1
Setting Tables. Setting Standards. [LOGO] Ryan's Family Steak Houses
1999 ANNUAL REPORT
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COMPANY PROFILE Headquartered in Greer, South Carolina, Ryan's
Family Steak House, Inc. has developed, operated and franchised
family restaurants since 1978. Our restaraunts provide great meals
to customers at reasonable prices via our successful "Steaks,
Buffet and Bakery" concept. At March 1, 2000, customers in 22
states visited 291 Company-owned and 22 franchised Ryan's. Sales
by Company-owned restaurants amounted to $665 million in 1999
and $637 million in 1998. Systemwide sales, which include sales by
franchised restaurants, for 1999 and 1998 were approximately $704
million and $675 million, respectively. The Company employed
approximately 19,000 team members at March 1, 2000. Its common
stock trades on The Nasdaq Stock Market(R) under the symbol RYAN.
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RYAN'S FAMILY STEAK HOUSES
SETTING TABLES.
SETTING STANDARDS.
A LETTER TO OUR SHAREHOLDERS
-- IN 1999, WE HAD 365 DAYS TO PROVE WHAT RYAN'S COULD DO. --
I think we made the most of every single one of them.
We proved it pays to offer top managers a financial stake in store
performance. We proved the power of product innovation in delivering value and
variety. We proved how good we are at proactively responding to changes in site
vitality and viability.
This past year, we succeeded in breaking sales records, strengthening our
teams, gaining more customer loyalty and providing a strong base for future
increases in shareholder value.
Our 1999 sales were $664.7 million. Our earnings per share were up 17
percent to $1.10, continuing a four-year trend of increases of 15 percent or
more. Same-store sales have been up for 17 of the last 21 quarters. And we
continue to draw accolades from those who matter most. For the fifth
consecutive year, customers voted Ryan's "#1 Family Steakhouse in America" in
Restaurants and Institutions magazine.
Our Operating Partner Program is working well. Product innovation is
enhancing our net worth and yours. The market savvy we've gained over 21 years
in business continues to serve us well as retail dynamics evolve. And all the
other key parts of our business plan have come together to fuel a great year
and enhance the future.
[LOGO]
-- SETTING GOALS AND REWARDING PERFORMANCE --
In 1999, 44 more general managers joined our Operating Partner Program,
bringing the total number of participants to 146. Each Operating Partner
invests $10,000 in Ryan's stock and commits to staying at the same store for
five years.
When general managers become Operating Partners they begin to think and act
like owners. They constantly look for ways to build sales and reduce expenses.
Their enthusiasm quickly spreads to other managers and team members. And, not
surprisingly, they get exceptional results. Operating Partner stores excel on
all performance measures. They enjoy higher hidden shopper scores, better
customer comments, increased manager and team member retention, higher sales and
earnings gains and better overall store operations.
Going forward, our Operating Partner Program will continue to be a winning
proposition for everyone involved. Shareholders benefit from rising profits.
Customers enjoy the service superiority of better-run restaurants. Operating
Partners can earn higher bonuses based on unit sales and earning performance.
And team members flourish in more stable working environments.
-- SETTING "THE BAR" FOR PRODUCT INNOVATION --
Our Mega Bar(R) continues to prove it's capable of big things. Ryan's was
first to introduce the "Mega Bar" concept in September 1985. Its success
spawned other innovative "hits" including the Bakery Bar (July '91), Express
Service (June '95) and hand-carved meats (July '98).
In May 1999, another carving program, "Steak Night," went into test. Even
though it added a dollar premium to the price of the Mega Bar, customers loved
it. Eighty-one locations have now embraced the new carving program, generating
sales increases on Steak Nights of 20 + percent.
We continue to encourage individual locations to make good ideas better and
to experiment with product offerings. After all, if something hits in one
place, we can multiply the benefit by every store in the company, right? Stay
tuned--we currently have a number of exciting new products in test for next
year too.
-- SETTING OUR SITES IN HIGHER TRAFFIC AREAS --
Ryan's is always aware that locations change over time. Some improve. Others
decline. Our strategy is to relocate restaurants with poor sites that show no
signs of
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A YEAR WELL DONE
Ryan's four leading indicators reflected another record
year in 1999. Restaurant sales rose $27.7 million,
net earnings increased $1.3 million and earnings per
share were 17 percent higher. In the midst of strong
financial success, we extended our brand to encompass
289 Company-owned and 23 franchised restaurants.
[CHART] [CHART]
Restaurant Sales Net Earnings
(in millions of dollars) (in millions of dollars)
[CHART] [CHART]
Earnings Per Share Restaurants Open at Year-End
(diluted; in cents)
Excluding an asset valuation charge of $8.4 million (after-tax) in accordance
with the Financial Accounting Standards Board's Statement No. 121.
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RYAN'S FAMILY STEAK HOUSES
turnaround to "hot spot" locations where more people want to shop and eat out.
In 1999, we opened 12 new restaurants in thriving neighborhoods and
relocated six to produce better returns on our investments. With the exception
of just 13 units that are on land leases, every other Company-owned restaurant
is on Ryan's-owned property. Our real estate experts deserve a great deal of
credit for helping us redeploy assets, turning old stores into cash to fund
relocations.
Our new restaurants produced average annualized sales of almost $2.9
million, the highest level over the past four years. Relocations produced about
40 percent more sales per unit compared to their old sites.
-- SETTING OURSELVES APART --
People who haven't been to Ryan's have an ever-growing array of dining choices.
By expanding advertising coverage, we increase the odds that they will try
Ryan's and become regular customers. Advertising also supports our commitment
to introducing new products to both existing and new customers, enhancing our
image for offering value and variety.
Our 1999 advertising program supported 108 restaurants in 30 markets,
almost doubling the number of markets we targeted in 1998. We focused our
broadcast advertising in the second quarter when eating patterns for the year
are being established to maximize impact on third and fourth quarter sales.
We also used a limited number of interstate billboards and will continue to
do so as long as outdoor advertising produces measurable sales results. As
always, we work with stores in highly competitive situations to provide
support, often including newspaper advertising. We also continue to look at
ways to penetrate new markets in a cost-effective manner.
-- SETTING A COURSE FOR THE FUTURE --
In order to aggressively continue the share repurchase program we began in
1996, Ryan's recently closed two transactions to refinance all the Company's
existing debt. The first transaction involved the private placement of $75
million of senior notes due in 2008. The second transaction included a $200
million revolving credit facility due in 2005.
In 1999, we repurchased just over 3.6 million shares of stock. Since the
beginning of the program, almost 19 million shares have been repurchased,
representing 35 percent of the original program total. Recently, our Board of
Directors demonstrated its confidence in the continued success of Ryan's by
increasing the number of shares available for repurchase from 20 million to 30
million. We believe our share repurchase program will enhance shareholder value
over time.
Everything we do going forward will help us live up to Ryan's mission
statement: "to be an innovative, profitable growth company, committed to
customer satisfaction by always providing high quality food at affordable
prices with friendly service in clean and pleasant surroundings." We will
increase shareholder value by striving to increase average unit sales, increase
store level profits and repurchase shares at opportunistic prices.
Our plan for the immediate future includes raising our Operating Partner
total to as many as 200 in 2000. We also intend to open 12 to 14 new
Company-owned restaurants and to complete four to six relocations. Two more
franchised restaurants and one franchised relocation are also in the plan, as
are some exciting new product innovations.
Over the past 21 years, we've built a tradition of consistent earnings per
share growth by setting tables and setting standards. Thanks to the dedication
of our talented team members and your continued confidence, Ryan's is
positioned to build on past success in 2000 and beyond.
