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FORM 10-Q
UNITED STATES
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 June 30, 2004
Commission File No. 0-10943
RYAN'S RESTAURANT GROUP, 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 ________
Indicate by check mark whether the registrant is an
accelerated filer (as defined in Rule12b-2 of the Securities
Exchange Act of 1934).
Yes X No ________
At June 30, 2004, there were 41,654,000 shares outstanding of
the registrant's common stock, par value $1.00 per share.
RYAN'S RESTAURANT GROUP, INC.
TABLE OF CONTENTS PAGE NO.
PART I --- FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Earnings (Unaudited) -
Quarters Ended June 30, 2004 and July 2, 2003 3
Consolidated Statements of Earnings (Unaudited) -
Six Months Ended June 30, 2004 and July 2, 2003 4
Consolidated Balance Sheets -
June 30, 2004 (Unaudited) and December 31, 2003 5
Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended June 30, 2004 and July 2, 2003 6
Consolidated Statement of Shareholders' Equity
(Unaudited) -
Six Months Ended June 30, 2004 7
Notes to Consolidated Financial Statements
(Unaudited) 8 - 10
Item 2.Management's Discussion and Analysis of Financial
Condition
and Results of Operations 11 - 15
Item 3.Quantitative and Qualitative Disclosures
About Market Risk 15
Item 4.Controls and Procedures 15
Forward-Looking Information 16
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2.Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities 17
Item 4.Submission of Matters to a Vote of Security
Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RYAN'S RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share data)
Quarter Ended
June 30, July 2,
2004 2003
Restaurant sales $216,546 208,504
Cost of sales:
Food and beverage 76,273 73,801
Payroll and benefits 69,175 65,069
Depreciation 8,188 8,049
Other restaurant expenses 29,355 28,092
Total cost of sales 182,991 175,011
General and administrative expenses 10,255 9,591
Interest expense 2,749 2,322
Royalties from franchised restaurants (323) (404)
Other income, net (531) (475)
Earnings before income taxes 21,405 22,459
Income taxes 7,235 8,130
Net earnings $ 14,170 14,329
Net earnings per common share:
Basic $ .34 .34
Diluted .33 .33
Weighted-average shares:
Basic 41,639 42,143
Diluted 43,258 43,670
See accompanying notes to consolidated financial statements.
RYAN'S RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share data)
Six Months Ended
June 30, July 2,
2004 2003
Restaurant sales $428,203 401,696
Cost of sales:
Food and beverage 148,773 141,806
Payroll and benefits 136,045 126,017
Depreciation 16,745 15,997
Other restaurant expenses 58,167 55,304
Total cost of sales 359,730 339,124
General and administrative expenses 20,577 18,653
Interest expense 5,434 4,728
Royalties from franchised restaurants (686) (807)
Other income, net (1,459) (1,424)
Earnings before income taxes 44,607 41,422
Income taxes 15,077 14,995
Net earnings $ 29,530 26,427
Net earnings per common share:
Basic $ .71 .62
Diluted .68 .60
Weighted-average shares:
Basic 41,860 42,313
Diluted 43,584 43,689
See accompanying notes to consolidated financial statements.
RYAN'S RESTAURANT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
2004 2003
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 17,037 8,617
Receivables 4,373 4,293
Inventories 6,561 5,648
Prepaid expenses 1,687 1,758
Deferred income taxes 5,150 5,150
Total current assets 34,808 25,466
Property and equipment:
Land and improvements 158,878 154,528
Buildings 464,407 449,561
Equipment 262,118 252,611
Construction in progress 25,977 25,789
911,380 882,489
Less accumulated depreciation 279,502 264,339
Net property and equipment 631,878 618,150
Other assets 8,371 8,073
Total assets $675,057 651,689
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 9,628 6,580
Current portion of long-term debt 34,750 -
Income taxes payable 842 1,288
Accrued liabilities 48,805 42,590
Total current liabilities 94,025 50,458
Long-term debt 156,250 196,000
Deferred income taxes 42,931 42,824
Other long-term liabilities 5,901 5,467
Total liabilities 299,107 294,749
Shareholders' equity:
Common stock of $1.00 par value;
authorized 100,000,000 shares;
issued 41,654,000 in 2004 and
41,843,000 shares in 2003 41,654 41,843
Additional paid-in capital 1,854 1,412
Retained earnings 332,442 313,685
Total shareholders' equity 375,950 356,940
Commitments and contingencies
Total liabilities and
shareholders' equity $675,057 651,689
See accompanying notes to consolidated financial statements.
