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 March 29, 2000
Commission File No. 0-10943
RYAN'S FAMILY STEAK HOUSES, INC.
(Exact name of registrant as specified in its charter)
South Carolina No. 57-0657895
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
405 Lancaster Avenue (29650)
P. O. Box 100
Greer, South Carolina 29652
(Address of principal executive
offices, including zip code)
864-879-1000
(Registrant's telephone number, including area code)
------------------------------------------------------------
-----------
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 March 29, 2000:
32,464,000 shares of common stock, $1.00 Par Value
PART I. FINANCIAL INFORMATION
<TABLE>
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share data)
Quarter Ended
March 29, March 31,
2000 1999
<S> <C> <C>
Restaurant sales $ 168,272 159,579
Operating expenses:
Food and beverage 63,280 61,740
Payroll and benefits 50,583 47,286
Depreciation 6,725 6,354
Other operating expenses 21,486 19,804
Total operating expenses 142,074 135,184
General and administrative expenses8,301 7,556
Interest expense 3,080 1,765
Revenues from franchised restaurants(298) (291)
Other income, net (762) (762)
Earnings before income taxes 15,877 16,127
Income taxes 5,779 5,906
Net earnings $ 10,098 10,221
Net earnings per common share:
Basic $ .29 .26
Diluted .29 .26
Weighted-average shares:
Basic 34,992 39,092
Diluted 35,291 39,913
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 29, December 29,
2000 1999
ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,603 642
Receivables 3,031 3,027
Inventories 5,129 4,663
Deferred income taxes 4,342 4,342
Prepaid expenses 1,153 500
Total current assets 15,258 13,174
Property and equipment:
Land and improvements 121,347 119,950
Buildings 340,059 333,337
Equipment 183,691 177,857
Construction in progress 31,422 35,074
676,519 666,218
Less accumulated depreciation 164,176 157,439
Net property and equipment 512,343 508,779
Other assets 6,090 3,874
$ 533,691 525,827
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 14,282 11,891
Income taxes payable 7,841 2,997
Accrued liabilities 31,254 30,436
Total current liabilities 53,377 45,324
Long-term debt 194,000 172,375
Deferred income taxes 24,793 24,735
Total liabilities 272,170 242,434
Shareholders' equity:
Common stock of $1.00 par value;
authorized 100,000,000 shares;
issued 32,464,000 shares in 2000
and 35,855,000 shares in 1999 32,464 35,855
Additional paid-in capital - 703
Retained earnings 229,057 246,835
Total shareholders' equity 261,521 283,393
Commitments
$ 533,691 525,827
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
March 29, March 31,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 10,098 10,221
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 7,143 6,832
Gain on sale of property and equipment (72) (87)
Decrease (increase) in:
Receivables (4) (287)
Inventories (466) (137)
Prepaid expenses (653) 126
Other assets (2,287) 24
Increase (decrease) in:
Accounts payable 2,391 4,986
Income taxes payable 4,844 3,684
Accrued liabilities 818 (1,617)
Deferred income taxes 58 59
Net cash provided by operating activities 21,870 23,804
Cash flows from investing activities:
Proceeds from sale of property and equipment 2,993 3,466
Capital expenditures (13,557) (12,565)
Net cash used in investing activities (10,564) (9,099)
Cash flows from financing activities:
Net repayment of notes payable (91,000) (6,400)
Repayment of long-term debt (81,375) -
Proceeds from issuance of long-term debt 194,000 -
Proceeds from issuance of common stock 336 1,273
Purchases of common stock (32,306) (10,592)
Net cash used in financing activities (10,345) (15,719)
Increase (decrease) in cash and cash equivalents 961 (1,014)
Cash and cash equivalents - beginning of period 642 1,502
Cash and cash equivalents - end of period $ 1,603 488
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
I. For the Three Months ended March 29, 2000
$1 Par Value Additional
Common Paid-In Retained
Stock Capital Earnings Total
<S> <C> <C> <C> <C>
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
II. For the Three Months ended March 31, 1999
$1 Par Value Additional
Common Paid-In Retained
Stock Capital Earnings Total
Balances at December 30, 1998 $39,158 1,274 239,940 280,372
Net earnings - - 10,221 10,221
Issuance of common stock
under Stock Option Plans 184 1,089 - 1,273
Purchases of common stock (876) (2,363) (7,353) (10,592)
Balances at March 31, 1999 $38,466 - 242,808 281,274
</TABLE>
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 2000
(Unaudited)
Note 1. Description of Business
Ryan's Family Steak Houses, Inc. operates a single-concept
restaurant chain consisting of 291 Company-owned and 22
franchised restaurants located principally in the southern
and midwestern United States. The Company, organized in
1977, opened its first restaurant in 1978 and completed its
initial public offering in 1982. The Company does not
operate or franchise any international units and has no
individually significant customers.
