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 March 30, 2005
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)
------------------------------------------------------------
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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 ________
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 March 30, 2005, there were 41,985,000 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 March 30, 2005 and March 31, 2004 3
Consolidated Balance Sheets -
March 30, 2005 (Unaudited) and December 29, 2004 4
Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended March 30, 2005 and March 31, 2004
5
Consolidated Statement of Shareholders' Equity
(Unaudited) -
Three Months Ended March 30, 2005 6
Notes to Consolidated Financial Statements
(Unaudited) 7 - 8
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 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 2.Unregistered Sales of Equity Securities and Use of
Proceeds 15
Item 4.Submission of Matters to a Vote of Security Holders 16
Item 6.Exhibits 16
SIGNATURES 17
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
March 30, March 31,
2005 2004
Restaurant sales $209,639 211,657
Cost of sales:
Food and beverage 72,613 72,500
Payroll and benefits 67,991 66,870
Depreciation 8,453 8,557
Other restaurant expenses 31,520 28,812
Total cost of sales 180,577 176,739
General and administrative expenses 10,470 10,322
Interest expense 2,360 2,685
Revenues from franchised restaurants (174) (363)
Other income, net (1,200) (928)
Earnings before income taxes 17,606 23,202
Income taxes 5,793 7,842
Net earnings $ 11,813 15,360
Net earnings per common share:
Basic $ .28 .37
Diluted .28 .35
Weighted-average shares:
Basic 41,938 42,081
Diluted 42,870 43,910
See accompanying notes to consolidated financial statements.
RYAN'S RESTAURANT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 30, December 29,
2005 2004
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 22,999 7,354
Receivables 4,044 4,639
Inventories 6,776 5,611
Prepaid expenses 937 1,016
Deferred income taxes 5,165 5,110
Total current assets 39,921 23,730
Property and equipment:
Land and improvements 163,761 162,082
Buildings 490,024 480,781
Equipment 275,670 271,431
Construction in progress 36,277 31,531
965,732 945,825
Less accumulated depreciation 303,748 295,852
Net property and equipment 661,984 649,973
Other assets 10,790 10,643
Total assets $712,695 684,346
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 9,437 5,963
Current portion of long-term debt 18,750 18,750
Income taxes payable 6,921 1,842
Accrued liabilities 43,307 42,569
Total current liabilities 78,415 69,124
Long-term debt 170,000 164,250
Deferred income taxes 47,925 47,674
Other long-term liabilities 7,960 7,692
Total liabilities 304,300 288,740
Shareholders' equity:
Common stock of $1.00 par value;
authorized 100,000,000 shares;
issued 41,985,000 in 2005 and
41,890,000 shares in 2004 41,985 41,890
Additional paid-in capital 4,759 3,878
Retained earnings 361,651 349,838
Total shareholders' equity 408,395 395,606
Commitments and contingencies
Total liabilities and
shareholders' equity $712,695 684,346
See accompanying notes to consolidated financial statements.
RYAN'S RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
March 30, March 31,
2005 2004
Cash flows from operating activities:
Net earnings $ 11,813 15,360
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Depreciation and amortization 8,931 9,020
Loss (gain) on sale of property
and equipment (119) 657
Tax benefit from exercise of
stock options 216 1,462
Deferred income taxes 196 195
Decrease (increase) in:
Receivables 595 (275)
Inventories (1,165) (758)
Prepaid expenses 79 453
Other assets (237) (289)
Increase in:
Accounts payable 3,474 1,968
Income taxes payable 5,079 5,995
Accrued liabilities 738 1,484
Other long-term liabilities 268 227
Net cash provided by operating
activities 29,868 35,499
Cash flows from investing activities:
Proceeds from sale of property and
equipment 1,955 1,657
Capital expenditures (22,688) (16,882)
Net cash used in investing activities (20,733) (15,225)
Cash flows from financing activities:
Net borrowings from (repayment of)
revolving credit facility 24,500 (5,000)
Repayment of senior notes (18,750) -
Proceeds from stock options exercised 783 3,014
Purchase of common stock (23) (4,510)
Net cash provided by (used in)
financing activities 6,510 (6,496)
Net increase in cash and cash
equivalents 15,645 13,778
Cash and cash equivalents -
beginning of period 7,354 8,617
Cash and cash equivalents -
end of period $ 22,999 22,395
Supplemental disclosures
Cash paid during the period for:
Interest, net of amount
capitalized $ 4,226 4,459
Income taxes 302 190
See accompanying notes to consolidated financial statements.