RYAN'S RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
June 30, July 2,
2004 2003
Cash flows from operating activities:
Net earnings $ 29,530 26,427
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 17,635 16,858
Loss (gain) on sale of property
and equipment 502 (395)
Tax benefit from exercise of stock
options 2,679 284
Deferred income taxes 107 150
Decrease (increase) in:
Receivables (80) (631)
Inventories (913) (692)
Prepaid expenses 71 490
Income taxes receivable - 2,739
Other assets (410) (639)
Increase (decrease) in:
Accounts payable 3,048 (1,959)
Income taxes payable (446) 6,993
Accrued liabilities 6,215 7,003
Other long-term liabilities 434 464
Net cash provided by operating
activities 58,372 57,092
Cash flows from investing activities:
Proceeds from sale of property
and equipment 3,302 3,774
Capital expenditures (35,055) (36,334)
Net cash used in investing activities (31,753) (32,560)
Cash flows from financing activities:
Net repayment of revolving
credit facility (5,000) -
Proceeds from stock options exercised 5,008 832
Purchase of common stock (18,207) (7,841)
Net cash used in financing activities (18,199) (7,009)
Net increase in cash and cash
equivalents 8,420 17,523
Cash and cash equivalents -
beginning of period 8,617 2,654
Cash and cash equivalents -
end of period $ 17,037 20,177
Supplemental disclosures
Cash paid during the period for:
Interest, net of amount capitalized $ 5,488 5,129
Income taxes 12,737 4,829
See accompanying notes to consolidated financial statements.
RYAN'S RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
Six Months ended June 30, 2004
$1 Par Value Additional
Common Paid-In Retained
Stock Capital Earnings Total
Balances at December 31,2003 $41,843 1,412 313,685 356,940
Net earnings - - 29,530 29,530
Issuance of common stock
under stock option plans 843 4,165 - 5,008
Tax benefit from exercise of
non-qualified stock options - 2,679 - 2,679
Purchases of common stock (1,032) (6,402) (10,773) (18,207)
Balances at June 30, 2004 $41,654 1,854 332,442 375,950
See accompanying notes to consolidated financial statements.
RYAN'S RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
Note 1. Description of Business
Ryan's Restaurant Group, Inc. (formerly Ryan's Family Steak
Houses, Inc.) operates a restaurant chain consisting of 337
Company-owned restaurants located principally in the southern
and midwestern United States and receives franchise royalties
from an unrelated third-party franchisee that operates 12
Ryan's brand restaurants (as of June 30, 2004) in Florida.
Company-owned restaurants operate under the Ryan's or Fire
Mountain brand names, but are viewed as a single business unit
for management and reporting purposes. A Fire Mountain
restaurant offers a selection of foods similar to a Ryan's
restaurant with display cooking and also features updated
interior furnishings, an upscale food presentation and a lodge-
look exterior. The Company was 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 Restaurant Group, 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 June 30, 2004 are not necessarily indicative of
the results that may be expected for the fiscal year ending
December 29, 2004. For further information, refer to the
consolidated financial statements and footnotes included in
the Company's annual report on Form 10-K for the fiscal year
ended December 31, 2003.
