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FAMILY STEAK HOUSES
OF FLORIDA, INC.
[RYAN'S FAMILY STEAK HOUSE LOGO]
2000 ANNUAL REPORT
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FAMILY STEAK HOUSES OF FLORIDA, INC.
CORPORATE PROFILE
ABOUT THE COMPANY
Family Steak Houses of Florida, Inc. is the sole franchisee of Ryan's Family
Steak House restaurants in the state of Florida. The Company's first restaurant
was opened in Jacksonville, Florida in May 1982. The Company presently operates
23 Ryan's restaurants in Florida.
A Ryan's Family Steak House restaurant is a family-oriented restaurant serving
high-quality, reasonably priced food in a casual atmosphere with server-assisted
service. The restaurants feature self-service scatter bars, bakery and dessert
bar, and table service of meals and drink refills. Each restaurant serves cuts
of charbroiled steaks and hamburgers, seafood and various chicken entrees. In
addition to traditional salad bar items, the scatter bars include a variety of
hot meats and vegetables, as well as a variety of pre-made salads and cheeses.
The bakery bar consists of fresh baked products such as hot yeast rolls, a
variety of muffins, sweet rolls, brownies and cookies. Other selections include
cobblers, fresh fruit, candy, cheesecake, pudding, ice cream, lowfat yogurt and
a wide variety of dessert toppings. The bakery and dessert bar is included in
the customer's meal price, and items can also be purchased for take-home.
RYAN'S LOCATIONS:
Jacksonville (1) Lakeland (2) Gainesville (1)
Orange Park (1) Apopka (1) New Port Richey (1)
Ocala (1) Winter Haven (1) Tampa (3)
Tallahassee (1) Daytona Beach (1) Orlando (1)
Melbourne (1) Clearwater (1) Lake City (1)
Brooksville (1) Leesburg (1) Deland (1)
Neptune Beach (1) St. Cloud (1)
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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DEAR SHAREHOLDERS:
The year 2000 was a year of great improvement for the Company. We achieved an
improvement in operating results of almost $2 million, and believe the Company
has strong momentum for continued improvement in 2001 and beyond. We want to let
you know some things we have done in 2000 to improve your Company, and some
things you can look forward to in 2001.
Same store sales were up 3.5% in 2000, the best performance by the Company since
1986. Total sales were up 2.7% despite the fact that we operated one less
restaurant than in 1999 for most of the year. Perhaps the most exciting new
development highlighting our sales building efforts was the outstanding success
of our new restaurant in St. Cloud, Florida, which opened in December 2000. This
restaurant broke the Company's all-time one-week sales record during two of its
first three weeks of operation.
The new restaurant in St. Cloud includes a display cooking area which we believe
is a significant enhancement to the Company's concept. This addition includes a
glass-enclosed grill area visible from the dining room where chicken, pork chops
and other items are cooked in full view of our customers and served to them "hot
off the grill". In addition, the display cooking area includes a fresh pizza
oven, a rotisserie chicken machine and a wok for preparation of various Chinese
food items. All of these items are included with the regular price of our famous
buffet. Based on the record results from St. Cloud, the display cooking feature
is very popular with our customers.
We plan to open three new restaurants with this format in 2001. One is currently
under construction in Titusville, Florida and is expected to open in the second
quarter of 2001. In addition, we plan to add the display cooking area to some of
our existing restaurants in 2001. Based on early results of similar additions to
restaurants owned by our franchisor, Ryan's, Inc. of South Carolina, we expect
significant increases in sales from these additions. The combination of the new
restaurants and these conversions should have a significant positive impact on
our sales and profitability in 2001.
While we have emphasized increasing our sales this past year, we have also made
progress controlling our costs and improving our operating margins. Our
operating expenses in 2000 decreased to 87.3% of sales from 89.0% in 1999, a
significant improvement. We reduced our food cost, despite some of the highest
beef prices the Company has ever faced, and also decreased total payroll and
other operating expenses as a percentage of sales. Our goals for 2001 include
further improvement in these overall margins.
We continue to believe that Ryan's is a strong concept which will grow and
thrive in Florida, with its rapidly expanding population. For the sixth
consecutive year, consumers in a nationwide survey by Restaurant & Institutions
Magazine, rated Ryan's as the #1 choice for BEST FAMILY STEAKHOUSE CHAIN IN
AMERICA. We are committed to doing everything we can to make Ryan's #1 in
Florida.
We appreciate the hard work of all of our team members over the past year to
achieve these improvements. We believe we have the momentum to build your
Company and increase shareholder value. Thank you for your continued support.
Sincerely,
Office of the President
Edward B. Alexander
Kevin R. Pickett
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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FIVE YEAR FINANCIAL SUMMARY
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2000(1) 1999 1998 1997 1996
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SELECTED INCOME STATEMENT DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Sales $39,960 $38,905 $38,412 $36,978 $37,978
Vending income 232 198 194 202 197
------- ------- ------- ------- -------
40,192 39,103 38,606 37,180 38,175
Cost and expenses:
Food and beverage 15,469 15,161 15,015 14,642 15,090
Payroll and benefits 11,411 11,416 10,878 10,516 10,538
Depreciation and amortization 2,061 1,966 1,879 1,671 1,663
Other operating expenses 5,935 6,064 6,183 6,150 5,953
General and administrative expenses 2,622 2,703 2,472 2,681 2,220
Change in control payments -- 908 -- -- --
Franchise fees 1,198 1,165 1,151 1,108 1,139
Asset valuation charge 190 -- 209 550 --
Loss on store closings and disposition of
equipment 149 140 193 146 57
------- ------- ------- ------- -------
39,035 39,523 37,980 37,464 36,660
------- ------- ------- ------- -------
Earnings (loss) from operations 1,157 (420) 626 (284) 1,515
Investment income 487 28 -- -- --
Interest and other income 157 149 216 236 268
Gain (loss) on sale of property 62 (18) -- -- --
Interest expense (1,910) (1,721) (1,619) (1,577) (1,516)
------- ------- ------- ------- -------
(Loss) earnings before income taxes and
extraordinary item (47) (1,982) (777) (1,625) 267
Benefit (provision) for income taxes -- -- 68 201 (53)
------- ------- ------- ------- -------
Net (loss) earnings before extraordinary
item (47) (1,982) (709) (1,424) 214
Extraordinary item -- gain on early
extinguishment of debt, net of income taxes
of $89 -- -- -- -- 348
------- ------- ------- ------- -------
Net (loss) earnings $ (47) $(1,982) $ (709) $(1,424) $ 562
======= ======= ======= ======= =======
Basic (loss) earnings per share: (2)
(Loss) earnings before extraordinary item $ (0.02) $ (0.82) $ (0.30) $ (0.65) $ 0.10
Extraordinary item -- gain on early
extinguishment of debt -- -- -- -- 0.16
------- ------- ------- ------- -------
Net (loss) earnings per share $ (0.02) $ (0.82) $ (0.30) $ (0.65) $ 0.26
======= ======= ======= ======= =======
Diluted (loss) earnings per share: (2)
(Loss) earnings before extraordinary item $ (0.02) $ (0.82) $ (0.30) $ (0.65) $ 0.09
Extraordinary item -- gain on early
extinguishment of debt -- -- -- -- 0.15
------- ------- ------- ------- -------
Net (loss) earnings per share $ (0.02) $ (0.82) $ (0.30) $ (0.65) $ 0.24
======= ======= ======= ======= =======
SELECTED BALANCE SHEET DATA:
Land and net property and equipment $26,356 $25,261 $26,138 $26,300 $26,350
Total assets 31,627 30,759 32,092 30,333 32,803
Long-term debt 17,869 17,336 16,574 14,403 15,107
Current portion of long-term debt 566 381 371 279 333
Shareholders' equity 7,770 8,335 10,275 10,644 11,998
SELECTED OPERATING DATA:
Current ratio 0.4 0.4 0.8 0.6 0.9
Working capital (deficit) $(2,781) $(2,491) $ (744) $(1,795) $ (617)
Cash provided by operating activities 1,937 130 1,525 626 1,645
Property and equipment additions 3,648 3,855 2,786 2,304 1,768
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(1) Fifty-three week period.
(2) Per share amounts have been retroactively adjusted to reflect a 1-for-5
reverse stock split effected in March 1998.
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Shown for the years indicated are (i) items in the statements of operations as a
percent of total sales, (ii) operating expense items in the statements of
operations as a percent of sales and (iii) the number of restaurants open at the
end of each year.