RYAN'S RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
Three Months ended March 30, 2005
$1 Par Value Additional
Common Paid-In Retained
Stock Capital Earnings Total
Balances at December 29, 2004 $41,890 3,878 349,838 395,606
Net earnings - - 11,813 11,813
Issuance of common stock
under stock option plans 97 686 - 783
Tax benefit from exercise of
non-qualified stock options - 216 - 216
Purchases of common stock ( 2) ( 21) - ( 23)
Balances at March 30, 2005 $41,985 4,759 361,651 408,395
See accompanying notes to consolidated financial statements.
RYAN'S RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 30, 2005
(Unaudited)
Note 1. Description of Business
Ryan's Restaurant Group, Inc. (the "Company") operates a
restaurant chain consisting of 344 Company-owned restaurants
located principally in the southern and midwestern United
States and receives franchise royalties from an unrelated
third-party franchisee that operates four restaurants (as of
March 30, 2005) in Florida. The Company's 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 three months ended March 30, 2005 are not
necessarily indicative of the results that may be expected
for the fiscal year ending December 28, 2005. 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 29, 2004.
Note 3. Relevant New Accounting Pronouncements
In December 2004, the FASB issued Statement of Financial
Accounting Standards ("SFAS") No. 123 (Revised 2004),
"Share-Based Payment," ("SFAS 123R"), which amends SFAS No.
123 and SFAS No. 95. SFAS 123R requires all companies to
measure compensation cost for all share-based payments,
including employee stock options, at fair value and will be
effective for the first interim period of Fiscal 2006. The
Company is currently evaluating the effect that this
accounting change will have on its financial position and
results of operations.
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:
Three Months Ended
(In thousands, except earnings
per share) March 30, March 31,
2005 2004
Net earnings, as reported $11,813 15,360
Less total stock-based compensation
expense determined under fair value
based method, net of related tax
effects (471) (356)
Pro forma net earnings $11,342 15,004
Earnings per share
Basic:
As reported $ .28 .37
Pro forma .27 .36
Diluted:
As reported .28 .35
Pro forma .26 .34
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 40,500 and 3,000 shares of common stock at March
30, 2005 and March 31, 2004, 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 appealed that decision. As part of the appeal
process, the presiding judge stayed the order regarding the
employee addresses. In March 2005, the Sixth Circuit Court
of Appeals affirmed the judge's ruling that denied
enforcement of the arbitration issue. The Company is
pursuing an appeal to the U.S. Supreme Court concerning this
issue and has also asked the presiding judge to again stay
the order regarding 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
arising in the normal course of business, 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter ended March 30, 2005 versus March 31, 2004
Restaurant sales during the first quarter of 2005 decreased
by 1.0% over the first quarter of 2004. Average unit
growth, based on the average number of restaurants in
operation, amounted to 2.1% during the quarter. The Company
owned and operated 344 restaurants (291 Ryan's brand and 53
Fire Mountain brand) at March 30, 2005 and 335 restaurants
(307 Ryan's brand and 28 Fire Mountain brand) at March 31,
2004. In comparison to the first quarter of 2004, average
unit sales ("AUS"), or average weekly sales volumes per
unit, for all stores (including newly opened restaurants)
decreased by 2.9% in 2005, and same-store sales decreased by
3.1% in 2005. 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 first quarters
of 2005 and 2004, as compared to their comparable prior
years' quarters, were as follows:
Same-store 2005 2004
Sales (3.1%) 4.8%
Customer count (5.9%) 1.1%
Menu factor 2.8% 3.7%
Management believes that sales results were impacted
principally by difficult economic conditions during the
first quarter of 2005. Customers experienced higher
gasoline prices and utility costs during the quarter, and
media reports of impending higher interest rates were
common. Management believes that these factors affected
customers' disposable income spending decisions, resulting
in reduced dining-out expenditures.