Note 3. Relevant New Accounting Pronouncements
In December 2003, the Financial Accounting Standards Board
(FASB) revised Interpretation No. 46 (FIN 46), "Consolidation
of Variable Interest Entities," which was originally issued
in January 2003, to provide guidance regarding issues arising
from the implementation of FIN 46. This interpretation
addresses the consolidation by business enterprises of
variable interest entities, as defined in the interpretation,
and sets forth additional disclosure regarding such
interests. For entities acquired or created before February
1, 2003, this interpretation is effective no later than the
end of the first interim or reporting period ending after
March 15, 2004, except for those variable interest entities
that are considered to be special purpose entities, for which
the effective date is no later than the end of the first
interim or annual reporting period ending after December 15,
2003. For all entities that were acquired subsequent to
January 31, 2003, this interpretation is effective as of the
first interim or annual period ending after December 31,
2003. The adoption of FIN 46 has not affected the Company's
consolidated financial statements.
Note 4. Stock Options
As allowed by SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company accounts for its stock option plans
in accordance with the intrinsic value provisions of
Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. As
such, compensation expense is recorded on the date of grant
only if the current market price of the underlying stock
exceeds the exercise price. No compensation cost has been
recognized for stock-based compensation in consolidated net
earnings for the periods presented as all options granted
under the Company's stock option plans had exercise prices
equal to the market value of the underlying common stock on
the date of the grant. Had the Company determined
compensation cost based on the fair value recognition
provisions of SFAS No. 123, the Company's net earnings and
earnings per share would have been reduced to the pro forma
amounts indicated in the following table:
Quarter Ended Six Months Ended
(In thousands, except
earnings per share) June 30, July 2, June 30, July 2,
2004 2003 2004 2003
Net earnings, as reported $14,170 14,329 29,530 26,427
Less total stock-based
compensation expense
determined under fair
value based method,
net of related tax effects (229) (229) (585) (554)
Pro forma net earnings $13,941 14,100 28,945 25,873
Earnings per share
Basic:
As reported .34 .34 .71 .62
Pro forma .33 .33 .69 .61
Diluted:
As reported .33 .33 .68 .60
Pro forma .32 .32 .66 .59
Note 5. Earnings per Share
Basic earnings per share ("EPS") excludes dilution and is
computed by dividing income available to common shareholders
by the weighted-average number of common shares outstanding
for the period. Diluted EPS includes common stock equivalents
that arise from the hypothetical exercise of outstanding stock
options using the treasury stock method. In order to prevent
antidilution, outstanding stock options to purchase 3,000 and
40,500 shares of common stock at June 30, 2004 and July 2,
2003, respectively, were not included in the computation of
diluted EPS.
Note 6. Legal Contingencies
In November 2002, a lawsuit was filed in the United States
District Court, Middle District of Tennessee, Nashville
Division, on behalf of three plaintiffs alleging various wage
and hour violations by the Company of the Fair Labor Standards
Act of 1938. The plaintiffs' attorneys are seeking collective-
action status on this complaint. In October 2003, the
presiding judge denied the Company's request to enforce the
arbitration agreements signed by the plaintiffs and also
ordered the Company to turn over certain employee addresses to
the plaintiffs' attorneys. The Company has appealed this
decision. As part of the appeal process, the presiding judge
stayed the order regarding the employee addresses. Due to the
evolving nature of this case, the potential financial impact
to the Company's financial results cannot be estimated at this
time. Accordingly, no accrual for a loss contingency has been
made in the accompanying consolidated financial statements.
In addition, from time to time, the Company is involved in
various legal claims and litigation arising in the normal
course of business. Based on currently-known legal actions,
management believes that, as a result of its legal defenses
and insurance arrangements, none of these actions should have
a material adverse effect on the Company's business or
financial condition, taken as a whole.
Note 7. Reclassifications
Certain 2003 incentive bonus amounts for store management and
hourly team members have been reclassified to store-level
payroll and benefits from general and administrative expenses
to conform to the 2004 presentation. These costs amounted to
$1,204,000 and $708,000 for the quarters ended June 30, 2004
and July 2, 2003, respectively. The reclassified amounts for
the six months ended June 30, 2004 and July 2, 2003 were
$2,807,000 and $1,460,000, respectively. This
reclassification does not change either net earnings or
shareholders' equity for 2003.
