-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B2W5pVjPmZPodkDUct+2W+pURCoqXUch7FgmZC4tfVM5zwqckkVSYbHVcl3ABAY0 gS8GJwrwcdBtKvk7nhKJ6w== 0000950144-96-001283.txt : 19960329 0000950144-96-001283.hdr.sgml : 19960329 ACCESSION NUMBER: 0000950144-96-001283 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960103 FILED AS OF DATE: 19960328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAMILY STEAK HOUSES OF FLORIDA INC CENTRAL INDEX KEY: 0000784539 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 592597349 STATE OF INCORPORATION: FL FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14311 FILM NUMBER: 96540320 BUSINESS ADDRESS: STREET 1: 2113 FLORIDA BLVD STREET 2: STE A CITY: NEPTUNE BEACH STATE: FL ZIP: 32266 BUSINESS PHONE: 9042494197 MAIL ADDRESS: STREET 2: 2113 FLORIDA BLVD STE A CITY: NEPTUNE BEACH STATE: FL ZIP: 32266 10-K 1 FAMILY STEAK HOUSES OF FLORIDA 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K (MARK ONE) ( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED JANUARY 3, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) COMMISSION FILE NO. 0-14311 FAMILY STEAK HOUSES OF FLORIDA, INC. (exact name of registrant as specified in its charter) FLORIDA NO. 59-2597349 (State of Incorporation) (I.R.S. Employer Identification) 2113 FLORIDA BOULEVARD NEPTUNE BEACH, FLORIDA 32266 (Address of Principal Executive Offices) Registrant's telephone number, including area code: (904) 249-4197 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE (Title of Class) --------------------- 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. YES NO X As of March 8, 1996, 10,860,033 shares of Common Stock of the registrant were outstanding. The aggregate market value of such voting Common Stock (based upon the closing sale price of the registrant's Common Stock on the NASDAQ National Market System on March 8, 1996, as reported in The Wall Street Journal) held by non-affiliates of the registrant was approximately $7,466,300. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's 1995 Annual Report to Shareholders are incorporated by reference into Part II. Portions of the Proxy Statement for the registrant's 1996 Annual Meeting of Shareholders are incorporated by reference into Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS GENERAL Family Steak Houses of Florida, Inc. ("Family" or the "Company"), is the sole franchisee of Ryan's Family Steak House restaurants ("Ryan's restaurants") in the State of Florida. The Company's first Ryan's restaurant was opened in Jacksonville, Florida, in May 1982. As of January 3, 1996, the Company operated 24 Ryan's restaurants in Florida, including nine in north Florida and fifteen in central and west Florida. A Ryan's restaurant is a family-oriented restaurant serving high-quality, reasonably-priced food in a casual atmosphere with server-assisted service. Ryan's restaurants serve lunch and dinner seven days a week and offer a variety of charbroiled entrees, including various cuts of beef, chicken, and seafood. Most of the restaurants serve a brunch on weekends only. Each restaurant features a diverse selection of items from either a series of "scatter bars" or a 65-foot, self-service, all-you-can-eat Mega Bar, and a separate fresh bakery and dessert bar. In addition to traditional salad bar items, the scatter bars or Mega Bars offer hot meats, pre-made salads, soups, baked potatoes with toppings, cheeses and a variety of vegetables. The Company believes that its operating strategy of selling top-quality meals at reasonable prices, at food costs to the Company which are higher than the industry average, creates a perception of value to its customers. The Company operates its Ryan's restaurants under a Franchise Agreement with Ryan's Family Steak Houses, Inc., ("Ryan's", or the "Franchisor") which grants the Company the right to operate Ryan's Family Steak House restaurants throughout most of the State of Florida. COMPANY HISTORY The Company was formed by the combination, effective February 1986, of six limited partnerships, each of which owned and operated a Ryan's restaurant franchise. In April 1986, the Company issued 4,266,000 shares of its common stock in exchange for the assets and liabilities of the predecessor partnerships and 1,134,000 shares of its common stock to Eddie L. Ervin, Jr., in consideration for Mr. Ervin assigning to the Company all of his rights under the 2 3 Franchise Agreement (as defined below). The Company completed its initial public offering of 4,500,000 shares of its common stock in 1986 resulting in net proceeds to the company of approximately $4,145,000. RECENT DEVELOPMENTS In March 1995, the Company entered into amended and restructured debt agreements with its lenders. In August 1995, the Company received a notice from The Travelers Insurance Company that it had sold its notes and certain warrants it held for purchases of the Company's common stock to Cerberus Partners, L.P. For a complete discussion of the debt restructure, see Note 5 to the Consolidated Financial Statements in the Company's 1995 Annual Report to Shareholders. FRANCHISE AGREEMENT The Company operates its Ryan's Restaurants under a Franchise Agreement between the Company and the Franchisor dated as of September 16, 1987, which Franchise Agreement amended and consolidated all previous franchise agreements (as amended, the "Franchise Agreement"). The Franchise Agreement extends through December 31, 2010 and provides for two additional ten-year renewal options. The renewal options are subject to certain conditions, including the condition that the Company has fully and faithfully performed its obligations under the Franchise Agreement during its original term. Under the terms of the Franchise Agreement, the Company has the right to use the registered mark "Ryan's Family Steak House" and the right to use the Franchisor's techniques in the operation of Ryan's Family Steak House restaurants. In July 1994, the Company and the Franchisor amended the Franchise Agreement. The amended agreement requires the Company to pay a royalty fee of 3.0% through May 1997 and 4.0% thereafter on the gross receipts of each Ryan's Family Steak House restaurant. The Company paid royalty fees of 4.5% prior to May 1994. Total royalty fee expenses were $1,263,200, $1,561,100 and $2,406,400 for the years ended January 3, 1996, December 28, 1994 and December 29, 1993, respectively. 3 4 The Franchise Agreement requires the Company to operate a minimum number of Ryan's restaurants on December 31 of each year. Failure to operate the minimum number will result in the loss of exclusivity rights to the Ryan's concept in Florida. The following schedule outlines the number of Ryan's restaurants required to be operated by the Company on December 31 of each year under the Franchise Agreement:
Number of Restaurants Required to End of Fiscal Year be in Operation 1994-1996 24 1997 25 1998 26 1999 27 2000 28 2001 and subsequent years Increases by one each year
Prior to the June 1994 amendment to the Franchise Agreement, the Company held exclusive franchise rights to build Ryan's restaurants in the State of Florida, with the exception of Panama City, Florida and Escambia County, Florida, where the Franchisor has the right to operate Ryan's restaurants. Under the July 1994 Amendment to the Franchise Agreement, the Company relinquished the franchise rights to most counties in northwest Florida and south Florida in exchange for forgiveness of $500,000 in past due royalty fees. The Company has the right to repurchase the exclusive franchise rights to these counties for $500,000 at any time prior to June 30, 1998. In addition, the Franchisor agreed not to develop any Ryan's restaurants in the south Florida territory prior to June 30, 1996. In conjunction with the execution of the July 1994 amendment to the Franchise Agreement, the Company executed and delivered a note to the Franchisor for payment of $800,000 in past due royalty fees. (See Note 5 to the Consolidated Financial Statements in the Company's 1995 Annual Report to Shareholders). The Franchise Agreement contains provisions relating to the operation of the Company's Ryan's restaurants. Upon the Company's failure to comply with such provisions, the Franchisor may terminate the Franchise Agreement if such default is not cured within 30 days of notice from the Franchisor. Termination of the Franchise Agreement would result in the loss of the Company's right to use the "Ryan's Family Steak House" name and concept and could result in the sale of the physical assets of the Company to the Franchisor pursuant to a right of first refusal. Termination of the Company's rights under the Franchise Agreement may result in 4 5 the disruption, and possibly the discontinuance, of the Company's operations. The Company believes that it has operated and maintained each of its Ryan's Family Steak House restaurants in accordance with the operational procedures and standards set forth in the Franchise Agreement, as amended. OPERATIONS OF RYAN'S RESTAURANTS FORMAT. As of March 5, 1996, 23 of the Company's Ryan's Restaurants are located in free-standing buildings which vary in size from 7,500 to 12,000 square feet. One of the Company's Ryan's restaurants is located in a mall. Each restaurant is constructed of brick or stucco walls, interior and exterior, with exposed woodwork. The interior of each Ryan's restaurant contains a dining room, a customer ordering area, and a kitchen. The dining rooms seat a total of between 270 and 420 persons and highlight centrally located, illuminated scatter bars or Mega Bars and a fresh bakery bar. Each Ryan's restaurant has parking for approximately 100 to 175 cars on lots of overall size of approximately 50,000 to 70,000 square feet. The Ryan's restaurants operate seven days a week. Hours of operation are from 11:00 a.m. to 10:00 p.m., Sunday through Thursday, and from 11:00 a.m. to 11:00 p.m., Friday and Saturday. Restaurants that open for brunch open at 8:00 a.m. Saturday and Sunday. In a Ryan's restaurant, the customer enters the restaurant, orders from the menu, and enters the dining room. Beverages are brought to the table by servers. Entrees are cooked to order. The customer ordering the salad bar is given unlimited access to the scatter bars or Mega Bars and the bakery dessert bar. Customers receive table service of the entree and beverage refills. For the year ended January 3, 1996, the average weekly customer count per restaurant was approximately 5,520 and the average cost of a meal, with beverage, was approximately $6.00. RESTAURANT MANAGEMENT AND SUPERVISION. The Company manages the Ryan's restaurants pursuant to a standardized operating and control system together with comprehensive recruiting and training of personnel to maintain food and service quality. In each Ryan's restaurant, the management group consists of a general manager, a manager and one or two assistant managers, depending on sales volume. The Company requires at least two members of the management group on duty during all peak serving periods. Management-level personnel usually begin employment at the manager trainee or assistant manager level, depending on prior restaurant management experience. All new management-level personnel must complete the Company's six-week training period prior to being placed in a management position. 5 6 Each restaurant management group reports to a supervisor. Presently, the supervisors each oversee the operations of five to seven restaurants. The supervisors report directly to the Vice President of Operations. Communication and support from all departments in the Company are designed to assist the supervisors in responding promptly to local problems and opportunities. All restaurant managers and supervisors participate in incentive programs based upon the profitability of their restaurants and upon the achievement of certain pre-set goals. The Company believes these incentive programs enable it to operate more efficiently and to attract qualified managers. PURCHASING, QUALITY AND COST CONTROL. The Company has a centralized purchase control program which is designed to ensure uniform product quality in all restaurants. The program also helps to maintain reduced food, beverage, and supply costs. The Company purchases approximately 90% of the products used by the Company's Ryan's restaurants through the centralized purchase control program. USDA choice grain-fed beef, the Company's primary commodity, is closely monitored by the Company for advantageous purchasing and quality control. The Company purchases beef through various producers and brokers both on a contract basis and on a spot basis. Beef and other products are generally delivered directly to the restaurants three times weekly, except for fresh produce, which is delivered three to five times per week. The Company believes that satisfactory sources of supply are available for all the items it regularly uses. The Franchise Agreement requires that all suppliers to Ryan's restaurants be approved by the Franchisor. Through its relationship with the Franchisor, the Company has obtained favorable pricing on the purchase of food products from several suppliers. In June 1995, the Company renewed its agreement with Kraft Foodservice, Inc. to serve as its primary supplier. Kraft was subsequently purchased by Alliant Foodservice, Inc. The Alliant agreement has a five-year term and is cancellable at any time with 60 days notice. The Company maintains centralized financial and accounting controls for its Ryan's restaurants. On a daily basis, restaurant managers forward customer counts, sales information and supplier invoices to Company headquarters. On a weekly basis, restaurant managers forward summarized sales reports and payroll data. Physical inventories of all food and supply items are taken weekly, and meat is inventoried daily. 6 7 DEVELOPMENT GENERAL. The Company operated 24 Ryan's restaurants as of January 3, 1996. SITE LOCATION AND CONSTRUCTION. The Company considers the specific location of a restaurant to be important to its long-term success. The site selection process focuses on a variety of factors, including trade area demographics (such as population density and household income level), an evaluation of site characteristics (such as visibility, accessibility, and traffic volume), and an analysis of the potential competition. In addition, site selection is influenced by the general proximity of a site to other Ryan's restaurants in order to improve the efficiency of the Company's field supervisors and potential marketing programs. The Company obtains its new restaurant sites using its real estate subsidiary. The Company generally locates its restaurants near or adjacent to residential areas in an effort to capitalize on repeat business from such areas as opposed to transient business. The Company constructs its Ryan's restaurants using its contracting subsidiary. Management believes that by performing site selection and restaurant construction internally, the Company can maintain better control of site selection, real estate cost and construction performance. While the Company has not required performance and payment bonds, it undertakes to closely supervise and monitor all construction and confirm payment of subcontractors and suppliers. New Ryan's restaurants generally are completed within three months of the date on which construction is commenced. MANAGEMENT OF NEW RESTAURANTS. When a new Ryan's restaurant is opened, the principal restaurant management positions are staffed with personnel who have prior experience in a management position at another of the Company's restaurants and who have undergone special training. Prior to opening, all staff personnel at the new location undergo one week of intensive training conducted by the Company's restaurant training team. Such training includes preopening drills in which test meals are served to the invited public. Both the staff at the new location and personnel experienced in store openings at other locations participate in the training and drills. 