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 3, 2002
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 ________
At April 3, 2002, there were 43,710,000 shares outstanding
(adjusted for stock split effected May 15, 2002; see Note 5
to financial statements) of the registrant's common stock,
par value $1.00 per share.
RYAN'S FAMILY STEAK HOUSES, INC.
TABLE OF CONTENTS PAGE NO.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Earnings (Unaudited) -
Quarters Ended April 3, 2002 and April 4, 20013
Consolidated Balance Sheets -
April 3, 2002 (Unaudited) and January 2, 2002 4
Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended April 3, 2002 and April 4, 2001
5
Consolidated Statements of Shareholders' Equity
(Unaudited) -
Three Months Ended April 3, 2002 and April 4, 2001
6
Notes to Consolidated Financial Statements
(Unaudited) 7 - 8
Item 2.Management's Discussion and Analysis of Financial
Condition
and Results of Operations 9 - 11
Item 3.Quantitative And Qualitative Disclosures About
Market Risk 12
Forward-Looking Information 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share data)
Quarter Ended
April 3, April 4,
2002 2001
Restaurant sales $193,570 183,896
Operating expenses:
Food and beverage 70,722 68,470
Payroll and benefits 58,326 55,047
Depreciation 7,352 7,054
Other operating expenses 26,288 25,366
Total operating expenses 162,688 155,937
Operating profit 30,882 27,959
General and administrative expenses 9,209 8,877
Interest expense 2,275 3,366
Revenues from franchised restaurants (432) (350)
Other income, net (1,141) (778)
Earnings before income taxes 20,971 16,844
Income taxes 7,550 6,063
Net earnings $ 13,421 10,781
Net earnings per common share:
Basic $ .30 .23
Diluted .28 .23
Weighted-average shares:
Basic 44,835 46,593
Diluted 47,136 47,438
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
April 3, January 2,
2002 2002
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 17,250 13,323
Receivables 4,101 4,806
Inventories 5,256 5,091
Deferred income taxes 5,048 5,048
Prepaid expenses 1,200 816
Total current assets 32,855 29,084
Property and equipment:
Land and improvements 133,056 132,074
Buildings 381,922 379,254
Equipment 210,994 207,150
Construction in progress 38,800 38,145
764,772 756,623
Less accumulated depreciation 213,229 209,514
Net property and equipment 551,543 547,109
Other assets 7,464 6,936
$591,862 583,129
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 20,926 13,472
Income taxes payable 6,952 3,238
Accrued liabilities 34,149 36,333
Total current liabilities 62,027 53,043
Long-term debt 198,000 178,000
Deferred income taxes 31,495 31,419
Other long-term liabilities 4,464 3,913
Total liabilities 295,986 266,375
Shareholders' equity:
Common stock of $1.00 par value;
authorized 100,000,000 shares;
issued 43,710,000 in 2002 and
45,816,000 shares in 2001 43,710 45,816
Additional paid-in capital - 5,042
Retained earnings 252,166 265,896
Total shareholders' equity 295,876 316,754
Commitments
$591,862 583,129
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 3, April 4,
2002 2001
Cash flows from operating activities:
Net earnings $ 13,421 10,781
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 7,726 7,458
Gain on sale of property
and equipment (21) (1)
Tax benefit related to exercise
of stock options 891 306
Decrease (increase) in:
Receivables 705 (356)
Inventories (165) (41)
Prepaid expenses (384) (326)
Other assets (597) (280)
Increase (decrease) in:
Accounts payable 7,454 3,502
Income taxes payable 3,714 4,432
Accrued liabilities (2,184) (1,623)
Deferred income taxes 76 61
Other long-term liabilities 551 393
Net cash provided by operating
activities 31,187 24,306
Cash flows from investing activities:
Proceeds from sale of property and
equipment 2,325 110
Capital expenditures (14,395) (15,274)
Net cash used in investing activities (12,070) (15,164)
Cash flows from financing activities:
Net borrowings from revolving credit
facility 20,000 9,000
Proceeds from stock options exercised 2,344 805
Purchases of common stock (37,534) (8,551)
Net cash provided by (used in)
financing activities (15,190) 1,254
Increase in cash and cash equivalents 3,927 10,396
Cash and cash equivalents - beginning
of period 13,323 2,098
Cash and cash equivalents - end of
period $ 17,250 12,494
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 3, 2002
$1 Par Value Additional
Common Paid-In Retained
Stock Capital Earnings Total
Balances at January 2, 2002 $45,816 5,042 265,896 316,754