Note 8. Company Name Change
At the Company's Annual Meeting of Shareholders held on May 5,
2004, shareholders approved a proposal to change the Company's
legal name to Ryan's Restaurant Group, Inc. Management's
implementation of this change was effective May 20, 2004.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter ended June 30, 2004 versus July 2, 2003
Restaurant sales during the second quarter of 2004 increased
by 3.9% over the second quarter of 2003. Average unit growth,
based on the average number of restaurants in operation,
amounted to 3.7% during the quarter. The Company owned and
operated 337 restaurants (303 Ryan's brand and 34 Fire
Mountain brand) at June 30, 2004 and 330 restaurants (322
Ryan's brand and 8 Fire Mountain brand) at July 2, 2003. In
comparison to the second quarter of 2003, average unit sales
("AUS"), or average weekly sales volumes per unit, for all
stores (including newly opened restaurants) increased by 0.2%
in 2004, and same-store sales decreased by 0.2% in 2004. In
computing same-store sales, the Company averages weekly sales
for those units operating for at least 18 months. All
converted or relocated stores are included in the same-store
sales calculation, provided that the underlying stores were
operating for at least 18 months. Same-store sales and
related factors for the second quarters of 2004 and 2003, as
compared to their comparable prior years' quarters, were as
follows:
Same-store 2004 2003
Sales (0.2%) (0.7%)
Customer count (3.8%) (3.2%)
Menu factor (principally pricing) 3.6% 2.5%
Same-store sales were up 2.0% in April, but suddenly weakened
in May. This weakness continued into June, resulting in same-
store sales being down 1.5% during the combined May and June
periods. Given the suddenness of the downturn, management
believes that economic factors, and particularly the
significant increase in gasoline prices and the surrounding
publicity, were behind this sales shift. Customers at the
Company's restaurants are generally very value-driven, and
given the inevitable increase in their transportation
expenses, it is reasonable to expect that they would cut back
on other discretionary expenses, such as dining out.
Management expects that as consumers become accustomed to
higher gasoline costs, they will gradually go back to their
prior spending (and eating-out) habits.
Cost of sales includes food and beverage, payroll, payroll
taxes and employee benefits, depreciation, repairs,
maintenance, utilities, supplies, advertising, insurance,
property taxes and licenses at Company-owned restaurants.
Such costs, as a percentage of sales, were 84.5% during the
second quarter of 2004 compared to 83.9% during the second
quarter of 2003. Food and beverage costs amounted to 35.2%
of sales for 2004 compared to 35.4% of sales for 2003. In
2004, food and beverage costs were adversely impacted by
higher beef costs, which were approximately 21% higher than
the second quarter of 2003. However, the higher beef costs
were more than offset by lower seafood and produce costs, the
3.6% menu factor and a heightened store-level focus on food
cost controls. In late July, beef prices decreased by
approximately 20% due to weak retail demand, and management
was able to purchase sufficient quantities to cover a
majority of the Company's estimated third quarter needs.
Management believes that, during the remainder of 2004,
wholesale beef costs will fluctuate due to changes in retail
demand, but will generally remain at slightly higher levels
than experienced during 2003. Payroll and benefits increased
to 31.9% of sales in 2004 from 31.2% of sales in 2003 due
principally to higher medical and workers' compensation
insurance costs. All other restaurant costs, including
depreciation, amounted to 17.4% of sales for 2004 and 17.3%
of sales for 2003 and were impacted principally by higher
utility costs and lower general liability insurance expense
in 2004.
General and administrative expenses increased to 4.7% of sales
in 2004 from 4.6% of sales in 2003 due principally to higher
consulting fees.
Interest expense for the second quarter of 2004 and 2003
amounted to 1.3% and 1.1% of sales, respectively. The
effective average interest rate increased to 6.2% during the
second quarter of 2004 from 5.0% in 2003, resulting
principally from the refinancing in July 2003 of $100 million
of lower-cost variable-rate debt with 4.65% fixed-rate senior
notes due in 2013.