7 8 JOINT VENTURE In December 1994, the Company formed a new subsidiary, Family Steak JV, Inc. which acquired a 50% ownership in a Florida limited liability company, Cross Creek Barbeque, L.C. ("Cross Creek"), for the purpose of opening a new restaurant. The Company contributed certain furnishings, fixtures, and equipment owned by its Wrangler's Roadhouse, Inc. subsidiary to Cross Creek and the other 50% owner of Cross Creek contributed the cash necessary to remodel and open the new Cross Creek restaurant. Wrangler's Roadhouse, Inc. leases the land and building it formerly occupied to Cross Creek. The Cross Creek restaurant opened in January 1995. As a result of unsatisfactory operational performance, the Company sold its interest in the Cross Creek restaurant in July 1995. PROPRIETARY TRADE MARKS The name "Ryan's Family Steak House," along with all ancillary signs, building design and other symbols used in conjunction with the name, and the name "Mega Bar", are the primary trademarks and service marks of the Franchisor. Such marks are registered in the United States. All of these registrations and the goodwill associated with the Franchisor's trademarks are of material importance to the Company's business and are licensed to the Company under the Franchise Agreement. COMPETITION The food service business in Florida is highly competitive and is often affected by changes in the taste and eating habits of the public, economic conditions affecting spending habits, local demographics, traffic patterns and local and national economic conditions. The principal bases of competition in the industry are the quality and price of the food products offered. Location, speed of service and attractiveness of the facilities are also important factors. The Company's restaurants are in competition with restaurants operated or franchised by national, regional and local restaurant companies offering a similar menu, many of which have greater resources than the Company. The Company also is in competition with specialty food outlets and other vendors of food. In addition, the Franchisor has the right to operate one Ryan's restaurant in Panama City, Florida, one Ryan's restaurant in Pensacola, Florida, and operate additional Ryan's restaurants in Escambia County, Florida if such restaurants are not located within five miles of a Ryan's restaurant operated by the Company. Even though the Company believes that such five mile location restriction will prevent direct competition between a restaurant owned by the 8 9 Company and a restaurant owned by the Franchisor, competition with restaurants owned by the Franchisor could occur. In addition, beginning in June 1996, the Franchisor has the right to operate restaurants in several other west Florida and south Florida counties. EMPLOYEES As of January 3, 1996, the Company employed approximately 1,320 persons, of whom approximately 50% are considered by management as part-time employees. No labor unions currently represent any of the Company's employees. The Company has not experienced any work stoppages attributable to labor disputes and considers employee relations to be good. EXECUTIVE OFFICERS The following persons were executive officers of the Company effective January 3, 1996: Lewis E. Christman, Jr., age 76, has been President and Chief Executive Officer of the Company since April 1994. Mr. Christman was hired as a consultant to oversee and direct the Company's purchasing program in January 1994 and has been a Director of the Company since May 1993. In addition, Mr. Christman serves as President of each of the Company's subsidiaries. Mr. Christman has been a partner in East Coast Marketing since 1990. From 1979 to 1989, Mr. Christman served as Chairman of the Board of Neptune Marketing, Inc., a food brokerage company. Edward B. Alexander, age 37, has been Secretary and Treasurer of the Company since November 1990. In addition, Mr. Alexander serves as Secretary of each of the Company's subsidiaries. Mr. Alexander served as controller of the Company from January 1989 to April 1990 and as Director of Finance since April 1990. From April 1985 until December 1988, Mr. Alexander was employed as controller for Mac Papers, Inc., a wholesale paper products distributor. Prior to April 1985, Mr. Alexander served as a senior accountant for the accounting firm of Touche Ross & Co. Bob Martin, age 67, has been Vice President of Family Steak Houses, Inc. since April 1994. In addition, Mr. Martin has been Vice President of Steak House Construction since 1986. Mr. Martin was project manager and construction supervisor for all of the Company's restaurants. Prior to 1981, Mr. Martin was Vice President of Universal Environmental Control Construction Inc. from 1973 to 1981. 9 10 Robert Scott, age 43, has been Vice President of Operations for the Company since July 1994. From May 1983 to July 1994, Mr. Scott was employed by Golden Corral Family Restaurants as a District Manager, responsible for 35 restaurants in his division. From November 1978 to April 1982, Mr. Scott was employed as the Manager of Operations for Hardwicke Corporation (Restaurants and Pubs). Prior to 1978, Mr. Scott was General Manager of a Ground Round Restaurant. William Stanley Smith, Jr., age 59, has been Executive Vice President of the Company since April 1995. From June 1994 to April 1995, Mr. Smith was a consultant to the Company. From October 1985 to June 1994, Mr. Smith served as Vice President of Development of the Company. In addition, Mr. Smith serves as Vice President of each of the Company's subsidiaries. GOVERNMENT REGULATION The Company is subject to the Fair Labor Standards Act which governs such matters as minimum wage requirements, overtime and other working conditions. A large number of the Company's restaurant personnel are paid at or slightly above the federal minimum wage level and, accordingly, any change in such minimum wage will affect the Company's labor costs. The Company is also subject to the Equal Employment Opportunity Act and a variety of federal and state statutes and regulations. The Company's restaurants are constructed to meet local and state building requirements and are operated in accordance with state and local regulations relating to the preparation and service of food. The Company believes that it is in substantial compliance with all applicable federal, state and local statutues, regulations and ordinances and that compliance has had no material effect on the Company's capital expenditures, earnings or competitive position, and such compliance is not expected to have a material adverse effect upon the Company's operations. The Company, however, cannot predict the impact of possible future legislation or regulation on its operations. SOURCES AND AVAILABILITY OF RAW MATERIALS The Company procures its food and other products from a variety of suppliers, and follows a policy of obtaining its food and products from several major suppliers under competitive terms. A substantial portion of the beef used by the Company is obtained from one supplier, although the Company believes comparable beef meeting its specifications is available in adequate quantities from other suppliers. To ensure against interruption in the flow of food supplies due to unforeseen or catastrophic events, to take advantage of favorable purchasing opportunities, and to insure that 10 11 meat received by the Company is properly aged, the Company maintains a two to six week supply of beef. WORKING CAPITAL REQUIREMENTS Substantially all of the Company's revenues are derived from cash sales. Inventories are purchased on credit and are converted rapidly to cash. The Company does not maintain significant receivables and inventories. Therefore, with the exception of debt service, working capital requirements for continuing operations are not significant. In March 1995, the Company entered into an Amended and Restated Note Agreement, dated as of February 1, 1995, with The Travelers Insurance Company and certain of its affiliates ("the Note Agreement"). In August 1995, the Travelers Notes were sold to Cerberus Partners, L.P. The Cerberus Notes are due May 30, 1998 and provide for an interest rate of 9.0%, and monthly principal reductions of $65,000 beginning January 1, 1996. As of January 3, 1996, the outstanding balance due under the Cerberus Notes was $11,607,800. The Note Agreement includes detachable Warrants for purchases of up to 1,750,000 shares of the Company's common stock at an exercise price of $.40 per share. The Cerberus Notes are secured by second mortgages on twenty-two of the Company's restaurant properties. The Note Agreement provides for various covenants including prepayment options, the maintenance of prescribed debt service coverages, limitations on the declaration of cash dividends, sale of assets, and certain other restrictions. Also in March 1995, the Company entered into an Amended and Restated Loan Agreement with The Daiwa Bank, Limited, and SouthTrust Bank of Alabama, National Association (the "Bank Loan"), which extends the maturity date of its secured term loan with the banks until May 30, 1998. The Bank Loan bears interest at prime rate plus 0.50%, with monthly principal payments of $41,250 beginning April 1, 1995 ($67,100 prior to April 1, 1995). The Bank Loan is secured by first mortgages on twenty-two of the Company's restaurant properties, and provides for various covenants substantially consistent with those of the Travelers Agreement. As of January 3, 1996, the outstanding balance under the Bank Loan was $4,163,000. SEASONALITY The Company's operations are subject to some seasonal fluctuations. Revenues per restaurant generally increase from January through April and decline from September through December. 11 12 RESEARCH The Company relies on the Franchisor to maintain ongoing research programs relating to the development of new products and evaluation of marketing activities. Although research and development activities are important to the Company, no expenditures for research and development have been incurred by the Company. CUSTOMERS No material part of the Company's business is dependent upon a single customer or a few customers. INFORMATION AS TO CLASSES OF SIMILAR PRODUCTS OR SERVICES The Company operates in only one industry segment. All significant revenues and pre-tax earnings relate to retail sales of food to the general public through restaurants owned and operated by the Company. The Company has no operations outside the continental United States. ITEM 2. PROPERTIES
Location Date Opened -------- ----------- Jacksonville May 1982 Jacksonville May 1983 Jacksonville November 1983 Orange Park May 1984 Jacksonville May 1985 Jacksonville July 1985 Ocala September 1986 Neptune Beach November 1986 Lakeland February 1987 Lakeland March 1987 Winter Haven August 1987 Apopka September 1987 Gainesville December 1987 Hudson February 1988 New Port Richey May 1988 Tampa June 1988 Tallahassee August 1988 Daytona Beach September 1988 Tampa November 1988 Orlando January 1989 Orlando February 1989 Clearwater August 1989 Melbourne November 1989 Lake City March 1991
12 13 As of March 1995, the Company operated 24 Ryan's restaurants. The specific rate at which the Company is able to open new restaurants will be determined by its ability to locate suitable sites on satisfactory terms, raise the necessary capital, secure appropriate governmental permits and approvals and recruit and train management personnel. As of January 3, 1996, the Company owned the real property on which 22 of its restaurants were located. All of these properties were subject to first and second mortgages securing the Cerberus Notes and the Bank Loan. The Company leases the real property on which two of its restaurants are located. Those restaurants are located at 3546 Blanding Boulevard, Jacksonville, Florida and in Clearwater, Florida. The executive offices of the Company, consisting of approximately 3,500 square feet, are leased at a monthly rental rate of $2,680, plus sales tax, from William Stanley Smith, Jr., an officer and director of the Company. The Company paid $35,995 in rental payments to Mr. Smith in fiscal year 1995. The Company currently leases 2,800 square feet of mixed warehouse and office space from Eddie L. Ervin, Jr., a former officer and director of the Company. The aggregate monthly payment due is approximately $1,495, plus sales tax. The Company paid $20,151 in rental payments to Mr. Ervin in fiscal year 1995. ITEM 3. LEGAL PROCEEDINGS The Company is subject to various pending legal proceedings arising in the normal course of business. In the opinion of management, based on the advice of legal counsel the ultimate disposition of these claims and litigation will not have a material adverse effect on the financial position or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information contained under the caption "Common Stock Data" in the Company's 1995 Annual Report to Shareholders is incorporated herein by reference. 13 14 ITEM 6. SELECTED FINANCIAL DATA The information contained under the caption "Five-Year Financial Summary" in the Company's 1995 Annual Report to Shareholders is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 1995 Annual Report to Shareholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements of the Company and the Report of Independent Certified Public Accountants as contained in the Company's 1995 Annual Report to Shareholders are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding directors contained under the caption "Election of Directors" in the Company's Proxy Statement for the 1996 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission prior to May 2, 1996, is incorporated herein by reference. Securities and Exchange Commission Rules under Section 16(a) of the Securities Exchange Act of 1934 require the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and the National Association of Securities Dealers and to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it or written representations from certain reporting persons that no Forms 5 were required for those persons, the Company believes that, during the 1995 fiscal year, all filing requirements applicable to its officers, 14 15 directors, and greater-than-10% beneficial owners were complied with on a timely basis, except as set forth under the caption "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Company's Proxy Statement for the Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission prior to May 2, 1996, which is incorporated herein by reference. The information regarding executive officers is set forth in Item 1 of this report under the caption "Executive Officers." ITEM 11. EXECUTIVE COMPENSATION The information contained under the caption "Executive Pay" in the Company's Proxy Statement for the 1996 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission prior to May 2, 1996, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Company's Proxy Statement for the 1996 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission prior to May 2, 1996, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained under the caption "Election of Directors - Certain Relationships and Related Transactions" in the Company's Proxy Statement for the 1996 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission prior to May 2, 1996, is incorporated herein by reference. 15 16 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)1. The financial statements listed below are filed with this report on Form 10-K or are incorporated herein by reference from the Company's 1995 Annual Report to Shareholders. With the exception of the pages listed below, the 1995 Annual Report to Shareholders is not deemed "filed" as a part of this report on Form 10-K.
