FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter ended April 4, 2001
Commission File No. 0-10943
RYAN'S FAMILY STEAK HOUSES, INC.
(Exact name of registrant as specified in its charter)
South Carolina No. 57-0657895
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
405 Lancaster Avenue (29650)
P. O. Box 100
Greer, South Carolina 29652
(Address of principal executive
offices, including zip code)
864-879-1000
(Registrant's telephone number, including area code)
------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Sections 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No ________
The number of shares outstanding of each of the registrant's
classes of common stock as of April 4, 2001:
30,486,000 shares of common stock, $1.00 Par Value
RYAN'S FAMILY STEAK HOUSES, INC.
INDEX
Part I - Financial Information
Consolidated Statements of Earnings (Unaudited) -
Quarters Ended April 4, 2001 and March 29, 2000 3
Consolidated Balance Sheets -
April 4, 2001 (Unaudited) and January 3, 2001 4
Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended April 4, 2001 and March 29, 2000
5
Consolidated Statements of Shareholders' Equity
(Unaudited) -
Three Months Ended April 4, 2001 and March 29, 2000
6
Notes to Consolidated Financial Statements (Unaudited)
7
Management's Discussion and Analysis of Financial
Condition
and Results of Operations 8 - 11
Part II - Other Information 11
Signatures 12
PART I. FINANCIAL INFORMATION
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share data)
Quarter Ended
April 4, March 29,
2001 2000
Restaurant sales $ 183,896 168,272
Operating expenses:
Food and beverage 68,470 63,280
Payroll and benefits 55,047 50,583
Depreciation 7,054 6,725
Other operating expenses 25,366 21,486
Total operating expenses 155,937 142,074
Operating profit 27,959 26,198
General and administrative expenses 8,877 8,301
Interest expense 3,366 3,080
Revenues from franchised restaurants (350) (298)
Other income, net (778) (762)
Earnings before income taxes 16,844 15,877
Income taxes 6,063 5,779
Net earnings $ 10,781 10,098
Net earnings per common share:
Basic $ .35 .29
Diluted .34 .29
Weighted-average shares:
Basic 31,062 34,992
Diluted 31,625 35,291
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
April 4, January 3,
2001 2001
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 12,494 2,098
Receivables 3,987 3,631
Inventories 5,126 5,085
Deferred income taxes 4,806 4,806
Prepaid expenses 1,146 820
Total current assets 27,559 16,440
Property and equipment:
Land and improvements 128,418 126,362
Buildings 365,861 358,415
Equipment 197,895 193,013
Construction in progress 37,835 37,054
730,009 714,844
Less accumulated depreciation 189,769 182,379
Net property and equipment 540,240 532,465
Other assets 7,368 7,156
$ 575,167 556,061
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 14,505 11,003
Income taxes payable 8,001 3,263
Accrued liabilities 32,183 33,806
Total current liabilities 54,689 48,072
Long-term debt 201,000 192,000
Deferred income taxes 30,689 30,628
Other long-term liabilities 3,325 2,932
Total liabilities 289,703 273,632
Shareholders' equity:
Common stock of $1.00 par value; authorized
100,000,000 shares; issued 30,486,000 in
2001 and 31,192,000 shares in 2000 30,486 31,192
Additional paid-in capital 2 89
Retained earnings 254,976 251,148
Total shareholders' equity 285,464 282,429
Commitments
$ 575,167 556,061
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months
Ended
April 4, March 29,
2001 2000
Cash flows from operating activities:
Net earnings $10,781 10,098
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 7,458 7,143
Gain on sale of property and equipment (1) (72)
Increase in:
Receivables (356) (4)
Inventories (41) (466)
Prepaid expenses (326) (653)
Other assets (280) (736)
Increase (decrease) in:
Accounts payable 3,502 2,391
Income taxes payable 4,738 4,844
Accrued liabilities (1,623) (103)
Deferred income taxes 61 58
Other long-term liabilities 393 921
Net cash provided by operating activities 24,306 23,421
Cash flows from investing activities:
Proceeds from sale of property and equipment 110 2,993
Capital expenditures (15,274) (13,557)
Net cash used in investing activities (15,164) (10,564)
Cash flows from financing activities:
Net repayment of notes payable - (91,000)
Repayment of long-term debt - (81,375)
Proceeds from issuance of senior notes - 75,000
Net proceeds from revolving credit facility 9,000 119,000
Debt issuance costs - (1,551)
Proceeds from issuance of common stock 805 336
Purchases of common stock (8,551) (32,306)
Net cash provided by (used in) financing
activities 1,254 (11,896)
Increase in cash and cash equivalents 10,396 961
Cash and cash equivalents -
beginning of period 2,098 642
Cash and cash equivalents -
end of period $12,494 1,603
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
I. For the Three Months ended April 4, 2001
$1 Par ValueAdditional
Common Paid-In Retained
Stock Capital Earnings Total
Balances at January 3, 2001 $31,192 89 251,148 282,429
Net earnings - - 10,781 10,781
Issuance of common stock