Sincerely,
/s/ Charles D. Way
------------------
CHARLES D. WAY
Chairman, President and Chief Executive Officer
March 1, 2000
-- 2-3 --
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[MAP]
LOCATIONS. LOCATIONS. LOCATIONS.
Our geographic presence throughout some of the
nations most desirable markets continues to
grow. In 1999, new Company-owned restaurants
in eight states helped prove that Ryan's has many
more places to go and people to feed.
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RYAN'S FAMILY STEAK HOUSES
-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS --
Shown for the years indicated are (i) items in the consolidated statements of
earnings as a percentage of restaurant sales, (ii) the number of restaurants
open at the end of each year, and (iii) the percentage change between years.
Percentage of Restaurant Sales Percentage Change
----------------------------------------------------------------------------
1999 1998 1997 1999/1998 1998/1997
- ------------------------------------------------------------------------------------------------------------------------
Restaurant sales 100.0% 100.0 100.0 4.3% 6.3
- ------------------------------------------------------------------------------------------------------------------------
Operating expenses
Food and beverage 38.2 39.1 39.5 2.1 5.0
Payroll and benefits 29.6 29.3 28.6 5.5 8.9
Depreciation 4.0 4.0 4.0 4.5 6.3
Other operating expenses 12.5 12.5 12.6 3.7 5.9
- ------------------------------------------------------------------------------------------------------------------------
Total operating expenses 84.3 84.9 84.7 3.6 6.5
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General and administrative expenses 5.0 4.6 4.5 11.9 8.7
Interest expense 1.2 1.1 1.0 17.4 15.9
Revenues from franchised restaurants (0.2) (0.2) (0.2) 2.1 (10.2)
Other income, net (0.3) (0.3) (0.2) (3.7) 30.2
- ------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 10.0 9.9 10.2 5.4 3.1
Income taxes 3.7 3.6 3.7 9.1 3.5
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Net earnings 6.3% 6.3 6.5 3.2% 2.8
========================================================================================================================
Restaurants Open at End of Year Percentage Change
- ------------------------------------------------------------------------------------------------------------------------
Company-owned 289 280 270 3.2% 3.7
Franchised 23 26 25 (11.5) 4.0
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Total 312 306 295 2.0% 3.7
========================================================================================================================
-- 4-5 --
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A STEAK IN OUR SUCCESS
Our Operating Partner Program celebrated its
2nd Anniversary in 1999 by attracting 44 more
General Managers. Now 146 partners strong, the
program gives each participant an individual
financial stake in store performance. It also
benefits shareholders with rising profits, provides
team members with stability and differentiates
restaurants with superior operations.
[LOGO]
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RYAN'S FAMILY STEAK HOUSES
-- RESULTS OF OPERATIONS --
1999 COMPARED TO 1998
Total restaurant sales increased by $27.7 million, or 4.3%, to $664.7 million in
1999 from $637.0 million in 1998. Approximately 90% of the sales increase
resulted from the incremental sales from restaurants opened in 1999 and 1998. A
1.3% increase in same-store sales also contributed to the higher sales levels.
In computing same-store sales, the Company averages weekly sales for those units
operating for at least 18 months. Management attributes the higher same-store
sales to the implementation of carving bars during the first and second quarters
of 1998, continuing impact from the Operating Partner program and other
promotional activities. The carving bars offer at least three hand-carved
meats, such as roast beef, ham and turkey, nightly and all day Sunday to those
customers who purchase the buffet as either an entree or a side item.
During 1999, the Company opened 12 new restaurants and relocated six
restaurants. Management defines a relocation as a restaurant opened within 12
months after the closing of another restaurant in the same marketing area. A
relocation generally results in an opening and a closing in the same year as was
the case for each relocation during 1999. Three underperforming restaurants were
also closed during the year. Accordingly, at the end of 1999 and 1998, the
Company owned and operated 289 and 280 restaurants, respectively.
Total operating expenses increased 3.6% to $560.2 million in 1999 from
$540.6 million in 1998. Such costs, as a percentage of sales, were 84.3% during
1999 and 84.9% during 1998. Thus, the Company's operating margins at the
restaurant level were 15.7% of sales in 1999 and 15.1% in 1998.
The decrease in 1999's operating expenses as a percentage of sales resulted
principally from lower food and beverage costs with a partial offsetting effect
from higher payroll and benefits. Food and beverage costs decreased to 38.2%
of sales in 1999 from 39.1% in 1998 due to menu price increases as well as from
lower dairy, produce, pork and soybean oil prices. Payroll and benefits
increased to 29.6% of sales in 1999 from 29.3% in 1998 due principally to higher
hourly labor costs. All other operating costs, including depreciation, stayed
level at 16.5% of sales in both 1999 and 1998. Other operating costs in 1998
included the write-off of unamortized pre-opening costs, amounting to $790,000
(0.1% of sales), taken in accordance with the American Institute of Certified
Public Accountants' Statement of Position ("SOP") 98-5, "Reporting on the Costs
of Start-Up Activities". In accordance with SOP 98-5, all 1999 pre-opening costs
were charged to expense as incurred, and all prior years' amounts in the
accompanying consolidated financial statements have been similarly reclassified.
General and administrative expenses increased to 5.0% of sales ($33.2
million) in 1999 from 4.6% of sales ($29.7 million) in 1998, resulting
principally from higher manager training charges, information technology
compensation and travel costs. Media advertising amounted to 0.3% of sales
during both 1999 and 1998.
Interest expense amounted to $8.0 million in 1999 (1.2% of sales) compared
to $6.8 million in 1998 (1.1% of sales). The increase resulted from higher debt
levels incurred during 1999 in connection with the Company's common stock
repurchase program (see "Liquidity and Capital Resources"). Interest expense was
also impacted by a decrease in the Company's effective average interest rate to
5.8% in 1999 from 6.0% in 1998. It should be noted that interest rates were
generally lower during the first half of 1999. Interest rates during the second
half of the year rose significantly due to Federal Reserve intervention and Year
2000 pressures. In January 2000 (see "Subsequent Event"), the Company closed on
two loan transactions, thereby refinancing all of its existing debt and adding
to its credit availability. Management expects that the Company's effective
average interest rate will increase by approximately 200 basis points in 2000
due to the negotiated rates in the new loan packages and an overall higher
interest rate environment.
Based upon the above changes to revenues and expenses, earnings before
income taxes increased to $66.4 million in 1999 from $63.0 million in 1998.
The effective income tax rate for 1999 increased to 37.3% compared to 36.0%
in 1998 due to higher state income taxes.
Net earnings increased to $41.6 million in 1999 (6.3% of sales) from $40.3
million in 1998 (6.3% of sales). Diluted weighted-average shares decreased by
11.7% to 37,874,000 in 1999 compared to 42,881,000 in 1998 due to the Company's
stock repurchase program (see "Liquidity and Capital Resources"). Accordingly,
diluted earnings per share ("DEPS") increased 17% to $1.10 in 1999 from 94 cents
in 1998.
-- 1998 COMPARED TO 1997 --
Total restaurant sales increased by $37.8 million, or 6.3%, to $637.0 million in
1998 from $599.2 million in 1997. Incremental sales from restaurants opened in
1998 and 1997 accounted for approximately 80% of the sales increase. A 2.3%
increase in same-store sales was another principal factor behind the higher
sales levels. Management attributes the higher same-store sales to the
implementation of carving bars during the first and second quarters of 1998.