Page Reference --------- Form 1995 10-K Annual Report ---- ------------- Consent of Independent Certified Public Accountants F-1 Report of Independent Certified Public Accountants 21 Consolidated Statements of Operations 8 Consolidated Balance Sheets 9 Consolidated Statements of Share- holders' Equity 11 Consolidated Statements of Cash Flows 10 Notes to Consolidated Financial Statements 12
(a)2. No financial statement schedules have been included since the required information is not applicable or the information required is included in the financial statements or the notes thereto. (a)3. The following exhibits are filed as part of this report on Form 10-K, and this list comprises the Exhibit Index. No. Exhibit 3.01 Articles of Incorporation of Family Steak Houses of Florida, Inc. (Exhibit 3.01 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 3.02 Bylaws of Family Steak Houses of Florida, Inc. (Exhibit 3.02 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 16 17 3.03 Articles of Amendment to the Articles of Incorporation of Family Steak Houses of Florida, Inc. (Exhibit 3.03 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 3.04 Articles of Amendment to the Articles of Incorporation of Family Steak Houses of Florida, Inc. (Exhibit 3.04 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 4.01 Specimen Stock Certificate for shares of the Company's Common Stock (Exhibit 4.01 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 10.01 Amended Franchise Agreement between Family Steak Houses of Florida, Inc. and Ryan's Family Steak Houses, Inc., dated September 16, 1987. (Exhibit 10.01 to the Company's Registration Statement on Form S-1, filed with the Commission on October 2, 1987, Registration No. 33-17620, is incorporated herein by reference.) 10.02 Lease regarding the restaurant located at 3549 Blanding Boulevard, Jacksonville, Florida (Exhibit 10.03 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) l0.03 Lease, dated May 18, 1989, between the Company and Stoneybrook Associates, Ltd., for a restaurant located in Clearwater, Florida. (Exhibit 10.25 to the Company's Registration Statement on Form S-1, filed with the Commission on September 29, 1989, Registration No. 33-17620, is incorporated herein by reference.) 10.04 Amended and Restated Loan Agreement, dated March 14, 1995, by the Company and certain of its subsidiaries, as borrowers, in favor of The Daiwa Bank, Limited, and SouthTrust Bank of Alabama, National Association, as lenders. (Exhibit 10.04 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference). 17 18 10.05 Second Amended and Restated Renewal Mortgage and Security Agreement and Mortgage Spreading Agreement, dated March 14, 1995, by the Company as mortgagor, and The Daiwa Bank, Limited and SouthTrust Bank of Alabama, National Association, as lenders. (Exhibit 10.05 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference). 10.06 Amended and Restated Senior Note Agreement, dated as of February 1, 1995, by the Company and certain of its subsidiaries, as maker, and The Phoenix Insurance Company, The Travelers Indemnity Company, and The Travelers Insurance Company, as noteholders. (Exhibit 10.06 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference). 10.07 Amended and Restated Warrant to Purchase Shares of Common Stock, void after October 1, 2003, which represents warrants issued to The Phoenix Insurance Company, The Travelers Indemnity Company, and The Travelers Insurance Company. (Exhibit 10.07 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference). 10.08 Warrant to Purchase Shares of Common Stock, void after October 1, 2003, which represents warrants issued to The Phoenix Insurance Company, The Travelers Indemnity Company, and The Travelers Insurance Company. (Exhibit 10.08 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference). 10.09 Employment agreement between the Company and William Stanley Smith, Jr., dated as of June 20, 1995. (Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on August 9, 1995, is incorporated herein by reference). 10.10 Employment agreement between the Company and Lewis E. Christman, Jr., dated as of June 20, 1995. (Exhibit 10.02 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on August 9, 1995, is incorporated herein by reference). 18 19 10.11 Employment agreement between the Company and Edward B. Alexander, dated as of April 1, 1995. (Exhibit 10.03 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on August 9, 1995, is incorporated herein by reference). 10.12 Employment agreement between the Company and Robert J. Martin, dated as of June 20, 1995. (Exhibit 10.04 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on August 9, 1995, is incorporated herein by reference). 10.13 Employment agreement between the Company and Robert Scott, dated as of June 20, 1995. (Exhibit 10.05 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on August 9, 1995, is incorporated herein by reference). 10.14 Lease dated March 1, 1994 between the Company and Eddie L. Ervin, Jr., for corporate office and warehouse space in Neptune Beach, Florida. (Exhibit 10.15 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference). 10.15 Lease dated March 1, 1994 between the Company and William Stanley Smith, Jr., for executive offices in Neptune Beach, Florida. (Exhibit 10.16 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference). 10.16 Amendment of Franchise Agreement between Ryan's Family Steak Houses, Inc. and the Company dated July 11, 1994. (Exhibit 10.17 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference). 10.17 Agreement between the Company and Kraft Foodservice, Inc., as the Company's primary food product distribution. (Exhibit 10.06 to the Company's Annual Report on Form 10-Q, filed with the Commission on August 9, 1995, is incorporated herein by reference). 10.18 Second Amended and Restated Renewal Promissory Note, dated March 14, 1995, by the Company and certain of its subsidiaries, as maker, in favor of SouthTrust Bank of Alabama, National Association. (Exhibit 10.18 to the Company's Annual Report Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference). 19 20 10.19 Second Amended and Restated Renewal Promissory Note, dated March 14, 1995, by the Company and certain of its subsidiaries, as maker, in favor of The Daiwa Bank, Limited. (Exhibit 10.19 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference). 10.20 Mortage and Security Agreement, dated March 14, 1995, by the Company, as Mortgagor, in favor of The Travelers Insurance Company, as collateral agent. (Exhibit 10.20 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference). 10.21 Amended and Restated 9.0% Senior Notes, due June 1, 1998, by the Company, as maker, in favor of TRAL & CO., an affiliate of The Travelers Insurance Company, dated as of February 1, 1995. (Exhibit 10.21 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference). 10.22 Agreement regarding termination of consulting services between the Company and Eddie L. Ervin, Jr., dated April 17, 1995. 10.23 Letter of notification to the Company from The Travelers Insurance Company regarding its sale of Senior Notes and Warrants to Cerberus Partners, L.P. 13.01 1995 Annual Report to Shareholders. 21.01 Family Rustic Investments, Inc., a Florida corporation, Steak House Construction Corporation, a Florida corporation, Wrangler's Roadhouse, Inc., a Florida corporation and Steak House Realty Corporation, a Florida corporation, are wholly owned subsidiaries of the Company. 23.0l Consent of Independent Certified Public Accountants - Deloitte & Touche LLP. 27.00 Financial data schedule (electronic filing only). (b) None. (c) See (a)3. above for a list of all exhibits filed herewith and the Exhibit Index. (d) None. 20 21 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) 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. FAMILY STEAK HOUSES OF FLORIDA, INC. Date: March 20, 1996 BY: /s/ Lewis E. Christman, Jr. --------------------------- Lewis E. Christman, Jr., President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the date indicated.
Signature Title Date - --------- ----- ---- /s/ Lewis E. Christman, Jr. President (Principal March 18, 1996 - --------------------------- Executive Officer Lewis E. Christman, Jr. and Director) /s/ Edward B. Alexander Secretary and Treasurer March 18, 1996 - ----------------------- (Principal Financial and Edward B. Alexander Accounting Officer). /s/ Robert J. Martin Vice President and March 18, 1996 - -------------------- Director Robert J. Martin /s/ William S. Smith, Jr. Executive Vice President March 18, 1996 - ------------------------- and Director William S. Smith, Jr. /s/ Michael J. Walters Controller March 18, 1996 - ---------------------- Michael J. Walters /s/ Joseph M. Glickstein, Jr. Director March 18, 1996 - ----------------------------- Joseph M. Glickstein, Jr. /s/ Richard M. Gray Director March 18, 1996 - ------------------- Richard M. Gray
22 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT - --- ---------------------- 3.01 Articles of Incorporation of Family Steak Houses of Florida, Inc. (Exhibit 3.01 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 3.02 Bylaws of Family Steak Houses of Florida, Inc. (Exhibit 3.02 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 3.03 Articles of Amendment to the Articles of Incorporation of Family Steak Houses of Florida, Inc. (Exhibit 3.03 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 3.04 Articles of Amendment to the Articles of Incorporation of Family Steak Houses of Florida, Inc. (Exhibit 3.04 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 4.01 Specimen Stock Certificate for shares of the Company's Common Stock (Exhibit 4.01 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 10.01 Amended Franchise Agreement between Family Steak Houses of Florida, Inc., and Ryan's Family Steak Houses, Inc., dated September 16, 1987. (Exhibit 10.01 to the Company's Registration Statement on Form S-1, filed with the Commission on October 2, 1987, Registration No. 33-17620, is incorporated herein by reference.) 10.02 Lease regarding the restaurant located at 3549 Blanding Boulevard, Jacksonville, Florida (Exhibit 10.03 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.)