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 86.1% during the
first quarter of 2005 compared to 83.5% during the first
quarter of 2004. Food and beverage costs amounted to 34.6%
of sales in 2005 and 34.3% of sales in 2004. In 2005, these
costs were adversely impacted by higher beef, pork, chicken
and dairy costs, partially offset by a 2.8% increase in menu
pricing. Payroll and benefits increased to 32.4% of sales
in 2005 from 31.6% of sales in 2004 due principally to
management's tactical decision to increase hourly staffing
levels in order to provide a better dining experience for
the customer and consequently build and retain sales. All
other restaurant costs, including depreciation, increased to
19.1% of sales in 2005 from 17.6% of sales in 2004. This
increase resulted principally from higher electricity and
natural gas prices, greater store-level marketing
expenditures and from the unfavorable impact on cost of
sales that 2005's lower AUS had on the many fixed-cost items
included in this category, such as utilities, repairs and
maintenance and general liability insurance. Based on these
factors, the Company's margins at the restaurant level
decreased by 2.6% of sales to 13.9% of sales in 2005 from
16.5% of sales in 2004.
General and administrative expenses increased to 5.0% of
sales in 2005 from 4.9% of sales in 2004 due to higher
accounting and consulting costs associated with Sarbanes-
Oxley compliance as well as from the unfavorable impact on
cost of sales that 2005's lower AUS had on this highly fixed-
cost category. These increases were partially offset by
lower performance-based bonus costs.
Interest expense for the first quarter of 2005 and 2004
amounted to 1.1% and 1.3% of sales, respectively. The
average effective interest rate decreased to 6.0% for the
first quarter of 2005 from 6.1% for the comparable quarter
in 2004, resulting principally from the scheduled $18.8
million annual installment payment on the 9.02% senior notes
in late-January 2005. Borrowings under the floating-rate
revolving credit facility, which accrued interest at a 3.7%
effective rate during the quarter, were used as the source
of funds for this payment.
Revenues from franchised restaurants decreased by $189,000
during the first quarter of 2005 as the Company's sole
franchisee, Family Steak Houses of Florida, Inc. ("FSH"; now
operates as EACO Corporation) converted its Ryan's brand
restaurants to non-affiliated brands in accordance with the
December 2003 amendment to the franchise agreement. Per the
amendment, the franchise relationship between the Company
and FSH will terminate by no later than June 30, 2005.
An effective income tax rate of 32.9% was used for the first
quarter of 2005 compared to 33.8% for the first quarter of
2004. The decrease in the 2005 rate resulted principally
from the greater deductive impact of anticipated Federal tax
credits, such as Work Opportunity, Welfare to Work and FICA
taxes paid on reported employee tip income, for 2005
(estimated at approximately $2.7 million, which is similar
in amount to the 2004 estimate) on 2005's lower earnings
before income taxes (as compared to 2004). This decrease
was partially offset by higher 2005 state income tax
expense.
Net earnings for the first quarter amounted to $11.8 million
in 2005 compared to $15.4 million in 2004. Weighted-average
shares (diluted) decreased by 2.3% to 42.9 million in 2005
from 43.9 million in 2004 as the lower price of the
Company's common stock reduced the impact of the Company's
outstanding stock options included in the weighted-average
share calculation. In general, as the Company's stock price
decreases, the number of shares related to stock options in
the weighted-average share calculation also decreases.
Accordingly, earnings per share (diluted) amounted to 28
cents for the first quarter of 2005 compared to 35 cents for
the first quarter of 2004.