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PERCENTAGE
CHANGE VERSUS
PRIOR YEAR
--------------------
2000 1999
VS VS
2000 1999 1998 1999 1998
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Sales $39,959,600 $38,904,800 $38,412,400 2.7% 1.3%
=========== =========== =========== ==== ====
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NET CHANGE
IN PERCENTAGE
----------------
PERCENT OF SALES 2000 1999
--------------------------------- VS VS
2000 1999 1998 1999 1998
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Vending revenue 0.6% 0.5% 0.5% 0.1% --%
---- ----- ---- ---- ----
Costs and expenses:
Operating expenses 87.3% 89.0% 88.4% (1.7) 0.6
General and administrative expenses 6.5 6.9 6.4 (0.4) 0.5
Change in control payments -- 2.3 -- (2.3) 2.3
Franchise fees 3.0 3.0 3.0 -- --
Asset valuation charge 0.5 -- 0.6 0.5 (0.6)
Loss on store closings and disposition of
equipment 0.4 0.4 0.5 -- (0.1)
---- ----- ---- ---- ----
97.7 101.6 98.9 (3.9) 2.7
---- ----- ---- ---- ----
Earnings (loss) from operations 2.9 (1.1) 1.6 4.0 (2.7)
Investment income 1.2 0.1 -- 1.1 0.1
Interest and other income 0.4 0.4 0.6 -- (0.2)
Gain (loss) on sale of property 0.2 (0.1) -- 0.3 (0.1)
Interest expense (4.8) (4.4) (4.2) (0.4) (0.2)
---- ----- ---- ---- ----
Loss before income taxes (0.1) (5.1) (2.0) 5.0 (3.1)
Income tax benefit -- -- 0.2 -- (0.2)
---- ----- ---- ---- ----
Net loss (0.1)% (5.1)% (1.8)% 5.0% (3.3)%
==== ===== ==== ==== ====
Operating expenses:
Food and beverage 38.7% 39.0% 39.1% (0.3)% (0.1)%
Payroll and benefits 28.6 29.3 28.3 (0.7) 1.0
Depreciation and amortization 5.2 5.1 4.9 0.1 0.2
Other operating expenses 14.8 15.6 16.1 (0.8) (0.5)
---- ----- ---- ---- ----
87.3% 89.0% 88.4% (1.7)% 0.6%
==== ===== ==== ==== ====
Restaurants open at end of year 23 23 26
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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RESULTS OF OPERATIONS
2000 COMPARED TO 1999
For the year ended January 3, 2001, total sales increased 2.7% compared to 1999,
due to an increase in same-store sales and an additional week of operations in
2000. The sales increase in 2000 compared to 1999 consisted of the following
components:
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% CHANGE
FROM 1999
2000 1999 CHANGE TOTAL SALES
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Same-Store Sales $35,285,600 $34,105,300 $ 1,180,300 3.0%
New Restaurants (1) 3,783,600 2,442,100 1,341,500 3.5%
Closed Restaurants (2) 96,700 2,357,400 (2,260,700) (5.8)%
Extra Week Sales (3) 793,700 -- 793,700 2.0%
----------- ----------- ----------- ----
Total Sales $39,959,600 $38,904,800 $ 1,054,800 2.7%
=========== =========== =========== ====
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(1) Sales at restaurants open for 18 months or less.
(2) Sales from restaurants closed or sold in 1999 or 2000, not included in
same-store sales.
(3) The year 2000 was a 53-week fiscal year, while 1999 was a 52-week fiscal
year.
Same-store sales (average unit sales in restaurants that have been open for at
least 18 months and operating during comparable weeks during the current and
prior year) for 2000 increased 3.5% from the same period in 1999, compared to an
increase of .2% from 1999 as compared to 1998.
The increase in same-store sales was primarily due to menu price increases
implemented at all restaurants in 1999 and 2000. Management is seeking to
continue to improve sales trends by focusing on improved restaurant operations,
devising competitive strategies to offset the effects of new competition and
making improvements to certain restaurants. In 2000, the Company added
exhibition cooking areas to two of its restaurants, and experienced improved
sales trends at these locations. Management intends to make similar additions to
several restaurants in 2001. The Company also is testing a program to emphasize
take-out sales. This program will include a separate take-out section which has
been added to one restaurant and will be added to three additional Company
restaurants during 2001.
The operating expenses of the Company's restaurants include food and beverage,
payroll and benefits, depreciation and amortization, and other operating
expenses, which include repairs, maintenance, utilities, supplies, advertising,
insurance, property taxes, rents and licenses. The Company's food, beverage,
payroll and benefits costs are believed to be higher than the industry average
as a percentage of sales as a result of the Company's philosophy of providing
customers with high value of food and service for every dollar a customer
spends. In total, food and beverage, payroll and benefits, depreciation and
amortization and other operating expenses as a percentage of sales decreased to
87.3% in 2000 from 89.0% in 1999.
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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Food and beverage costs as a percentage of sales decreased to 38.7% in 2000 from
39.0% in 1999, primarily due to sales price increases implemented in 1999 and
2000, offset by higher beef costs. Payroll and benefits as a percentage of sales
decreased to 28.6% in 2000 from 29.3% in 1999, primarily due to efficiencies
gained from higher same-store sales and to lower workers' compensation insurance
costs in 2000. Other operating expenses as a percentage of sales decreased to
14.8% in 2000 from 15.6% in 1999, primarily due to lower store opening costs and
lower property insurance costs.
Depreciation and amortization increased as a percentage of sales to 5.2% in 2000
from 5.1% in 1999, as a result of additions to property and equipment during
2000. General and administrative expenses as a percentage of sales decreased to
6.5% in 2000 from 6.9% in 1999, primarily due to costs incurred in 1999
associated with the proxy contest from the Company's 1999 Annual Meeting of
Shareholders.
In 1999 the Company incurred an expense of $907,500 for a one-time payment to
four employees pursuant to the terms of their employment agreements upon the
change in the control of the Company's Board of Directors. No such costs were
incurred in 2000.
The Company recognized an asset valuation charge of $189,700 in 2000 in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". The charge was based upon a financial review of all Company-owned
restaurants and applied to one restaurant, for which the Company's lease
agreement was unexpectedly terminated effective March 2001. No such charges were
considered necessary in 1999.
Investment income increased to $487,100 in 2000 from $27,500 in 1999, due to net
realized gains from transactions in marketable securities.
Interest expense increased to $1,910,300 in 2000 from $1,720,700 during 1999,
due primarily to higher interest rates and additional borrowing under the
Company's credit facility in 2000. The Company capitalized interest costs of
approximately $56,800 in 2000 and $52,800 in 1999, respectively.
The effective income tax rate for the years ended January 3, 2001 and December
29, 1999 was 0.0%. An increase in the valuation allowance in deferred tax assets
for 2000 and 1999 resulted in the lower than statutory effective rates for those
periods.
Net loss for 2000 was $46,700, compared to $1,982,200 in 1999. Loss per share
assuming dilution was $.02 for 2000, compared to $.82 in 1999.
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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RESULTS OF OPERATIONS
1999 COMPARED TO 1998
For the year ended December 29, 1999, total sales increased 1.3% compared to
1998, due to an increase in same-store sales and two additional restaurants
opened in 1999. The sales increase in 1999 compared to 1998 consisted of the
following components:
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% CHANGE
FROM 1998
1999 1998 CHANGE TOTAL SALES
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Same-Store Sales $34,539,500 $34,485,000 $ 54,500 0.2%
New Restaurants (1) 4,365,300 2,282,400 2,082,900 5.4%
Closed Restaurants (2) -- 1,645,000 (1,645,000) (4.3)%
----------- ----------- ----------- ----
Total Sales $38,904,800 $38,412,400 $ 492,400 1.3%
=========== =========== =========== ====
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(1) Sales at restaurants open for 18 months or less.
(2) Sales from restaurants closed or sold in 1999, for the comparable period
(after the date of closure) from 1998.
Same-store sales for 1999 increased .2% from the same period in 1998, compared
to an increase of 1.1% from 1998 as compared to 1997. Total sales (including
restaurants open less than 18 months) increased 1.3%.