23 10.03 Lease, dated May 18, 1989, between the Company and Stoneybrook Associates, Ltd., for a restaurant located in Clearwater, Florida. (Exhibit 10.25 to the Company's Registration Statement on Form S-1, filed with the Commission on September 29, 1989, Registration No. 33-17620, incorporated herein by reference.) 10.04 Amended and Restated Loan Agreement, dated March 14, 1995, by the Company and certain of its subsidiaries, as borrowers, in favor of The Daiwa Bank, Limited, and SouthTrust Bank of Alabama, National Association, as lenders. (Exhibit 10.04 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference). 10.05 Second Amended and Restated Renewal Mortgage and Security Agreement and Mortgage Spreading Agreement, dated March 14, 1995, by the Company as mortgagor, and The Daiwa Bank, Limited, and SouthTrust Bank of Alabama, National Association, as lenders. (Exhibit 10.05 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference). 10.06 Amended and Restated Senior Note Agreement, dated as of February 1, 1995, by the Company and certain of its subsidiaries, as maker, and The Phoenix Insurance Company, The Travelers Indemnity Company, and The Travelers Insurance Company, as noteholders. (Exhibit 10.06 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference). 10.07 Amended and Restated Warrant to Purchase Shares of Common Stock, void after October 1, 2003, which represents warrants issued to The Phoenix Insurance Company, The Travelers Indemnity Company, and The Travelers Insurance Company. (Exhibit 10.07 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference). 10.08 Warrant to Purchase Shares of Common Stock, void after October 1, 2003, which represents warrants issued to The Phoenix Insurance Company, The Travelers Indemnity Company, and The Travelers Insurance Company. (Exhibit 10.08 to the Company's Annual Report on Form 10-K, with the Commission on March 28, 1995, is incorporated herein by reference). 24 10.09 Employment agreement between the Company and William Stanley Smith, Jr., dated as of June 20, 1995. (Exhibit 10.01 to the Company's Annual Report on Form 10-Q, filed with the Commission on August 9, 1995, is incorporated herein by reference). 10.10 Employment agreement between the Company and Lewis E. Christman, Jr., dated as of June 20, 1995. (Exhibit 10.02 to the Company's Annual Report on Form 10-Q, filed with the Commission on August 9, is incorporated herein by reference). 10.11 Employment agreement between the Company and Edward B. Alexander, dated as of April 1, 1995. (Exhibit 10.03 to the Company's Annual Report on Form 10-Q, filed with the Commission on August 9, 1995, is incorporated herein by reference). 10.12 Employment agreement between the Company and Robert J. Martin, dated as of June 20, 1995. (Exhibit 10.04 to the Company's Annual Report on Form 10-Q, filed with the Commission on August 9, 1995, is incorporated herein by reference). 10.13 Employment agreement between the Company and Robert Scott, dated as of June 20, 1995. (Exhibit 10.05 to the Company's Annual Report on Form 10-Q, filed with the Commission on August 9, 1995, is incorporated by reference). 10.14 Lease dated March 1, 1994 between the Company and Eddie L. Ervin, Jr., for corporate office and warehouse space in Neptune Beach, Florida. (Exhibit 10.15 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference. 10.15 Lease dated March 1, 1994 between the Company and William Stanley Smith, Jr., for executive offices in Neptune Beach, Florida. (Exhibit 10.16 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference). 10.16 Amendment of Franchise Agreement between Ryan's Family Steak Houses, Inc. and the Company dated July 11, 1994. (Exhibit 10.17 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28 1995, is incorporated herein by reference). 25 10.17 Agreement between the Company and Kraft Foodservice, Inc., as the Company's primary food product distribution. (Exhibit 10.06 to the Company's Annual Report on Form 10-Q, filed with the Commission on August 9, 1995, is incorporated herein by reference). 10.18 Second Amended and Restated Renewal Promissory Note, dated March 14, 1995, by the Company and certain of its subsidiaries, as maker, in favor of SouthTrust Bank of Alabama, National Association. (Exhibit 10.18 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference). 10.19 Second Amended and Restated Renewal Promissory Note, dated March 14, 1995, by the Company and certain of its subsidiaries, as maker, in favor of The Daiwa Bank, Limited. (Exhibit 10.19 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference). 10.20 Mortage and Security Agreement, dated March 14, 1995, by the Company, as Mortgagor, in favor of The Travelers Insurance Company, as collateral agent. (Exhibit 10.20 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference). 10.21 Amended and Restated 9.0% Senior Notes, due June 1, 1998, by the Company, as maker, in favor of TRAL & CO., an affiliate of The Travelers Insurance Company, dated as of February 1, 1995. (Exhibit 10.21 to the Company's Annual Report on Form 10-K, filed with the Commission March 28, 1995, is incorporated herein by reference). 10.22 Agreement regarding termination of consulting services between the Company and Eddie L. Ervin, Jr., dated April 17, 1995. 10.23 Letter of notification to the Company from The Travelers Insurance Company regarding its sale of Senior Notes and Warrants to Cerberus Partners, L.P.. 13.01 1995 Annual Report to Shareholders. 26 21.01 Family Rustic Investments, Inc., a Florida corporation, Steak House Construction Corporation, a Florida corporation, Wrangler's Roadhouse, Inc., a Florida corporation, Family Steak JV, Inc., a Florida corporation, and Steak House Realty Corporation, a Florida corporation, are wholly owned subsidiaries of the Company. 23.01 Consent of Independent Certified Public Accountants - Deloitte & Touche LLP. 27.00 Financial Data Schedule (electronic filing only). (b) None. (c) See (a)3. above for a list of all exhibits filed herewith and the Exhibit Index. (d) None. EX-10.22 2 TERMINATION AGREEMENT 1 EXHIBIT 10.22 AGREEMENT REGARDING TERMINATION OF CONSULTING SERVICES THIS AGREEMENT REGARDING TERMINATION OF CONSULTING SERVICES ("Agreement") is entered into by and between Family Steak Houses of Florida, Inc., a Florida corporation (the "Company"), and Eddie L. Ervin, Jr., ("Ervin") as of this 17th day of April, 1995. RECITALS A. The Company and Ervin entered into a Consulting Agreement dated as of June 16, 1994 (the "Consulting Agreement"), pursuant to which Ervin is to furnish certain services to the Company and receive in consideration thereof certain payments from the Company. B. The Company and Ervin now desire to terminate the Consulting Agreement on the terms and conditions set forth herein. NOW, THEREFORE, for and in consideration of the covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows: 1. TERMINATION OF CONSULTING AGREEMENT. The Consulting Agreement and all obligations of the parties thereunder are hereby terminated. In full and complete satisfaction of its obligations under the Consulting Agreement, the Company does hereby pay and deliver to Ervin the sum of One Hundred Fifty One Thousand Five Hundred Dollars ($151,500.00) in cash, plus the Stock Consideration and Additional Consideration, as hereinafter defined. 2. STOCK OPTIONS. The Company hereby confirms its previous grant to Ervin under the Consulting Agreement of an option to purchase 100,000 shares of the Company's common stock at an exercise price of $.40 per share (the "Stock Consideration"), subject only to shareholder approval of the 1995 Long Term Incentive Plan or other corporate action necessary to authorize the issuance of additional shares sufficient to permit exercise of the option. The Company agrees to use its reasonable best efforts to obtain shareholder approval of the 1995 Long Term Incentive Plan, or otherwise authorize shares sufficient to permit exercise of the option, prior to the expiration of the option. The option shall be exercisable in whole or in part and from time to time for a period expiring June 16, 1999 and the award of the option shall be evidenced by an agreement containing usual and customary provisions. 3. ADDITIONAL CONSIDERATION. As additional consideration, the Company agrees to (i) reimburse Ervin the cost of reasonable car insurance through May, 1996, (ii) enter into an agreement for a two year extension of the existing lease between the Company and Ervin (the "Lease") on the same terms as the present lease except that the monthly rental shall be increased to $1,570 beginning March 1, 1996, and the purchase option is hereby deleted, and (iii) pay insurance premiums through May 1996 for substantially the same coverage presently enjoyed 2 by Ervin, including comprehensive dental, life and medical insurance, including one free physical examination per year (collectively, the "Additional Consideration"). 4. RELEASE OF CLAIMS BY ERVIN. (a) In consideration of the foregoing and except as set forth in Section 4(b) below, Ervin, for himself, his heirs, successors and assigns, does hereby release, remise, acquit, exonerate, satisfy and forever discharge the Company, its affiliates, successors and assigns, and their respective shareholders, directors, officers, employees and agents, (collectively, the "Company Parties") from and with respect to any and all actions, causes of action, suits, disputes, controversies, claims, debts, sums of money, offset rights, defenses, agreements, promises, covenants, losses, damages, judgments and demands of any nature whatsoever, known or unknown, whether in contract, in tort, or otherwise, at law or in equity, which have accrued or may accrue, may have been had, may now be possessed or may or shall be possessed in the future by Ervin against the Company Parties, however and whenever arising ("collectively, the "Ervin Claims"). (b) PROVIDED, HOWEVER, the foregoing release by Ervin shall not operate to release the Company Parties from any Ervin Claims, whether in contribution, indemnification or otherwise, which Ervin may now or hereafter possess against the Company and which arise (i) from claims by third parties against Ervin and to which Ervin is entitled to indemnification under that certain Indemnity Agreement between Ervin and the Company dated as of April 11, 1994, or (ii) from claims under this Agreement or the Lease. 5. RELEASE OF CERTAIN CLAIMS BY THE COMPANY. (a) In consideration of the foregoing and except as set forth in Section 5(b) below, the Company, for itself, its successors and assigns, does hereby release, remise, acquit, exonerate, satisfy and forever discharge Ervin, his heirs and assigns (collectively, the "Ervin Parties") from and with respect to any and all actions, causes, causes of action, suits, disputes, controversies, claims, debts, sums of money, offset rights, defenses, agreements, promises, covenants, losses, damages, judgments and demands of any nature whatsoever, known or unknown, whether in contract, in tort, or otherwise, at law or in equity, which have accrued or may accrue, may have been had, may now be possessed or may or shall be possessed in the future by the Company against the Ervin Parties, however and whenever arising (collectively, the "Company Claims"). (b) PROVIDED, HOWEVER, the foregoing release by the Company shall not operate to release the Ervin Parties from any Company Claims, whether in contribution, indemnification or otherwise, which the Company may now or hereafter possess against the Ervin Parties and which arise (i) from claims by third parties against any of the Company Parties, or (ii) from claims under this Agreement or the Lease. 6. CONFIDENTIALITY. Ervin and the Company acknowledge that the terms of this Agreement are to remain confidential and agree not to disclose the terms of this Agreement to any third party, except as may be required by applicable securities laws, or to such accountants or attorneys as the Company or Ervin may employ in connection with their business affairs, as affected by this Agreement. 3 7. MISCELLANEOUS. (a) The parties hereto acknowledge that this Agreement is the result of a compromise and shall not be considered an admission of liability or wrongdoing on the part of any party. (b) This Agreement shall be construed and governed in accordance with Florida law. (c) This Agreement may be executed in any number of counterparts, each of which shall constitute an original but all of which taken together shall constitute one and the same instrument. (d) Should any provision of this Agreement be declared or determined by any court to be illegal or invalid, the entire Agreement shall be invalid. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. FAMILY STEAK HOUSES OF FLORIDA, INC. By:/s/ Lewis E. Christman, Jr. ------------------------------------- Lewis E. Christman, Jr. President and Chief Executive Officer /s/Eddie L. Ervin, Jr. ---------------------------------------- Eddie L. Ervin, Jr. EX-10.23 3 NOTICE OF SALE OF SENIOR NOTES 1 EXHIBIT 10.23 TRAVELERS Insurance A Member of Travelers Group August 29, 1995 Mr. Lewis E. Christman, Jr. President & CEO Family Steak Houses of Florida, Inc. 2113 Florida Blvd. Neptune Beach, FL 32266 Dear Mr. Christman: This letter is intended to give you formal notice that The Travelers Insurance Company, The Travelers Indemnity Company, and The Phoenix Insurance Company ("The Travelers Companies") have on August 14, 1995, sold all of their holdings in 9% Notes ($11,672,770) and all Warrants (for 1,750,000 common shares of RYFL) to Cerberus Partners, L. P. As we closed with accrued interest paid to The Travelers Companies for the stub period August 1-13, I have suggested to Ed Alexander that you direct the entire September 1 interest payment directly to Cerberus Partners, L.P. The person at Cerberus most familiar with Family Steak is Joyce Johnson, who can be reached at 212-421-6300; an alternate is Steven Feinberg at 212-421-2600. I hope you and your company prosper and the relations with Cerberus are all good ones. Sincerely, /s/ A. William Carnduff ------------------------ A. William Carnduff 2nd Vice President The Travelers Companies EX-13.01 4 ANNUAL REPORT TO SHAREHOLDERS 1 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- FIVE YEAR FINANCIAL SUMMARY
- ---------------------------------------------------------------------------------------------------------- 1995(1) 1994 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------- (in thousands, except per share data) SELECTED INCOME STATEMENT DATA: Sales $42,105 $44,849 $ 48,525 $49,693 $ 48,518 Cost and expenses: Food and beverage 16,591 18,174 19,534 20,153 19,549 Payroll and benefits 11,412 12,097 13,372 13,303 12,429 Depreciation and amortization 1,720 1,961 2,560 2,544 2,509 Other operating expenses 6,412 6,412 7,055 6,607 6,296 General and administrative expenses 2,348 2,899 2,159 1,903 2,014 Franchise fees 1,263 1,561 2,207 2,406 2,425 (Income) costs from closed restaurants (303) 1,392 2,557 -- -- Loss on disposition of equipment 198 86 21 -- 5 Loss from joint venture 5 -- -- -- -- ------- ------- -------- ------- -------- 39,646 44,582 49,465 46,916 45,227 ------- ------- -------- ------- -------- Earnings (loss) from operations 2,459 267 (940) 2,777 3,291 Interest and other income 536 123 79 69 151 Gain on sale of restaurant 159 -- -- -- -- Gain on sale of property held for resale 31 -- -- -- -- Write-down of property held for resale -- (465) (91) -- (119) Interest expense (1,694) (1,980) (2,110) (2,380) (2,653) ------- ------- -------- ------- -------- Earnings (loss) before income taxes and effect of accounting change 1,491 (2,055) (3,062) 466 670 Provision (benefit) for income taxes 147 (274) (978) 175 294 ------- ------- -------- ------- -------- Earnings (loss) before accounting change 1,344 (1,781) (2,084) 291 376 Cumulative effect of accounting change -- -- -- 90 -- ------- ------- -------- ------- -------- Net earnings (loss) $ 1,344 $(1,781) $ (2,084) $ 381 $ 376 ======== ======== ========= ======== ========= PER COMMON AND EQUIVALENT SHARE: Earnings (loss) earnings before accounting change $ 0.11 $ (0.17) $ (0.19) $ 0.03 $ 0.04 Cumulative effect of accounting change -- -- -- 0.01 -- ------- ------- -------- ------- -------- Net earnings (loss) $ 0.11 $ (0.17) $ (0.19) $ 0.04 $ 0.04 ======== ======== ========= ======== ========= Weighted average common shares and equivalents 11,831 10,773 10,952 10,704 10,681 ======== ======== ========= ======== ========= SELECTED BALANCE SHEET DATA: Land and net property and equipment $26,837 $26,896 $ 29,505 $32,045 $ 33,489 Total assets 31,260 32,809 35,095 37,523 39,577 Long-term debt 14,420 16,305 14 16,335 22 Current portion of long-term debt 1,580 851 17,269 2,809 21,732 Shareholders' equity 11,460 9,993 11,743 13,800 13,370 SELECTED OPERATING DATA: Current ratio 0.4 0.6 0.1 0.3 0.1 Working capital (deficit) $(3,285) $(2,673) $(20,089) $(4,633) $(23,179) Cash provided by operating activities 2,135 3,096 3,979 3,284 3,303 Property and equipment additions 2,600 1,796 1,558 648 2,926
- --------------- (1) Fifty-three week period. [RYAN'S LOGO] 2 2 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Shown for the years indicated are (i) items in the statements of operations as a percent of total sales, (ii) operating expense items in the statements of operations as a percent of sales and (iii) the number of restaurants open at the end of each year.
- ----------------------------------------------------------------------------------------------- Percentage Change Versus Prior Year --------------- 1995 1994 vs vs 1995 1994 1993 1994 1993 - ----------------------------------------------------------------------------------------------- Sales $42,105,400 $44,848,800 $48,525,300 (6.1)% (7.6)% - -----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------- Net Change In Percentage --------------- Percent of Sales 1995 1994 --------------------------------------- vs vs 1995 1994 1993 1994 1993 - ----------------------------------------------------------------------------------------------- Cost and expenses: Operating expenses 85.8% 86.2% 87.7% (0.4) (1.5) General and administrative expenses 5.6 6.5 4.4 (0.9) 2.1 Franchise fees 3.0 3.5 4.6 (0.5) (1.1) Closed restaurant costs (0.7) 3.1 5.3 (3.8) (2.2) Loss on disposition of property and equipment 0.5 0.2 -- 0.3 0.2 ----------- ----------- ----------- ---- ---- 94.2 99.5 102.0 (5.3) (2.5) ----------- ----------- ----------- ---- ---- Earnings (loss) from operations 5.8 0.5 (2.0) 5.3 2.5 Interest and other income 1.4 0.3 0.2 1.1 0.1 Gain on sale of restaurant 0.4 -- -- 0.4 -- Write-down of property held for resale -- (1.0) (0.2) 1.0 (0.8) Interest expense (4.0) (4.4) (4.3) 0.4 (0.1) ----------- ----------- ----------- ---- ---- Earnings (loss) before income taxes 3.6 (4.6) (6.3) 8.2 1.7 Provision (benefit) for income taxes 0.4 (0.6) (2.0) 1.0 1.4 ----------- ----------- ----------- ---- ---- Net earnings (loss) 3.2% (4.0)% (4.3)% 7.2% 0.3% ============ ============ ============ ==== ==== Operating expenses: Food and beverage 39.4% 40.5% 40.3% (1.1)% 0.2% Payroll and benefits 27.1 27.0 27.6 0.1 (0.6) Depreciation and amortization 4.1 4.4 5.3 (0.3) (0.9) Other operating expenses 15.2 14.3 14.5 0.9 (0.2) ----------- ----------- ----------- ---- ---- 85.8% 86.2% 87.7% (0.4)% (1.5)% ============ ============ ============ ==== ==== Restaurants open at end of year 24 24 29 ============ ============ ============
[RYAN'S LOGO] 3 3 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS 1995 Compared to 1994 For the year ended January 3, 1996, total sales decreased 6.1% compared to 1994, due to declines in same-store sales and lost revenues from closed restaurants. The sales decline in 1995 compared to 1994 consisted of the following components:
- ------------------------------------------------------------------------------------------------- 1995 1994 Change % Change from 1994 Total Sales - ------------------------------------------------------------------------------------------------- Closed Restaurants $ 0 $ 2,310,500 $(2,310,500) (5.2)% Same-Store Sales 41,361,900 42,538,300 (1,176,400) (2.6)% Extra Week Sales* 743,500 0 743,500 1.7% ----------- ----------- ----------- ----- Total Sales $42,105,400 $44,848,800 $(2,743,400) (6.1)% ============ ============ ============ =========
- --------------- * 1995 was a 53-week period, 1994 was a 52-week period. Management believes that the decrease in comparable store sales is primarily due to the effects of increasing competition, including several new or remodeled restaurants opened by competition in areas close to Company restaurants. Management plans to attempt to improve sales trends by focusing on improved restaurant operations, increasing marketing expenditures, and by making improvements such as new in-restaurant bars for carving high quality fresh meats. The operating expenses of the Company's restaurants include food and beverage, payroll and benefits, depreciation and amortization, repairs, maintenance, utilities, supplies, advertising, insurance, property taxes, rents and licenses. The Company's food, beverage, payroll and benefit costs are believed to be higher than the industry average as a percentage of sales as a result of the Company's philosophy of providing customers with high value of food and service for every dollar a customer spends. In total, food and beverage, payroll and benefits, depreciation and amortization and other operating expenses as a percentage of sales decreased to 85.8% in 1995 from 86.2% in 1994, primarily due to reductions in food and beverage costs as a percentage of sales. Food and beverage costs as a percentage of sales decreased to 39.4% in 1995 from 40.5% in 1994, primarily due to lower beef costs and sales price increases implemented in 1994 and 1995. Payroll and benefits as a percentage of sales increased from 27.0% in 1994 to 27.1% in 1995, primarily due to increases in compensation to restaurant managers. Other operating expenses as a percentage of sales increased from 14.3% in 1994 to 15.2% in 1995, primarily due to higher advertising costs and the decline in same-store sales. Depreciation and amortization decreased as a percentage of sales in 1995 compared to 1994, as a result of certain assets becoming fully depreciated or amortized. General and administrative expenses as a percentage of sales decreased to 5.6% in 1995 from 6.5% in 1994, primarily due to professional services expenses incurred in 1994 associated with the Company's debt restructuring negotiations. Franchise fees decreased beginning in 1994 in accordance with the Company's amended Franchise Agreement [RYAN'S LOGO] 4 4 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- with Ryan's Family Steak Houses, Inc. (the "Franchisor"). (See Note 3 to the financial statements). In April 1994, the Company closed a restaurant in Ft. Pierce, Florida resulting in pre-tax charges to 1994 earnings totaling $986,000. The charge consisted of a write-down in value of the property as determined by appraisal and other costs associated with closing the restaurant. Also in 1994, the Company closed its Wrangler's Roadhouse location, resulting in write-downs of property and equipment totaling $355,000. Total closed restaurant costs in 1994 were $1,392,400. In 1995 the Company recognized $303,200 in income from the favorable settlement of two restaurant leases. The remaining lease costs at the time of store closure were included in closed restaurant costs in 1993. During the first fiscal week of 1995, the Company closed and sold a restaurant located in Jacksonville, Florida. The Company received approximately 20% of the purchase price in cash and recorded a mortgage receivable for the balance of the sale. The Company recognized the gain of approximately $152,000 in 1995. Total gains on sales of property were $159,000 in 1995. Interest and other income increased due to the recognition of interest income in 1995 from two mortgages and due to income from toy vending machines installed in Company restaurants in 1995. Interest expense decreased from $1,980,100 during 1994 to $1,693,800 in 1995. The decrease was due primarily to lower outstanding principal balances, resulting from principal payments made throughout the last twelve months, and due to a lower interest rate on the Company's obligations to Cerberus Partners, L.P. (notes formerly held by The Travelers Insurance Company). The effective income tax rates for the year ended January 3, 1996 and December 28, 1994 were 9.9% and (13.3%), respectively. The 1994 benefit was less than the statutory tax rate due to the uncertainty of realization of certain deferred tax assets at that time. Certain of these assets were utilized in 1995, resulting in the reduced effective rate for 1995. Net earnings for 1995 were $1,344,200, compared to a net loss of $1,785,900 in 1994. Earnings per share were $.11 for 1995, compared to a loss per share of $.17 in 1994. 1994 Compared to 1993 For the year ended December 28, 1994, total sales decreased 7.6% compared to the same period of 1993, primarily due to declines in same-store sales and lost revenues from closed restaurants. The sales decline in 1994 compared to 1993 consisted of the following components:
