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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 September 29, 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 September 29, 2004, there were 41,706,000 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 September
29, 2004 and October 1, 2003 3
Consolidated Statements of Earnings
(Unaudited) - Nine Months Ended September
29, 2004 and October 1, 2003 4
Consolidated Balance Sheets -
September 29, 2004 (Unaudited)
and December 31, 2003 5
Consolidated Statements of Cash Flows
(Unaudited) - Nine Months Ended September
29, 2004 and October 1, 2003 6
Consolidated Statement of Shareholders'
Equity (Unaudited) - Nine Months Ended
September 29, 2004 7
Notes to Consolidated Financial Statements
(Unaudited) 8 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10 - 14
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 14
Item 4. Controls and Procedures 15
Forward-Looking Information 15
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds 16
Item 6. Exhibits 17
SIGNATURES 18
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
September 29, October 1,
2004 2003
Restaurant sales $205,331 205,686
Cost of sales:
Food and beverage 72,880 73,185
Payroll and benefits 67,455 65,767
Depreciation 8,857 8,049
Other restaurant expenses 29,879 29,820
Total cost of sales 179,071 176,821
General and administrative expenses 10,185 9,561
Interest expense 2,598 2,764
Royalties from franchised restaurants (265) (358)
Other income, net (238) (339)
Earnings before income taxes 13,980 17,237
Income taxes 4,754 6,240
Net earnings $ 9,226 10,997
Net earnings per common share:
Basic $ .22 .26
Diluted .22 .25
Weighted-average shares:
Basic 41,679 42,210
Diluted 42,849 43,881
See accompanying notes to consolidated financial statements.
RYAN'S RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share data)
Nine Months Ended
September 29, October 1,
2004 2003
Restaurant sales $633,534 607,382
Cost of sales:
Food and beverage 221,653 214,991
Payroll and benefits 203,500 191,784
Depreciation 25,602 24,046
Other restaurant expenses 88,046 85,124
Total cost of sales 538,801 515,945
General and administrative expenses 30,762 28,214
Interest expense 8,032 7,492
Royalties from franchised restaurants (951) (1,165)
Other income, net (1,697) (1,763)
Earnings before income taxes 58,587 58,659
Income taxes 19,831 21,235
Net earnings $ 38,756 37,424
Net earnings per common share:
Basic $ .93 .89
Diluted .89 .86
Weighted-average shares:
Basic 41,800 42,279
Diluted 43,339 43,752
See accompanying notes to consolidated financial statements.
RYAN'S RESTAURANT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 29, December 31,
2004 2003
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 15,908 8,617
Receivables 4,008 4,293
Inventories 5,986 5,648
Prepaid expenses 1,647 1,758
Deferred income taxes 5,150 5,150
Total current assets 32,699 25,466
Property and equipment:
Land and improvements 159,231 154,528
Buildings 470,212 449,561
Equipment 265,999 252,611
Construction in progress 27,726 25,789
923,168 882,489
Less accumulated depreciation 287,325 264,339
Net property and equipment 635,843 618,150
Other assets 9,962 8,073
Total assets $678,504 651,689
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 8,831 6,580
Current portion of long-term debt 30,750 -
Income taxes payable 3,314 1,288
Accrued liabilities 44,641 42,590
Total current liabilities 87,536 50,458
Long-term debt 156,250 196,000
Deferred income taxes 43,076 42,824
Other long-term liabilities 5,973 5,467
Total liabilities 292,835 294,749
Shareholders' equity:
Common stock of $1.00 par value;
authorized 100,000,000 shares;
issued 41,706,000 in 2004 and
41,843,000 shares in 2003 41,706 41,843
Additional paid-in capital 2,295 1,412
Retained earnings 341,668 313,685
Total shareholders' equity 385,669 356,940
Commitments and contingencies
Total liabilities and
shareholders' equity $678,504 651,689
See accompanying notes to consolidated financial statements.