The increase in same-store sales was primarily due to menu price increases
implemented at all restaurants in 1999. These increases were somewhat offset by
decreases in sales at other Company restaurants caused by the effects of
increasing competition, including several new or remodeled restaurants opened by
competitors in areas close to Company restaurants. In 1999, management
implemented a plan to sell restaurants which were not meeting sales and profit
expectations. To this end, the Company closed three restaurants during the first
four months of 1999 and sold one restaurant in July 1999 and one in November
1999. In February 2000, the Company sold one additional restaurant. In 1999, the
proceeds of the sales of restaurants were used to pay down long-term debt.
Food and beverage costs as a percentage of sales decreased to 39.0% in 1999 from
39.1% in 1998, primarily due to sales price increases implemented in 1999.
Payroll and benefits as a percentage of sales increased to 29.3% in 1999 from
28.3% in 1998, primarily due to higher group health insurance costs in 1999 and
lower workers' compensation insurance costs in 1998. Other operating expenses as
a percentage of sales decreased to 15.6% in 1999 from 16.1% in 1998, primarily
due to lower property insurance costs and to reduced costs for utilities.
Depreciation and amortization increased as a percentage of sales to 5.1% in 1999
from 4.9% in 1998, as a result of additions to property and equipment during
1999. General and administrative expenses as a percentage of sales increased to
6.9% in 1999 from 6.4% in 1998, primarily due to costs associated with the proxy
contest from the Company's 1999 Annual Meeting of Shareholders, and to increased
manager training costs resulting from higher manager turnover in 1999.
In 1999 the Company incurred an expense of $907,500 for a one-time payment to
four employees pursuant to the terms of their employment agreements upon the
change in the control of the Company's Board of Directors.
The Company recognized an asset valuation charge of $209,000 in 1998 in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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to be Disposed Of". The charge was based upon a financial review of all
Company-owned restaurants and applied to one underperforming restaurant held for
sale. No such charges were considered necessary in 1999.
Interest expense increased to $1,720,700 in 1999 from $1,618,900 during 1998 due
to additional borrowing under the Company's credit facility in 1999. The Company
capitalized interest costs of approximately $52,800 in 1999 and $52,600 in 1998,
respectively.
The effective income tax rates for the years ended December 29, 1999 and
December 30, 1998 were 0.0% and (8.7%), respectively. An increase in the
valuation allowance in deferred tax assets for 1999 and 1998 resulted in the
lower than statutory effective rates for those periods.
Net loss for 1999 was $1,982,200, compared to $709,300 in 1998. Loss per share
assuming dilution was $.82 for 1999, compared to $.30 in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Substantially all of the Company's revenues are derived from cash sales.
Inventories are purchased on credit and are converted rapidly to cash.
Therefore, the Company does not carry significant receivables or inventories
and, other than the repayment of debt, working capital requirements for
continuing operations are not significant.
At January 3, 2001, the Company had a working capital deficit of $2,780,600
compared to a working capital deficit of $2,491,100 at December 29, 1999. The
increase in the working capital deficit in 2000 was primarily due to accounts
payable at the end of 2000 associated with the purchase of fixed assets for
construction of a new restaurant.
Cash provided by operating activities increased to $1,936,800 in 2000 from
$129,800 in 1999, primarily due to the decrease in the net loss compared to
1999. Cash provided by operating activities decreased to $129,800 in 1999 from
$1,525,100 in 1998 due to the increase in the net loss compared to 1998.
The Company spent approximately $3,648,000 in 2000, $3,855,000 in 1999 and
$3,226,000 in 1998 for land, new restaurant construction, restaurant remodeling
and equipment. Capital expenditures for 2001, based on present costs and plans
for capital improvements, are estimated to be $8.7 million. This amount is based
on budgeted expenditures for land, buildings and equipment for three new
restaurants in 2001, remodels of several restaurants, and normal recurring
equipment purchases and minor building improvements ("Capital Maintenance
Items"). The Company projects that proceeds from the Company's financing
agreements (described below) and cash generated from operations may only be
sufficient to cover two new restaurants and the estimated Capital Maintenance
Items. The Company's ability to open the third restaurant and complete the
remodels will be contingent upon its ability to obtain additional capital. The
Company's ability to open new restaurants is also dependent upon its ability to
locate suitable locations at acceptable prices, and upon certain other factors
beyond its control, such as obtaining building permits from various government
agencies.
In December 1996, the Company entered into two loan agreements with FFCA
Mortgage Corporation ("FFCA"). Pursuant to the first Loan Agreement (the "1996
Loan Agreement"), the Company borrowed $15.36 million, which loans are evidenced
by fourteen Promissory Notes payable to FFCA. Each Note is secured by a mortgage
on a Company restaurant property. The Promissory Notes provide for a term of
twenty years and an interest rate equal to the thirty-day LIBOR rate plus 3.75%,
adjusted monthly. The 1996 Loan Agreement provides for various covenants,
including the maintenance of prescribed debt service coverages. As of January 3,
2001, the outstanding balance due under the 1996 Loan Agreement was $11,532,800.
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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The Company used the proceeds of the 1996 Loan Agreement to retire its Notes
with Cerberus Partners, L.P. ("Cerberus") and its loans with the Daiwa Bank
Limited and SouthTrust Bank of Alabama, N.A. In addition, the Company retired
Warrants for 210,000 shares of the Company's common stock previously held by
Cerberus. Cerberus continues to hold Warrants to purchase 140,000 shares of the
Company's common stock at an exercise price of $2.00 per share.
Pursuant to its second loan agreement with FFCA (the "1998 Loan Agreement"), the
Company borrowed an additional $2,590,000 in 1998. The proceeds of the 1998 loan
were used to fund the construction of a new restaurant in Leesburg, Florida, and
the land and a portion of the cost of construction of a new restaurant in
Deland, Florida. This additional financing is evidenced by three additional
Promissory Notes secured by mortgages on three Company restaurant properties.
The terms and conditions of the 1998 Loan Agreement are substantially identical
to those of the 1996 Loan Agreement. As of January 3, 2001, the outstanding
balance under the 1998 Loan Agreement was $2,464,600.
In October 1998, the Company received two commitments for new financing from
FFCA. The Company borrowed a total of $2.6 million in 1999 under the first
commitment (the "1999 Loan"). The proceeds of the 1999 Loan were used to fund
construction of new restaurants in Deland and Tampa, Florida. The 1999 Loan is
secured by mortgages on two Company restaurant properties. As of January 3,
2001, the outstanding balance under the 1999 Loan was $2,526,400. The second
commitment (the "2000 Loan") was for construction financing for two new
restaurants to be built in 2000 and 2001. Terms of the 2000 Loan include funding
of a maximum of $1,600,000 per restaurant. Other terms and conditions of the
1999 and 2000 Loans are substantially identical to those of the 1996 Loan
Agreement. The Company borrowed $1,911,500 under the 2000 Loan to fund the
purchase of land and for construction for new restaurants in St. Cloud and
Titusville, Florida. The St. Cloud restaurant opened in December 2000, and the
Titusville restaurant is expected to open in May 2001.
The Company plans to open three new restaurants in 2001. In July 2000, the
Company received a new commitment from FFCA to fund $1,600,000 each for two
additional restaurants to be constructed in 2001.
The preceding discussion of liquidity and capital resources contains certain
forward-looking statements. Forward-looking statements involve a number of risks
and uncertainties, and in addition to the factors discussed herein, among the
other factors that could cause actual results to differ materially are the
following: failure of facts to conform to necessary management estimates and
assumptions; the willingness of FFCA or other lenders to extend financing
commitments; repairs or similar expenditures required for existing restaurants
due to weather or acts of God; the Company's ability to identify and secure
suitable locations on acceptable terms and open new restaurants in a timely
manner; the Company's success in selling real property listed for sale; the
economic conditions in the new markets into which the Company expands; changes
in customer dining patterns; changes in food cost, competitive pressures from
other national and regional restaurant chains and other food vendors; changes in
business conditions, such as inflation or a recession; changes in growth in the
restaurant industry and the general economy; and other risks identified from
time to time in the Company's SEC reports, registration statements and public
announcements.
RECENT DEVELOPMENTS
Potential Delisting of Company's Stock from NASDAQ
On January 17, 2001, the Company received notice from NASDAQ that the Company's
closing bid price had declined below $1.00 per share. Accordingly, NASDAQ
informed the Company that in order to continue the listing of the Company's
securities on the Nasdaq SmallCap Market, the Company would have to meet the
following
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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conditions -- on or before April 17, 2001, the closing bid price of the
Company's common stock must be a minimum of $1.00 per share for 10 consecutive
trading days. In order to fully comply with the terms of this exception, the
Company must be able to demonstrate compliance with all requirements for
continued listing. In the event the Company fails to meet any of the terms of
this exception, the Company's securities will be delisted from the Nasdaq
SmallCap Market. As of March 12, 2001, the bid price had reached $1.00 per share
for five consecutive trading days.