During 1998, the Company opened 11 new restaurants and relocated four
restaurants. In addition, one underperforming restaurant was closed during the
year. Accordingly, at the end of 1998 and 1997, the Company owned and operated
280 and 270 restaurants, respectively.
Total operating expenses increased 6.5% to $540.6 million in 1998
from $507.7 million in 1997. Such costs, as a percentage of sales, were
84.9% during 1998 and 84.7% during 1997. Thus, the Company's
-- 6-7 --
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[LOGO]
CUTTING-EDGE CONCEPTS
RYAN'S LONG-STANDING COMMITMENT TO PRODUCT
INNOVATION CONTINUED IN 1999 WITH AN
EXPANSION OF OUR HIGHLY SUCCESSFUL CARVING
PROGRAM. OUR NEW "STEAK NIGHT" CONCEPT
ADDED CARVED SIRLOIN STEAKS TO ORDER ON THE
MEGA BAR(R) AND SUCCESSFULLY RAISED STORE SALES
BY 20+ PERCENT THE NIGHTS IT WAS OFFERED.
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-- RYAN'S FAMILY STEAK HOUSES --
operating margins at the restaurant level were 15.1% of sales in 1998 and 15.3%
in 1997.
Several factors affected 1998's operating expenses. Food and beverage costs
decreased to 39.1% of sales in 1998 from 39.5% in 1997 due to menu price
increases as well as from lower beef, coffee and produce prices. Payroll and
benefits increased to 29.3% of sales in 1998 from 28.6% in 1997. Hourly labor
costs increased by 0.3% of sales due to higher staffing levels and an increase
in the Federal minimum wage from $4.75 per hour to $5.15, effective September 1,
1997. Manager compensation costs increased by 0.3% of sales due principally to
the expansion of the Company's Operating Partner program. All other operating
costs, including depreciation, amounted to 16.5% of sales in 1998 and 16.6% in
1997. Other operating costs in 1998 were favorably impacted by higher same-store
sales and include the write-off of unamortized pre-opening costs, amounting to
$790,000 (0.1% of sales), taken in accordance with the American Institute of
Certified Public Accountants' SOP 98-5.
General and administrative expenses increased to 4.6% of sales ($29.7
million) in 1998 from 4.5% of sales ($27.3 million) in 1997. Media advertising
amounted to 0.3% of sales during both 1998 and 1997.
Interest expense amounted to $6.8 million in 1998 (1.1% of sales) compared
to $5.9 million in 1997 (1.0% of sales). The increase resulted from higher debt
levels incurred during 1998 in connection with the Company's common stock
repurchase program (see "Liquidity and Capital Resources"). Interest expense was
also impacted by a decrease in the Company's effective average interest rate to
6.0% in 1998 from 6.1% in 1997.
Revenues from franchised restaurants decreased to $1.1 million in 1998 from
$1.3 million in 1997 due primarily to the receipt in 1997 of amounts from a
past-due royalty program. Other income increased to $1.9 million in 1998 from
$1.5 million in 1997 due largely to net gains on sales of excess property as
well as from higher store vending revenue.
Based upon the above changes to revenues and expenses, earnings before
income taxes increased to $63.0 million in 1998 from $61.1 million in 1997.
The effective income tax rate for 1998 increased slightly to 36.0% compared
to 35.8% in 1997.
Net earnings increased to $40.3 million in 1998 (6.3% of sales) from $39.2
million in 1997 (6.5% of sales). Diluted weighted-average shares decreased by
10.2% to 42,881,000 in 1998 compared to 47,761,000 in 1997 due to the Company's
stock repurchase program (see "Liquidity and Capital Resources"). Accordingly,
DEPS increased 15% to 94 cents in 1998 from 82 cents in 1997.
-- 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 December 29, 1999, the Company's working capital amounted to a $32.2
million deficit compared to a $111.7 million deficit at December 30, 1998. The
decrease in the working capital deficit is related principally to the
reclassification of the year-end 1999 balances of notes payable and current
portion of long-term debt, which amounted to $114.3 million in total at December
29, 1999, to long-term debt as a result of the refinancing of all existing debt
on January 28, 2000 (see "Subsequent Event"). These same items amounted to $84.0
million at December 30, 1998 and continue to be included in current liabilities
at year-end 1998 in the accompanying consolidated financial statements. Total
capital expenditures increased to $53.2 million in 1999 from $43.7 million in
1998 due principally to increases in new restaurant construction (18 in 1999
compared to 15 in 1998) and equipment purchases. The Company does not anticipate
any adverse effect from the current working capital deficit due to significant
cash flow provided by operations, which amounted to $74.8 million in 1999 and
$73.0 million in 1998.
During 2000, the Company plans to build and open 17 to 19 new restaurants,
including four to six relocations, and remodel approximately 40 restaurants.
Total 2000 capital expenditures are estimated at $53 million. The Company is
currently concentrating its efforts on Company-owned Ryan's restaurants and is
not actively pursuing any additional franchised locations, either domestically
or internationally.
The Company began a stock repurchase program in March 1996 and is currently
authorized to repurchase up to 30 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 December 29, 1999, approximately 18.8 million shares, or 35%
of total shares available at the beginning of the repurchase program, had been
purchased at an aggregate cost of $178.1 million. From December 30, 1999 through
March 1, 2000, another 842,000 shares were purchased at an aggregate cost of
$7.7 million. Management intends to actively proceed with the repurchase program
during 2000, subject to the continued availability of capital, the limitations
imposed by the Company's new senior notes and revolving credit facility (see
"Subsequent Event"), applicable securities regulations and the other factors
described in "Forward-Looking Information".
-- 8-9 --
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-- RYAN'S FAMILY STEAK HOUSES --
Management estimates that cash generated from operations will exceed the
Company's 2000 capital expenditure requirements and plans to use this excess
cash for stock repurchases. Additional debt may be incurred in order to meet the
Company's share repurchase objectives. Based on current target debt levels, a
maximum repurchase scenario would require approximately $40 million of
additional borrowings during 2000. After the refinancing of debt on January 28,
2000 (see "Subsequent Event"), the Company's outstanding debt consisted of $75
million of 9.02% senior notes and a $200 million revolving credit facility of
which $109 million was borrowed at that date. Accordingly, after allowances for
letters of credit and other items, there was approximately $80 million in funds
available under the revolving credit facility. The Company's ability to draw on
these funds may be limited by the debt restrictions in the agreements governing
both the senior notes and the revolving credit facility.
Management believes that its current capital structure is sufficient to
meet its 2000 requirements. 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 U.S. Senate points to a potential $1.00 per hour
increase to $6.15 per hour with a three-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. Sales prices were increased approximately 2.4% in
1999 and 3.5% in 1998.
-- YEAR 2000 --
The Company invested significant resources over the past three years to ensure
that its operations would not be adversely impacted by software failures
associated with programming incompatibilities with the year 2000 ("Y2K"). In
1997, the Company identified those systems that were not Y2K-compliant and began
researching conversion and replacement options. At December 30, 1998, conversion
of all major corporate office financial systems (general ledger, accounts
payable, payroll and benefits) was complete. In July 1999, a multi-functional
team tested the Y2K-readiness of the Company's planned software and hardware
solutions by performing critical store operations and corporate financial
functions with systems set with a year 2000 date. The test was very successful
with only minor issues identified, and all such issues were subsequently
corrected. Upgrades to critical store-level systems as well as remediation steps
for the corporate office workstations were completed by the end of the third
quarter of 1999. Finally, critical vendors were identified and contacted as to
their degree of Y2K-readiness, and contingency plans were prepared in the event
of an unforeseen Y2K problem. The various Y2K-remediation steps taken by the
Company were comprehensive and appear to have been successful as no operational
or technology problems have been encountered in connection with the commencement
of year 2000.
