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 October 2, 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)
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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 October 2, 2002, there were 43,230,000 shares outstanding
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 October 2, 2002 and October 3, 2001 3
Consolidated Statements of Earnings (Unaudited) -
Nine Months Ended October 2, 2002 and October 3,
2001 4
Consolidated Balance Sheets -
October 2, 2002 (Unaudited) and January 2, 2002 5
Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended October 2, 2002 and October 3,
2001 6
Consolidated Statement of Shareholders' Equity
(Unaudited) -
Nine Months Ended October 2, 2002 7
Notes to Consolidated Financial Statements
(Unaudited) 8 - 9
Item 2.Management's Discussion and Analysis of Financial
Condition
and Results of Operations 10 - 13
Item 3.Quantitative And Qualitative Disclosures About
Market Risk 13
Item 4.Controls and Procedures 13
Forward-Looking Information 14
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of
Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
SECTION 302 CERTIFICATIONS 17-18
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
October 2, October 3,
2002 2001
Restaurant sales $194,115 188,839
Operating expenses:
Food and beverage 69,152 67,953
Payroll and benefits 61,636 57,939
Depreciation 7,586 7,408
Other operating expenses 26,551 25,102
Total operating expenses 164,925 158,402
Operating profit 29,190 30,437
General and administrative expenses 9,650 10,205
Interest expense 2,297 2,642
Revenues from franchised restaurants (399) (316)
Other income, net (427) (850)
Earnings before income taxes 18,069 18,756
Income taxes 6,542 6,751
Net earnings $ 11,527 12,005
Net earnings per common share:
Basic $ .27 .26
Diluted .26 .25
Weighted-average shares:
Basic 43,264 45,842
Diluted 44,778 47,837
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share data)
Nine Months Ended
October 2, October 3,
2002 2001
Restaurant sales $588,712 565,341
Operating expenses:
Food and beverage 211,354 206,152
Payroll and benefits 181,263 170,129
Depreciation 22,289 21,728
Other operating expenses 78,579 76,713
Total operating expenses 493,485 474,722
Operating profit 95,227 90,619
General and administrative expenses 28,437 28,807
Interest expense 6,898 9,368
Revenues from franchised restaurants (1,294) (991)
Other income, net (2,098) (2,219)
Earnings before income taxes 63,284 55,654
Income taxes 22,910 20,034
Net earnings $ 40,374 35,620
Net earnings per common share:
Basic $ .92 .77
Diluted .88 .75
Weighted-average shares:
Basic 43,944 45,981
Diluted 45,964 47,411
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
October 2, January 2,
2002 2002
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 12,544 13,323
Receivables 4,583 4,806
Inventories 5,046 5,091
Deferred income taxes 5,048 5,048
Prepaid expenses 1,576 816
Total current assets 28,797 29,084
Property and equipment:
Land and improvements 140,910 132,074
Buildings 401,149 379,254
Equipment 222,324 207,150
Construction in progress 37,223 38,145
801,606 756,623
Less accumulated depreciation 226,413 209,514
Net property and equipment 575,193 547,109
Other assets 7,332 6,936
$611,322 583,129
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 15,893 13,472
Income taxes payable 6,287 3,238
Accrued liabilities 35,724 36,333
Total current liabilities 57,904 53,043
Long-term debt 202,000 178,000
Deferred income taxes 31,648 31,419
Other long-term liabilities 4,664 3,913
Total liabilities 296,216 266,375
Shareholders' equity:
Common stock of $1.00 par value;
authorized 100,000,000 shares;
issued 43,230,000 in 2002 and
45,816,000 sharesin 2001 43,230 45,816
Additional paid-in capital 1,139 5,042
Retained earnings 270,737 265,896
Total shareholders' equity 315,106 316,754
Commitments
$611,322 583,129
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
October 2, October 3,
2002 2001
Cash flows from operating activities:
Net earnings $ 40,374 35,620
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 23,363 22,991
Gain on sale of property and
equipment (10) (475)
Tax benefit related to stock
options exercised 1,090 2,026
Decrease (increase) in:
Receivables 223 (1,120)
Inventories 45 230
Prepaid expenses (760) (525)
Other assets (599) 17
Increase (decrease) in:
Accounts payable 2,421 799
Income taxes payable 3,049 1,915
Accrued liabilities (609) 1,161
Deferred income taxes 229 201
Other long-term liabilities 751 773
Net cash provided by operating
activities 69,567 63,613
Cash flows from investing activities:
Proceeds from sale of property and
equipment 5,373 5,385
Capital expenditures (56,607) (41,030)
Net cash used in investing activities (51,234) (35,645)
Cash flows from financing activities:
Net borrowings from (repayments of)
revolving credit facility 24,000 (14,000)
Proceeds from stock options exercised 2,868 5,332
Purchases of common stock (45,980) (15,547)
Net cash used in financing activities (19,112) (24,215)
Increase (decrease) in cash and
cash equivalents (779) 3,753
Cash and cash equivalents -
beginning of period 13,323 2,098
Cash and cash equivalents -
end of period $ 12,544 5,851
Cash paid during the period for:
Interest, net of amount capitalized $ 8,441 11,153
Income taxes 24,868 20,277
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED OCTOBER 2, 2002
(Unaudited)
(In thousands)
$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 - - 40,374 40,374
Issuance of common stock
under stock option plans 545 2,323 - 2,868
Tax benefit from exercise of
non-qualified stock options - 1,090 - 1,090
Purchases of common stock (3,131)(7,316) (35,533) (45,980)
Balances at October 2, 2002 $43,230 1,139 270,737 315,106
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 2, 2002
(Unaudited)
Note 1. Description of Business
Ryan's Family Steak Houses, Inc. operates a single-concept
restaurant chain consisting of 320 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 nine months ended October 2, 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 2002
financial statements.
The FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" in June 2001. SFAS 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 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of."
SFAS 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 its 2002 results.
In April 2002, the FASB issued SFAS No. 145, "Rescission of
FASB Statements Nos. 4 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections." Among other things,
SFAS 145, through the rescission of SFAS 4, will no longer
require extraordinary item treatment for gains and losses
from the extinguishment of debt, unless the debt
extinguishment meets the unusual in nature and infrequency
of occurrence criteria established in Accounting Principles
Board Opinion No. 30. The statement is effective for fiscal
years beginning after May 15, 2002. The Company believes
the adoption of SFAS 145 will not have a material impact on
its financial statements.
In July 2002, the FASB issued Statement No. 146, "Accounting
for Obligations Associated with Disposal Activities," which
addresses financial reporting and accounting for costs
associated with exit or disposal activities and nullifies
Emerging Issues Task Force ("EITF") Issue 94-3, "Liability
Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)." SFAS 146 requires that a
liability be recognized for such costs only when the
liability is incurred, which is in contrast to EITF 94-3,
which requires the recognition of a liability upon the
commitment to an exit plan. The statement is effective for
exit or disposal activities that are initiated after
December 31, 2002.
Note 4. Stock Split
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 received an additional common share for every
two shares they held. The additional shares were
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 5. Reclassifications
Certain prior quarter and prior year amounts in the
accompanying consolidated financial statements have been
reclassified to conform to the 2002 presentation.
Note 6. Subsequent Event
The Company has been informed that a lawsuit was filed on
November 12, 2002, in the United States District Court,
Middle District of Tennessee, Nashville Division, on behalf
of three plaintiffs alleging various violations of the Fair
Labor Standards Act of 1938. The plaintiffs' attorneys have
indicated that they intend to seek class-action status on
this complaint. The Company was served with this lawsuit on
the date of this filing; accordingly, management is not in a
position to comment either on the allegations of the lawsuit
or on any potential financial impact to the Company.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter ended October 2, 2002 versus October 3, 2001
Restaurant sales during the third quarter of 2002 increased
by 2.8% over the comparable quarter of 2001. Average unit
growth, based on the average number of restaurants in
operation, amounted to 2.8% during the quarter. The Company
owned and operated 320 restaurants at October 2, 2002 and
310 restaurants at October 3, 2001. Average unit sales
("AUS"), or average weekly sales volume per unit, for all
stores (including newly opened restaurants) increased by
0.2%. Same-store sales decreased by 1.6% during the quarter
compared to a 1.5% increase in 2001. 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 years. Same-store sales in
2002 were characterized by a declining sales trend that
started during the second quarter of 2002, affecting all
store formats. Average same-store sales at traditionally
formatted restaurants decreased by 3.1% during the third
quarter. Average same-store sales at restaurants converted
to Display Cooking (see "Liquidity and Capital Resources")
within the last 12 months increased by 0.9%. Based on
continued high sales volumes at newly opened Display Cooking
restaurants, management continues to believe that Display
Cooking has large consumer appeal and that sales trends at
converted restaurants can be improved with better store-
level execution and training.
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
85.0% during the third quarter of 2002 compared to 83.9% in
2001. Food and beverage costs decreased to 35.6% of sales
in 2002 from 36.0% of sales in 2001 due to lower seafood and
pork costs combined with menu price increases, partially
offset by higher potato, soybean-oil products and
distribution costs. Payroll and benefits increased to 31.8%
of sales in 2002 from 30.7% of sales in 2001 due principally
to higher hourly labor, manager pay, medical insurance and
workers' compensation costs. Hourly labor was adversely
affected by lower same-store sales. Manager pay increased
as a result of improved retention, partially offset by lower
performance bonuses. Medical insurance costs increased due
to a higher number of claims during the quarter, and
workers' compensation costs increased due to a higher
estimated average claim cost. All other operating costs,
including depreciation, increased to 17.6% of sales in 2002
from 17.2% in 2001 due principally to higher gains on
property sales in 2001 and higher pre-opening costs in 2002,
partially offset with lower natural gas and store closing
costs in 2002. Based on these factors, the Company's
operating profit decreased by 1.1% of sales to 15.0% of
sales in 2002 from 16.1% of sales in 2001.