An effective income tax rate of 33.8% was used for the second
quarter of 2004 and 36.2% for the second quarter of 2003. The
rate decrease resulted primarily from certain federal income
tax credit hiring programs, such as the Work Opportunity Tax
Credit program ("WOTC"), and lower state income tax expense.
Management believes that the tax rate for 2004 will gradually
increase relative to 2003 during subsequent quarters if these
tax credit hiring programs are not re-enacted by the U.S.
Congress.
Net earnings for the second quarter amounted to $14.2 million
in 2004 compared to $14.3 million in 2003. Weighted-average
shares (diluted) decreased 0.9% resulting principally from the
Company's stock repurchase program (see "Liquidity and Capital
Resources"). Accordingly, earnings per share (diluted)
amounted to 33 cents for the second quarters of each of 2004
and 2003.
Six months ended June 30, 2004 versus July 2, 2003
For the six months ended June 30, 2004, restaurant sales were
up 6.6% compared to the same period in 2003. Principal
factors affecting 2004 sales growth include the 4.0% unit
growth of Company-owned restaurants and a 2.7% increase in all-
store AUS. Same-store sales and related factors for the first
six months of 2004 and 2003, as compared to their comparable
prior years' periods, were as follows:
Same-store 2004 2003
Sales 2.2% (2.5%)
Customer count (1.4%) (5.2%)
Menu factor (principally pricing) 3.6% 2.7%
Cost of sales, as detailed above, for the first six months of
2004 and 2003 amounted to 84.0% and 84.4% of sales,
respectively. Food and beverage costs were 34.7% of sales for
2004 compared to 35.3% of sales for 2003. In 2004, food and
beverage costs were adversely impacted by significantly higher
beef costs which were more than offset by better product
utilization (less waste) resulting from the higher AUS, the
3.6% menu factor and a heightened store-level focus on food
cost controls. Payroll and benefits increased by 0.4% of
sales to 31.8% of sales for 2004 from 31.4% of sales for 2003
due to higher medical and workers' compensation insurance and
store-level incentive costs, partially offset by lower hourly
labor expense. All other restaurant costs, including
depreciation, decreased by 0.2% of sales due to the favorable
impact of the higher AUS on the many fixed-cost items included
in this category, partially offset by higher utility costs.
General and administrative expenses increased by 0.2% of sales
for the first six months of 2004 due principally to higher
projected performance-based bonuses for 2004.
An effective income tax rate of 33.8% and 36.2% was used for
the first six months of 2004 and 2003, respectively. The
explanation for this rate decrease is similar to the second
quarter's discussion.
Net earnings for the first six months of 2004 amounted to
$29.5 million compared to $26.4 million in 2003. Weighted-
average shares (diluted) decreased by 0.2%, resulting
principally from the Company's stock repurchase program.
Accordingly, earnings per share (diluted) amounted to 68 cents
in the 2004 period compared to 60 cents in the 2003 period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of liquidity is from its
restaurants sales, which are primarily derived from cash,
checks or credit / debit cards. Principal uses of cash are
operating expenses, which have been discussed in the preceding
section, capital expenditures and stock repurchases.
A comparison of the Company's sources and uses of funds for
the six-month periods ended June 30, 2004 and July 2, 2003
follow (in thousands):
2004 2003 Change
Net cash provided by
operating activities $58,372 57,092 1,280
Net cash used in investing
activities (31,753) (32,560) 807
Net cash used in
financing activities (18,199) (7,009) (11,190)
Net increase in cash and
cash equivalents $ 8,420 17,523 (9,103)
Net cash provided by operating activities increased by $1.3
million, resulting principally from the higher cash flow
generated by the Company's operations, as indicated by the
higher net earnings and depreciation amounts for 2004 in the
accompanying consolidated statements of cash flows, and from
the timing of income tax payments. Net cash used in investing
activities was fairly level during the first six months of
both 2004 and 2003. Finally, net cash used in financing
activities increased by $11.2 million as the Company increased
its share repurchase activity in 2004.