Costs associated with the Y2K plan that represented significant functional
or technology improvements were capitalized. Other costs that involved Y2K
compatibility were charged to expense as incurred. 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.
-- NEW ACCOUNTING PRONOUNCEMENT --
In June 1998, the Financial Accounting Standards Board issued 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 swap agreements at December 29, 1999. The Company does not
enter into derivative instrument agreements for trading or speculative purposes.
-- SUBSEQUENT EVENT --
On January 28, 2000, the Company closed on two loan transactions that refinanced
all existing debt balances and added to the Company's credit availability. The
first transaction involved the private placement of $75 million of senior notes
due in 2008 with principal payments
-- 10-11 --
13
[LOGO]
-- ON A ROLL --
RELOCATIONS OF OLD RESTAURANTS AND STRATEGIC SITE
SELECTIONS FOR NEW LOCATIONS KEPT RYAN'S MOVING
AHEAD IN 1999. IN ADDITION TO OPENING 12 NEW
RESTAURANTS, WE RELOCATED SIX FROM OLDER LOCATIONS
TO UP-AND-COMING COMMERCIAL CENTERS WITH HIGHER
PROFIT POTENTIAL. RELOCATIONS GENERATED STORE SALES
INCREASES IN THE NEIGHBORHOOD OF 40 PERCENT.
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RYAN'S FAMILY STEAK HOUSES
commencing in 2005, bearing interest at 9.02%. The second transaction involved a
$200 million revolving credit facility due in 2005, bearing interest at various
floating interest rates plus a variable spread currently set at 1.625%.
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 December 29, 1999,
the Company exceeded the most restrictive minimum net worth requirement in the
agreements by $65.8 million. Both loans are secured by the stock of the
Company's wholly-owned subsidiaries and affiliates.
In accordance with generally accepted accounting principles, all debt
existing at December 29, 1999 was reclassified to long-term liabilities.
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
annual report and elsewhere that are forward-looking 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
statements. The words "estimates", "plans", "anticipates", "expects", "intends",
"believes" 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;
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 the agreements governing both the senior notes
and the revolving credit facility, and the maximum debt and share repurchase
levels authorized by the Company's Board of Directors.
-- 12 --
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RYAN'S FAMILY STEAK HOUSES
-- FIVE-YEAR FINANCIAL SUMMARY --
---------------------------------------------------------------------
(In thousands, except earnings per share) 1999 1998 1997 1996 1995*
- ----------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS DATA
Restaurant sales $ 664,681 637,003 599,169 565,465 513,168
- ----------------------------------------------------------------------------------------------------------------------------
Operating expenses
Food and beverage 254,052 248,903 237,066 225,888 208,843
Payroll and benefits 196,847 186,565 171,390 160,529 146,869
Depreciation 26,456 25,317 23,821 21,900 19,228
Asset valuation charge -- -- -- 13,300 --
Other operating expenses 82,823 79,838 75,384 73,357 63,995
- ----------------------------------------------------------------------------------------------------------------------------
Total operating expenses 560,178 540,623 507,661 494,974 438,935
- ----------------------------------------------------------------------------------------------------------------------------
General and administrative expenses 33,191 29,670 27,301 24,763 22,212
Interest expense 7,986 6,802 5,867 3,354 1,853
Revenues from franchised restaurants (1,167) (1,143) (1,273) (1,483) (1,736)
Other income, net (1,866) (1,938) (1,489) (1,381) (937)
- ----------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 66,359 62,989 61,102 45,238 52,841
Income taxes 24,742 22,669 21,892 16,678 19,682
- ----------------------------------------------------------------------------------------------------------------------------
Net earnings $ 41,617 40,320 39,210 28,560 33,159
============================================================================================================================
Earnings per share
Basic $ 1.12 .95 .83 .55 .62
Diluted 1.10 .94 .82 .55 .62
Weighted-average shares (diluted) 37,874 42,881 47,761 51,810 53,673
============================================================================================================================
SELECTED OTHER CONSOLIDATED DATA
Working capital deficit $ (32,150) (111,666) (52,763) (64,634) (96,857)
Current ratio 0.3/1 0.1/1 0.2/1 0.2/1 0.1/1
Cash provided by operations $ 74,780 73,036 64,624 68,875 61,807
Property and equipment additions 53,198 43,682 47,456 89,769 71,342
Total assets 525,827 509,393 495,554 477,626 425,494
Long-term debt 172,375 81,374 93,000 93,000 --
Total current and long-term debt 172,375 165,400 121,300 128,300 72,200
Purchase of common stock 41,315 80,549 18,151 38,151 --
Shareholders' equity 283,393 280,372 317,061 293,976 302,694
Company-owned restaurants open at end of year 289 280 270 261 231
============================================================================================================================
(*) Indicates a 53-week period.
-- 13 --
16
RYAN'S FAMILY STEAK HOUSES
-- CONSOLIDATED STATEMENTS OF EARNINGS --
Year Ended
----------------------------------------------------
December 29, December 30, December 31,
(In thousands, except earnings per share) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
Restaurant sales $ 664,681 637,003 599,169
- ------------------------------------------------------------------------------------------------------
Operating expenses
Food and beverage 254,052 248,903 237,066
Payroll and benefits 196,847 186,565 171,390
Depreciation 26,456 25,317 23,821
Other operating expenses 82,823 79,838 75,384
- ------------------------------------------------------------------------------------------------------
Total operating expenses 560,178 540,623 507,661
- ------------------------------------------------------------------------------------------------------
General and administrative expenses 33,191 29,670 27,301
Interest expense 7,986 6,802 5,867
Revenues from franchised restaurants (1,167) (1,143) (1,273)
Other income, net (1,866) (1,938) (1,489)
- ------------------------------------------------------------------------------------------------------
Earnings before income taxes 66,359 62,989 61,102
Income taxes 24,742 22,669 21,892
- ------------------------------------------------------------------------------------------------------
Net earnings $ 41,617 40,320 39,210
======================================================================================================
Earnings per share
Basic $ 1.12 .95 .83
Diluted 1.10 .94 .82
======================================================================================================
Weighted-average shares
Basic 37,253 42,227 47,335
Diluted 37,874 42,881 47,761
======================================================================================================
See accompanying notes to consolidated financial statements.
-- 14 --
17
RYAN'S FAMILY STEAK HOUSES
-- CONSOLIDATED BALANCE SHEETS --
December 29, December 30,
(In thousands) 1999 1998
- -----------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 642 1,502
Receivables 3,027 2,675
Inventories 4,663 4,327
Deferred income taxes 4,342 4,311
Other current assets 500 546
- -----------------------------------------------------------------------------------------------
Total current assets 13,174 13,361
- -----------------------------------------------------------------------------------------------
Property and equipment
Land and improvements 119,950 114,307
Buildings 333,337 311,809
Equipment 177,857 193,014
Construction in progress 35,074 35,742
- -----------------------------------------------------------------------------------------------
666,218 654,872
Less accumulated depreciation 157,439 162,018
- -----------------------------------------------------------------------------------------------
Net property and equipment 508,779 492,854
- -----------------------------------------------------------------------------------------------
Other assets 3,874 3,178
- -----------------------------------------------------------------------------------------------
Total assets $525,827 509,393
===============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable -- 72,400
Current portion of long-term debt -- 11,626
Accounts payable 11,891 6,811
Income taxes payable 2,997 3,759
Accrued liabilities 30,436 30,431
- ------------------------------------------------------------------------------------------
Total current liabilities 45,324 125,027
- ------------------------------------------------------------------------------------------
Long-term debt 172,375 81,374
Deferred income taxes 24,735 22,620
- ------------------------------------------------------------------------------------------
Total liabilities 242,434 229,021
- ------------------------------------------------------------------------------------------
Shareholders' equity
Common stock of $1.00 par value; authorized 100,000,000 shares;
issued 35,855,000 shares in 1999 and 39,158,000 shares in 1998 35,855 39,158
Additional paid-in capital 703 1,274
Retained earnings 246,835 239,940
- ------------------------------------------------------------------------------------------
Total shareholders' equity 283,393 280,372
- ------------------------------------------------------------------------------------------
Commitments
- ------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $525,827 509,393
==========================================================================================
See accompanying notes to consolidated financial statements.