General and administrative expenses decreased to 5.0% of
sales in 2002 from 5.4% of sales in 2001 due principally to
certain nonrecurring items occurring in 2002 and 2001.
Interest expense for the third quarters of 2002 and 2001
amounted to 1.2% and 1.4% of sales, respectively. The
effective average interest rate decreased to 5.4% during the
third quarter of 2002 from 6.8% in 2001, resulting from a
favorable interest rate environment. At October 2, 2002,
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 rates, management believes that the effective
interest rate comparisons will remain favorable throughout
at least the remainder of 2002.
An effective income tax rate of 36.2% was used for the third
quarter of 2002 compared to 36.0% for the third quarter of
2001 due to management's estimate of overall 2002 income tax
expense.
Net earnings for the third quarter amounted to $11.5 million
in 2002 compared to $12.0 million in 2001. Weighted-average
shares (diluted) decreased 6.4% resulting from the Company's
stock repurchase program (see "Liquidity and Capital
Resources"). Accordingly, earnings per share (diluted)
increased by 4.0% to 26 cents in 2002 compared to 25 cents
in 2001.
Nine months ended October 2, 2002 versus October 3, 2001
For the nine months ended October 2, 2002, restaurant sales
were up 4.1% compared to the same period in 2001. Principal
factors affecting the 2002 sales growth include 2.8% unit
growth of Company-owned restaurants and a 1.4% increase in
all-store AUS. Same-store AUS for the first nine months of
2002 were essentially equal to the prior year.
Nine-month costs and expenses as detailed above were 83.8%
and 84.0% of sales for 2002 and 2001, respectively. During
the first nine months of 2002, costs and expenses were most
affected by lower food and beverage costs (down 0.6% of
sales) resulting from lower beef, seafood, dairy and pork
costs. Payroll and benefits increased 0.7% of sales to
30.8% of sales for 2002 from 30.1% for 2001 due to higher
manager pay and workers' compensation costs. All other
operating costs, including depreciation, decreased by 0.3%
of sales due to lower natural gas and store closing costs,
offset by partially higher gains on property sales in 2001
and higher real property taxes in 2002. Based on these
factors, the Company's operating margin at the restaurant
level amounted to 16.2% of sales for the first nine months
of 2002 compared to 16.0% of sales in 2001.
General and administrative expenses decreased by 0.3% of
sales for the first nine months of 2002. 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 0.5% of
sales from the prior year.
Effective income tax rates of 36.2% and 36.0% were used for
the first nine months of 2002 and 2001, respectively.
Net earnings for the first nine months of 2002 amounted to
$40.4 million compared to $35.6 million in 2001. Weighted-
average shares (diluted) decreased 3.1% resulting from the
Company's stock repurchase program (see "Liquidity and
Capital Resources"). Accordingly, earnings per share
(diluted) increased by 17.3% to 88 cents in 2002 compared to
75 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, generally prior to the payment of the
related vendors' invoices. Therefore, the Company does not
maintain significant receivables or inventories, and other
working capital requirements for operations are not
significant. Cash balances in excess of immediate
disbursement requirements are typically used for non-current
items, such as capital expenditures, repayment of long-term
debt or share repurchases. Accordingly, the Company
operates with a working capital deficit, which is managed
through the utilization of a significant and predictable
cash flow from restaurant sales and available credit under a
revolving credit facility.
At October 2, 2002, the Company's working capital deficit
amounted to $29.1 million compared to a $24.0 million
deficit at January 2, 2002. Management does not anticipate
any adverse effects from the current working capital deficit
due to (i) cash flow provided by operations, which amounted
to $69.6 million for the first nine months of 2002 and $84.9
million for the year ended January 2, 2002, and (ii)
approximately $62 million in funds available under a
revolving credit facility.
Total capital expenditures for the first nine months of 2002
amounted to $56.6 million. The Company opened 14 Ryan's
restaurants during the first nine months of 2002, including
three relocations, and closed seven restaurants, including
five 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
five new restaurants, including three relocations, and close
one restaurant for relocation. 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 plates.
Management intends to remodel approximately 35 restaurants
during 2002 with the Display Cooking format. Total 2002
capital expenditures are estimated at $73 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 55 million
shares of the Company's common stock through December 2005.
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
nine months of 2002, the Company purchased 3,124,500 shares
at an aggregate cost of $46.0 million. Through October 2,
2002, approximately 41.1 million shares, or 51% of total
shares available at the beginning of the repurchase program,
had been purchased at an aggregate cost of $290.2 million.