At June 30, 2004, the Company's working capital deficit
amounted to $59.2 million compared to a $25.0 million deficit
at December 31, 2003. This increase stems primarily from an
increase in the Company's current liabilities relating to
outstanding debt that is due within one year ($16.0 million
under the revolving credit facility and $18.7 million of the
9.02% senior notes). Management does not anticipate any
adverse effects from the current working capital deficit due
to the significant and steady level of cash flow provided by
operations.
Total capital expenditures for the first six months of 2004
amounted to $35.1 million. The Company opened seven and
closed four restaurants, including three openings and closings
for relocation purposes, during the first six months of 2004.
Management defines a relocation as a restaurant opened within
six months after closing another restaurant in the same
marketing area. A relocation represents a redeployment of
assets within a market. For the remainder of 2004, the
Company plans to build and open nine new restaurants,
including two potential relocations. All new restaurants open
with the display cooking/lodge-look format. This format
involves a glass-enclosed grill and cooking area that extends
into the dining room and the use of stone and wood inside and
outside the building in order to present an atmosphere
reminiscent of a mountain lodge. Management also intends to
convert approximately 9 to 11 restaurants during the remainder
of 2004 to the display cooking/lodge-look format. Management
believes that the exterior package favorably impacts
restaurant sales at converted restaurants by signaling to
potential customers that changes have taken place inside the
restaurant. For the remainder of 2004, all of the new and
converted restaurants will operate under the "Fire Mountain"
brand name in order to differentiate them from the older
Ryan's and other restaurants that operate with a more
traditional family steakhouse format. Total 2004 capital
expenditures are estimated at $84 million. The Company is
currently concentrating its efforts on Company-owned
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 2004.
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 2004, the Company purchased 1,032,106 shares at
an aggregate cost of $18.2 million. Through June 30, 2004,
approximately 44.2 million shares, or 55% of total shares
available at the beginning of the repurchase program, had been
purchased at an aggregate cost of $332.8 million. The Company
has not purchased any additional shares since June 30, 2004.
Management currently plans to additionally purchase up to
approximately $6.8 million of its common stock during the
remainder of 2004 if, in management's opinion, the share price
is at an attractive level, subject to the continued
availability of capital, the limitations imposed by the
Company's credit agreements, applicable securities regulations
and the other factors described in "Forward-Looking
Information."
At June 30, 2004, the Company's outstanding debt consisted of
$75 million of 9.02% senior notes, $100 million of 4.65%
senior notes and a $100 million revolving credit facility of
which $16 million was outstanding at that date. After
allowances for letters of credit and other items, there were
approximately $74 million in funds available under the
revolving credit facility. The Company's ability to draw on
these funds may be limited by the financial covenants in the
agreements governing both the senior notes and the revolving
credit facility. At June 30, 2004, the Company was in
compliance with all covenants under the loan agreements.
Management believes that, based on its current plans, these
restrictions will not impair the Company's operations during
2004. The current revolving credit facility expires in
January 2005, and management intends to refinance the facility
during 2004. Based on preliminary discussions with banks,
management believes that the facility will be refinanced in a
manner that appropriately supports the Company's current
operations and growth plans. However, since final
negotiations have not commenced, there can be no assurance
that the refinancing will occur on anticipated terms or at
all.
Management believes that its current capital structure is
sufficient to meet its 2004 cash 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 a
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. The following
policies are considered by management to involve estimates
that most critically impact reported financial results.
Asset Lives Property and equipment are recorded at cost, less
accumulated depreciation. Buildings and land improvements are
depreciated over estimated useful lives ranging from 25 to 39
years, and equipment is depreciated over estimated useful
lives ranging from 3 to 20 years. Depreciation expense for
financial statement purposes is calculated using the straight-
line method. Management is responsible for estimating the
initial useful lives and any revisions thereafter and bases
its estimates principally on historical usage patterns of the
assets. Material differences in the amount of reported
depreciation could result if different assumptions were used.