If the Company's stock is delisted from NASDAQ, trading in the Common Stock
would thereafter be conducted on the over-the-counter markets in the so-called
"pink sheets" or the National Association of Securities Dealers, Inc.'s
"Electronic Bulletin Board". Consequently, the liquidity of the Company's
securities could be impaired, not only in the number of shares that could be
bought and sold, but also as a result of delays in the timing of the
transactions, a reduction in the number and quality of security analysts' and
the news media's coverage of the Company, lower prices for the Company's
securities than might otherwise be attained and a larger spread between the bid
and asked prices for the Company's securities.
In addition, if the Company's securities were to be delisted from the NASDAQ
SmallCap Market, the Company's securities could become subject to Rule 15g-9
under the Exchange Act relating to penny stocks, which imposes additional sales
practice requirements on broker-dealers which sell such securities to persons
other than established customers and "accredited investors" (generally,
individuals with net worth in excess of $1,000,000 or annual incomes exceeding
$200,000,or $300,000 together with their spouses). Commission regulations define
a "penny stock" to be any equity security that is not listed on The NASDAQ Stock
Market or a national securities exchange and that has a market price (as therein
defined) of less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to certain exceptions. If the Company's securities were
subject to the rules on penny stocks, the market liquidity for the Company's
securities could be adversely affected.
IMPACT OF INFLATION
Costs of food, beverage, and labor are the expenses most affected by inflation
in the Company's business. Although inflation in recent years has been low and
accordingly has not had a significant impact on the Company, there can be no
assurance that inflation will not increase and impact the Company in the future.
A significant portion of the Company's employees are paid by the federally
established statutory minimum wage. Although no minimum wage increases have been
signed into law, various proposals are presently being considered in the United
States Congress. News reports suggest that the Federal minimum wage may increase
by $1.00 per hour to $6.15 with a two to three year phase-in period, beginning
sometime in 2001. The Company is typically able to increase its menu prices to
cover most of the payroll rate increases; however, there can be no assurance
that menu price increases will be able to offset labor cost increases in the
future. Such changes in the federal minimum wage would impact the Company's
payroll and benefits costs. Annual sales price increases have consistently
ranged from 1.0% to 3.0%.
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FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED
-----------------------------------------------
JANUARY 3, DECEMBER 29, DECEMBER 30,
2001 1999 1998
- ------------------------------------------------------------------------------------------------------------
Revenues:
Sales $39,959,600 $38,904,800 $38,412,400
Vending revenue 232,200 198,400 193,800
----------- ----------- -----------
Total revenues 40,191,800 39,103,200 38,606,200
----------- ----------- -----------
Costs and expenses:
Food and beverage 15,468,900 15,161,100 15,015,500
Payroll and benefits 11,411,100 11,416,100 10,878,300
Depreciation and amortization 2,061,600 1,966,200 1,879,000
Other operating expenses 5,935,100 6,064,100 6,183,100
General and administrative expenses 2,622,100 2,702,600 2,471,800
Change in control payments -- 907,500 --
Franchise fees 1,197,600 1,165,300 1,150,900
Asset valuation charge 189,700 -- 209,000
Loss on store closings and disposition of equipment 148,800 140,200 192,700
----------- ----------- -----------
Total costs and expenses 39,034,900 39,523,100 37,980,300
----------- ----------- -----------
Earnings (loss) from operations 1,156,900 (419,900) 625,900
Investment income 487,100 27,500 --
Interest and other income 157,300 149,300 216,100
Gain (loss) on sale of property 62,300 (18,400) --
Interest expense (1,910,300) (1,720,700) (1,618,900)
----------- ----------- -----------
Loss before income taxes (46,700) (1,982,200) (776,900)
Income tax benefit -- -- 67,600
----------- ----------- -----------
Net loss $ (46,700) $(1,982,200) $ (709,300)
=========== =========== ===========
Basic loss per share $ (0.02) $ (0.82) $ (0.30)
=========== =========== ===========
Diluted loss per share $ (0.02) $ (0.82) $ (0.30)
=========== =========== ===========
See accompanying notes to consolidated financial statements.
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FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------
JANUARY 3, 2001 DECEMBER 29, 1999
- ----------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 631,500 $ 747,300
Investments 815,200 92,300
Receivables 93,000 125,000
Current portion of mortgages receivable 172,000 77,800
Inventories 256,400 285,400
Prepaid and other current assets 193,600 204,800
------------ ------------
Total current assets 2,161,700 1,532,600
Mortgages receivable 355,400 159,800
Certificate of deposit 10,800 10,800
Investments held to maturity -- 500,000
Property and equipment:
Land 8,669,400 7,537,300
Buildings and improvements 22,128,300 21,156,000
Equipment 12,046,200 11,908,100
------------ ------------
42,843,900 40,601,400
Accumulated depreciation (16,487,500) (15,340,500)
------------ ------------
Net property and equipment 26,356,400 25,260,900
Property held for sale 1,903,600 2,488,700
Other assets, principally deferred charges,
net of accumulated amortization 839,100 806,400
------------ ------------
$ 31,627,000 $ 30,759,200
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,370,900 $ 1,275,300
Accounts payable -- construction 375,100 --
Accrued liabilities 2,461,600 2,363,600
Investment margin debt 165,100 --
Current portion of long-term debt 565,900 381,400
Current portion of obligation under capital lease 3,700 3,400
------------ ------------
Total current liabilities 4,942,300 4,023,700
Long-term debt 17,869,400 17,335,600
Obligation under capital lease 1,045,600 1,049,300
Deferred revenue -- 15,200
------------ ------------
Total liabilities 23,857,300 22,423,800
Shareholders' equity:
Preferred stock of $.01 par; authorized 10,000,000 shares;
none issued -- --
Common stock of $.01 par; authorized 4,000,000 shares;
outstanding 2,416,200 and 2,409,000 shares 24,200 24,100
Additional paid-in capital 8,631,400 8,624,700
Retained earnings (accumulated deficit) (372,000) (325,300)
Accumulated other comprehensive (loss) income (513,900) 11,900
------------ ------------
Total shareholders' equity 7,769,700 8,335,400
------------ ------------
$ 31,627,000 $ 30,759,200
============ ============
See accompanying notes to consolidated financial statements.
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 3, 2001, DECEMBER 29, 1999, AND DECEMBER 30, 1998
- -------------------------------------------------------------------------------------------------------------------------
RETAINED
COMMON STOCK ADDITIONAL EARNINGS ACCUMULATED OTHER
------------------- PAID-IN (ACCUMULATED COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT) INCOME (LOSS) TOTAL
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 2,216,200 $22,200 $8,256,100 $ 2,366,200 -- $10,644,500
Exercise of stock options 14,108 100 4,700 4,800
Sale of common stock 141,340 1,400 303,900 305,300
Directors' fees in the form of stock
options............................. 30,000 30,000
Comprehensive loss:
Net loss (709,300) (709,300)
--------- ------- ---------- ----------- --------- -----------
Balance, December 30, 1998 2,371,648 23,700 8,594,700 1,656,900 -- 10,275,300
Exercise of stock options 37,383 400 400
Directors' fees in the form of stock
options 30,000 30,000
Comprehensive loss:
Net loss (1,982,200) (1,982,200)
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding gains
arising during the period $ 39,400 39,400
Less: reclassification
adjustment for gains
included in net loss (27,500) (27,500)
-----------
Total comprehensive loss (1,970,300)
--------- ------- ---------- ----------- --------- -----------
Balance, December 29, 1999 2,409,031 24,100 8,624,700 (325,300) 11,900 8,335,400
Exercise of stock options 7,200 100 100
Directors' fees in the form of stock
options 6,700 6,700
Comprehensive loss:
Net loss (46,700) (46,700)
Other comprehensive income:
Unrealized losses on securities:
Net unrealized holding losses
arising during the period (38,700) (38,700)
Less: reclassification
adjustment for net gains
included in net loss (487,100) (487,100)
-----------
Total comprehensive loss (572,500)
--------- ------- ---------- ----------- --------- -----------
Balance, January 3, 2001 2,416,231 $24,200 $8,631,400 ($ 372,000) ($513,900) $ 7,769,700
========= ======= ========== =========== ========= ===========
See accompanying notes to consolidated financial statements.
