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 July 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 July 4, 2001:
30,449,000 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 July 4, 2001 and June 28, 2000 3
Consolidated Statements of Earnings (Unaudited)-
Six Months Ended July 4, 2001 and June 28, 2000 4
Consolidated Balance Sheets-
July 4, 2001 (Unaudited) and January 3, 2001 5
Consolidated Statements of Cash Flows (Unaudited)-
Six Months Ended July 4, 2001 and June 28, 2000 6
Consolidated Statements of Shareholders' Equity
(Unaudited)-
Six Months Ended July 4, 2001 and June 28, 2000 7
Notes to Consolidated Financial Statements
(Unaudited) 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 12
Part II - Other Information 13
Signatures 14
PART I. FINANCIAL INFORMATION
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share data)
Quarter Ended
July 4, June 28,
2001 2000
Restaurant sales $192,606 180,960
Operating expenses:
Food and beverage 70,744 67,300
Payroll and benefits 57,143 53,310
Depreciation 7,266 6,948
Other operating expenses 26,245 22,630
Total operating expenses 161,398 150,188
Operating profit 31,208 30,772
General and administrative expenses 8,710 9,272
Interest expense 3,360 3,595
Revenues from franchised restaurants (325) (315)
Other income, net (591) (550)
Earnings before income taxes 20,054 18,770
Income taxes 7,220 6,833
Net earnings $ 12,834 11,937
Net earnings per common share:
Basic $ .42 .37
Diluted .41 .36
Weighted-average shares:
Basic 30,338 32,475
Diluted 31,305 32,836
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share data)
Six Months Ended
July 4, June 28,
2001 2000
Restaurant sales $376,502 349,232
Operating expenses:
Food and beverage 139,214 130,580
Payroll and benefits 112,190 103,893
Depreciation 14,320 13,673
Other operating expenses 51,611 44,116
Total operating expenses 317,335 292,262
Operating profit 59,167 56,970
General and administrative expenses 17,587 17,573
Interest expense 6,726 6,675
Revenues from franchised restaurants (675) (613)
Other income, net (1,369) (1,312)
Earnings before income taxes 36,898 34,647
Income taxes 13,283 12,612
Net earnings $ 23,615 22,035
Net earnings per common share:
Basic $ .77 .65
Diluted .75 .65
Weighted-average shares:
Basic 30,700 33,734
Diluted 31,465 34,064
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
July 4, January 3,
2001 2001
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 18,271 2,098
Receivables 5,154 3,631
Inventories 5,036 5,085
Deferred income taxes 4,806 4,806
Prepaid expenses 1,294 820
Total current assets 34,561 16,440
Property and equipment:
Land and improvements 130,986 126,362
Buildings 372,589 358,415
Equipment 201,228 193,013
Construction in progress 38,685 37,054
743,488 714,844
Less accumulated depreciation 197,391 182,379
Net property and equipment 546,097 532,465
Other assets 7,368 7,156
$588,026 556,061
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 17,286 11,003
Income taxes payable 9,937 3,263
Accrued liabilities 37,480 33,806
Total current liabilities 64,703 48,072
Long-term debt 192,000 192,000
Deferred income taxes 30,761 30,628
Other long-term liabilities 3,497 2,932
Total liabilities 290,961 273,632
Shareholders' equity:
Common stock of $1.00 par value;
authorized 100,000,000 shares;
issued 30,449,000 in 2001 and
31,192,000 shares in 2000 30,449 31,192
Additional paid-in capital 1,326 89
Retained earnings 265,290 251,148
Total shareholders' equity 297,065 282,429
Commitments
$588,026 556,061
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
July 4, June 28,
2001 2000
Cash flows from operating activities:
Net earnings $ 23,615 22,035
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 15,147 14,530
Gain on sale of property and
equipment (74) (98)
Decrease (increase) in:
Receivables (1,523) (393)
Inventories 49 (661)
Prepaid expenses (474) (798)
Other assets (347) (1,396)
Increase (decrease) in:
Accounts payable 6,283 1,647
Income taxes payable 6,674 (289)
Accrued liabilities 3,674 6,469
Deferred income taxes 133 126
Other long-term liabilities 565 1,387
Net cash provided by operating
activities 53,722 42,559
Cash flows from investing activities:
Proceeds from sale of property and
equipment 612 4,398
Capital expenditures (29,182) (28,066)
Net cash used in investing activities (28,570) (23,668)