Note 2. Basis of Presentation
The consolidated financial statements include the financial
statements of Ryan's Family Steak Houses, Inc. and its
wholly-owned subsidiaries and affiliates. All significant
intercompany balances and transactions have been eliminated
in consolidation.
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and
the instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Consolidated operating
results for the three months ended March 29, 2000 are not
necessarily indicative of the results that may be expected
for the fiscal year ending January 3, 2001. For further
information, refer to the consolidated financial statements
and footnotes included in the Company's annual report on
Form 10-K for the fiscal year ended December 29, 1999.
Note 3. New Accounting Pronouncement and Reclassification
In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This statement standardizes the
accounting for derivative instruments, including derivative
instruments embedded in other contracts. Under SFAS No.
133, entities are required to carry all derivative
instruments as either assets or liabilities on the balance
sheet at fair value. The accounting for changes in the fair
value (i.e., gains and losses) of a derivative instrument
depends on its intended use. The provisions of SFAS No. 133
must be adopted by the beginning of 2001. The Company has
not yet assessed the impact this standard will have on its
financial condition or results of operations; however, the
impact will ultimately depend on the amount and type of
derivative instruments held at the time of adoption. As
noted in "Liquidity and Capital Resources", the Company was
not a party to any interest rate derivative agreements at
March 29, 2000. The Company does not enter into derivative
instrument agreements for trading or speculative purposes.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter ended March 29, 2000 versus March 31, 1999
Restaurant sales during the first quarter of 2000 increased
by 5.5% over the comparable quarter of 1999. The sales
growth resulted from the 3.1% unit growth of Company-owned
restaurants, which totaled 291 at March 29, 2000 and 281 at
March 31, 1999, and from a 1.1% increase in same-store
sales. The Company calculates same-store sales using
average unit sales in units that have been open for at least
18 months and operating during comparable weeks during the
current and prior year. The first quarter's sales increase
represents the ninth consecutive quarter of higher same-
store sales and compares well to the 1.5% same-store sales
increase experienced during the first quarter of 1999.
Total costs and expenses of Company-owned restaurants
include food and beverage, payroll, payroll taxes and
employee benefits, depreciation, repairs, maintenance,
utilities, supplies, advertising, insurance, property taxes
and licenses. Such costs, as a percentage of sales, were
84.4% during the first quarter of 2000 compared to 84.7% in
1999. Food and beverage costs decreased to 37.6% of sales
in 2000 from 38.7% of sales in 1999 due to lower dairy,
vegetable and soybean-based product costs, partially offset
by higher beef costs. Payroll and benefits increased to
30.1% of sales in 2000 from 29.6% of sales in 1999 due
principally to higher hourly payroll costs and store
management bonuses. All other operating costs, including
depreciation, increased to 16.8% of sales in 2000 from 16.4%
of sales in 1999 due principally to higher maintenance and
repair costs and higher store pre-opening charges. Based on
these factors, the Company's operating margin at the
restaurant level increased to 15.6% of sales in the first
quarter of 2000 from 15.3% of sales in 1999.
General and administrative expenses increased to 4.9% of
sales in 2000 compared to 4.7% of sales in 1999. The
Company experienced higher outside consulting, hiring and
travel costs during the first quarter of 2000.
Interest expense for the first quarters of 2000 and 1999
amounted to 1.8% and 1.1% of sales, respectively. Due to
the Company's stock repurchase program (see "Liquidity and
Capital Resources"), total debt increased from $159.0
million from the first quarter of 1999 to $194.0 million at
March 29, 2000. The effective average interest rate was
7.8% during the first quarter of 2000 compared to 5.6% in
1999. The increase in the effective interest rate resulted
from the refinancing of all existing debt balances in
January 2000 (see "Liquidity and Capital Resources") as well
as from a rising interest rate environment. Due to these
factors, interest costs are expected to be higher for all of
2000 when compared to 1999.
Effective income tax rates of 36.4% and 36.6% were used for
the first quarters of 2000 and 1999, respectively. The
lower rate in 2000 resulted from the favorable impact of
various tax-planning strategies.