- ------------------------------------------------------------------------------------------------ 1994 1993 Change % reduction from 1994 Total Sales - ------------------------------------------------------------------------------------------------ Closed Restaurants $ 0 $ 3,570,700 $(3,570,700) (7.4)% Same-Store Sales 43,923,200 44,449,800 (526,600) (1.1)% New Restaurant* 925,600 504,800 420,800 .9% ----------- ----------- ----------- ------- $44,848,800 $48,525,300 $(3,676,500) (7.6)% =========== =========== =========== =======
- --------------- * Wrangler's Roadhouse Restaurant Opened August 1993 [RYAN'S LOGO] 5 5 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- Food and beverage costs for the year ended December 28, 1994 was 40.5%, compared to 40.3% in 1993, due primarily to higher than Company average costs at the Company's Wrangler's Roadhouse location. Payroll and benefits decreased to 27.0% in 1994 from 27.6% in 1993, primarily due to a reduction in workers' compensation costs. For the year ended December 28, 1994, other operating expenses decreased to 14.3% from 14.5% in 1993, primarily due to the elimination of building rent expense at three closed restaurants which were leased in 1993. Depreciation and amortization decreased as a percentage of sales for the year ended December 28, 1994, compared to 1993, as a result of certain assets in older restaurants becoming fully depreciated or amortized. Franchise fees decreased in 1994 in accordance with our amendment to the Company's Amended Franchise Agreement. For the year ended December 28, 1994, general and administrative expenses increased to 6.5% of sales from 4.4% for 1993, primarily due to costs incurred in 1994 associated with the Company's debt restructuring negotiations. In 1993, the Company closed a restaurant and established a reserve to close two additional restaurants in 1994 (resulting in a total closed restaurant cost of $2,557,300 in 1993). In April 1994, the Company closed a restaurant in Ft. Pierce, Florida which had not been included in the 1993 restaurant closing reserve. The April 1994 restaurant closing resulted in pre-tax charges to 1994 earnings totaling $986,000, reflecting a reduction in market value of the property as determined by appraisal, in addition to costs associated with closing the restaurant. Also in 1994, the Company closed its Wrangler's Roadhouse location, resulting in write-downs of property and equipment totaling $355,000. Total closed restaurant costs in 1994 were $1,392,400. Based on the results of appraisals of Company properties held for resale, done in 1994, the Company wrote-down the value of several such properties by a total of $465,000 in 1994. The Company wrote-down property held for resale by $91,000 in 1993. Interest expense decreased in 1994 to $1,980,100 from $2,110,400 in 1993, due to reduced principal balances compared to 1993. Net loss for the year ended December 28, 1994, was $1,780,900 or $.17 per share, compared to net losses of $2,084,000 or $.19 per share for the same period in 1993. RECENT DEVELOPMENTS On August 14, 1995, the Company received a notice from The Travelers Insurance Company that it had sold the Travelers Notes and certain warrants it held for purchases of the Company's common stock (see discussion at Liquidity and Capital Resources below) to Cerberus Partners, L.P. LIQUIDITY AND CAPITAL RESOURCES Substantially all of the Company's revenues are derived from cash sales. Inventories are purchased on credit and are converted rapidly to cash. Therefore, the Company does not carry significant receivables or inventories and, other than the repayment of debt, working capital requirements for continuing operations are not significant. [RYAN'S LOGO] 6 6 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- At January 3, 1996, the Company had a working capital deficit of $3,284,900 compared to a working capital deficit of $2,673,300 at December 28, 1994. The increase in the working capital deficit in 1995 was primarily due to an increase in the current portion of long-term debt payable. Cash provided by operating activities decreased 31.0% to $2,135,300 from $3,095,800 in 1994, primarily due to reductions in accrued liabilities in 1995 as a result of timing differences in payments. Cash provided by operating activities decreased 22.2% in 1994 from $3,979,200 in 1993 due to reductions in accrued liabilities and increases in prepaid expenses in 1994 as a result of timing differences in payments. The Company spent approximately $2,600,000 in 1995, $1,656,000 in 1994 and $1,446,000 in 1993 for restaurant remodeling and equipment. Capital expenditures for 1996 and 1997, based on present costs and plans for capital improvements, are estimated to be $750,000 and $900,000 respectively. The Company projects that cash generated from operations will be sufficient to fund these improvements. In March 1995, the Company entered into an Amended and Restated Note Agreement, dated as of February 1, 1995, with The Travelers Insurance Company and certain of its affiliates. In August 1995 the Travelers Notes were sold to Cerberus Partners, L.P. The Cerberus Notes are due May 30, 1998 and provide for an interest rate of 9.0% and $65,000 monthly in principal reductions beginning January 1, 1996. As of January 3, 1996, the outstanding balance due under the Cerberus Notes was $11,607,800. The Note Agreement includes detachable Warrants for purchases of up to 1,750,000 shares of the Company's common stock at an exercise price of $.40 per share. The Cerberus Notes are secured by second mortgages on twenty-two of the Company's restaurant properties. The Note Agreement provides for various covenants including prepayment options, the maintenance of prescribed debt service coverages, limitations on the declaration of cash dividends, sale of assets, and certain other restrictions. Also in March 1995, the Company entered into an Amended and Restated Loan Agreement with The Daiwa Bank, Limited, and SouthTrust Bank of Alabama, National Association (the "Bank Loan") which extends the maturity date of the Bank Loan until May 30, 1998. The Bank Loan bears interest at prime rate plus 0.50%, with monthly principal payments of $41,250 beginning April 1, 1995 ($67,100 prior to April 1, 1995). The Bank Loan is secured by first mortgages on twenty-two of the Company's restaurant properties, and provides for various covenants substantially consistent with those of the Travelers Agreement. As of January 3, 1996, the outstanding balance under the Bank Loan was $4,163,000. IMPACT OF INFLATION Costs of food, beverage, and labor are the expenses most affected by inflation in the Company's business. Although inflation has not been a major factor for the past several years, there can be no assurance that it will not be in the future. A significant number of the Company's personnel are paid at the federally established minimum wage level, which was last increased in April 1991. Sales prices were increased approximately 2.5% in 1995, 4.0% in 1994 and 0% in 1993. [RYAN'S LOGO] 7 7 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------ For The Years Ended ----------------------------------------- January 3, December 28, December 29, 1996 1994 1993 - ------------------------------------------------------------------------------------------------ Sales $42,105,400 $ 44,848,800 $ 48,525,300 Cost and expenses: Food and beverage 16,591,300 18,173,900 19,534,000 Payroll and benefits 11,411,700 12,096,500 13,372,000 Depreciation and amortization 1,719,900 1,961,300 2,559,500 Other operating expenses 6,411,700 6,412,300 7,054,900 General and administrative expenses 2,348,200 2,898,600 2,159,200 Franchise fees 1,263,200 1,561,100 2,207,400 (Income) costs from closed restaurants (303,200) 1,392,400 2,557,300 Loss on disposition of equipment 197,800 86,200 21,000 Loss from joint venture 5,400 -- -- ----------- ------------ ------------ 39,646,000 44,582,300 49,465,300 ----------- ------------ ------------ Earnings (loss) from operations 2,459,400 266,500 (940,000) Interest and other income 535,600 123,300 79,200 Gain on sale of restaurant 158,600 -- -- Gain on sale of property held for resale 31,500 -- -- Write-down of property held for resale -- (465,000) (91,000) Interest expense (1,693,800) (1,980,100) (2,110,400) ----------- ------------ ------------ Earnings (loss) before income taxes 1,491,300 (2,055,300) (3,062,200) Provision (benefit) for income taxes 147,100 (274,400) (978,200) ----------- ------------ ------------ Net earnings (loss) $ 1,344,200 $ (1,780,900) $ (2,084,000) =========== =========== =========== Earnings (loss) per common share and equivalents $ 0.11 $ (0.17) $ (0.19) =========== =========== =========== Weighted average common shares and equivalents 11,831,000 10,773,000 10,952,000 =========== =========== ===========
See accompanying notes to consolidated financial statements. [RYAN'S LOGO] 8 8 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------- January 3, December 28, 1996 1994 - --------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 711,400 $ 1,603,100 Investments 600,300 710,700 Receivables 73,900 104,900 Income taxes receivable -- 332,200 Current portion of mortgage receivable 155,700 32,500 Inventories 247,400 324,800 Prepaids and other current assets 256,600 475,500 ----------- ------------ Total current assets 2,045,300 3,583,700 Mortgages and note receivable 1,262,700 537,500 Property and equipment: Land 9,342,200 9,677,800 Buildings and improvements 18,774,500 18,726,800 Equipment 11,940,900 11,139,500 ----------- ------------ 40,057,600 39,544,100 Accumulated depreciation (13,220,900) (12,648,200) ----------- ------------ Net property and equipment 26,836,700 26,895,900 Investment in joint venture -- 100,000 Property held for resale 552,800 1,039,300 Other assets, principally deferred charges, net of accumulated amortization 562,200 652,200 ----------- ------------ $31,259,700 $ 32,808,600 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable 1,250,700 1,462,900 Accrued liabilities 2,494,100 3,942,900 Income taxes payable 5,400 -- Current portion of long-term debt 1,580,000 851,200 ----------- ------------ Total current liabilities 5,330,200 6,257,000 Long-term debt 14,420,400 16,304,800 Deferred revenue 49,400 55,200 Other non-current liabilities -- 198,300 ----------- ------------ Total liabilities 19,800,000 22,815,300 Commitments and contingencies (Note 10) Shareholders' equity: Preferred stock of $.01 par; authorized 10,000,000 shares; none issued -- -- Common stock of $.01 par; authorized 20,000,000 shares; outstanding 10,845,000 in 1995 and 10,725,200 shares in 1994 108,500 107,300 Additional paid-in capital 8,123,300 8,002,300 Retained earnings 3,227,900 1,883,700 ----------- ------------ Total shareholders' equity 11,459,700 9,993,300 ----------- ------------ $31,259,700 $ 32,808,600 ============ ============