Net earnings - - 13,421 13,421
Issuance of common stock
under stock option plans 398 1,946 - 2,344
Tax benefit from exercise of
non-qualified stock options - 891 - 891
Purchases of common stock (2,504) (7,879) (27,151) (37,534)
Balances at April 3, 2002 $43,710 - 252,166 295,876
II. For the Three Months ended April 4, 2001
$1 Par Value Additional
Common Paid-In Retained
Stock Capital Earnings Total
Balances at January 3, 2001 $46,788 - 235,641 282,429
Net earnings - - 10,781 10,781
Issuance of common stock
under stock option plans 183 622 - 805
Tax benefit from exercise of
non-qualified stock options - 306 - 306
Purchases of common stock (1,241) (928) (6,382) (8,551)
Balances at April 4, 2001 $45,730 - 240,040 285,770
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 3, 2002
(Unaudited)
Note 1. Description of Business
Ryan's Family Steak Houses, Inc. operates a single-concept
restaurant chain consisting of 314 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.
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 3, 2002 are not
necessarily indicative of the results that may be expected
for the fiscal year ending January 1, 2003. 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 2, 2002.
Note 3. Relevant New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 141, "Business Combinations," and SFAS No. 142,
"Goodwill and Other Intangible Assets." Under the new
rules, goodwill and other intangible assets with indefinite
lives are no longer amortized but are reviewed annually for
impairment. Separable intangible assets that are not deemed
to have an indefinite life will continue to be amortized
over their useful lives. The Company applied these new
accounting rules on January 3, 2002 and believes that their
application did not materially impact the accompanying first
quarter 2002 financial statements.
The FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" in June 2001. SFAS No. 143 applies
to legal obligations associated with the retirement of
certain tangible long-lived assets. This statement is
effective for fiscal years beginning after June 15, 2002.
Accordingly, the Company will adopt this statement on
January 2, 2003. The Company believes the adoption of SFAS
143 will not have a material impact on its financial
statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." This
statement addresses financial accounting and reporting for
the impairment of disposal of long-lived assets and
supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001 and interim periods within those
fiscal years. The Company adopted the Statement effective
January 3, 2002 with no impact on the first quarter 2002
results.
Note 4. Contingencies
In September 2001 the Company received a proposed assessment
from the South Carolina Department of Revenue ("DOR") in
connection with the DOR's audits of the Company's state tax
returns for the years 1994 through 1999. After several
months of discussion with the DOR, these audits were settled
in March 2002. The settlement did not materially affect the
Company's financial condition or results of operations.
Note 5. Subsequent Event
On May 1, 2002, Ryan's board of directors approved a 3-for-2
stock split of the Company's common shares in the form of a
50% stock dividend. Accordingly, shareholders of record on
May 15, 2002 will receive an additional common share for
every two shares they hold. The additional shares will be
distributed on May 29, 2002. All share and per share
amounts in the accompanying financial statements have been
restated to reflect the stock split.
Note 6. Reclassifications
Certain prior year amounts in the accompanying consolidated
financial statements have been reclassified to conform to
the 2002 presentation.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter ended April 3, 2002 versus April 4, 2001
Restaurant sales during the first quarter of 2002 increased
by 5.3% over the comparable quarter of 2001. Average unit
growth, based on the average number of restaurants in
operation, for the quarter amounted to 3.3%. Average unit
sales ("AUS"), or the average weekly sales volume per unit,
for all stores (including newly opened restaurants)
increased by 2.0%. Same-store sales increased by 0.7% for
the quarter. The Company calculates same-store sales using
AUS 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 2002 were favorably
affected by new product introductions and menu price
increases, partially offset by adverse winter weather in
January 2002.