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 - 124,000
Debt issuance costs - (1,565)
Proceeds from issuance of common stock 2,904 495
Purchases of common stock (11,883) (32,306)
Net cash used in financing activities (8,979) (6,751)
Increase in cash and cash equivalents 16,173 12,140
Cash and cash equivalents
- beginning of period 2,098 642
Cash and cash equivalents
- end of period $ 18,271 12,782
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
I. For the Six Months ended July 4, 2001
$1 Par Value Additional
Common Paid-In Retained
Stock Capital Earnings Total
Balances at January 3, 2001 $31,192 89 251,148 282,429
Net earnings - - 23,615 23,615
Issuance of common stock
under Stock Option Plans 394 2,510 - 2,904
Purchases of common stock (1,137) (1,273) (9,473) (11,883)
Balances at July 4, 2001 $30,449 1,326 265,290 297,065
II. For the Six Months ended June 28, 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 - - 22,035 22,035
Issuance of common stock
under Stock Option Plans 65 430 - 495
Purchases of common stock (3,433) (997) (27,876) (32,306)
Balances at June 28, 2000 $32,487 136 240,994 273,617
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 4, 2001
(Unaudited)
Note 1. Description of Business
Ryan's Family Steak Houses, Inc. operates a single-concept
restaurant chain consisting of 308 Company-owned and 23
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 six months ended July 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
July 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 July 4, 2001 versus June 28, 2000
Restaurant sales during the second quarter of 2001 increased
by 6.4% over the comparable quarter of 2000. Average unit
growth for the quarter amounted to 4.7%, and average unit
sales ("AUS") for all stores, including newly opened
restaurants, increased by 1.8%. Same-store AUS increased by
0.4% for the quarter. 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. Same-store sales in 2001
were affected principally by 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
83.8% during the second quarter of 2001 compared to 83.0% in
2000. Food and beverage costs decreased to 36.7% of sales
in 2001 from 37.2% in 2000 due to menu price increases and
lower produce, vegetable and soybean-based product costs.
Payroll and benefits increased to 29.7% of sales in 2001
from 29.5% in 2000 due principally to higher manager pay,
partially offset by lower hourly labor and workers'
compensation costs. Manager pay increased as a result of a
company-wide salary increase that was implemented at the
beginning of the quarter for all top-level store managers.
Although the Company continues to experience upward wage
pressures at the store level, hourly payroll costs decreased
due to efficiencies resulting from the higher AUS. All
other operating costs, including depreciation, increased to
17.4% of sales in 2001 from 16.3% in 2000 due principally to
higher natural gas and store closing costs. Based on these
factors, the Company's operating profit amounted to 16.2%
and 17.0% of sales for the second quarters of 2001 and 2000,
respectively.
General and administrative expenses decreased to 4.5% of
sales in 2001 compared to 5.1% in 2000 due to lower media
advertising, partially offset by higher performance-based
bonuses. Higher AUS also favorably impacted this heavily
fixed cost category.
Interest expense for the second quarters of 2001 and 2000
amounted to 1.7% and 2.0% of sales, respectively. The
effective average interest rate decreased to 7.9% during the
second quarter of 2001 from 8.3% in 2000, resulting from
favorable interest rate trends. At July 4, 2001,
approximately 61% 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 rates and recent actions by the U.S. Federal
Reserve Bank, management expects a more favorable interest
rate environment during the remainder of 2001.
Effective income tax rates of 36.0% and 36.4% were used for
the second 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 second quarter amounted to $12.8
million in 2001 compared to $11.9 million in 2000. Weighted-
average shares (diluted) decreased 4.7% resulting from the
Company's stock repurchase program (see "Liquidity and
Capital Resources"). Accordingly, earnings per share
(diluted) increased by 13.9% to 41 cents in 2001 compared to
36 cents in 2000.