-- 15 --
18
RYAN'S FAMILY STEAK HOUSES
-- CONSOLIDATED STATEMENTS OF CASH FLOWS --
Year Ended
----------------------------------------
December 29, December 30, December 31,
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net earnings $ 41,617 40,320 39,210
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 28,299 28,947 27,397
Gain on sale of property and equipment (197) (51) (95)
Decrease (increase) in:
Receivables (352) 81 (815)
Inventories (336) (33) (406)
Other current assets 46 (1,721) (1,613)
Other assets (704) (253) (673)
Increase (decrease) in:
Accounts payable 5,080 (2,519) (5,497)
Income taxes payable (762) 3,159 (1,241)
Accrued liabilities 5 3,809 2,044
Deferred income taxes 2,084 1,297 6,313
- ----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 74,780 73,036 64,624
- ----------------------------------------------------------------------------------------------------
Cash flows from investing activities
Proceeds from sale of property and equipment 9,179 4,768 5,500
Capital expenditures (53,198) (43,682) (47,456)
- ----------------------------------------------------------------------------------------------------
Net cash used in investing activities (44,019) (38,914) (41,956)
- ----------------------------------------------------------------------------------------------------
Cash flows from financing activities
Net proceeds from notes payable 18,600 44,100 (7,000)
Repayment of long-term debt (11,625) -- --
Proceeds from issuance of common stock 2,719 3,540 2,026
Purchase of common stock (41,315) (80,549) (18,151)
- ----------------------------------------------------------------------------------------------------
Net cash used in financing activities (31,621) (32,909) (23,125)
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (860) 1,213 (457)
Cash and cash equivalents--beginning of period 1,502 289 746
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents--end of period $ 642 1,502 289
====================================================================================================
Supplemental disclosure
Cash paid during the year for:
Interest, net of amount capitalized $ 8,647 6,229 5,882
Income taxes 22,851 17,583 16,661
====================================================================================================
See accompanying notes to consolidated financial statements.
-- 16 --
19
RYAN'S FAMILY STEAK HOUSES
-- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ryan's Family Steak Houses, Inc. operates a chain of 289 Company-owned and 23
franchised (as of December 29, 1999) restaurants located principally in the
southern and midwestern United States. The Company was organized in 1977,
opened its first restaurant in 1978 and completed its initial public offering
in 1982.
CONSOLIDATION 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.
FISCAL YEAR The Company's fiscal year ends on the Wednesday nearest
December 31, resulting in years of either 52 or 53 weeks. The years ended
December 29, 1999, December 30, 1998 and December 31, 1997 each comprise 52
weeks.
CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash and short-term
investments with initial maturities of three months or less that are stated at
cost plus accrued interest which approximates market value.
INVENTORIES Inventories consist of menu ingredients and restaurant supplies and
are stated at the lower of cost or market. Cost is determined using the
first-in, first-out method.
OTHER CURRENT ASSETS Other current assets consist of prepaid expenses. Prior to
December 30, 1998, other current assets also included unamortized pre-opening
costs, which represented certain costs, including team member training, that
were incurred before a restaurant was opened. These costs were capitalized when
incurred and then expensed over the first 52 weeks of the restaurant's
operations. At December 30, 1998, the Company adopted the provisions of the
American Institute of Certified Public Accountants' Statement of Position
("SOP") 98-5, "Reporting on the Costs of Start-Up Activities". SOP 98-5 requires
pre-opening costs to be expensed as incurred. Accordingly, all unamortized
pre-opening costs at December 30, 1998, amounting to $790,000, were charged to
1998 depreciation and amortization in the accompanying consolidated financial
statements.
PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation
is calculated principally on the straight-line method over the following
estimated useful lives: buildings and land improvements--25 to 39 years and
equipment--3 to 10 years. Buildings and land improvements on leased property are
amortized straight-line over the shorter of the expected lease term or estimated
useful life of the asset.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of", the Company reviews long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If an asset is considered to be impaired, an impairment loss is
recognized equal to the amount by which the carrying amount of the asset exceeds
its fair value. Assets to be disposed of are reported at the lower of carrying
amount or fair value less costs to sell.
OTHER ASSETS Other assets consist principally of the cash surrender values of
officer life insurance policies, a long-term prepayment of land rent and a
long-term note receivable related to the sale of a closed restaurant property.
DERIVATIVE FINANCIAL INSTRUMENTS The Company uses derivative financial
instruments to reduce its exposure to interest rate fluctuations. The Company
does not enter into financial instrument agreements for trading or speculative
purposes. Amounts currently due to or from interest rate swap counterparties are
recorded in interest expense in the period in which they accrue. The premiums
paid to purchase other interest rate agreements, such as caps or collars, are
included in other assets and are amortized to interest expense over the shorter
of the term of the interest rate agreement or the life of the underlying debt
instrument. There were no financial instrument agreements outstanding as
of December 29, 1999.
FRANCHISE REVENUES The Company grants franchises to operators who in turn pay
initial fees and royalties for each restaurant. The initial franchise fee is
recorded as income when each restaurant commences operations. Franchise
royalties, which are based on a percentage of monthly sales, are recognized as
income on the accrual basis. In the event that a franchisee experiences payment
difficulties or, in management's opinion, may be susceptible to such
difficulties, franchise royalties may be recognized as income on the cash basis.
INCOME TAXES Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
STOCK OPTIONS As allowed by SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company accounts for its stock option plans in accordance
with the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations. As
such, compensation expense is recorded on the date of grant only if the current
market price of the underlying stock exceeds the exercise price. The additional
pro forma disclosure required by SFAS No. 123 can be found in Note 10.
EARNINGS PER SHARE Basic earnings per share ("EPS") excludes dilution and is
computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities of other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Common equivalent shares are represented by shares under option.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS Certain prior year amounts in the accompanying consolidated
financial statements have been reclassified to conform to the 1999 presentation.