RYAN'S RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
September 29, October 1,
2004 2003
Cash flows from operating activities:
Net earnings $ 38,756 37,424
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 26,936 25,538
Loss (gain) on sale of property
and equipment 253 (110)
Tax benefit from exercise of
stock options 2,820 631
Deferred income taxes 252 213
Decrease (increase) in:
Receivables 285 94
Inventories (338) (579)
Prepaid expenses 111 (338)
Income taxes receivable - 2,739
Other assets (2,066) (893)
Increase (decrease) in:
Accounts payable 2,251 (413)
Income taxes payable 2,026 6,167
Accrued liabilities 2,051 3,587
Other long-term liabilities 506 714
Net cash provided by operating
activities 73,843 74,774
Cash flows from investing activities:
Proceeds from sale of property
and equipment 6,403 5,845
Capital expenditures (51,108) (56,814)
Net cash used in investing activities (44,705) (50,969)
Cash flows from financing activities:
Proceeds from issuance of senior notes - 100,000
Debt issuance costs - (158)
Net repayment of revolving credit
facility (9,000) (100,000)
Proceeds from stock options exercised 5,360 1,684
Purchase of common stock (18,207) (7,841)
Net cash used in financing activities (21,847) (6,315)
Net increase in cash and cash
equivalents 7,291 17,490
Cash and cash equivalents -
beginning of period 8,617 2,654
Cash and cash equivalents -
end of period $ 15,908 20,144
Supplemental disclosures
Cash paid during the period for:
Interest, net of amount capitalized $ 9,853 8,870
Income taxes 15,413 12,084
See accompanying notes to consolidated financial statements.
RYAN'S RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
Nine Months Ended September 29, 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 - - 38,756 38,756
Issuance of common stock
under stock option plans 895 4,465 - 5,360
Tax benefit from exercise of
non-qualified stock options - 2,820 - 2,820
Purchases of common stock (1,032)(6,402) (10,773) (18,207)
Balances at September 29,2004 $41,706 2,295 341,668 385,669
See accompanying notes to consolidated financial statements.
RYAN'S RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 29, 2004
(Unaudited)
Note 1. Description of Business
Ryan's Restaurant Group, Inc. operates a restaurant chain
consisting of 338 Company-owned restaurants located
principally in the southern and midwestern United States and
receives franchise royalties from an unrelated third-party
franchisee that operates 10 Ryan's brand restaurants (as of
September 29, 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 nine
months ended September 29, 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 Nine Months Ended
(In thousands,except
earnings per share)
September 29, October 1, September 29, October 1,
2004 2003 2004 2003
Net earnings,
as reported $9,226 10,997 38,756 37,424
Less total
stock-based
compensation
expense
determined
under fair
value based
method, net
of related
tax effects (229) (229) (814) (783)
Pro forma net
earnings $8,997 10,768 37,942 36,641
Earnings
per share
Basic:
As reported $ .22 .26 .93 .89
Pro forma .22 .26 .91 .87
Diluted:
As reported .22 .25 .89 .86
Pro forma .21 .25 .88 .84
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 September 29, 2004 and
October 1, 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
$1,093,000 and $868,000 for the quarters ended September 29,
2004 and October 1, 2003, respectively. The reclassified
amounts for the nine months ended September 29, 2004 and
October 1, 2003 were $3,900,000 and $2,328,000, respectively.
This reclassification does not change either net earnings or
shareholders' equity for 2003.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter ended September 29, 2004 versus October 1, 2003
Restaurant sales during the third quarter of 2004 decreased by
0.2% over the third quarter of 2003. Average unit growth,
based on the average number of restaurants in operation,
amounted to 2.9% during the quarter. The Company owned and
operated 338 restaurants (299 Ryan's brand and 39 Fire
Mountain brand) at September 29, 2004 and 332 restaurants (316
Ryan's brand and 16 Fire Mountain brand) at October 1, 2003.
In comparison to the third quarter of 2003, average unit sales
("AUS"), or average weekly sales volumes per unit, for all
stores (including newly opened restaurants) decreased by 3.0%
in 2004, and same-store sales decreased by 3.1% 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 third quarters of 2004 and 2003, as
compared to their comparable prior years' quarters, were as
follows:
Same-store 2004 2003
Sales (3.1%) 1.2%
Customer count (7.1%) (1.1%)
Menu factor (principally pricing) 4.0% 2.3%
Management believes that the weak sales trends during the
third quarter of 2004 were impacted principally by declining
consumer confidence levels. Gasoline prices were high and
employment reports were very inconsistent throughout the
quarter. In addition, sales were adversely impacted by storms
and power outages related to five different hurricanes or
tropical storms during the quarter. Management estimates that
these weather issues impacted same-store sales by
approximately 0.6%.
