of common stock (4,034) (1,142) (32,043) (37,219)
Balances at September 27, 2000 $31,901 72 246,704 278,677
II. For the Nine Months ended September 29, 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 - - 32,350 32,350
Issuance of common stock
under Stock Option Plans 274 1,673 - 1,947
Purchases of common stock (3,265) (2,930) (31,685) (37,880)
Balances at September 29, 1999 $36,167 17 240,605 276,789
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 27, 2000
(Unaudited)
Note 1. Description of Business
Ryan's Family Steak Houses, Inc. operates a single-concept
restaurant chain consisting of 299 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 accounting principles
generally accepted in the United States of America for
interim financial information and the instructions to Form
10-Q and do not include all of the information and footnotes
required by accounting principles generally accepted in the
United States of America 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 nine months ended September 27, 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 impact of this
standard on the Company's financial condition or results of
operations 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
September 27, 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 September 27, 2000 versus September 29, 1999
Restaurant sales during the third quarter of 2000 increased
by 4.3% over the comparable quarter of 1999. The sales
growth resulted from the 3.9% unit growth of Company-owned
restaurants, which totaled 299 at September 27, 2000 and 285
at September 29, 1999, and from a 0.1% 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 third quarter's sales results
represented the 11th consecutive quarter of higher same-
store sales. The same-store sales increase of 0.1% was less
than the 2.0% increase experienced during the third quarter
of 1999. In 1999 sales results were being driven by the
Company's carving program, which in 1999 was still in its
initial year of implementation. Same-store sales in 2000
were driven largely through new product introductions and
menu price increases.
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
84.7% during the third quarter of 2000 compared to 84.5% in
1999. Food and beverage costs decreased to 37.7% of sales
in 2000 from 38.0% of sales in 1999 due to lower seafood,
poultry, vegetable and soybean-based product costs,
substantially offset by higher beef costs. Sirloin costs
were up approximately 30% over 1999 levels resulting in a
lesser decrease in overall food costs than experienced
during the past several quarters. Based on current
bookings, management believes that fourth quarter beef costs
will continue to be higher than comparable 1999 levels but,
due to a lower rate of increase, will have substantially
less impact on food costs during the fourth quarter when
compared to the third quarter. Payroll and benefits
increased to 29.9% of sales in 2000 from 29.5% of sales in
1999 due principally to general wage pressures affecting
both hourly and store management wages, partially offset by
lower workers' compensation insurance costs. All other
operating costs, including depreciation, increased to 17.2%
of sales in 2000 from 16.9% of sales in 1999 due principally
to higher utility, credit card and maintenance costs. Based
on these factors, the Company's operating margin at the
restaurant level decreased to 15.3% of sales in the third
quarter of 2000 from 15.5% of sales in 1999.
General and administrative expenses increased to 5.0% of
sales in 2000 compared to 4.5% of sales in 1999. A
significant portion of the change resulted from the
settlement of an employment-related lawsuit during the
quarter. Management believes that the settlement, which
reduced the third quarter's earnings per share by
approximately one cent, is a non-recurring charge and, based
on historical and current data, is not indicative of the
Company's relations with its workforce. In addition,
professional fees and management hiring expenses were higher
during the quarter, partially offset by lower performance-
based bonus costs.
Interest expense for the third quarters of 2000 and 1999
amounted to 2.0% and 1.2% of sales, respectively. Due to
the Company's stock repurchase program (see "Liquidity and
Capital Resources"), total debt increased from $174.1
million from the third quarter of 1999 to $194.0 million at
September 27, 2000. The effective average interest rate was
8.4% during the third quarter of 2000 compared to 5.9% 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
instruments in January 2000 (see "Liquidity and Capital
Resources").
Effective income tax rates of 36.4% and 37.3% were used for
the third quarters of 2000 and 1999, respectively. The
lower rate in 2000 resulted from the favorable impact of
various tax-planning strategies. Also, the prior year's tax
rate was increased to adequately provide for various state
tax issues.