under Stock Option Plans 121 684 - 805
Purchases of common stock (827) (771) (6,953) (8,551)
Balances at April 4, 2001 $30,486 2 254,976 285,464
II. For the Three Months ended March 29, 2000
$1 Par Value Additional
Common Paid-In Retained
Stock Capital Earnings Total
Balances at December 29, 1999 $35,855 703 246,835 283,393
Net earnings - - 10,098 10,098
Issuance of common stock
under Stock Option Plans 43 293 - 336
Purchases of common stock (3,434) (996) (27,876) (32,306)
Balances at March 29, 2000 $32,464 - 229,057 261,521
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 4, 2001
(Unaudited)
Note 1. Description of Business
Ryan's Family Steak Houses, Inc. operates a single-concept
restaurant chain consisting of 306 Company-owned and 22
franchised restaurants located principally in the southern
and midwestern United States. The Company, organized in
1977, opened its first restaurant in 1978 and completed its
initial public offering in 1982. The Company does not
operate or franchise any international units and has no
individually significant customers.
Note 2. Basis of Presentation
The consolidated financial statements include the financial
statements of Ryan's Family Steak Houses, Inc. and its
wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements
have been prepared in accordance with accounting principles
generally accepted in the United States of America for
interim financial information and the instructions to Form
10-Q and do not include all of the information and footnotes
required by accounting principles generally accepted in the
United States of America for complete financial statements.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Consolidated operating
results for the three months ended April 4, 2001 are not
necessarily indicative of the results that may be expected
for the fiscal year ending January 2, 2002. For further
information, refer to the consolidated financial statements
and footnotes included in the Company's annual report on
Form 10-K for the fiscal year ended January 3, 2001.
Note 3. New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS")
No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This statement standardizes the accounting for
derivative instruments, including derivative instruments
embedded in other contracts. Under SFAS No. 133, entities
are required to carry all derivative instruments as either
assets or liabilities on the balance sheet at fair value.
The accounting for changes in the fair value (i.e., gains
and losses) of a derivative instrument depends on its
intended use. The provisions of SFAS No. 133 were adopted
at the beginning of 2001 with no resulting impact on the
Company's financial condition or results of operations. As
noted in "Liquidity and Capital Resources", the Company was
not a party to any interest rate derivative agreements at
April 4, 2001. The Company does not enter into derivative
instrument agreements for trading or speculative purposes.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter ended April 4, 2001 versus March 29, 2000
Restaurant sales during the first quarter of 2001 increased
by 9.3% over the comparable quarter of 2000. Principal
factors affecting the 2001 sales growth include (a) the 4.4%
unit growth of Company-owned restaurants, which totaled 306
at April 4, 2001 and 291 at March 29, 2000, (b) a 2.5%
increase in same-store sales, and (c) the absence of the
week containing New Year's Day 2001 from the 2001 amounts.
This week, which traditionally is a slower sales week, was
included in the results for the fourth quarter of 2000 due
to its January 3, 2001 ending date. The week containing New
Year's Day 2000 was included in the results for the first
quarter of 2000. The Company calculates same-store sales
using average unit sales in units that have been open for at
least 18 months and operating during comparable weeks during
the current and prior year. The 2001 sales results compare
well to the 1.1% same-store sales increase experienced
during the first quarter of 2000. Same-store sales in 2001
were affected principally by more favorable weather
conditions during January 2001, new product introductions
and menu price increases.
Total costs and expenses of Company-owned restaurants
include food and beverage, payroll, payroll taxes and
employee benefits, depreciation, repairs, maintenance,
utilities, supplies, advertising, insurance, property taxes
and licenses. Such costs, as a percentage of sales, were
84.8% during the first quarter of 2001 compared to 84.4% in
2000. Food and beverage costs decreased to 37.2% of sales
in 2001 from 37.6% in 2000 due to lower dairy, poultry,
vegetable and soybean-based product costs, partially offset
by higher beef costs. Payroll and benefits decreased to
29.9% of sales in 2001 from 30.1% in 2000 due principally to
lower hourly payroll costs, partially offset by higher team
member benefit and workers' compensation costs. Although
the Company continues to experience wage pressures at the
store level, hourly payroll cost decreased due to
inefficiencies arising from severe weather in January 2000.