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 87.2% during the
third quarter of 2004 compared to 86.0% during the third
quarter of 2003. Food and beverage costs amounted to 35.5%
of sales for 2004 compared to 35.6% of sales for 2003. In
2004, food and beverage costs were adversely impacted by
higher beef costs, which averaged 13% higher per pound than
the per-pound cost during the third quarter of 2003.
However, as compared to the prior year, beef costs moderated
during the quarter, decreasing from +19% in July to +7% in
September. These higher costs were more than offset by lower
seafood and produce costs, the 4.0% menu factor and a
heightened store-level focus on food cost controls.
Management believes that per-pound beef costs during the
fourth quarter of 2004 will be generally comparable to the
fourth quarter of 2003. Payroll and benefits increased to
32.9% of sales in 2004 from 32.0% of sales in 2003 due
principally to higher vacation and workers' compensation
insurance costs as well as from a greater impact from the
fixed components of store-level wages resulting from lower
unit sales volumes. All other restaurant costs, including
depreciation, amounted to 18.8% of sales for 2004 and 18.4%
of sales for 2003 and were impacted in 2004 principally by
higher utility and depreciation costs, partially offset by
lower store opening costs. Depreciation expense was impacted
by higher accelerated depreciation associated with store
closings and by the fixed-cost nature of recurring
depreciation charges.
General and administrative expenses increased to 5.0% of sales
in 2004 from 4.6% of sales in 2003 due principally to higher
legal and maintenance costs and from higher estimated
franchise taxes.
Interest expense for the third quarters of both 2004 and 2003
amounted to 1.3% of sales. The effective average interest
rate increased to 6.2% during the third quarter of 2004 from
5.8% in 2003.
An effective income tax rate of 34.0% was used for the third
quarter of 2004 compared to 36.2% for the third quarter of
2003. The rate decrease resulted primarily from certain
federal income tax credit hiring programs, such as the Work
Opportunity Tax Credit program, and lower state income tax
expense. Although the tax credit programs expired at the end
of 2003, the Company continued to benefit during 2004 from
credits associated with the 2003 new hires. These tax credit
programs were re-enacted in early-October and will be
retroactively applied to all eligible 2004 new hires. The
estimated amount of these credits for all of 2004 will be
recognized during the fourth quarter, and, accordingly,
management estimates that the effective tax rate for the
fourth quarter of 2004 will approximate 32.6%, resulting in an
overall 2004 rate of around 33.6%.
Net earnings for the third quarter amounted to $9.2 million in
2004 compared to $11.0 million in 2003. Weighted-average
shares (diluted) decreased 2.4% resulting principally from the
Company's stock repurchase program (see "Liquidity and Capital
Resources"). Accordingly, earnings per share (diluted)
amounted to 22 cents for the third quarter of 2004 and 25
cents for the third quarter of 2003.
Nine months ended September 29, 2004 versus October 1, 2003
For the nine months ended September 29, 2004, restaurant sales
were up 4.3% compared to the same period in 2003. Principal
factors affecting 2004 sales growth include the 3.6% unit
growth of Company-owned restaurants and a 0.9% increase in all-
store AUS. Same-store sales and related factors for the first
nine months of 2004 and 2003, as compared to their comparable
prior years' periods, were as follows:
Same-store 2004 2003
Sales 0.5% (1.2%)
Customer count (3.3%) (3.8%)
Menu factor (principally pricing) 3.8% 2.6%
Cost of sales, as detailed above, for the first nine months of
2004 and 2003 amounted to 85.0% and 84.9% of sales,
respectively. Food and beverage costs were 35.0% of sales for
2004 compared to 35.4% of sales for 2003. In 2004, food and
beverage costs were impacted by the 3.8% menu factor and a
heightened store-level focus on food cost controls, partially
offset by higher beef prices. Payroll and benefits increased
by 0.5% of sales to 32.1% of sales for 2004 from 31.6% of
sales for 2003 due principally to higher medical and workers'
compensation insurance and other store-level incentive costs.
All other restaurant costs, including depreciation, for 2004
were consistent with 2003 amounts as a percentage of sales.