The Company has purchased an additional 586,000 shares since
October 2, 2002 at an aggregate cost of $6.0 million. The
Company may purchase an additional $1.0 million to $3.0
million of its common stock during the remainder of 2002 if
management believes that the share price is at an attractive
level, 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
terms of the Company's credit facility originally prohibited
share repurchases after 2002. However, the credit facility
was recently amended to permit share repurchases through the
term of the facility, which expires in January 2005.
At October 2, 2002, the Company's outstanding debt consisted
of $75 million of 9.02% senior notes and a $200 million
revolving credit facility of which $127 million was
outstanding at that date. As noted above, after allowances
for letters of credit and other items, there was
approximately $62 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 was
introduced In the U.S. Senate in May 2002. This proposed
legislation would increase the minimum wage in three
increments with the $6.65 rate being in place at January 1,
2004. 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 approximately 90% of the
products 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 October 2, 2002,
there was $127 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 October 2, 2002 would have impacted interest expense
by approximately $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 October 2, 2002. The Company does not
enter into financial instrument agreements for trading or
speculative purposes.
Item 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial
Officer have reviewed and evaluated the Company's disclosure
controls and procedures within 90 days of the filing of this
report, and have concluded that the Company's disclosure
controls and procedures were adequate and effective to
ensure that information required to be disclosed is
recorded, processed, summarized, and reported in a timely
manner.
There were no significant changes in the Company's internal
controls or in other factors that could significantly affect
these controls subsequent to the date of the Chief Executive
Officer and Chief Financial Officer's evaluation, nor were
there any significant deficiencies or material weaknesses in
the controls which required corrective action.
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 quarterly 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 1. Legal Proceedings.
The Company has been informed that a lawsuit was
filed on November 12, 2002, in the United States
District Court, Middle District of Tennessee,
Nashville Division, on behalf of three plaintiffs
alleging various violations of the Fair Labor
Standards Act of 1938. The plaintiffs' attorneys
have indicated that they intend to seek class-action
status on this complaint. The Company was served
with this lawsuit on the date of this filing;
accordingly, management is not in a position to
comment either on the allegations of the lawsuit or
on any potential financial impact to the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
(a)The following table summarizes the results of the
shareholder votes cast at a Special Meeting of
Shareholders held on July 22, 2002 (all votes
are in thousands):
Approval of 2002 Stock Option Plan
Broker-
For Against Withheld Abstain Nonvotes
17,156 9,309 n/a 80 10,905
Item 5. Other Information.
Consistent with Section 10A(i)(2) of the Securities
Exchange Act of 1934, as added by Section 202 of the
Sarbanes-Oxley Act of 2002, the Company is
responsible for listing the non-audit services
approved in the third quarter of 2002 by the
Company's Audit Committee to be performed by KPMG
LLP, the Company's external auditor. Non-audit
services are defined in the law as services other
than those provided in connection with an audit or a
review of the financial statements of the company.
During the quarterly period covered by this filing,
the Audit Committee did not approve the engagement
of KPMG LLP for any non-audit services, and KPMG LLP
did not perform any such services.
Item 6. Exhibits and Reports on Form 8-K.
(a) None.
(b) On August 19, 2002, the Company filed a report
on Form 8-K regarding the Chief Executive
Officer's and the Chief Financial Officer's
certifications of Form 10-Q for the period
ended July 2, 2002.
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)
November 18, 2002 /s/Charles D. Way
Charles D. Way
Chairman, President and Chief
Executive Officer
November 18, 2002 /s/Fred T. Grant, Jr.
Fred T. Grant, Jr.
Senior Vice President-Finance and
Treasurer
November 18, 2002 /s/Richard D. Sieradzki
Richard D. Sieradzki
Controller
Ryan's Family Steak Houses, Inc.
Section 302 Certification
I, Charles D. Way, hereby certify that:
1) I have reviewed this quarterly report on Form 10-Q of Ryan's
Family Steak Houses, Inc.;
2) Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3) Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4) The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act rules 13a-14 and 15d-
14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report ("Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons fulfilling the equivalent
functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6) The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies
and material weaknesses.
/s/Charles D. Way
Charles D. Way
Chairman, President and
Chief Executive Officer
Ryan's Family Steak Houses, Inc.
Section 302 Certification
I, Fred T. Grant, Jr., hereby certify that:
1) I have reviewed this quarterly report on Form 10-Q of Ryan's
Family Steak Houses, Inc.;
2) Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3) Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4) The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act rules 13a-14 and 15d-
14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report ("Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons fulfilling the equivalent
functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6) The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
/s/Fred T. Grant, Jr.
Fred T. Grant, Jr.
Senior Vice President - Finance and
Treasurer