Six months ended July 4, 2001 versus June 28, 2000
For the six months ended July 4, 2001, restaurant sales were
up 7.8% compared to the same period in 2000. Principal
factors affecting the 2001 sales growth include (a) the 4.6%
unit growth of Company-owned restaurants, (b) a 2.4%
increase in all-store AUS, 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
six months of 2000. Same-store AUS for the first six months
of 2001 increased by 1.4%.
Six-month costs and expenses as detailed above were 84.3%
and 83.7% of sales for 2001 and 2000, respectively. During
the first six months of 2001, costs and expenses were most
affected by lower food and beverage costs (down 0.4% of
sales) resulting from lower produce, poultry, vegetable and
soy-based product costs. Payroll and benefits remained
essentially flat at 29.8% of sales for 2001 and 29.7% for
2000. All other operating costs, including depreciation,
increased by 1.0% of sales due to higher natural gas and
store closing costs. Based on these factors, the Company's
operating margin at the restaurant level amounted to 15.7%
of sales for the first six months of 2001 compared to 16.3%
of sales in 2000.
General and administrative expenses decreased by 0.4% of
sales for the first six months of 2001 resulting from lower
media advertising partly offset by higher performance-based
bonus costs. A reduction in the average interest rate
associated with the Company's revolving credit facility (see
"Liquidity and Capital Resources") caused interest expense
to decrease by 0.1% of sales from the prior year.
Effective income tax rates of 36.0% and 36.4% were used for
the first six months 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 six months of 2001 amounted to
$23.6 million compared to $22.0 million in 2000. Weighted-
average shares (diluted) decreased 7.6% resulting from the
Company's stock repurchase program (see "Liquidity and
Capital Resources"). Accordingly, earnings per share
(diluted) increased by 15.4% to 75 cents in 2001 compared to
65 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 July 4, 2001, the Company's working capital was a $30.1
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 $53.7 million for the first six months of 2001
and $79.4 million for the year ended January 3, 2001.
Total capital expenditures for the first six months of 2001
amounted to $29.1 million. The Company opened nine Ryan's
restaurants during the first six months of 2001, including
two relocations. 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 $62 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 six months of 2001, the Company purchased
1,137,000 shares at an aggregate cost of $11.9 million.
Since the beginning of the program in March 1996,
approximately 24.7 million shares, or 46% of total shares
available at the beginning of the program, had been
purchased at an aggregate cost of $233.8 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 Company is prohibited from
repurchasing stock after 2002 per the current provisions of
the credit agreement governing the revolving credit facility
(see next paragraph).
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 $30 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 July 4, 2001 consisted of $75 million of 9.02%
senior notes and $117 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
$74 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 (see preceding
paragraph), dividends, capital expenditures, investments and
sales of assets. As of July 4, 2001, the Company exceeded
the most restrictive minimum net worth requirement in the
agreements by $46.6 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, this issue has been
discussed frequently during recent months in the U.S
Congress. The most publicized proposal increases the
minimum wage by $1.50 to $6.55 per hour in several steps
with a final implementation date that has not yet been
determined. The Company is typically able to increase menu
prices to offset most of the payroll rate increases.
The Company considers its current price structure to be very
competitive. This factor, among others, is considered by
the Company when passing 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 July 4, 2001, there
was $117 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 July 4, 2001
would have impacted interest expense by approximately
$254,000 and net earnings by $163,000.
While the Company has entered into interest rate derivative
agreements in the past, there were no such agreements
outstanding as of July 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 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.
On June 11, 2001, the Company filed a report on
Form 8-K regarding sales information for May
2001.
On July 9, 2001, the Company filed a report on
Form 8-K regarding sales information for June
2001.
On August 13, 2001, the Company filed a report
on Form 8-K regarding sales information for July
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)
August 20, 2001 /s/Charles D. Way
Charles D. Way
Chairman, President and Chief
Executive Officer
August 20, 2001 /s/Fred T. Grant, Jr.
Fred T. Grant, Jr.
Senior Vice President-Finance and
Treasurer
August 20, 2001 /s/Richard D. Sieradzki
Richard D. Sieradzki
Controller