-- 17 --
20
RYAN'S FAMILY STEAK HOUSES
NOTE 2. INCOME TAXES
Income tax expense for the years ended December 29, 1999, December 30, 1998 and
December 31, 1997 consists of:
---------------------------------
(In thousands) 1999 1998 1997
- ---------------------------------------------------------
Current
U.S. Federal $20,568 20,267 14,863
State and local 2,090 1,105 716
- ---------------------------------------------------------
Total current 22,658 21,372 15,579
- ---------------------------------------------------------
Deferred
U.S. Federal 1,420 1,342 6,088
State and local 664 (45) 225
- ---------------------------------------------------------
Total deferred 2,084 1,297 6,313
- ---------------------------------------------------------
Total income taxes $24,742 22,669 21,892
=========================================================
Income taxes differ from the amounts computed by applying the U.S. Federal
statutory corporate rate of 35 percent to earnings before income taxes as
follows:
------------------------------------
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
Tax at Federal statutory rate $ 23,226 22,046 21,386
Increase (decrease) in taxes due to:
State income taxes, net of Federal 1,790 689 612
income tax benefit
Other (274) (66) (106)
- ------------------------------------------------------------------------------
Total income taxes $ 24,742 22,669 21,892
==============================================================================
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 29, 1999 and
December 30, 1998 are presented in the following table:
----------------------
(In thousands) 1999 1998
- ----------------------------------------------------------------
Deferred tax assets
Accounts receivable $ 105 114
Deferred compensation 290 90
Self-insurance reserves 3,563 3,511
Other 672 687
- ----------------------------------------------------------------
Total gross deferred tax assets 4,630 4,402
- ----------------------------------------------------------------
Less valuation allowance -- --
- ----------------------------------------------------------------
Net deferred tax assets 4,630 4,402
- ----------------------------------------------------------------
Deferred tax liabilities
Building and equipment (24,902) (22,586)
Other (121) (125)
- ----------------------------------------------------------------
Total gross deferred tax liabilities (25,023) (22,711)
- ----------------------------------------------------------------
Net deferred taxes $(20,393) (18,309)
================================================================
The Company did not establish a valuation allowance for deferred tax assets as
of December 29, 1999 or December 30, 1998. In assessing the realizability
of deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment and, accordingly, believes it is more likely than not
that the results of future operations will generate sufficient taxable income to
realize the benefits of these deductible differences at December 29, 1999.
-- 18 --
21
RYAN'S FAMILY STEAK HOUSES
NOTE 3. NOTES PAYABLE
The Company has several unsecured lines of credit from banks aggregating $115
million at various short-term rates, of which $91.0 million and $72.4 million
had been utilized at December 29, 1999 and December 30, 1998, respectively. All
borrowings under these lines are unsecured and mature in 90 days or less. The
weighted-average interest rates on outstanding borrowings were 6.83% at
December 29, 1999 and 5.70% at December 30, 1998. All outstanding notes payable
balances were repaid by the long-term credit facilities that closed on January
28, 2000 as described in Note 14.
NOTE 4. LONG-TERM DEBT
Long-term debt at December 29, 1999 and December 30, 1998 consists of the
following:
--------------------
(In thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
Borrowings under term loan agreement with interest at various floating rates;
payable in quarterly installments of $5,813,000 commencing September 1999,
final quarterly installment due June 2003. Paid in full by long-term credit
facilities that closed on January 28, 2000 (see Note 14)
$ 81,375 93,000
Notes payable at December 29, 1999; reclassified as long-term debt due to repayment from
proceeds from long-term credit facilities that closed on January 28, 2000 (see Notes 3 and 14) 91,000 --
- --------------------------------------------------------------------------------------------------------------------------
172,375 93,000
Less current installments -- 11,626
- --------------------------------------------------------------------------------------------------------------------------
Total long-term debt $172,375 81,374
==========================================================================================================================
At December 29, 1999, the Company was party to a term loan agreement ("Term
Loan") with a group of banks. The Term Loan was unsecured with interest, payable
at least quarterly, at various rates generally equal to the London Interbank
Offered Rate ("LIBOR") plus 0.75%. The terms of the credit agreement contained,
among other provisions, requirements for the Company to maintain a minimum net
worth level and certain financial ratios and restrictions on the Company's
ability to incur additional indebtedness, merge, consolidate, and acquire or
sell assets. At December 29, 1999, the Company exceeded the most restrictive
minimum net worth covenant by approximately $28.4 million. All amounts
outstanding under the Term Loan were repaid by long-term credit facilities that
closed on January 28, 2000 as described in Note 14.
NOTE 5. INTEREST COST
The Company capitalizes interest cost as a component of the cost of new
restaurant construction. A summary of interest cost incurred follows:
-----------------------------
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------
Interest cost capitalized $ 2,055 2,093 2,332
Interest cost charged to income 7,986 6,802 5,867
- ------------------------------------------------------------------
Total interest cost incurred $10,041 8,895 8,199
==================================================================
NOTE 6. LEASES
The Company has several noncancelable operating land leases for restaurant
sites with initial terms that expire over the next 1 to 12 years. These leases
contain renewal options for periods ranging from 3 to 30 years and require the
Company to pay all executory costs such as property taxes, utilities and
insurance. Rental payments are based on contractual amounts as set forth in the
lease agreements and do not include any contingent rentals. The Company also
leases dishwashing equipment at certain restaurants under agreements with
five-year terms that are cancelable by the Company after the first 12 months.
Total rental expense for operating leases amounted to $654,000 in 1999,
$491,000 in 1998 and $459,000 in 1997.
Future lease payments under the noncancelable operating leases as of December
29, 1999, are:
(In thousands)
- ---------------------------------------------------
Year End
2000 $ 620
2001 660
2002 663
2003 564
2004 503
Later years, through 2011 1,764
- ---------------------------------------------------
Future lease payments $ 4,774
===================================================
-- 19 --
22
RYAN'S FAMILY STEAK HOUSES
NOTE 7. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
-----------------------
(In thousands) 1999 1998
- -------------------------------------------------------------------------------------
Self-insurance accruals $ 9,010 9,111
Accrued compensation 8,009 6,619
Accrued taxes (other than income) 7,442 7,531
Outstanding gift certificates 2,132 1,931
Deferred product allowances 1,045 1,309
Accrued interest 708 1,369
Other accrued expenses 2,090 2,561
- -------------------------------------------------------------------------------------
Total other accrued liabilities $ 30,436 30,431
=====================================================================================
NOTE 8. SHAREHOLDERS' EQUITY
The components of shareholders' equity are as follows:
-------------------------------------------
$1 Par Value Additional Retained
(In thousands) Common Stock Paid-In Capital Earnings
- ------------------------------------------------------------------------------------------------------
Balances at January 1, 1997 $ 49,031 121 244,824
- ------------------------------------------------------------------------------------------------------
Net earnings -- -- 39,210
Net issuance of common stock under Stock Option Plans 282 1,429 --
Tax benefit from exercise of nonqualified stock options -- 315 --
Purchases of common stock (2,335) (1,408) (14,408)
- ------------------------------------------------------------------------------------------------------
Balances at December 31, 1997 46,978 457 269,626
- ------------------------------------------------------------------------------------------------------
Net earnings -- -- 40,320
Net issuance of common stock under Stock Option Plans 462 2,418 --
Tax benefit from exercise of nonqualified stock options -- 660 --
Purchases of common stock (8,282) (2,261) (70,006)
- ------------------------------------------------------------------------------------------------------
Balances at December 30, 1998 39,158 1,274 239,940
- ------------------------------------------------------------------------------------------------------
Net earnings -- -- 41,617
Issuance of common stock under Stock Option Plans 308 1,842 --
Tax benefit from exercise of nonqualified stock options -- 569 --
Purchases of common stock (3,611) (2,982) (34,722)
- ------------------------------------------------------------------------------------------------------
Balances at December 29, 1999 $ 35,855 703 246,835
======================================================================================================
On January 26, 1995, the Board of Directors adopted a Shareholder Rights
Agreement (the "Agreement") and declared a dividend of one Common Stock
Purchase Right (a "Right") for each outstanding share of common stock to
shareholders of record on February 10, 1995. Such Rights only become
exercisable ten business days after (i) a public announcement that a person or
group, except for certain exempt persons specified in the Agreement, (an
"Acquiring Person") has acquired beneficial ownership of 15% or more of the
Company's common stock; or (ii) a person or group commences or publicly
announces its intention to commence a tender or exchange offer for an amount of
the Company's common stock that would result in the ownership by such person or
group of 15% or more of the common stock.