In 2004, higher utility costs were offset by lower store
opening costs.
General and administrative expenses increased by 0.2% of sales
for the first nine months of 2004 due principally to higher
performance-based bonuses.
Effective income tax rates of 33.8% and 36.2% were used for
the first nine months of 2004 and 2003, respectively. The
explanation for this rate decrease is similar to the third
quarter's discussion.
Net earnings for the first nine months of 2004 amounted to
$38.8 million compared to $37.4 million in 2003. Weighted-
average shares (diluted) decreased by 0.9%, resulting
principally from the Company's stock repurchase program.
Accordingly, earnings per share (diluted) amounted to 89 cents
in 2004 compared to 86 cents in 2003.
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 nine-month periods ended September 29, 2004 and October 1,
2003 follow (in thousands):
2004 2003 Change
Net cash provided by operating
activities $73,843 74,774 (931)
Net cash used in investing
activities (44,705) (50,969) 6,264
Net cash used in financing
activities (21,847) (6,315) (15,532)
Net increase in cash and
cash equivalents $ 7,291 17,490 (10,199)
Net cash provided by operating activities decreased by $0.9
million, resulting principally from the timing of income tax
payments, significantly offset by 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. Net cash used in
investing activities decreased by $6.3 million during the
first nine months of 2004 due to lower capital expenditures in
the third quarter of 2004 resulting from real estate delays
and permitting issues. These issues have been largely
resolved, and, based on current plans, capital expenditures
for the fourth quarter are estimated at approximately $25
million due to increased real estate acquisitions and
remodeling costs. Finally, net cash used in financing
activities increased by $15.5 million as the Company increased
its share repurchase activity and repaid a portion of the
outstanding loans under its revolving credit facility during
the first nine months of 2004.
At September 29, 2004, the Company's working capital deficit
amounted to $54.8 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 ($12.0 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 consistent level of cash flow provided by operations.
Total capital expenditures for the first nine months of 2004
amounted to $51.1 million. The Company opened 10 and closed
six restaurants, including three openings and four closings
for relocation purposes, during the first nine 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 four new restaurants,
including one relocation. 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 four to six 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. 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 $76.5
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 2008.
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 2004, the Company purchased 1,032,106 shares at
an aggregate cost of $18.2 million. Through September 29,
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.
Management intends to proceed with the share repurchase
program during the remainder of 2004 and in future years 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 September 29, 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 $12 million was outstanding at that date.
After allowances for letters of credit and other items, there
were approximately $76 million in funds available under the
revolving credit facility at September 29, 2004. 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 September
29, 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 has
engaged a leading U.S. bank to refinance the existing
facility. Based on discussions with this bank and other
potential participating lenders, management believes that the
new facility will close in late 2004 and will be structured in
a manner that appropriately supports the Company's current
operations and growth plans. However, since final
negotiations have not concluded, 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 September 29, 2004, there was $12
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 September 29, 2004 would
have impacted interest expense by approximately $29,000 and
net earnings by $19,000.
While the Company has entered into interest rate derivative
agreements in the past, there were no such agreements
outstanding during the three months ended September 29, 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 third 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. Unregistered Sales of Equity Securities and Use of
Proceeds.
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 Under the
Part of Plan
Publicly
Announced
Plan
July - - 44,217,706 10,782,294
(07/01/04
-
08/04/04)
August - - 44,217,706 10,782,294
(08/05/04
-
09/01/04)
September - - 44,217,706 10,782,294
(09/02/04
-
09/29/04)
Total - - 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 2008. There were no purchases of the
Company's common stock by or on behalf of the Company
or any "affiliated purchaser" during the third quarter
of 2004 other than through this stock repurchase
program.
Item 6. Exhibits.
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
31.2 Section 906 Certification of Chief Financial
Officer
Items 3, 4 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)
November 8, 2004 /s/Charles D. Way
Charles D. Way
Chairman and
Chief Executive Officer
November 8, 2004 /s/Fred T. Grant, Jr.
Fred T. Grant, Jr.
Senior Vice President-Finance and
Treasurer and Assistant Secretary
(Principal Financial and Accounting
Officer)
November 8, 2004 /s/Richard D. Sieradzki
Richard D. Sieradzki
Vice President-Accounting and
Corporate Controller