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 three-month periods ended March 30, 2005 and March 31,
2004 follow (in thousands):
2005 2004 Change
Net cash provided by operating
activities $29,868 35,499 (5,631)
Net cash used in investing
activities (20,733)(15,225) (5,508)
Net cash provided by (used in)
financing activities 6,510 (6,496) 13,006
Net increase in cash and cash
equivalents $15,645 13,778 1,867
Net cash provided by operating activities decreased by $5.6
million in 2005 mainly as a result of lower net earnings and
less tax benefit from the exercise of stock options in 2005.
As noted below, stock option exercises also decreased in
2005. Net cash used in investing activities increased by
$5.5 million as capital expenditures during the first
quarter of 2005 exceeded the prior year's comparable amount
due to a greater number of stores under construction at
quarter-end 2005. Finally, net cash provided by financing
activities increased by $13.0 million as the Company
borrowed $24.5 million under its revolving credit facility
during the first quarter of 2005 in order to provide funds
for a scheduled $18.8 million senior note payment and for
its capital expenditure needs, partially offset by lower
stock option exercises and stock repurchases during the
quarter.
At March 30, 2005, the Company's working capital deficit
amounted to $38.5 million compared to a $45.4 million
deficit at December 29, 2004. This decrease in deficit
results principally from an increase in the Company's cash
balances, partially offset by higher accounts payable and
income taxes payable. The Company's cash balances fluctuate
based on its anticipated short-term cash needs and the
maturities of borrowings under its revolving credit
facility. Both payable categories normally increase from
their year-end balances due to normal seasonal sales
patterns and payment schedules. 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 three months of
2005 amounted to $22.7 million. The Company opened four and
closed one restaurant during the first three months of 2005,
which included one opening and one closing for relocation
purposes. 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 2005, the Company plans to build and open 13 to 15 new
restaurants, including three 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. A variety of
meats are grilled daily and available to customers as part
of the buffet price. Customers go to the grill and can get
hot, cooked-to-order steak, chicken or other grilled items
placed directly from the grill onto their plates.
Management also intends to convert approximately 11 to 15
restaurants during the remainder of 2005 to the display
cooking/lodge-look format. Substantially 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 2005 capital
expenditures are estimated at $94 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
three months of 2005, the Company purchased 1,600 shares at
an aggregate cost of $23,000. Through March 30, 2005,
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.
Repurchases since March 30, 2005 have been insignificant.
Additional stock repurchases in 2005 will occur 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 other factors
described in "Forward-Looking Information".
At March 30, 2005, the Company's outstanding debt consisted
of $56.3 million of 9.02% senior notes, $100.0 million of
4.65% senior notes and a $150.0 million revolving credit
facility of which $32.5 million was outstanding at that
date. After allowances for letters of credit and other
items, there were approximately $105 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 March
30, 2005, the Company was in compliance with all covenants
under the loan agreements. Current projections indicate
that the Company will be in compliance with all covenants
during the remainder of 2005. However, if future earnings
are significantly below projected levels, compliance issues
could occur, particularly with the covenant regarding the
minimum fixed coverage ratio. Nevertheless, management
believes that, based on its current plans, these
restrictions will not impair the Company's operations during
2005.
Management believes that its current capital structure is
sufficient to meet its 2005 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. Such revisions to
the useful lives have not significantly impacted the
Company's results of operations in recent years. 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
with respect to 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
through accelerated depreciation to its current fair value
less costs to sell and is no longer depreciated. Total
impairment costs, including related accelerated depreciation
charges, amounted to $167,000 and $396,000 for the first
quarters of 2005 and 2004, respectively.
Self-Insurance Liabilities The Company self-insures a
significant portion of expected losses from its workers'
compensation, general liability and team member medical
programs. The aggregate amounts of these liabilities were
$13,758,000 at March 30, 2005 and $13,466,000 at December
29, 2004. 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.