Each Right may initially be exercised to acquire a one-half share of the
Company's common stock at an exercise price of $25, subject to adjustment.
Thereafter, upon the occurrence of certain events specified in the Agreement
(for example, if the Company is the surviving corporation of a merger with an
Acquiring Person), the Rights entitle holders other than the Acquiring Person
to acquire upon exercise common stock having a market value of twice the
exercise price of the Rights. Alternatively, upon the occurrence of certain
other events specified in the Agreement (for example, if the Company is
acquired in a merger or other business combination transaction in which the
Company is not the surviving corporation), the Rights would entitle holders
other than the Acquiring Person to acquire upon exercise common stock of the
acquiring company having a market value of twice the exercise price of the
Rights.
The Rights may be redeemed by the Company at a redemption price of $.001 per
Right at any time prior to the tenth business day following public announcement
that a 15% position has been acquired and before the final expiration date of
the Rights. After the redemption period has expired, the Company's right of
redemption may be reinstalled under certain circumstances outlined in the
Agreement. The Rights will expire on February 10, 2005.
-- 20 --
23
RYAN'S FAMILY STEAK HOUSES
The Company's Board of Directors has authorized the repurchase of up to 30
million shares of the Company's common stock through December 2002. At December
29, 1999, approximately 18.8 million shares had been purchased at an aggregate
cost of $178.1 million since the beginning of the program in March 1996. Future
repurchase transactions will 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.
NOTE 9. TEAM MEMBER RETIREMENT PLANS
The Company maintains a defined contribution retirement plan, which covers all
team members who have at least one year of service and have attained 21 years
of age. Participating team members may contribute from 1% to 15% of their
compensation to the plan with the first 6% of compensation matched by the
Company at a 40% rate. The Company's match for participants with 20 or more
years of service increases to 100%. All plan assets are invested in a
nationally recognized family of mutual funds. Retirement plan expense,
including administrative costs, amounted to $1,103,000 in 1999, $1,280,000 in
1998 and $1,034,000 in 1997.
In 1999 the Company implemented a nonqualified deferred compensation plan that
provides benefits payable to officers and certain key executives or their
designated beneficiaries at specified future dates or upon the termination of
employment or death. Participants in the plan have the opportunity to (i) defer
up to 100% of their compensation in excess of the Social Security wage base and
(ii) receive a matching contribution comparable to the Company's defined
contribution retirement plan without the restrictions and limitations in the
Internal Revenue Code. Participant deferrals and the Company's match are
deposited each month in Company-owned insurance contracts that give each
participant the opportunity to select various investment options. The return on
these underlying investments determines the amount of earnings credit. The
Company has the right to amend or terminate the plan. The amount of expense
related to the deferred compensation plan amounted to $93,000 in 1999.
NOTE 10. STOCK OPTION PLAN
In 1998, the Company's shareholders approved a stock option plan ("Plan")
pursuant to which the Company's Board of Directors may grant options to
officers and team members. The Plan authorized grants of options to purchase up
to 3,000,000 shares of authorized but unissued common stock. Under the terms of
the Plan, which expires in 2007, a committee of non-employee directors has the
authority to determine the eligibility, tax treatment, term, vesting schedule
and exercise price. However, the Plan states that the exercise price of the
option cannot be less than the fair market value, based on the closing market
price, of the Company's common stock on the day of the grant. Historically, the
Company has always granted options at fair market value on the day of grant,
used various vesting schedules, and set expiration dates generally ten years
from the date of grant. At December 29, 1999, there were also outstanding
options granted under predecessor stock option plans.
At December 29, 1999, there were 1,608,000 additional shares available for
grant under the Plan and a predecessor plan. The per share weighted-average
fair values of stock options granted during 1999 and 1998, respectively, were
$3.80 and $3.38 on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions: 1999-expected dividend
yield of 0%, expected stock volatility of .28, risk-free interest rate of 6.2%
and an expected life of 5.1 years; 1998-expected dividend yield of 0%, expected
stock volatility of .31, risk-free interest rate of 4.9% and an expected life
of 5.1 years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net earnings and earnings per share would have been
reduced to the pro forma amounts indicated on the following table:
--------------------------------------------
(In thousands, except earnings per share) 1999 1998 1997
- --------------------------------------------------------------------------------------------
Net earnings
As reported $ 41,617 40,320 39,210
Pro forma 40,341 39,119 38,514
Earnings per share
Basic:
As reported $ 1.12 .95 .83
Pro forma 1.08 .93 .81
Diluted:
As reported 1.10 .94 .82
Pro forma 1.07 .91 .81
============================================================================================
Pro forma net earnings and earnings per share reflect only options granted
after December 28, 1994. Therefore, the full impact of calculating compensation
cost for stock options under SFAS No. 123 is not reflected in the pro forma
amounts presented above because compensation cost is reflected over the
options' vesting period and compensation cost for options granted prior to
December 29, 1994 is not considered.
-- 21 --
24
RYAN'S FAMILY STEAK HOUSES
A summary of the status of the Company's current and predecessor stock option
plans as of December 29, 1999, December 30, 1998 and December 31, 1997 and
changes during the years ended on those dates is presented below:
1999 1998 1997
-----------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
(Shares in thousands) Shares Exercise Price Shares Exercise Price Shares Exercise Price
- -------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 3,198 $ 8.37 2,351 $ 7.41 3,055 $ 7.26
Granted 783 10.24 1,503 9.34 43 7.83
Exercised (307) 6.96 (465) 6.99 (398) 6.23
Forfeited (236) 8.99 (191) 7.77 (349) 7.51
----- ----- -----
Outstanding at end of year 3,438 8.88 3,198 8.37 2,351 7.41
=========================================================================================================================
Exercisable at year-end 2,089 1,858 1,806
=========================================================================================================================
The following table summarizes information about stock options outstanding at
December 29, 1999:
(Shares in thousands) OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------------------------------------------------------
Weighted-Average
----------------------------------
Range of Number Outstanding Remaining Number Exercisable Weighted-Average
Exercise Prices at 12/29/99 Contractual Life Exercise Price at 12/29/99 Exercise Price
- ---------------------------------------------------------------------------------------------------------------------
$ 4 to $ 7 563 5.7 years $ 6.54 492 $ 6.48
$ 7 to $ 9 1,227 6.2 7.61 944 7.66
$ 10 to $11 980 8.2 10.17 312 10.28
$ 11 to $13 668 8.8 11.29 341 11.38
=====================================================================================================================
$ 4 to $13 3,438 7.2 $ 8.88 2,089 $ 8.38
=====================================================================================================================
NOTE 11. EARNINGS PER SHARE
Basic and diluted earnings per share ("EPS") are calculated as follows:
---------------------------------
(In thousands, except earnings per share) 1999 1998 1997
- -----------------------------------------------------------------------------------------------
Numerator--net earnings a $41,617 40,320 39,210
- -----------------------------------------------------------------------------------------------
Denominator
Weighted-average common shares b 37,253 42,227 47,335
Stock options 621 654 426
- -----------------------------------------------------------------------------------------------
Adjusted weighted-average common shares c 37,874 42,881 47,761
- -----------------------------------------------------------------------------------------------
Basic EPS a/b $ 1.12 .95 .83
Diluted EPS a/c 1.10 .94 .82
===============================================================================================
NOTE 12. QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
Quarterly consolidated financial results for 1999 and 1998 are summarized as
follows:
Quarter
-------------------------------------------------
(In thousands, except earnings per share) First Second Third Fourth Total Year
- ----------------------------------------------------------------------------------------------------------------
1999
Restaurant sales $159,579 174,248 170,478 160,376 664,681
Restaurant operating profit* 24,395 29,178 26,469 24,461 104,503
Net earnings 10,221 11,257 10,872 9,267 41,617
Earnings per share:
Basic $ .26 .30 .30 .26 1.12
Diluted .26 .29 .29 .26 1.10
================================================================================================================
-- 22 --
25
RYAN'S FAMILY STEAK HOUSES
Quarter
-------------------------------------------------
(In thousands, except earnings per share) First Second Third Fourth Total Year
- ----------------------------------------------------------------------------------------------------------------
1998
Restaurant sales $ 153,186 167,496 162,440 153,881 637,003
Restaurant operating profit* 21,591 27,311 24,325 23,153 96,380
Net earnings 9,182 11,967 10,113 9,058 40,320
Earnings per share:
Basic $ .20 .28 .25 .23 .95
Diluted .20 .27 .24 .23 .94
================================================================================================================
* Restaurant sales less operating expenses. Operating expenses are comprised
of costs and expenses associated directly with or allocated to products
sold at the Company's restaurants.