Impairment of Long-Lived Assets Long-lived assets, which
consist principally of restaurant properties, are reviewed for
impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Management reviews restaurants for possible
impairment if the restaurant has had cash flows of $50,000 or
less in the aggregate over the previous 12 months or if it has
been selected for relocation and the new site is under
construction. For restaurants that will continue to be
operated, the carrying amount is compared to the undiscounted
future cash flows, including proceeds from future disposal,
over the remaining useful life 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. Each of these estimates is
based on assumptions, such as future sales and costs, that may
differ materially from actual results. If the carrying amount
exceeds the sum of the undiscounted future cash flows, the
carrying value is reduced to the restaurant's current fair
value. If the decision has been made to close and sell a
restaurant, the carrying value of that restaurant is reduced
to its current fair value less costs to sell and is no longer
depreciated.
Self-Insurance Liabilities The Company self-insures a
significant portion of expected losses from its workers'
compensation, general liability and team member medical
programs. For workers' compensation and general liability
claims, the portion of any individual claim that exceeds
$250,000 is covered by insurance purchased by the Company.
Accrued liabilities are recorded for the estimated,
undiscounted future net payments, or ultimate costs, to settle
both reported claims and claims that have been incurred but
not reported. On a quarterly basis, management reviews claim
values as estimated by a third-party claims administrator
("TPA") and then adjusts these values for estimated future
increases in order to record ultimate costs. Both current and
prior years' claims are reviewed because estimated claim
values are frequently adjusted by the TPA as new information,
such as updated medical reports or settlements, is received.
Management reviews the relationship between historical claim
estimates and payment history, overall number of accidents and
historical claims experience in order to make an ultimate cost
estimate. For team member medical claims, the portion of any
individual claim that exceeds $300,000 is covered by insurance
purchased by the Company. Accruals are based on management's
review of historical claim experience. Unexpected changes in
any of these factors could result in costs that are materially
different than initially reported.
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 $1.85 to $7.00 per hour over a two-year period is
currently under consideration by the U.S. Congress. Subject
to competitive market factors, 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 June 30, 2004, there was $16
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 June 30, 2004 would have
impacted interest expense by approximately $35,000 and net
earnings by $23,000.
While the Company has entered into interest rate derivative
agreements in the past, there were no such agreements
outstanding during the three months ended June 30, 2004. The
Company does not enter into financial instrument agreements
for trading or speculative purposes.
Item 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of the
Company's management, including its principal executive
officer and principal financial officer, the Company conducted
an evaluation of the effectiveness of the design and operation
of its disclosure controls and procedures, as defined in rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended, as of the end of the period covered by this
report (the "Evaluation Date"). Based on this evaluation, the
Company's principal executive officer and principal financial
officer concluded as of the Evaluation Date that the Company's
disclosure controls and procedures were effective such that
the information relating to the Company, including its
consolidated subsidiaries, required to be disclosed in its
Securities and Exchange Commission ("SEC") reports (i) is
recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms, and (ii) is
accumulated and communicated to the Company's management,
including its principal executive officer and principal
financial officer, as appropriate to allow timely decisions
regarding required disclosure.
During the second quarter of 2004, the Company did not make
any changes in its internal controls over financial reporting
that have materially affected, or are reasonably likely to
materially affect, those controls.
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 Company plans or strategies,
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 relevant 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; an adverse food safety event; weather
fluctuations; the availability of reasonably priced capital;
interest rate fluctuations; stock market conditions; political
environment (including acts of terrorism and wars); and other
risks and factors described from time to time in the Company's
reports filed with the Securities and Exchange Commission,
including the Company's annual report on Form 10-K for the
fiscal year ended December 31, 2003. 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 2004 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 both the senior notes and the revolving
credit facility, and the maximum debt and stock repurchase
levels authorized by the Company's Board of Directors.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In November 2002, a lawsuit was filed in the United
States District Court, Middle District of Tennessee,
Nashville Division, on behalf of three plaintiffs
alleging various wage and hour violations by the
Company of the Fair Labor Standards Act of 1938. The
plaintiffs' attorneys are seeking collective-action
status on this complaint. In October 2003, the
presiding judge denied the Company's request to
enforce the arbitration agreements signed by the
plaintiffs and also ordered the Company to turn over
certain employee addresses to the plaintiffs'
attorneys. The Company has appealed this decision.