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
84.0% during the first quarter of 2002 compared to 84.8% in
2001. Food and beverage costs decreased to 36.5% of sales
in 2002 from 37.2% in 2001 due to lower beef, seafood, and
pork costs combined with menu price increases, partially
offset by higher lettuce prices. Payroll and benefits
increased to 30.1% of sales in 2002 from 29.9% in 2001 due
principally to higher manager pay offset by lower group
medical insurance and workers' compensation costs. Manager
pay increased as a result of a company-wide salary increase
for all top-level store managers that was implemented at the
beginning of April 2001 as well as from higher bonuses
resulting from the first quarter's excellent operating
performance. Group medical insurance costs decreased as a
result of the introduction of alternative medical plans in
addition to changes in employee contribution levels
associated with the Company's principal medical plan.
Workers' compensation costs decreased due to lower team
member accident rates and efficiencies resulting from higher
AUS. All other operating costs, including depreciation,
decreased to 17.4% of sales in 2002 from 17.6% in 2001 due
principally to lower natural gas prices in 2002. Based on
these factors, the Company's operating profit increased by
0.8% of sales to 16.0% in 2002 from 15.2% in 2001.
General and administrative expenses remained unchanged at
4.8% of sales in both 2002 and 2001. Improved manager
turnover resulted in lower hiring expenses in 2002. The
increase in AUS also favorably impacted this heavily fixed-
cost category.
Interest expense for the first quarters of 2002 and 2001
amounted to 1.2% and 1.8% of sales, respectively. The
effective average interest rate decreased to 5.7% during the
first quarter of 2002 from 8.1% in 2001, resulting from a
favorable interest rate environment. At April 3, 2002,
approximately 62% 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 believes that the effective
interest rate comparisons will remain favorable through the
third quarter of 2002.
An effective income tax rate of 36.0% was used for both the
first quarters of 2002 and 2001.
Net earnings for the first quarter amounted to $13.4 million
in 2002 compared to $10.8 million in 2001. Weighted-average
shares (diluted) decreased 0.6% resulting from the Company's
stock repurchase program (see "Liquidity and Capital
Resources"). Accordingly, earnings per share (diluted)
increased by 21.7% to 28 cents in 2002 compared to 23 cents
in 2001.
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 3, 2002, the Company's working capital amounted to
a $30.1 million deficit compared to a $24.0 million deficit
at January 2, 2002. 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 $31.2 million for the first three months of 2002
and $84.9 million for the year ended January 2, 2002.
Total capital expenditures for the first three months of
2002 amounted to $14.4 million. The Company opened four
Ryan's restaurants during the first three months of 2002,
including one relocation, and closed three restaurants,
including one due to 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 the remainder of 2002, the Company plans to
build and open 15 new restaurants, including five
relocations. All new restaurants will open with Ryan's
Display Cooking format. This format was introduced in 2000
and involves a glass-enclosed grill and cooking area that
extends into the dining room. A variety of meats are
grilled daily and available to customers as part of the
buffet price. Customers go the grill and can get hot,
cooked-to-order steak, chicken or other grilled items placed
directly from the grill onto their plate. Management
intends to remodel approximately 35 restaurants during 2002
with the Display Cooking format. Total 2002 capital
expenditures are estimated at $65 million. The Company is
currently concentrating its efforts on Company-owned Ryan's
restaurants and is not actively pursuing any additional
franchised locations, either domestically or
internationally.
The Company began a stock repurchase program in March 1996
and is currently authorized to repurchase up to 45 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 2002, the Company purchased 2,504,400 shares
at an aggregate cost of $37.5 million. Through April 3,
2002, approximately 40.5 million shares, or 51% of total
shares available at the beginning of the repurchase program,
had been purchased at an aggregate cost of $281.8 million.
Purchases since April 3, 2002 have not been significant.
The Company completed a substantial portion of its 2002
share repurchase goals during the first quarter and may
repurchase an additional $3.0 million to $5.0 million of its
common stock during the remainder of the year if management
believes that shares can be purchased at attractive levels,
subject to the continued availability of capital, the
limitations imposed by the Company's current credit
agreements, applicable securities regulations and the other
factors described in "Forward-Looking Information". The
Company is currently prohibited from repurchasing stock
after 2002 by the terms of its revolving credit facility
(see next paragraph).