All other operating costs, including depreciation, increased
to 17.7% of sales in 2001 from 16.7% in 2000 due principally
to higher natural gas and store closing costs. Based on
these factors, the Company's operating profit at the
restaurant level increased by 6.7%, amounting to 15.2% and
15.6% of sales for the first quarters of 2001 and 2000,
respectively.
General and administrative expenses decreased to 4.8% of
sales in 2001 compared to 4.9% in 2000 due to the leveraging
effect of higher sales volumes on this heavily fixed cost
category.
Interest expense for the first quarters of 2001 and 2000
amounted to 1.8% of sales for both years. Due to the
Company's stock repurchase program (see "Liquidity and
Capital Resources"), total debt increased from $194.0
million at March 29, 2000 to $201.0 million at
April 4, 2001. The effective average interest rate
increased to 8.1% during the first quarter of 2001 from 7.8%
in 2000, resulting principally from higher credit spreads
charged in connection with new credit facilities that closed
in January 2000. At April 4, 2001, approximately 63% of the
Company's outstanding debt was variable-rate debt with
interest rates based generally on the London Interbank
Offered Rate ("LIBOR"). Based on current LIBOR swap rates
and recent actions by the Federal Reserve Bank, management
expects a more favorable interest rate environment during
2001.
Effective income tax rates of 36.0% and 36.4% were used for
the first quarters of 2001 and 2000, respectively. The
lower rate in 2001 resulted from the favorable impact of
various tax-planning strategies.
Net earnings for the first quarter amounted to $10.8 million
in 2001 compared to $10.1 million in 2000. Due to a 10.4%
reduction in weighted-average shares (diluted) resulting
from the Company's stock repurchase program (see "Liquidity
and Capital Resources"), earnings per share (diluted)
increased 17.2% to 34 cents in 2001 compared to 29 cents in
2000.
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 April 4, 2001, the Company's working capital was a $27.1
million deficit compared to a $31.6 million deficit at
January 3, 2001. The Company does not anticipate any
adverse effects from the current working capital deficit due
to significant cash flow provided by operations, which
amounted to $24.3 million for the first three months of 2001
and $79.4 million for the year ended January 3, 2001.
Total capital expenditures for the first three months of
2001 amounted to $15.3 million. The Company opened five
Ryan's restaurants during the first three months of 2001,
including one relocation. Management defines a relocation
as a restaurant opened within 18 months after closing
another restaurant in the same marketing area. A relocation
represents a redeployment of assets within a market. For
all of 2001, the Company plans to open a total of 16 Ryan's,
including five relocations. Total capital expenditures for
2001 are estimated at $63 million. Expansion of Company-
owned restaurants is expected to occur in states either
within or contiguous to the Company's current 22-state
operating area. The Company is currently concentrating its
efforts on Company-owned units and is not actively pursuing
any additional franchised locations, either domestic or
international.
The Company began a stock repurchase program in March 1996
and is currently authorized to repurchase a total of 30.0
million shares of the Company's common stock through
December 2002. Repurchases may be made from time to time on
the open market or in privately negotiated transactions in
accordance with applicable securities regulations, depending
on market conditions, share price and other factors. During
the first three months of 2001, the Company purchased
827,000 shares at an aggregate cost of $8.6 million. Since
the beginning of the program in March 1996, approximately
24.4 million shares, or 46% of total shares available at the
beginning of the program, had been purchased at an aggregate
cost of $230.5 million. Management intends to proceed with
the repurchase program during 2001, subject to the continued
availability of capital and the other factors described
below in "Forward-Looking Information".
The extent of the Company's external funding requirements
for 2001 is dependent upon the level of stock repurchase
transactions during the year. Based on current target debt
levels, a maximum repurchase scenario would require
approximately $31 million of additional borrowings during
the remainder of 2001. All other funding needs, including
capital expenditures, are expected to be met by internally
generated cash from operations. The Company's debt
structure at April 4, 2001 consisted of $75 million of 9.02%
senior notes and $126 million in outstanding notes under a
$200 million revolving credit facility. The senior notes
are due in 2008 with principal payments commencing in 2005.