Net earnings for the third quarter amounted to $9.9 million
in 2000 compared to $10.9 million in 1999. Due to a 12.7%
reduction in weighted-average shares (diluted) resulting
from the Company's stock repurchase program (see "Liquidity
and Capital Resources"), earnings per share (diluted)
increased 6.9% to 31 cents in 2000 compared to 29 cents in
1999.
Nine months ended September 27, 2000 versus September 29,
1999
For the nine months ended September 27, 2000, restaurant
sales were up 4.5% compared to the same period in 1999.
Average unit growth for the first nine months of 2000 was
3.5%, and same-store sales increased 0.5% in 2000 compared
to a 1.7% increase in 1999. The principal factors behind
the year-to-date same-store sales growth are similar to
those mentioned in the third quarter's discussion.
Nine-month costs and expenses as noted in the third
quarter's discussion were 84.0% and 84.1% of sales for 2000
and 1999, respectively. During the first nine months of
2000, costs and expenses were most affected by lower food
and beverage costs (down 0.8% 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
increased 0.3% of sales due to higher maintenance costs,
credit card fees and utility costs. Based on these factors,
the Company's operating margin at the restaurant level
increased to 16.0% of sales for the first nine months of
2000 compared to 15.9% of sales in 1999.
General and administrative expenses remained unchanged at
5.0% of sales for the first nine months of 2000 and 1999.
Higher legal costs, as noted in the third quarter's
discussion, and professional fees were offset by lower
advertising and performance-based bonus costs. 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 36.9% were used for
the first nine 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 nine months of 2000 amounted to
$31.9 million compared to $32.3 million in 1999. Due to a
12.8% reduction in weighted-average shares (diluted)
resulting from the Company's stock repurchase program (see
"Liquidity and Capital Resources"), earnings per share
(diluted) increased 13.2% to 95 cents in 2000 compared to 84
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 September 27, 2000, the Company's working capital was a
$35.7 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 $59.8 million for the first nine months of 2000
and $74.8 million for the year ended December 29, 1999.
Total capital expenditures for the first nine months of 2000
amounted to $44.1 million. The Company opened 14 and closed
four Ryan's restaurants during the first nine months of
2000. These numbers include four openings and four 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 17
Ryan's restaurants, including four relocations. Total
capital expenditures for 2000 are estimated at approximately
$58 million. Expansion of Company-owned restaurants will
occur in states either within or contiguous to 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 September 27, 2000, approximately 22.8 million
shares, or 43% of total shares available at the beginning of
the repurchase program, had been purchased at an aggregate
cost of $215.4 million. Management intends to continue 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".
The aggregate cost of repurchases occurring from September
28, 2000 through November 13, 2000 was less than $1 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 $40 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 September 27, 2000 consisted of $75 million of
9.02% senior notes and $119 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 $72 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 September 27, 2000, the Company exceeded the
most restrictive minimum net worth requirement in the
agreements by $45.1 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 and 2001 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. Recent proposals in the U.S.
Congress to increase the minimum wage point to a probable
$1.00 per hour increase to $6.15 per hour with a multi-step
phase-in period. Implementation dates have not yet been
determined. The Company is typically able to increase menu
prices to offset 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 on cost increases to its customers.
Annual menu price increases have consistently ranged from 3%
to 5%.
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", "plan",
"anticipate", "expect", "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) 4.1 Amended and Restated Shareholder Rights
Agreement dated as of October 16, 2000 between
the Company and Equiserve Trust Company, N.A.
(b) 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.
On September 5, 2000, the Company filed a report
on Form 8-K regarding sales information for
August 2000.
On October 2, 2000, the Company filed a report
on Form 8-K regarding sales information for
September 2000.
On November 6, 2000, the Company filed a report
on Form 8-K regarding sales information for
October 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)
November 13, 2000 /s/Charles D. Way
Charles D. Way
Chairman, President and Chief
Executive Officer
November 13, 2000 /s/Fred T. Grant, Jr.
Fred T. Grant, Jr.
Senior Vice President-Finance and
Treasurer
November 13, 2000 /s/Richard D. Sieradzki
Richard D. Sieradzki
Controller