Management estimates that cash generated from operations
will exceed the Company's 2002 capital expenditure
requirements and currently plans to use this excess cash for
either stock repurchases or debt reduction. At April 3,
2002, the Company's outstanding debt consisted of $75
million of 9.02% senior notes and a $200 million revolving
credit facility of which $123 million was outstanding at
that date. After allowances for letters of credit and other
items, there was approximately $68 million in funds
available under the revolving credit facility. The
Company's ability to draw on these funds may be limited by
restrictions in the agreements governing both the senior
notes and the revolving credit facility. Management
believes that, based on its current plans, these
restrictions will not impair the Company's operations during
2002.
Management believes that its current capital structure is
sufficient to meet its 2002 requirements. The Company has
entered into interest rate hedging transactions in the past,
and although no such agreements are currently outstanding,
management intends to continue monitoring the interest rate
environment and may enter into such transactions in the
future if deemed advantageous.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are defined as those that have
significant impact on the Company's financial statements and
involve difficult or subjective estimates of future events
by management. Management's estimates could differ
significantly from actual results, leading to possible
significant adjustments to future financial results.
Management believes that the Company's policy regarding
asset impairment is the Company's sole critical accounting
policy. This policy generally applies to the recoverability
of a restaurant's carrying amount. For restaurants that
will continue to be operated, the carrying amount is
compared to the undiscounted future cash flows, including
proceeds from future disposal, of the restaurant. The
estimate of future cash flows is based on management's
review of historical and current sales and cost trends of
both the subject and similar restaurants. The estimate of
proceeds from future disposal is based on management's
knowledge of current and planned development near the
restaurant site and on current market transactions. If the
carrying amount is not recoverable, or less than the sum of
the undiscounted future cash flows, the carrying value is
reduced to the restaurant's current fair value less costs to
sell ("Current Market Proceeds"). The estimate of Current
Market Proceeds is based on current market transactions for
similar restaurants. If the decision has been made to close
a restaurant, the carrying value of that restaurant is
reduced to its Current Market Proceeds.
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, legislation proposing
to increase the minimum wage by $1.50 to $6.65 per hour has
recently been introduced in the U.S. Congress. 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 during the last five years have
generally ranged from 2% to 4%.
Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 3, 2002, there
was $123 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 3, 2002
would have impacted interest expense by approximately
$232,000 and net earnings by $148,000.
While the Company has entered into interest rate derivative
agreements in the past, there were no such agreements
outstanding as of April 3, 2002. 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 annual report and
elsewhere that are forward-looking involve risks and
uncertainties that may impact the Company's actual results
of operations. All statements other than statements of
historical fact that address activities, events or
developments that the Company expects or anticipates will or
may occur in the future, including such things as deadlines
for completing projects, expected financial results,
expected regulatory environment and other such matters, are
forward-looking statements. The words "estimates", "plans",
"anticipates", "expects", "intends", "believes" and similar
expressions are intended to identify forward-looking
statements. All forward-looking information reflects the
Company's best judgment based on current information.
However, there can be no assurance that other factors will
not affect the accuracy of such information. While it is
not possible to identify all factors, the following could
cause actual results to differ materially from expectations:
general economic conditions including consumer confidence
levels; 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; political
environment; 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 2,
2002. 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 2002 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 Company's loan agreements that
govern the senior notes and the revolving credit facility,
and the maximum debt and share repurchase levels authorized
by the Company's Board of Directors.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports
on Form 8-K.
(a)None.
(b)On January 7, 2002, the Company filed a report
on Form 8-K regarding sales information for
December 2001.
On May 1, 2002, the Company filed a report on
Form 8-K regarding its board of directors'
approval of a 3-for-2 stock split.
SIGNATURES
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 20, 2002 /s/Charles D. Way
Charles D. Way
Chairman, President and Chief
Executive Officer
May 20, 2002 /s/Fred T. Grant, Jr.
Fred T. Grant, Jr.
Senior Vice President-Finance and
Treasurer
May 20, 2002 /s/Richard D. Sieradzki
Richard D. Sieradzki
Controller