The revolving credit facility is due in 2005 and bears
interest at various floating interest rates plus a variable
spread currently set at 1.375%. After allowances for
letters of credit and other items, there was approximately
$65 million in funds available under the revolving credit
facility. However, the Company's ability to draw on these
funds may be limited by restrictions in the loan agreements
governing both the senior notes and the revolving credit
facility. The loan agreements contain minimum net worth
requirements and maximum leverage ratios as well as
restrictions on future stock repurchases, dividends, capital
expenditures, investments and sales of assets. As of April
4, 2001, the Company exceeded the most restrictive minimum
net worth requirement in the agreements by $41.4 million.
Both loans are secured by the stock of the Company and its
wholly-owned subsidiaries.
Management believes that its current capital structure is
sufficient to meet its capital requirements through 2002.
Interest rates for the revolving credit facility have not
been fixed and generally change in response to LIBOR. The
Company has entered into interest rate hedging transactions
in the past and, although no such agreements are currently
outstanding, management intends to continue monitoring the
interest rate environment and may enter into such
transactions in the future if deemed advantageous.
IMPACT OF INFLATION
The Company's operating costs that may be affected by
inflation consist principally of food, payroll and utility
costs. A significant number of the Company's restaurant
team members are paid at the Federal minimum wage and,
accordingly, legislated changes to the minimum wage affect
the Company's payroll costs. Although no minimum wage
increases have been signed into law, potential legislation
proposing to increase the minimum wage by $1.00 to $6.15 per
hour has recently been discussed in the U.S. Congress.
Another proposal that increases the minimum wage by $1.50 to
$6.55 per hour has also been introduced. The Company is
typically able to increase menu prices to offset most of the
payroll rate increases.
The Company considers its current price structure to be very
competitive. This factor, among others, is considered by
the Company when passing cost increases on to its customers.
Annual menu price increases have generally ranged from 3% to
5%.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's exposure to market risk relates primarily to
changes in interest rates. Foreign currencies are not used
in the Company's operations, and commodities used in the
preparation of food at the Company's restaurants are not
under purchase contract for more than one year in advance.
The Company is exposed to interest rate risk on its variable-
rate debt, which is composed entirely of outstanding debt
under the Company's revolving credit facility (see
"Liquidity and Capital Resources"). At April 4, 2001, there
was $126 million in outstanding debt under this facility.
Interest rates for the facility generally change in response
to LIBOR. Management estimates that a one-percent change in
interest rates throughout the quarter ended April 4, 2001
would have impacted interest expense by $251,000 and net
earnings by $160,000.
While the Company has entered into interest rate derivative
agreements in the past, there were no such agreements
outstanding as of April 4, 2001. The Company does not enter
into financial instrument agreements for trading or
speculative purposes.
FORWARD-LOOKING INFORMATION
In accordance with the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995, the
Company cautions that the statements in this report and
elsewhere, which are forward-looking and which provide
other than historical information, involve risks and
uncertainties that may impact the Company's actual results
of operations. All statements other than statements of
historical fact that address activities, events or
developments that the Company expects or anticipates will
or may occur in the future, including such things as
deadlines for completing projects, expected financial
results and other such matters are forward-looking
statements. The words "estimate", "plans", "anticipate",
"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; developments affecting
the public's perception of buffet-style restaurants; 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 January 3, 2001. 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 2001 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 facilities, and the maximum debt and
share repurchase levels authorized by the Company's Board
of Directors.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None reportable.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None reportable.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a)None.
(b)On January 9, 2001, the Company filed a report
on Form 8-K regarding sales information for
December 2000.
On February 12, 2001, the Company filed a report
on Form 8-K regarding sales information for
January 2001.
On March 12, 2001, the Company filed a report on
Form 8-K regarding sales information for
February 2001.
On April 9, 2001, the Company filed a report on
Form 8-K regarding sales information for March
2001.
On May 14, 2001, the Company filed a report on
Form 8-K regarding sales information for April
2001.
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
RYAN'S FAMILY STEAK HOUSES, INC.
(Registrant)
May 21, 2001 /s/Charles D. Way
Charles D. Way
Chairman, President and Chief
Executive Officer
May 21, 2001 /s/Fred T. Grant, Jr.
Fred T. Grant, Jr.
Senior Vice President-Finance and
Treasurer
May 21, 2001 /s/Richard D. Sieradzki
Richard D. Sieradzki
Controller