As part of the appeal process, the presiding judge
stayed the order regarding the employee addresses.
Due to the evolving nature of this case, the potential
financial impact to the Company's financial results
cannot be estimated at this time. Accordingly, no
accrual for a loss contingency has been made in the
accompanying consolidated financial statements.
In addition, from time to time, the Company is
involved in various legal claims and litigation
arising in the normal course of business. Based on
currently-known legal actions, management believes
that, as a result of its legal defenses and insurance
arrangements, none of these actions should have a
material adverse effect on the Company's business or
financial condition, taken as a whole.
Item 2. Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities.
ISSUER PURCHASES OF EQUITY SECURITIES
Period Total Average Total Maximum
Number Price Number Number of
of Paid of Shares that
Shares Per Shares May Yet Be
Purchased Share Purchased Purchased
as Part Of Under the
Publicity Plan
Announced
Plan
April 759,440 $18.04 44,217,706 10,782,294
(04/01/04-
05/05/04)
May - - 44,217,706 10,782,294
(05/06/04-
06/02/04)
June - - 44,217,706 10,782,294
(06/03/04-
06/30/04)
Total 759,440 $18.04 44,217,706 10,782,294
The Company commenced its stock repurchase program in
March 1996 and is currently authorized to repurchase
up to 55 million shares of its common stock through
December 2004. There were no purchases of the
Company's common stock by or on behalf of the Company
or any "affiliated purchaser" during the second
quarter of 2004 other than through this stock
repurchase program.
Item 4. Submission of Matters to a Vote of Security Holders.
The following table summarizes the results of the
shareholder votes cast at the Annual Meeting of
Shareholders held on May 5, 2004 (all votes are in
thousands):
Broker-
For Against Withheld Abstain Nonvotes
(a)Election of Directors:
C. D. Way 36,447 n/a 1,133 n/a n/a
G. E. McCranie 36,614 n/a 966 n/a n/a
B. L. Edwards 36,759 n/a 821 n/a n/a
J. M. Shoemaker,Jr.24,392 n/a 13,188 n/a n/a
H. K. Roberts, Jr. 36,741 n/a 838 n/a n/a
J. D. Cockman 36,764 n/a 816 n/a n/a
B. S. MacKenzie 36,741 n/a 838 n/a n/a
(b)Change the Company's
name to Ryan's
Restaurant
Group, Inc. 37,487 79 n/a 13 n/a
(c)Ratify the appointment
of KPMG LLP for
fiscal 2003 36,871 693 n/a 16 n/a
Item 6. Exhibits and Reports
on Form 8-K.
(a) Exhibits (numbered in accordance with Item 601 of
Regulation S-K):
Exhibit # Description
31.1 Section 302 Certification of Chief
Executive Officer
31.2 Section 302 Certification of Chief
Financial Officer
32.1 Section 906 Certification of Chief
Executive Officer
32.2 Section 906 Certification of Chief
Financial Officer
(b) Reports on Form 8-K:
On April 21, 2004, the Company furnished a report on
Form 8-K regarding the press release on the
Company's financial results as of and for the
quarter ended March 31, 2004.
On July 21, 2004, the Company furnished a report on
Form 8-K regarding the press release on the
Company's financial results as of and for the
quarter and six months ended June 30, 2004.
Items 3 and 5 are not applicable and have been omitted.
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 RESTAURANT GROUP, INC.
(Registrant)
August 6, 2004 /s/Charles D. Way
Charles D. Way
Chairman, President and
Chief Executive Officer
August 6, 2004 /s/Fred T. Grant, Jr.
Fred T. Grant, Jr.
Senior Vice President-Finance and
Treasurer and Assistant Secretary
(Principal Financial and Accounting
Officer)
August 6, 2004 /s/Richard D. Sieradzki
Richard D. Sieradzki
Vice President-Accounting and
Corporate Controller