Income Taxes The Company estimates certain components of
the provision for income taxes on a quarterly basis. These
estimates include, among other items, depreciation and
amortization expense allowable for tax purposes, allowable
tax credits for items such as Work Opportunity, Welfare to
Work and FICA taxes paid on reported employee tip income,
effective rates for state and local income taxes, and the
tax deductibility of certain other items. These estimates
are based on the best available information at the time the
tax provision is prepared. There were no significant
changes to these estimates during the first quarter of
2005. Annual income tax returns are prepared and filed
several months after each fiscal year-end. Income tax
returns are subject to audit by federal, state, and local
governments, generally up to three years after the returns
are filed. These returns could be subject to differing
interpretations of the applicable authority's tax laws. As
part of the audit process, the Company must assess the
likelihood that a requested adjustment in income taxes due
will be payable either through legal proceedings or by
settlement, either of which could result in a material
adjustment to the Company's results of operations or
financial position.
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 or, if
higher, the applicable state minimum wage and, accordingly,
legislated changes to the minimum wage rates affect the
Company's payroll costs. There has been legislation
introduced to increase the minimum wage in the U.S. Congress
and in the legislatures of approximately one-half of the
states in which the Company operates. It is impossible to
predict which increases will be implemented. If such
increases were implemented, the Company expects that payroll
costs, as a percent of sales, would increase. However, the
Company is generally able to increase menu prices in order
to cover most of the dollar impact of legislated 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 March 30, 2005,
there was $32.5 million in outstanding debt under this
facility. Interest rates for the facility generally change
in response to LIBOR. Management estimates that a one-
percent increase in interest rates throughout the quarter
ended March 30, 2005 would have increased interest expense
by approximately $53,000 and decreased net earnings by
$36,000.
While the Company has entered into interest rate derivative
agreements in the past, there were no such agreements
outstanding during the three months ended March 30, 2005.
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 in providing
reasonable assurance 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 first quarter of 2005, the Company did not make
any changes in its internal control over financial reporting
that have materially affected, or are reasonably likely to
materially affect, that control.
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; 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 29, 2004. 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 2005 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 appealed that decision. As
part of the appeal process, the presiding judge
stayed the order regarding the employee addresses.
In March 2005, the Sixth Circuit Court of Appeals
affirmed the judge's ruling that denied enforcement
of the arbitration issue. The Company is pursuing
an appeal to the U.S. Supreme Court concerning this
issue and has also asked the presiding judge to
again stay the order regarding 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 arising in the normal
course of business, 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.
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
January - - 44,217,706 10,782,294
(12/30/04-
02/02/05)
February - - 44,217,706 10,782,294
(02/03/05-
03/02/05)
March 1,600 $14.19 44,219,306 10,780,694
(03/03/05-
03/30/05)
Total 1,600 $14.19 44,219,306 10,780,694
The Company began 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. At March 30, 2005, there were
10,780,694 shares remaining under the current
authorization. There were no purchases of the
Company's common stock by or on behalf of the
Company or any "affiliated purchaser" during the
first quarter of 2005 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 April 11, 2005 (all votes are
in thousands):
Broker-
For Against Withheld Abstain Non-
votes
(a) Election of
Directors:
C. D. Way 36,325 n/a 2,771 n/a n/a
G. E. McCranie 36,456 n/a 2,640 n/a n/a
B. L. Edwards 36,664 n/a 2,432 n/a n/a
B. S. MacKenzie 36,660 n/a 2,436 n/a n/a
H. K. Roberts, Jr. 36,665 n/a 2,431 n/a n/a
J. M. Shoemaker, Jr. 23,489 n/a 15,607 n/a n/a
V. A. Wong 36,990 n/a 2,106 n/a n/a
(b) Ratify Ryan's
Shareholder Rights
Agreement 21,912 13,574 n/a 78 n/a
(c) Ratify the
appointment of
KPMG LLP for
fiscal 2005 38,093 994 n/a 9 n/a
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
32.2 Section 906 Certification of Chief
Financial Officer
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)
May 4, 2005 /s/Charles D. Way
Charles D. Way
Chairman and
Chief Executive Officer
May 4, 2005 /s/Fred T. Grant, Jr.
Fred T. Grant, Jr.
Senior Vice President-Finance and
Treasurer and Assistant Secretary
(Principal Financial and Accounting
Officer)
May 4, 2005 /s/Richard D. Sieradzki
Richard D. Sieradzki
Vice President-Accounting and
Corporate Controller