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED
--------------------------------------------------------------
JANUARY 3, 2001 DECEMBER 29, 1999 DECEMBER 30, 1998
- -------------------------------------------------------------------------------------------------------------
Operating activities:
Net loss $ (46,700) $(1,982,200) $ (709,300)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 2,061,600 1,966,200 1,879,000
Asset valuation charge 189,700 -- 209,000
Directors' fees in the form of stock
options 6,700 30,000 30,000
Net realized gains on investments (487,100) (27,500) --
Amortization of loan fees 32,100 28,800 24,700
Loss on disposition of equipment 84,100 93,200 139,700
(Gain) loss on sale of property (62,300) 18,400 --
Decrease (increase) in:
Receivables 32,000 (18,000) (13,800)
Income taxes receivable -- 60,200 237,700
Inventories 29,000 48,000 (52,900)
Prepaids and other current assets 11,200 91,800 14,600
Other assets (91,900) (17,000) (101,700)
Increase (decrease) in:
Accounts payable 95,600 (105,700) 94,000
Accrued liabilities 98,000 (48,400) (218,300)
Deferred revenue (15,200) (8,000) (7,600)
----------- ----------- -----------
Net cash provided by operating activities 1,936,800 129,800 1,525,100
----------- ----------- -----------
Investing activities:
Principal receipts on mortgages receivable 185,200 71,100 124,900
Purchases of investments (3,272,300) (1,129,500) (43,700)
Proceeds from sales of investments 3,010,700 565,800 --
Proceeds from maturities of investments -- 644,000 --
Proceeds from sale of restaurants 687,100 -- --
Proceeds from sale of property held for
sale 104,100 1,641,600 263,200
Capital expenditures (3,647,500) (3,855,200) (3,225,800)
----------- ----------- -----------
Net cash used in investing activities (2,932,700) (2,062,200) (2,881,400)
----------- ----------- -----------
Financing activities:
Payments on long-term debt and obligation
under
capital lease (1,196,600) (1,830,900) (329,600)
Proceeds from issuance of long-term debt 1,911,500 2,600,000 2,590,000
Proceeds from investment margin debt 165,100 -- --
Proceeds from the issuance of common stock 100 400 310,100
----------- ----------- -----------
Net cash provided by financing activities 880,100 769,500 2,570,500
----------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents (115,800) (1,162,900) 1,214,200
Cash and cash equivalents -- beginning of
year 747,300 1,910,200 696,000
----------- ----------- -----------
Cash and cash equivalents -- end of year $ 631,500 $ 747,300 $ 1,910,200
=========== =========== ===========
Noncash investing and financing activities:
Issuance of mortgage receivable on sale of
property $ 475,000 $ -- $ --
=========== =========== ===========
Net change in unrealized (loss) gain on
investments $ (525,800) $ 11,900 $ --
=========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the year for interest $ 1,995,800 $ 1,736,000 $ 1,634,400
=========== =========== ===========
Cash paid during the year for income taxes $ -- $ -- $ --
=========== =========== ===========
See accompanying notes to consolidated financial statements.
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FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company was organized under the laws of the State of Florida in September
1985 and is the sole franchisee of Ryan's Family Steak House restaurants in the
State of Florida.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Steak House Construction. All significant
intercompany transactions and balances have been eliminated.
FISCAL YEAR
The fiscal year consists of a fifty-two or fifty-three week period ending on the
Wednesday nearest to December 31. Fiscal years 1998 and 1999 consisted of
fifty-two weeks, and fiscal year 2000 consisted of fifty-three weeks.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and 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.
CASH AND CASH EQUIVALENTS
The Company has a cash management program which provides for the investment of
excess cash balances in short-term investments. These investments are stated at
cost which approximates market value and consist of money market instruments.
INVESTMENTS AVAILABLE FOR SALE
Investments available for sale represent marketable securities and are stated at
fair market value as determined by quoted market prices. Proceeds from sales of
these investments were $3,010,700, $565,800, and $0 in 2000, 1999, and 1998,
respectively. Gross gains of $577,500, $59,500, and $0 and gross losses of
$90,400, $32,000, and $0 were realized on these sales in 2000, 1999 and 1998
respectively.
CERTIFICATES OF DEPOSIT
Certificates of deposit are stated at cost.
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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INVESTMENTS HELD TO MATURITY
Investments held to maturity in 1999 represented an investment of Company funds
in zero-coupon bonds by an insurance company. The bonds were held as collateral
for a $1 million bond provided by the insurance company to the State of Florida
to support the Company's self-insured workers' compensation liability. Due to
the downgraded financial rating of the insurance company that provided the
bonds, the bonds were transferred to investments available for sale and sold in
2000. No gain or loss was realized on the sale of the bonds. See Note 5 for
discussion of the change in the Company's workers' compensation policy.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of food items, ingredients and supplies.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance, repairs and betterments
which do not enhance the value of or increase the life of the assets are
expensed as incurred. Depreciation is provided for financial reporting purposes
principally on the straight-line method over the following estimated lives:
buildings -- 25 years, land improvements -- 25 years and equipment -- 3-8 years.
Leasehold improvements are amortized over the life of the related lease, or the
life of the asset, whichever is less.
Interest expense from the FFCA loan is capitalized to the extent that such
proceeds are used for the construction of new restaurants. Interest costs of
approximately $56,800, $52,800, and $52,600 were capitalized in 2000, 1999, and
1998, respectively.
PROPERTY HELD FOR SALE
Property held for sale consists of two restaurant properties and an outparcel
stated at the lower of cost or estimated net realizable value.
OTHER ASSETS
Other assets consist of deferred charges. Deferred charges and related
amortization periods are as follows: financing costs -- term of the related
loan, and initial franchise rights -- 40 years.
INCOME TAXES
Deferred income taxes are provided for temporary differences between financial
reporting basis and tax basis of the Company's assets and liabilities using
presently enacted income tax rates. A valuation allowance is provided for
deferred tax assets if it is more likely than not these items will either expire
before the Company is able to realize their benefit, or that future
deductibility is uncertain.
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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EARNINGS PER SHARE
Basic earnings per common share is calculated by dividing net income by the
average number of common shares outstanding during the year. Diluted earnings
per common share is calculated by adjusting outstanding shares, assuming
conversion of all potentially dilutive stock options.
RECLASSIFICATIONS
Certain items in the prior year financial statements have been reclassified to
conform to the 2000 presentation.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". In June 2000, the FASB issued SFAS No. 138,
which amends certain provisions of SFAS 133 to clarify four areas causing
difficulties in implementation. The amendment included expanding the normal
purchase and sale exemption for supply contracts, permitting the offsetting of
certain intercompany foreign currency derivatives and thus reducing the number
of third party derivatives, permitting hedge accounting for foreign-currency
denominated assets and liabilities, and redefining interest rate risk to reduce
sources of ineffectiveness. The Company adopted SFAS 133 and the corresponding
amendments under SFAS 138 on January 4, 2001. SFAS 133, as amended by SFAS 138,
did not have a material impact on the Company's consolidated results of
operations, financial position or cash flows.
NOTE 2. CLOSED RESTAURANT COSTS
In 1998, the Company established a reserve to close two restaurants in 1999,
resulting in a pre-tax charge to earnings in 1998 of $53,000. The charge to
earnings reflected anticipated costs associated with closing the restaurants.
The two restaurants in Jacksonville, Florida were closed in January 1999. A
third restaurant was closed in Orlando, Florida in April 1999. One of the closed
Jacksonville restaurants was sold in 2000. The total book value of the two
remaining closed restaurants as of January 3, 2001 was approximately $1,515,200,
which is included in property held for sale. Continuing losses incurred to
maintain the closed restaurants in 2000 and 1999 were $65,000 and $47,000,
respectively. These three restaurants incurred a combined pre-tax loss of
$231,000 in fiscal year 1998.
NOTE 3. ASSET VALUATION CHARGE
In accordance with SFAS No. 121, the Company recognized asset valuation charges
of $189,700, $0, and $209,000 in 2000, 1999, and 1998, respectively. These
charges were based upon a financial review of all Company-owned restaurants and
applied to one restaurant as to which the Company's lease was terminated in
2000, and an underperforming restaurant in 1998. The restaurant for which the
charge was recognized in 1998 was sold in 1999. The charges were based on the
difference between each unit's net book value and estimated fair value, which
equaled the estimated proceeds from disposal as determined by management.