NOTE 13. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's significant financial instruments are cash and cash equivalents,
receivables, notes payable, accounts payable, accrued liabilities and long-term
debt. The fair value of the Company's long-term debt approximates its carrying
amount as of December 29, 1999 and December 30, 1998 due to the debt's variable
interest rate provisions. Interest rates change every 90 days or less. The fair
value of the remaining financial instruments approximates their carrying
amounts due to their short maturities.
NOTE 14. SUBSEQUENT EVENT
On January 28, 2000, the Company closed on two loan transactions that
refinanced all existing debt balances and added to the Company's credit
availability. The first transaction involved the private placement with several
insurance companies of $75 million of senior notes due in 2008 with principal
payments commencing in 2005, bearing interest at 9.02%. The second transaction
involved a $200 million revolving credit facility with several banks due in
2005, bearing interest at various floating interest rates plus a variable
spread currently set at 1.625%.
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 December 29, 1999, the
Company exceeded the most restrictive minimum net worth requirement in the
agreements by $65.8 million. Both loans are secured by the stock of the
Company's wholly-owned subsidiaries and affiliates.
In accordance with generally accepted accounting principles, all debt existing
at December 29, 1999 was reclassified to long-term liabilities.
-- INDEPENDENT AUDITOR'S REPORT --
The Board of Directors and Shareholders
Ryan's Family Steak Houses, Inc.:
We have audited the accompanying consolidated balance sheets of Ryan's Family
Steak Houses, Inc. and subsidiaries as of December 29, 1999 and December 30,
1998, and the related consolidated statements of earnings and cash flows for
each of the years in the three-year period ended December 29, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ryan's Family Steak
Houses, Inc. and subsidiaries at December 29, 1999 and December 30, 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 29, 1999, in conformity with generally
accepted accounting principles.
Greenville, South Carolina KPMG LLP
January 26, 2000 except for Note 14,
as to which the date is January 28, 2000
-- 23 --
26
RYAN'S FAMILY STEAK HOUSES
-- DIRECTORS --
CHARLES D. WAY JAMES D. COCKMAN BARRY L. EDWARDS BRIAN S. MACKENZIE
Chairman, President & Investor Executive Vice President, Chief Operating Officer
Chief Executive Officer Treasurer & Chief Financial Officer Samling Strategic Corporation
AMRESCO, Inc. SDN BHD
G. EDWIN MCCRANIE HAROLD K. ROBERTS, JR. JAMES M. SHOEMAKER, JR.
Executive Vice President President & Member
Chief Executive Officer Wyche, Burgess, Freeman &
Statewide Title, Inc. Parham, P.A.
-- OFFICERS --
[PHOTO] [PHOTO] [PHOTO] [PHOTO] [PHOTO]
CHARLES D. WAY G. EDWIN MCCRANIE JANET J. GLEITZ MORGAN A. GRAHAM FRED T. GRANT, JR.
Chairman, President and Executive Vice President Corporate Secretary Vice President- Vice President-Finance and
Chief Executive Officer Construction Chief Financial Officer
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
JAMES R. HART JOHN C. JAMISON ALAN E. SHAW ILENE T. TURBOW
Vice President- Vice President-Real Estate Vice President-Operations Vice President-Marketing
Human Resources
[PHOTO] [PHOTO] [PHOTO] [PHOTO] [PHOTO]
WILLIAM R. DALTON RICHARD B. ERWIN PHILIP J. FRANKLIN MICHAEL RICK KIRK WILLIAM J. O'BRIEN
Regional Vice President Regional Vice President Regional Vice President Regional Vice President Regional Vice President
-- 24 --
27
-- OUR MISSION STATEMENT --
To be an innovative, profitable, growth company, committed to customer
satisfaction by always providing high quality food at affordable prices with
friendly service in clean and pleasant surroundings.
WE STRIVE -- To put people first -- customers and team members.
-- To attract and maintain a strong team of individuals recognized
as standouts in each area of focus. -- To promote safety,
responsibility and a high level of ethics in our workplace.
-- To be environmentally aware and work to preserve our natural resources.
-- To utilize materials and services that provide the best
cost/value ratio without sacrificing quality.
- To enhance long-term shareholder wealth.
-- CORPORATE INFORMATION --
EXECUTIVE OFFICES
Ryan's Family Steak Houses, Inc.
405 Lancaster Avenue (29650)
Post Office Box 100
Greer, South Carolina 29652
(864) 879-1000
GENERAL COUNSEL
Wyche, Burgess, Freeman & Parham, P.A.
Greenville, South Carolina
TRANSFER AGENT
EQUISERVE
P.O. Box 8218
Boston, Massachusetts 02266-8218
(800) 633-4236
INDEPENDENT AUDITORS
KPMG LLP
Greenville, South Carolina
FORM 10-K
A copy of the Company's annual report on Form 10-K for fiscal 1999, as filed
with the Securities and Exchange Commission, may be obtained without charge by
writing to the Corporate Secretary at the executive offices of the Company.
ANNUAL MEETING
The annual meeting will be held at the Greenville/Spartanburg Airport Marriott,
Greenville, South Carolina, on Thursday, April 27, 2000 at 11:00 a.m. All
shareholders are cordially invited to attend.
COMMON STOCK DATA
The Company's common stock trades on The Nasdaq Stock Market (R) under the
symbol RYAN. The Company has never paid cash dividends on its common stock and
does not expect to pay such dividends in the foreseeable future.
QUARTERLY FINANCIAL INFORMATION AND OTHER NEWS RELEASES
In order to provide Ryan's shareholders and prospective investors with timely
and accurate information, quarterly financial information and other news
releases can be obtained on the internet at www.ryansinc.com.
MARKET PRICE OF COMMON STOCK
1999
----------------------------------
QUARTER HIGH LOW
----------------------------------
First $ 13.81 11.38
Second 12.56 10.25
Third 11.81 9.25
Fourth 10.47 8.19
1998
----------------------------------
QUARTER HIGH LOW
----------------------------------
First $ 9.25 7.31
Second 10.50 9.25
Third 13.38 9.63
Fourth 13.00 9.38
The closing price quotation
of the Company's common stock on
March 1, 2000 was $9.50 per share.
28
[LOGO]
405 Lancaster Avenue (29650) Post Office Box 100
Greer, South Carolina 29652
(864) 879-1000