Net earnings for the first quarter amounted to $10.1 million
in 2000 compared to $10.2 million in 1999. Due to an 11.6%
reduction in weighted-average shares (diluted) resulting
from the Company's stock repurchase program (see "Liquidity
and Capital Resources"), earnings per share (diluted)
increased 11.5% to 29 cents in 2000 compared to 26 cents in
1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's restaurant sales are primarily derived from
cash. Inventories are purchased on credit and are rapidly
converted to cash. Therefore, the Company does not maintain
significant receivables or inventories, and other working
capital requirements for operations are not significant.
At March 29, 2000, the Company's working capital was a $38.1
million deficit compared to a $32.2 million deficit at
December 29, 1999. The Company does not anticipate any
adverse effects from the current working capital deficit due
to significant cash flow provided by operations, which
amounted to $21.9 million for the first three months of 2000
and $74.8 million for the year ended December 29, 1999.
Total capital expenditures for the first three months of
2000 amounted to $13.6 million. The Company opened five and
closed three Ryan's restaurants during the first three
months of 2000. This activity included two openings and
three closings related to relocated restaurants. Management
defines a relocation as a restaurant opened within 18 months
after closing another restaurant in the same marketing area.
A relocation represents a redeployment of assets within a
market. For all of 2000, the Company plans to open a total
of 17 to 19 Ryan's, including four to six relocations.
Total capital expenditures for 2000 are estimated at $53
million. Expansion of Company-owned restaurants is expected
to occur in states within the Company's current 22-state
operating area. The Company is currently concentrating its
efforts on Company-owned units and is not actively pursuing
any additional franchised locations, either domestic or
international.
The Company began a stock repurchase program in March 1996
and is currently authorized to repurchase a total of 30.0
million shares of the Company's common stock through
December 2002. Repurchases may be made from time to time on
the open market or in privately negotiated transactions in
accordance with applicable securities regulations, depending
on market conditions, share price and other factors. During
the first three months of 2000, the Company purchased 3.4
million shares at an aggregate cost of $32.3 million. Since
the beginning of the program in March 1996, approximately
22.2 million shares, or 42% of total shares available at the
beginning of the program, had been purchased at an aggregate
cost of $210.4 million. Management intends to proceed with
the repurchase program during 2000, 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 2000 is dependent upon the level of stock repurchase
transactions during the year. Based on current target debt
levels, a maximum repurchase scenario would require
approximately $15 million of additional borrowings during
the remainder of 2000. All other funding needs, including
capital expenditures, are expected to be met by internally
generated cash from operations. The Company's debt
structure at March 29, 2000 consisted of $75 million of
9.02% senior notes and $119 million in outstanding notes
under a $200 million revolving credit facility. The senior
notes are due in 2008 with principal payments commencing in
2005. The revolving credit facility is due in 2005 and
bears interest at various floating interest rates plus a
variable spread currently set at 1.625%. After allowances
for letters of credit and other items, there was
approximately $70 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 March 29, 2000, the Company exceeded the most
restrictive minimum net worth requirement in the agreements
by $38.8 million. Both loans are secured by the stock of
the Company's wholly-owned subsidiaries and affiliates.
Management believes that its current capital structure is
sufficient to meet its 2000 requirements. Interest rates for
the revolving credit facility have not been fixed and
generally change in response to the London Interbank Offered
Rate. The Company has entered into interest rate hedging
transactions in the past and, although no such agreements
are currently outstanding, management intends to continue
monitoring the interest rate environment and may enter into
such transactions in the future if deemed advantageous.
IMPACT OF INFLATION
The Company's operating costs that may be affected by
inflation consist principally of food, payroll and utility
costs. A significant number of the Company's restaurant
team members are paid at the Federal minimum wage and,
accordingly, legislated changes to the minimum wage affect
the Company's payroll costs. Although no minimum wage
increases have been signed into law, various proposals are
presently being discussed and voted upon in the U.S.
Congress. Recent legislation in the Congress points to a
probable $1.00 per hour increase in the minimum wage to
$6.15 per hour with a three-step phase-in process, ending in
March 2002. The Company is typically able to increase menu
prices to cover most of the payroll rate increases.
The Company considers its current price structure to be very
competitive. This factor, among others, is considered by
the Company when passing cost increases on to its customers.
Annual menu price increases have consistently ranged from 2%
to 4%.
YEAR 2000
Beginning in 1997, the Company invested significant
resources to ensure that its operations would not be
adversely impacted by software failures associated with
programming incompatibilities with the year 2000 ("Y2K").