Considerable management judgment is necessary to estimate proceeds from disposal
and, accordingly, actual proceeds could vary significantly from such estimates.
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FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
NOTE 4. FRANCHISE AGREEMENT
In October 1996, the Company amended its Franchise Agreement with Ryan's Family
Steak Houses, Inc. ("Ryan's"). The amended agreement requires the Company to pay
a monthly royalty fee of 3.0% through December 2001, and 4.0% thereafter of the
gross receipts of each Ryan's Family Steak House restaurant. Total royalty fee
expenses were $1,197,600, $1,165,300, and $1,150,900 for fiscal years 2000,
1999, and 1998, respectively.
The Franchise Agreement requires the Company to operate a minimum number of
Ryan's restaurants on December 31 of each year. Failure to operate the minimum
number could result in the loss of exclusive franchise rights to the Ryan's
concept in North and Central Florida. In 1999, the Company and Ryan's amended
the number of restaurants required to be in operation as detailed below. The
Company operated 23 restaurants as of fiscal year end 2000 and was therefore in
compliance with the Franchise Agreement.
The following schedule outlines the number of Ryan's restaurants required to be
operated by the Company as of December 31 each year under the amended Franchise
Agreement:
- ----------------------------------------------------------------------------------------
NUMBER OF
RESTAURANTS REQUIRED TO
END OF FISCAL YEAR BE IN OPERATION
- ----------------------------------------------------------------------------------------
2000 23
2001 25
2002 and subsequent years Increases by two each year
NOTE 5. ACCRUED LIABILITIES
Accrued liabilities are summarized as follows:
- ----------------------------------------------------------------------------------------------
2000 1999
- ----------------------------------------------------------------------------------------------
Property taxes $ 429,900 $ 16,500
Payroll and payroll taxes 636,900 589,200
Workers' compensation liability 837,800 1,067,400
Other 557,000 690,500
---------- ----------
$2,461,600 $2,363,600
========== ==========
The Company self-insures workers' compensation losses up to certain limits. The
liability for workers' compensation claims represents an estimate for the
ultimate cost of uninsured losses which are unpaid as of the balance sheet date.
The estimate is continually reviewed and adjustments to the Company's estimated
claim liability, if any, are reflected in current operations.
The State of Florida Division of Workers' Compensation ("the Division") requires
self-insured companies to pledge collateral in favor of the Division in an
amount sufficient to cover the Company's projected outstanding liability. In
compliance with this requirement, in July 2000 the Company provided a $1 million
letter of credit to the Division with an expiration date of July 1, 2001. The
letter of credit was guaranteed on behalf of the Company by Bisco Industries,
Inc. ("Bisco"). The Chairman of the Company's Board of Directors, Glen F.
Ceiley, is the President of Bisco.
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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NOTE 6. LONG-TERM DEBT
Long-term debt is summarized as follows:
- -----------------------------------------------------------------------------------------------
2000 1999
- -----------------------------------------------------------------------------------------------
Collateralized notes payable to FFCA Mortgage
Corporation, monthly principal and interest payments
totaling $176,900 effective December 2000, interest at
thirty-day LIBOR rate +3.75% (10.37% at January 3,
2001) $18,435,300 $17,717,000
Less current portion: (565,900) (381,400)
----------- -----------
$17,869,400 $17,335,600
=========== ===========
Total maturities of long-term debt are as follows:
2001 $ 565,900
2002 607,200
2003 669,400
2004 733,200
2005 813,200
Thereafter 15,046,400
-----------
$18,435,300
===========
In December 1996, the Company entered into two loan agreements with FFCA
Mortgage Corporation ("FFCA"). Pursuant to the first Loan Agreement (the "1996
Loan Agreement"), the Company borrowed $15.36 million, which loans are evidenced
by fourteen Promissory Notes payable to FFCA. Each Note is secured by a mortgage
on a Company restaurant property. The Promissory Notes provide for a term of
twenty years and an interest rate equal to the thirty-day LIBOR rate plus 3.75%,
adjusted monthly. The 1996 Loan Agreement provides for various covenants,
including the maintenance of prescribed debt service coverages. As of January 3,
2001, the outstanding balance due under the 1996 Loan Agreement was $11,532,800.
The Company used the proceeds of the 1996 Loan Agreement to retire its Notes
with Cerberus Partners, L.P. ("Cerberus") and its loans with the Daiwa Bank
Limited and SouthTrust Bank of Alabama, N.A. In addition, the Company retired
Warrants for 210,000 shares of the Company's common stock previously held by
Cerberus. Cerberus continues to hold Warrants to purchase 140,000 shares of the
Company's common stock at an exercise price of $2.00 per share.
Pursuant to its second loan agreement with FFCA (the "1998 Loan Agreement"), the
Company borrowed an additional $2,590,000 in 1998 to fund construction of a new
restaurant in Leesburg, Florida and the land and a portion of the cost of
construction of a new restaurant in Deland, Florida. This additional financing
is evidenced by three additional Promissory Notes secured by mortgages on three
Company restaurant properties. The terms and conditions of the 1998 Loan
Agreement are substantially identical to those of the 1996 Loan Agreement. As of
January 3, 2001, the outstanding balance under the 1998 Loan Agreement was
$2,464,600.
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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In October 1998, the Company received two commitments for new financing from
FFCA. The Company borrowed a total of $2.6 million in 1999 under the first
commitment (the "1999 Loan"). The proceeds of the 1999 Loan were used to fund
construction of new restaurants in Deland and Tampa, Florida. The 1999 Loan is
secured by mortgages on two Company restaurant properties. As of January 3,
2001, the outstanding balance under the 1999 Loan was $2,526,400. The second
commitment (the "2000 Loan") was for construction financing for two new
restaurants to be built in 2000 and 2001. Terms of the 2000 Loan include funding
of a maximum of $1,600,000 per restaurant. Other terms and conditions of the
1999 and 2000 Loans are substantially identical to those of the 1996 Loan
Agreement. The Company borrowed $1,911,500 under the 2000 Loan to fund the
purchase of land and construction for new restaurants in St. Cloud and
Titusville, Florida. The St. Cloud restaurant opened in December 2000, and the
Titusville restaurant is expected to open in May 2001.
The Company plans to open three new restaurants in 2001. In July 2000, the
Company received a new commitment from FFCA to fund $1,600,000 each for two
additional restaurants to be constructed in 2001.
NOTE 7. INCOME TAXES
The income tax benefit is comprised of the following:
- ---------------------------------------------------------------------------------------------------
2000 1999 1998
- ---------------------------------------------------------------------------------------------------
Current:
Federal $ -- $ -- $(67,600)
======== ======== ========
Income taxes for the years ended January 3, 2001, December 29, 1999 and December
30, 1998 differ from the amount computed by applying the federal statutory
corporate rate to earnings before income taxes. The differences are reconciled
as follows:
- -------------------------------------------------------------------------------------------------
2000 1999 1998
- -------------------------------------------------------------------------------------------------
Income tax benefit at statutory rate $(16,200) $(693,900) $(271,900)
Increase (decrease) in taxes due to:
Effect of graduated tax rates 500 19,800 7,800
State tax net of Federal benefit (1,700) (72,000) (28,200)
Change in deferred tax asset valuation allowance 16,500 732,400 224,500
Expiration of capital loss carryforward -- 14,100 --
Other 900 (400) 200
-------- --------- ---------
Income tax benefit $ -- $ -- $ (67,600)
======== ========= =========
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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The components of deferred taxes at January 3, 2001 and December 29, 1999 are
summarized below:
- -----------------------------------------------------------------------------------------
JANUARY 3, 2001 DECEMBER 29, 1999
- -----------------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss $ 855,400 $ 977,800
Federal and state tax credits 589,400 589,400
Accruals not currently deductible 317,200 405,100
Excess tax over book basis:
Asset valuation reserve 278,300 207,000
Property held for sale 22,400 --
Unrealized loss on investments 193,400 --
Capital loss not currently deductible -- 35,200
Unearned revenue, previously taxed 6,000 9,000
----------- -----------
2,262,100 2,223,500
Valuation allowance (1,686,300) (1,476,400)
----------- -----------
Total deferred tax assets 575,800 747,100
----------- -----------
Deferred tax liabilities:
Excess of tax over book depreciation and
amortization 575,800 735,800
Excess book over tax basis:
Property held for sale -- 11,300
----------- -----------
Total deferred tax liabilities 575,800 747,100
----------- -----------
Net deferred taxes $ -- $ --
=========== ===========
At January 3, 2001, the Company's federal and state tax credit was comprised of
$49,200 in general business credits which expire in 2013 and alternative minimum
tax credits of $540,200 which have no expiration date. Additionally, at January
3, 2001, the Company has Federal net operating losses of $2,125,000, which begin
expiring in 2018 and State net operating losses of $3,637,000 which begin
expiring in 2012.