In 1997, the Company identified those systems that were not
Y2K-compliant and began researching conversion and
replacement options. At December 30, 1998, conversion of
all major corporate office financial systems (general
ledger, accounts payable, payroll and benefits) was
completed. Upgrades to critical store-level systems as well
as remediation steps for corporate office workstations were
completed by the end of the third quarter of 1999. The
various Y2K-remediation steps taken by the Company were
comprehensive and appear to have been successful as no
operational or technology problems have been encountered in
connection with the commencement of year 2000. Costs
associated with the Y2K plan that represented significant
functional or technology improvements were capitalized.
Other costs that involved Y2K-compatibility were charged to
expense as incurred. The total cost of the Y2K remediation
project amounted to $521,000, consisting of approximately
$261,000 of capital and $260,000 of expense costs. During
1999, approximately $261,000 of capital and $199,000 of
expense costs were incurred. Y2K expenditures during the
first quarter of 2000 were insignificant.
FORWARD-LOOKING INFORMATION
In accordance with the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995, the
Company cautions that the statements in this report and
elsewhere, which are forward-looking and which provide
other than historical information, involve risks and
uncertainties that may impact the Company's actual results
of operations. All statements other than statements of
historical fact that address activities, events or
developments that the Company expects or anticipates will
or may occur in the future, including such things as
deadlines for completing projects, expected financial
results and other such matters are forward-looking
information. The words "estimate", "plans", "anticipate",
"expects", "intend", "believe", and similar expressions
are intended to identify forward-looking statements. All
forward-looking information reflects the Company's best
judgment based on current information. However, there can
be no assurance that other factors will not affect the
accuracy of such information. While it is not possible to
identify all factors, the following could cause actual
results to differ materially from expectations: general
economic conditions; competition; developments affecting
the continued operation of the restaurants' buffet lines;
real estate availability; food and labor supply costs;
food and labor availability; weather fluctuations;
interest rate fluctuations; stock market conditions; and
other risks and factors described from time to time in the
Company's reports filed with the Securities and Exchange
Commission, including the Company's annual report on Form
10-K for the fiscal year ended December 29, 1999. The
ability of the Company to open new restaurants depends
upon a number of factors, including its ability to find
suitable locations and negotiate acceptable land
acquisition and construction contracts, its ability to
attract and retain sufficient numbers of restaurant
managers and team members, and the availability of
reasonably priced capital. The extent of the Company's
stock repurchase program during 2000 and future years
depends upon the financial performance of the Company's
restaurants, the investment required to open new
restaurants, share price, the availability of reasonably
priced capital, the financial covenants contained in loan
agreements, and the maximum debt and share repurchase
levels authorized by the Company's Board of Directors.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None reportable.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None reportable.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a)None.
(b)On January 3, 2000, the Company filed a report
on Form 8-K regarding sales information for
December 1999.
On February 7, 2000, the Company filed a report
on Form 8-K regarding sales information for
January 2000.
On March 6, 2000, the Company filed a report on
Form 8-K regarding sales information for
February 2000.
On April 3, 2000, the Company filed a report on
Form 8-K regarding sales information for March
2000.
On May 8, 2000, the Company filed a report on
Form 8-K regarding sales information for April
2000.
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 15, 2000 /s/Charles D. Way
Charles D. Way
Chairman, President and Chief
Executive Officer
May 15, 2000 /s/Fred T. Grant, Jr.
Fred T. Grant, Jr.
Vice President-Finance and
Treasurer
May 15, 2000 /s/Richard D. Sieradzki
Richard D. Sieradzki
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-2001
<PERIOD-END> MAR-29-2000
<CASH> 1,603
<SECURITIES> 0
<RECEIVABLES> 3,236
<ALLOWANCES> 205
<INVENTORY> 5,129
<CURRENT-ASSETS> 15,258
<PP&E> 676,519
<DEPRECIATION> 164,176
<TOTAL-ASSETS> 533,691
<CURRENT-LIABILITIES> 53,377
<BONDS> 194,000
0
0
<COMMON> 32,464
<OTHER-SE> 229,057
<TOTAL-LIABILITY-AND-EQUITY> 533,691
<SALES> 168,272
<TOTAL-REVENUES> 169,332
<CGS> 113,863
<TOTAL-COSTS> 150,375
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,080
<INCOME-PRETAX> 15,877
<INCOME-TAX> 5,779
<INCOME-CONTINUING> 10,098
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,098
<EPS-BASIC> 0.29
<EPS-DILUTED> 0.29
</TABLE>