NOTE 8. COMMON SHAREHOLDERS' EQUITY
Stock Split
The Company effected a 1-for-5 reverse stock split of its common stock in March
1998, which was recorded by transferring the aggregate par value of the shares
retired from common stock to additional paid in capital. Accordingly, the
weighted average number of common and equivalent shares, per share amounts for
net earnings, and stock option and warrant data have been retroactively adjusted
to reflect the reverse stock split for all periods presented.
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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Earnings per Share
The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations for net loss and net loss available to common
shareholders:
- -----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------------ ------------------------------------ ---------------------------
INCOME SHARES PER INCOME SHARES PER INCOME SHARES
(NUMERATOR) (DENOMINATOR) SHARE (NUMERATOR) (DENOMINATOR) SHARE (NUMERATOR) (DENOMINATOR)
- -----------------------------------------------------------------------------------------------------------------------------------
BASIC EPS:
Net loss available to
common shareholders $(46,700) 2,414,500 $ (.02) $(1,982,200) 2,403,400 $(0.82) $(709,300) 2,348,000
====== ======
Effect of Dilutive
Securities:
Stock options 6,200 5,800 1,200
Warrants -- -- 5,800
DILUTED EPS:
Net loss available to
common shareholders
plus assumed
conversions........... $(46,700) 2,420,700 $ (.02) $(1,982,200) 2,409,200 $(0.82) $(709,300) 2,355,000
====== ======
- ------------------------ ------
1998
------
PER
SHARE
- ------------------------ ------
BASIC EPS:
Net loss available to
common shareholders $(0.30)
======
Effect of Dilutive
Securities:
Stock options
Warrants
DILUTED EPS:
Net loss available to
common shareholders
plus assumed
conversions........... $(0.30)
======
The Company has a stock option plan for non-employee directors pursuant to which
up to an aggregate of 180,000 shares of the common stock are authorized to be
granted. All options expire five years after the date of grant or one year after
completion of the term as a director.
The Company also had an employee incentive stock option plan pursuant to which
up to an aggregate of 108,000 shares of the common stock were authorized to be
granted. All options expire ten years after the date of grant or 90 days after
termination of employment. This plan expired as of November 30, 1995. Certain
options outstanding under this plan as of November 30, 1995 remain exercisable
pursuant to terms of the plan.
In 1995, the Company's shareholders approved a new employee long-term incentive
plan pursuant to which an additional 200,000 shares of common stock are
authorized to be granted in the form of stock options or restricted stock. All
options granted under this plan expire no later than ten years after the date of
grant or in most cases three months after termination of employment.
If compensation cost for stock option grants had been determined based on the
fair value at the grant dates for 2000, 1999, and 1998 consistent with the
method prescribed by SFAS No. 123, the Company's net loss and loss per share
would have been adjusted to the pro forma amounts indicated below:
- --------------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------
Net loss As reported $(46,700) $(1,982,200) $(709,300)
Pro forma (59,400) (2,055,200) (735,700)
Diluted loss As reported $ (.02) $ (.82) $ (.30)
per share Pro forma (.02) (.85) (.31)
Under SFAS No. 123, the fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weight-average assumptions used for grants in 2000, 1999, and 1998
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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respectively: dividend yield 0 percent each year, expected volatility of 76, 76
and 75 percent, risk-free interest rates of 5.1, 6.4 and 5.1 percent, and
expected lives of 10 years for each year.
The following table summarizes the changes in the total number of stock option
shares outstanding during the three years ended January 3, 2001.
- --------------------------------------------------------------------------------------------------------------
2000 1999 1998
--------------------------- --------------------------- ---------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
- --------------------------------------------------------------------------------------------------------------
Options outstanding
at beginning of
year 229,440 $2.25 190,940 $2.66 181,940 $3.08
Options granted 29,100 .80 102,883 1.08 42,478 .77
Options exercised (7,200) .01 (37,383) .01 (14,028) .37
Options forfeited (9,400) 2.09 (27,000) 3.55 (19,450) 4.20
-------- -------- --------
Options outstanding
at end of year 241,940 2.15 229,440 2.25 190,940 2.66
======== ======== ========
Options exercisable
at end of year 191,615 2.37 188,940 2.41 123,830 2.65
======== ======== ========
Weighted average fair
value of options
granted during the
year $ 12,700 $ 72,800 $ 26,400
Common shares
reserved for future
grants at end of
year 47,989 68,289 98,289
The following table summarizes information about fixed stock options outstanding
at January 3, 2001:
- --------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE
YEAR EXERCISE OPTIONS OPTIONS REMAINING LIFE
GRANTED PRICE OUTSTANDING EXERCISABLE (IN YEARS)
- --------------------------------------------------------------------------------------------------------------------
1991 $4.06 9,400 9,400 .3
1992 5.63 2,800 2,800 1.1
1993 3.13 4,600 4,600 2.3
1994 1.25 11,500 11,500 4.0
1995 3.75 21,540 21,540 4.7
1995 2.00 47,500 47,500 4.7
1996 2.81 15,200 15,200 6.0
1997 3.28 19,200 19,200 7.0
1998 1.00 25,400 25,400 7.9
1999 2.00 25,000 25,000 8.8
1999 1.50 37,900 9,475 8.9
2000 1.06 21,900 -- 10.0
------- -------
241,940 191,615
======= =======
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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Remaining non-exercisable options as of January 3, 2001 become exercisable as
follows:
2001 14,950
2002 14,950
2003 14,950
2004 5,475
------
50,325
======
Cerberus Partners, L.P., holds detachable warrants to purchase 140,000 shares of
the Company's common stock at $2.00 per share at any time prior to October 1,
2003.
The Company's Board of Directors is authorized to set the various rights and
preferences for the Company's Preferred Stock, including voting, conversion,
dividend and liquidation rights and preferences, at the time shares of Preferred
Stock are issued. As of January 3, 2001 there were no shares of Preferred Stock
issued.
Rights Plan
On March 18, 1997, the Company entered into a Rights Agreement (the "Rights
Agreement") with ChaseMellon Shareholder Services, LLC and declared a dividend
of rights to purchase Junior Participating Preferred Stock of the Company
("Rights") to shareholders of record as of March 19, 1997.
In accordance with the Agreement, in August 1999 the Company's newly elected
Board of Directors redeemed the Rights. Shareholders were paid $.001 per share,
resulting in a total redemption cost of approximately $12,000 to the Company.
NOTE 9. PROFIT SHARING AND RETIREMENT PLAN
Employees of the Company participate in a profit sharing and retirement plan
covering substantially all full-time employees at least twenty-one years of age
and with more than one year of service. The plan was established in August 1991.
Contributions are made to the plan at the discretion of the Company's Board of
Directors. No profit-sharing contributions have been made since the inception of
the plan.
The profit sharing plan includes a 401(k) feature by which employees can
contribute, by payroll deduction only, 1% to 15% of their annual compensation
not to exceed $10,500 in 2000.
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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The plan provides for a Company matching contribution of $.25 per dollar of the
first 6% of employee contributions. The Company's matching contribution was
$36,000 in 2000, $37,100 in 1999, and $30,900 in 1998. Employees vest in Company
contributions based on the following schedule:
- -----------------------------------------------------------------------------------------------------------
YEARS OF VESTING
SERVICE PERCENTAGE
- -----------------------------------------------------------------------------------------------------------
Less than 3 0%
3 20%
4 40%
5 60%
6 80%
7 100%
NOTE 10. COMMITMENTS AND CONTINGENCIES
Lease Obligations
At January 3, 2001, the Company is committed under the terms and conditions of
real and personal property operating leases for minimum rentals aggregating
$2,991,300 plus insurance, common area expenses and taxes. The Company has
various renewal options on these leases covering periods of five to twenty
years.
In September 1996, the Company entered into a twenty-year lease agreement with
two five-year renewal options for a restaurant building. The total net book
value of the assets covered by the lease amount to $940,200 at January 3, 2001.
Interest is computed at an annual rate of 10.65%.
Future minimum lease obligations under noncancelable capital leases and
operating leases consist of the following as of January 3, 2001:
- -----------------------------------------------------------------------------------------------------------------
CAPITAL OPERATING
LEASES LEASES
- -----------------------------------------------------------------------------------------------------------------
2001 $ 115,400 $ 394,800
2002 129,300 337,700
2003 129,300 268,700
2004 129,300 259,000
2005 129,300 256,400
Future years 1,663,400 1,474,700
----------- ----------
Total minimum lease payments 2,296,000 $2,991,300
=========== ==========
Amount representing interest (1,246,700)
-----------
Present value of net minimum payments 1,049,300
Current portion (3,700)
-----------
Long-term capital lease obligations $ 1,045,600
===========
Rental expense for operating leases for the years ended January 3, 2001,
December 29, 1999 and December 30, 1998, was $594,700, $531,400, and $490,000
respectively.
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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The Company received notice in December 2000 from its landlord of the
Clearwater, Florida restaurant that the lease for the restaurant would be
terminated effective March 20, 2001. The Company had expected to renew the lease
for at least an additional year. Accordingly, the Company recognized an asset
valuation charge of $189,700 in 2000 to record the loss in value of the
leasehold improvements at the restaurant.
Legal Matters
The Company, in the normal course of business, is subject to claims and
litigation with respect to store operations. In the opinion of management, based
on the advice of legal counsel the ultimate disposition of these claims and
litigation will not have a material effect on the Company's consolidated results
of operations, financial position or cash flows.
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Cash Equivalents -- For those short-term instruments, the carrying
amount is a reasonable estimate of fair value.
Investments Available for Sale -- The Company's investments available for sale
consist of marketable securities which are valued at the quoted market price.
Certificates of Deposit -- The Company believes that the carrying amount is a
reasonable estimate of the fair value of the certificates of deposit.
Investments Held to Maturity -- The Company's investments held to maturity
represent zero-coupon bonds for which the carrying amount is believed to be a
reasonable estimate of fair value.
Mortgages Receivable -- The fair value of mortgages receivable is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities. The Company believes the carrying amount is a reasonable
estimate of fair value.
Debt -- Interest rates that are currently available to the Company for issuance
of debt with similar terms and remaining maturities are used to estimate fair
value for debt instruments. The Company believes the carrying amount is a
reasonable estimate of such fair value.
NOTE 12. SUBSEQUENT EVENT
On January 17, 2001, the Company received notice from NASDAQ that the Company's
closing bid price had declined below $1.00 per share, and has remained below the
$1.00 minimum requirement since that time. Accordingly, NASDAQ informed the
Company that in order to continue the listing of the Company's securities on the
Nasdaq SmallCap Market, the Company would have to meet the following
conditions -- on or before April 17, 2001, the Company must meet or exceed a
closing bid price of $1.00 per share; immediately thereafter, the Company's
closing bid price must meet or exceed $1.00 per share for a minimum of ten
consecutive trading days. In
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FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
order to fully comply with the terms of this exception, the Company must be able
to demonstrate compliance with all requirements for continued listing. In the
event the Company fails to meet any of the terms of this exception, the
Company's securities will be delisted from the Nasdaq SmallCap Market.
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
FAMILY STEAK HOUSES OF FLORIDA, INC.
We have audited the accompanying consolidated balance sheets of Family
Steak Houses of Florida, Inc. and subsidiary as of January 3, 2001 and December
29, 1999 and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended January
3, 2001. These 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 auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Family Steak Houses of Florida,
Inc. and subsidiary as of January 3, 2001 and December 29, 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended January 3, 2001 in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
Certified Public Accountants
Jacksonville, Florida
February 23, 2001
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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COMPANY'S REPORT ON FINANCIAL STATEMENTS
Family Steak Houses of Florida, Inc. has prepared and is responsible for
the accompanying consolidated financial statements and related consolidated
financial information included in this report. These consolidated financial
statements were prepared in accordance with accounting principles generally
accepted in the United States of America and are appropriate under the
circumstances. These consolidated financial statements necessarily include
amounts determined using management's best judgements and estimates.
Family Steak Houses of Florida, Inc. maintains accounting and other
control systems which the Company believes provides reasonable assurance that
assets are safeguarded and that the books and records reflect the authorized
transactions of the Company, although there are inherent limitations in all
internal control structure elements, as well as cost/benefit considerations.
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FAMILY STEAK HOUSES OF FLORIDA, INC.
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CORPORATE LISTING
CORPORATE OFFICERS AND DIRECTORS
Edward B. Alexander
Executive Vice President
Steve Catanzaro
Director
CFO, Bisco Industries, Inc.
Glen F. Ceiley
Chairman of the Board
President & CEO, Bisco Industries, Inc.
Jay Conzen
Director
Principal, Jay Conzen Investments
William Means
Director
Vice President of Corporate Development
Bisco Industries, Inc.
Kevin R. Pickett
Vice President
ANNUAL MEETING
The annual meeting will be held at:
Sea Turtle Inn
One Ocean Boulevard
Atlantic Beach, FL 32233
June 6, 2001
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP
Suite 2801, Independent Square
One Independent Drive
Jacksonville, FL 32202-5034
GENERAL COUNSEL
McGuireWoods LLP
3300 Barnett Center
50 North Laura Street
P.O. Box 4099
Jacksonville, FL 32201
TRANSFER AGENT/RIGHTS AGENT
Chase Mellon Shareholder Services
Four Station Square
Third Floor
Pittsburgh, PA 15219-1173
EXECUTIVE OFFICE
Family Steak Houses of Florida, Inc.
2113 Florida Boulevard
Neptune Beach, FL 32266
FORM 10-K
A copy of the Company's Annual Report on
Form 10-K for fiscal 2000, as filed with the
Securities and Exchange Commission, may
be obtained by writing to:
Corporate Secretary
Family Steak Houses of Florida, Inc.
2113 Florida Boulevard
Neptune Beach, FL 32266
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FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
COMMON STOCK DATA
The Company's common stock is traded on the NASDAQ SmallCap Market System under
the trading symbol "RYFL". As of February 16, 2001, there were 2,309
shareholders of record, not including individuals holding shares in street
names. The closing sale price for the Company's stock on February 16, 2001 was
$.80.
The Company has never paid cash dividends on its common stock and does not
expect to pay any dividends in the next few years. Management of the Company
presently intends to retain all available funds for expansion of the business.
The quarterly high and low closing prices of the Company's common stock are as
shown below:
MARKET PRICE OF COMMON STOCK
- --------------------------------------------------------------------------------------
2000 1999
QUARTER HIGH LOW HIGH LOW
- --------------------------------------------------------------------------------------
First $1.56 $ .91 $1.50 $ .81
Second 1.50 1.00 1.22 .72
Third 1.47 1.22 1.88 .78
Fourth 1.25 .75 1.56 1.00
Pursuant to a Standstill and Settlement Agreement with Bisco Industries, Inc.
("Bisco") and its affiliates, on February 27, 1998, the Company sold 141,340
shares of its common stock to Bisco at a purchase price of $2.16, which was the
average closing price of the Company's common stock for the ten trading days
immediately preceding the date of the sale. The total price paid by Bisco to the
Company was $305,312. These shares of common stock were sold without
registration under the exemption granted under Rule 506 of Regulation D since
the sale was made to only one purchaser who qualified as an accredited investor.
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33
[RYAN'S FAMILY STEAK HOUSE LOGO & MAP OF FLORIDA]
RYAN'S LOCATIONS
H Headquarters
o Apopka(1)
o Brooksville(1)
o Clearwater(1)
o Daytona Beach(1)
o Deland(1)
o Gainesville(1)
o Jacksonville(1)
o Lake City(1)
o Lakeland(2)
o Leesburg(1)
o Melbourne(1)
o Neptune Beach(1)
o New Port Richey(1)
o Ocala(1)
o Orange Park(1)
o Orlando(1)
o St. Cloud(1)
o Tallahassee(1)
o Tampa(3)
o Winter Haven(1)
34
FAMILY STEAK HOUSES
OF FLORIDA, INC.
A
[RYAN'S FAMILY STEAK HOUSE LOGO]
FRANCHISEE