See accompanying notes to consolidated financial statements. [RYAN'S LOGO] 9 9 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------- For the Years Ended ------------------------------------------- January 3, December 28, December 29, 1996 1994 1993 - ---------------------------------------------------------------------------------------------------------------------------- Operating activities: Net earnings (loss) $ 1,344,200 $(1,780,900) $(2,084,000) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 1,719,900 1,961,300 2,559,500 Directors' fees in the form of stock options 40,000 30,000 27,000 Amortization of loan discount 74,700 132,000 132,000 Amortization of loan fees 85,400 96,600 150,000 (Income) costs from closed restaurants (303,200) 1,392,400 2,557,300 Write-down of property held for resale -- 465,000 91,000 Gain on sale of restaurant (158,600) -- -- Gain on sale of property held for resale (31,500) -- -- Loss on disposition of property and equipment 197,800 86,200 21,000 Loss from joint venture 5,400 -- -- Decrease (increase) in: Receivables 27,800 80,800 107,600 Inventories 63,100 (12,300) (15,600) Income taxes receivable 332,200 (6,300) (325,900) Prepaids and other current assets 218,900 (196,500) (16,100) Other assets (275,900) (43,100) (182,000) Increase (decrease) in: Accounts payable (212,200) (109,400) (13,400) Accrued liabilities (794,000) 1,091,500 1,826,600 Income taxes payable 5,400 -- (11,100) Deferred revenue (5,800) 25,000 (6,300) Other non-current liabilities (198,300) (116,500) 150,000 Deferred income taxes -- -- (988,400) ----------- ------------ ------------ Net cash provided by operating activities 2,135,300 3,095,800 3,979,200 ----------- ------------ ------------ Investing activities: Proceeds from sale of property held for resale 518,000 -- 382,400 Proceeds from sale of investments 110,400 -- -- Proceeds from sale of restaurant 107,900 114,100 -- Principal receipts on mortgages and note receivable 84,400 -- -- Purchase of investments -- (405,700) (205,000) Capital expenditures (2,599,600) (1,655,800) (1,445,600) ----------- ------------ ------------ Net cash used by investing activities (1,778,900) (1,947,400) (1,268,200) ----------- ------------ ------------ Financing activities: Payments on long-term debt (1,249,300) (1,059,500) (1,992,600) Proceeds from the issuance of common stock 1,200 1,000 300 ----------- ------------ ------------ Net cash used by financing activities (1,248,100) (1,058,500) (1,992,300) ----------- ------------ ------------ Net (decrease) increase in cash and cash equivalents (891,700) 89,900 718,700 Cash and cash equivalents -- beginning of year 1,603,100 1,513,200 794,500 ----------- ------------ ------------ Cash and cash equivalents -- end of year $ 711,400 $ 1,603,100 $ 1,513,200 =========== ============= ============= 0 Supplemental disclosures of cash flow information: Cash paid during the year for income taxes $ 139,200 $ -- $ 384,700 =========== ============= ============= Cash paid during the year for interest $ 1,670,800 $ 1,482,900 $ 1,706,700 =========== ============= ============= Non-cash transactions: Notes receivable as partial proceeds $ 932,800 $ 570,000 $ -- Interest forgiven in lieu of loan closing costs incurred 251,600 -- -- Warrants issued in connection with loan restructure 81,000 -- -- Accrued interest reclassed to long-term debt 100,000 -- -- Property acquired in simultaneous purchase and sale -- -- 753,000 Equipment and other current assets contributed to investment in JV -- 100,000 -- Franchise rights exchanged in lieu of franchise fees -- 500,000 -- Note payable issued in lieu of franchise fees -- 800,000 -- ----------- ------------ ------------ $ 1,365,400 $ 1,970,000 $ 753,000 =========== ============= =============
See accompanying notes to consolidated financial statements. [RYAN'S LOGO] 10 10 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Years ended January 3, 1996, December 28, 1994 and December 29, 1993
- --------------------------------------------------------------------------------------------------------- Common Stock Additional --------------------- Paid-in Retained Shares Amount Capital Earnings Total - --------------------------------------------------------------------------------------------------------- Balance, December 30, 1992 10,595,700 106,000 7,945,300 5,748,600 13,799,900 Net loss (2,084,000) (2,084,000) Issuance of common stock under Incentive Stock Option Plan, net 37,100 300 300 Directors' fees in the form of stock options 27,000 27,000 ---------- -------- ---------- ----------- ----------- Balance, December 29, 1993 10,632,800 106,300 7,972,300 3,664,600 11,743,200 Net loss (1,780,900) (1,780,900) Issuance of common stock under Incentive Stock Option Plan, net 92,400 1,000 1,000 Directors' fees in the form of stock options 30,000 30,000 ---------- -------- ---------- ----------- ----------- Balance, December 28, 1994 10,725,200 107,300 8,002,300 1,883,700 9,993,300 Net earnings 1,344,200 1,344,200 Issuance of common stock under Incentive Stock Option Plan, net 119,800 1,200 1,200 Issuance of warrants 81,000 81,000 Directors' fees in the form of stock options 40,000 40,000 ---------- -------- ---------- ----------- ----------- Balance, January 3, 1996 10,845,000 $108,500 $8,123,300 $ 3,227,900 $11,459,700 ========= ======== ========= ========== ==========
See accompanying notes to consolidated financial statements. [RYAN'S LOGO] 11 11 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES Organization The Company was organized under the laws of the State of Florida in September 1985 and is the sole Franchisee of Ryan's Family Steak House restaurants in the State of Florida. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Steak House Construction, Family Rustic Investments, Steak House Realty Corporation and Wrangler's Roadhouse, Inc. All significant intercompany transactions and balances have been eliminated. Fiscal Year The fiscal year consists of a fifty-two or fifty-three week period ending on the Wednesday nearest to December 31. Fiscal year 1995 consisted of fifty-three weeks. Fiscal years 1994 and 1993 consisted of fifty-two weeks. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company has a cash management program which provides for the investment of excess cash balances in short-term investments. These investments are stated at cost which approximates market value and consist of money market instruments. Investments Investments represent certificates of deposit with maturities of less than one year. These investments are pledged with various entities to support the Company's workers' compensation liability, and certain utilities bonds. Interest rates on the certificates vary from 5.6% to 6.1%. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of ingredients and supplies. Property and Equipment Property and equipment are stated at cost. Maintenance, repairs and betterments which do not enhance the value of or increase the life of the assets are charged to costs and expenses as incurred. Depreciation is provided for financial reporting purposes principally on the straight-line method over the following estimated [RYAN'S LOGO] 12 12 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- lives: buildings -- 25 years, land improvements -- 25 years and equipment -- 5-8 years. Leasehold improvements are amortized over the life of the related lease. Property Held For Resale Property held for resale consists of property parcels and buildings held for sale. These parcels are stated at the lower of cost or estimated net realizable value. Deferred Charges Certain costs incidental to the opening of a restaurant, consisting primarily of employee training costs, are capitalized for each store opened and are amortized over one year. Other deferred charges and related amortization periods are as follows: financing costs -- term of the related loan, and initial franchise rights -- 40 years. Earnings Per Share Earnings per share are computed based on the weighted average number of common and common equivalent shares outstanding. Common equivalent shares are represented by shares under option and outstanding warrants. Income Taxes Deferred income taxes are provided for temporary differences between financial reporting basis and tax basis of the Company's assets and liabilities using presently enacted income tax rates. NOTE 2. CLOSED RESTAURANT COSTS In 1993, the Company closed a restaurant and established a reserve to close two additional restaurants in 1994 (resulting in a total closed restaurant cost of $2,557,300 in 1993). In April 1994, the Company closed a restaurant in Ft. Pierce, Florida which had not been included in the 1993 restaurant closing reserve. The April 1994 restaurant closing resulted in pre-tax charges to 1994 earnings totaling $986,000, reflecting a reduction in market value of the property as determined by appraisal, in addition to costs associated with closing the restaurant. Also in 1994, the Company closed its Wrangler's Roadhouse location, resulting in write-downs of property and equipment totaling $355,000. Total closed restaurant costs in 1994 were $1,392,400. In 1995, the Company recognized $303,200 income from favorable settlements of two restaurant leases. These closed restaurant costs had been included in the 1993 reserve, when the decision to close the restaurants was made. The decisions to close certain restaurants were made as a result of poor operating performance. Closed restaurant costs include loss on the sale of a closed restaurant property, losses on leasehold improvements and equipment, provisions for future obligations on restaurant leases and other costs of closure. NOTE 3. FRANCHISE AGREEMENT In July 1994, the Company amended its Franchise Agreement with Ryan's Family Steak Houses, Inc. The amended agreement requires the Company to pay a monthly royalty fee of 3.0% from May 1994 through May 1997, and 4.0% thereafter of the gross receipts of each Ryan's Family Steak House restaurant. The Company paid royalty fees of 4.5% in 1993 and January through April 1994. Total royalty fee expenses were [RYAN'S LOGO] 13 13 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- $1,263,200, $1,561,100 and $2,207,400 for the years ended January 3, 1996, December 28, 1994 and December 29, 1993. The Franchise Agreement requires the Company to operate a minimum number of Ryan's restaurants on December 31 of each year. Failure to operate the minimum number could result in the loss of exclusive franchise rights to the Ryan's concept in Florida. The following schedule outlines the number of Ryan's restaurants required to be operated by the Company as of December 31 each year under the amended franchise agreement:
- ------------------------------------------------------------------------------------------------- Number of Restaurants Required to End of Fiscal Year be in Operation - ------------------------------------------------------------------------------------------------- 1994-1996 24 1997 25 1998 26 1999 27 2000 28 2001 and subsequent years Increases by one each year
Prior to the July 1994 amendment to the Franchise Agreement, the Company held exclusive franchise rights to build Ryan's restaurants in the State of Florida, with the exception of Panama City, Florida and Escambia County, Florida, where the Franchisor has the right to operate Ryan's restaurants. Under the amended Franchise Agreement the Company relinquished the franchise rights to most counties in northwest Florida and south Florida to the Franchisor for $500,000 in forgiveness of past due royalty fees. The Company has the right to repurchase the exclusive franchise rights to those counties for $500,000 at any time prior to June 30, 1998. In addition, the Franchisor agreed not to develop any Ryan's restaurants in the south Florida territory prior to June 30, 1996. In conjunction with the execution of the July 1994 amendment to the Franchise Agreement, the Company executed and delivered a note to the Franchisor for payment of $800,000 in past due royalty fees. (See Note 5.) NOTE 4. ACCRUED LIABILITIES Accrued liabilities is summarized as follows:
- --------------------------------------------------------------------------------------------- 1995 1994 - --------------------------------------------------------------------------------------------- Payroll and Payroll Taxes $ 457,800 $ 439,900 Workers' compensation claims 1,247,700 1,174,100 Property taxes 211,500 506,700 Interest 12,000 498,300 Other 565,100 1,323,900 ---------- ---------- $2,494,100 $3,942,900 ========== ==========
The Company self-insures workers' compensation losses up to certain limits. The estimated liability for workers' compensation claims represents an estimate for the ultimate cost of uninsured losses which are unpaid as of the balance sheet date. These estimates are continually reviewed and adjustments to the Company's estimated claim liabilities, if any, are reflected in current operations. [RYAN'S LOGO] 14 14 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- NOTE 5. LONG-TERM DEBT Long-term debt consisting of Senior notes payable, a bank term loan and unsecured notes payable, is summarized as follows:
- -------------------------------------------------------------------------------------------- 1995 1994 - -------------------------------------------------------------------------------------------- Secured 9.0% Senior Notes payable to Cerberus Partners, L.P. (payable to The Travelers Insurance Company and certain of its affiliates prior to August 1995), interest payable monthly, principal payments of $65,000 monthly beginning January 1996, until balance due in May 1998 (less unamortized discount of $129,800 and $123,500 in 1995 and 1994) $11,478,000 $11,668,000 Secured bank term loan, monthly principal payments of $67,100 through March 1995, then $41,250 beginning April 1995 until balance due in May 1998, with interest at prime plus .50% (9.25% at January 3, 1996) 4,163,000 4,798,700 Unsecured note payable to Franchisor, monthly principal payments of $25,000 beginning August 1994 through March 1997, interest at 6.0% 350,000 675,000 Other 9,400 14,200 ----------- ----------- 16,000,400 17,156,000 Less current portion: (1,580,000) (851,200) ----------- ----------- $14,420,400 $16,304,800 =========== ===========
Total maturities of long-term debt are as follow: 1996 $ 1,580,000 1997 1,329,400 1998 13,220,800 Less unamortized discount (129,800) ----------- $16,000,400 ============
In March 1995, the Company entered into an Amended and Restated Note Agreement, dated as of February 1, 1995, with The Travelers Insurance Company and certain of its affiliates. In August 1995 the Travelers Notes were sold to Cerberus Partners, L.P. The Cerberus Notes are due May 30, 1998 and provide for an interest rate of 9.0% and monthly principal reductions of $65,000 beginning January 1, 1996. As of January 3, 1996, the outstanding balance due under the Cerberus Notes was $11,607,800. The Note Agreement includes detachable Warrants for purchases of up to 1,750,000 shares of the Company's common stock at an exercise price of $.40 per share. The Cerberus Notes are secured by second mortgages on twenty-two Company restaurant properties. The Note Agreement provides for various covenants including prepayment options, the maintenance of prescribed debt service coverages, limitations on the declaration of cash dividends, sale of assets, and certain other restrictions. Also in March 1995, the Company entered into an Amended and Restated Loan Agreement with The Daiwa Bank, Limited, and SouthTrust Bank of Alabama, National Association (the "Bank Loan") which extends the maturity date of its secured term loan with the banks until May 30, 1998. The Bank Loan bears interest at prime rate plus 0.50%, with monthly principal payments of $41,250 beginning April 1, 1995 ($67,100 prior to April 1, 1995). The Bank Loan is secured by first mortgages on twenty-two of the Company's restaurant [RYAN'S LOGO] 15 15 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- properties, and provides for various covenants substantially consistent with those of the Cerberus Note Agreement. As of January 3, 1996, the outstanding balance under the Bank Loan was $4,163,000. NOTE 6. INCOME TAXES The provision (benefit) for income taxes is comprised of the following:
- -------------------------------------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------------------------------- Current: Federal $147,100 $(274,400) $ 8,300 State -- -- 1,900 -------- --------- --------- 147,100 (274,400) 10,200 Deferred -- -- (988,400) -------- --------- --------- Provision (benefit) for income taxes $147,100 $(274,400) $(978,200) ========= ========== ==========
Income taxes for the years ended January 3, 1996, December 28, 1994 and December 29, 1993 differ from the amount computed by applying the federal statutory corporate rate to earnings before income taxes. The differences are reconciled as follows:
- -------------------------------------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------------------------------- Tax (benefit) at statutory rate $ 522,000 $(719,400) $(1,071,800) Increase (decrease) in taxes due to: Effect of graduated tax rates (14,900) 20,600 30,600 State tax net of federal benefit 53,700 (74,000) (110,200) Change in deferred tax asset valuation allowance (319,600) 530,100 147,100 Other (94,100) (31,700) 26,100 --------- --------- ----------- Provision (benefit) for income taxes $ 147,100 $(274,400) $ (978,200) ========== ========== ============
[RYAN'S LOGO] 16 16 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- The components of deferred taxes at January 3, 1996 and December 28, 1994 are summarized below:
- ----------------------------------------------------------------------------------------------- January 3, December 28, 1996 1994 - ----------------------------------------------------------------------------------------------- Deferred tax assets: Capital loss not currently deductible $ 46,100 $ 22,300 Excess tax over book basis -- Property held for resale 256,800 257,900 Federal and state tax credits 471,900 592,100 Accruals not currently deductible 476,200 763,900 Unearned revenue, previously taxed 30,500 55,200 State net operating loss 14,300 70,600 ---------- ---------- Total deferred tax asset 1,295,800 1,762,000 Valuation Allowance (357,600) (677,200) ---------- ---------- 938,200 1,084,800 Deferred tax liability: Excess of tax over book depreciation and amortization 938,200 1,084,800 ---------- ---------- Net deferred taxes $ -0- $ -0- ========== ==========
At January 3, 1996, the Company's federal and state tax credit was comprised of unused general business tax credits of $38,000, expiring in the years 2006 through 2009, and alternative minimum tax credits of $433,900 which have no expiration date. The Company's state net operating loss expires in 2009. NOTE 7. CAPITAL STOCK, OPTIONS AND WARRANTS The Company has a stock option plan for non-employee directors pursuant to which up to an aggregate of 540,000 shares of the common stock are authorized to be granted. All options expire five years after the date of grant or one year after completion of term as a director. The Company also had an employee incentive stock option plan pursuant to which up to an aggregate of 900,000 shares of the common stock are authorized to be granted. All options expire ten years after the date of grant or 90 days after termination of employment. This plan expired as of November 30, 1995. All options outstanding under this plan as of November 30, 1995 remain exercisable pursuant to terms of the plan. In 1995 the Company's shareholders approved a new employee incentive stock option plan pursuant to which an additional 1,000,000 shares of common stock are authorized to be granted. All options expire ten years after the date of grant or 90 days after termination of employment. [RYAN'S LOGO] 17 17 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- The following table summarizes the changes in the total number of stock option shares outstanding during the three years ended January 3, 1996.
- --------------------------------------------------------------------------------------------- 1995 1994 1993 - --------------------------------------------------------------------------------------------- Options outstanding at beginning of year $ 510,446 $ 630,908 $ 727,876 Options granted 1,075,552 223,227 172,870 Options exercised (119,852) (92,409) (37,064) Options forfeited (155,946) (251,280) (232,774) ---------- --------- --------- Options outstanding at end of year 1,310,200 510,446 630,908 ========== ========= ========= Options exercisable at end of year 472,850 274,346 447,108 Common shares reserved for future grants at end of year 747,947 645,739 583,459 Option prices per common share: Exercised during the year $.01 $.01 $.01 Outstanding at year end $.01 $.01 $.01 to to to $5.75 $5.75 $5.75
Cerberus Partners, L.P., in their capacity as Senior Note holders (see Note 5), hold detachable warrants to purchase 1,750,000 shares of the Company's common stock at $.40 per share at any time prior to October 1, 2003. The estimated fair value of the warrants as of March 1995 (the date of the amendment to the Note Agreement) of $171,500 was recorded as an increase to additional paid-in capital and as debt discount to the Senior Notes. The Company's Board of Directors is authorized to set the various rights and preferences for the Company's Preferred Stock, including voting, conversion, dividend and liquidation rights and preferences, at the time shares of Preferred Stock are issued. As of January 3, 1996 there were no shares of Preferred Stock issued. NOTE 8. PROFIT SHARING AND RETIREMENT PLAN Employees of the Company participate in a profit sharing and retirement plan covering substantially all full-time employees at least twenty-one years of age and with more than one year of service. The plan was established in August 1991. Contributions are made to the plan at the discretion of the Company's Board of Directors. No contributions have been made since the inception of the plan. The profit sharing plan includes a 401(K) feature by which employees can defer, by payroll deduction only, 1% to 15% of their annual compensation not to exceed $9,500 in 1995. The plan provides for a Company matching contribution of $.25 per dollar of the first 6% of employee deferral. The Company's matching contribution was $43,173 in 1995, $38,400 in 1994 and $51,100 in 1993. Employees vest in Company contributions based on the following schedule:
- ----------------------------------------------------------------------------------------------- Years of Service Vesting Percentage - ----------------------------------------------------------------------------------------------- Less than 3 0% 3 20% 4 20% 5 60% 6 80% 7 100%
[RYAN'S LOGO] 18 18 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- NOTE 9. INVESTMENT IN JOINT VENTURES In December 1994, the Company formed a new subsidiary, Family Steak JV, Inc. which acquired a 50% ownership in a limited liability company, Cross Creek Barbeque, L.C. ("Cross Creek"), for the purpose of opening a new restaurant. The Company contributed the Wrangler's Roadhouse, Inc. equipment to Cross Creek and the other 50% owner of Cross Creek contributed the cash necessary to remodel and open the new Cross Creek restaurant. Wrangler's Roadhouse, Inc. leases the land and building it formerly occupied to Cross Creek. The Cross Creek restaurant opened January 1995. As a result of poor operating performance, the Company sold its interest in the Cross Creek restaurant in July 1995. NOTE 10. COMMITMENTS AND CONTINGENCIES Lease Obligations At January 3, 1996, the Company is committed under the terms and conditions of real and personal property operating leases for minimum rentals aggregating $711,600 plus insurance, common area expenses and taxes. The Company has various renewal options on these leases covering periods of five to twenty years. Future minimum lease obligations are payable as follows: 1996 $198,100 1997 173,000 1998 140,400 1999 85,500 2000 38,400 2001-2002 76,200 -------- $711,600 =========
Rental expense for the years ended January 3, 1996, December 28, 1994 and December 29, 1993 was approximately $419,200, $447,100 and $689,000 respectively. Contingent rental payments, for the years ended January 3, 1996, December 28, 1994 and December 29, 1993 were approximately $5,500, $7,000 and $14,000 respectively. Legal Matters The Company, in the normal course of business, is subjected to claims and litigation with respect to store operations. In the opinion of management, based on the advice of legal counsel the ultimate disposition of these claims and litigation will not have a material effect on the financial position or results of operations of the Company. NOTE 11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS In 1995, the Company adopted Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments" ("SFAS No. 107"). This statement addresses disclosure of estimated fair values of certain financial instruments. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. [RYAN'S LOGO] 19 19 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Cash Equivalents. For those short-term instruments, the carrying amount is a reasonable estimate of fair value. Investments. The Company's investments consist of certificates of deposit for which the carrying amount is a reasonable estimate of fair value. Mortgage Receivables. The fair value of mortgage receivables is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The Company believes the carrying amount is a reasonable estimate of fair value. Debt. Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used to estimate fair value for debt instruments. The Company believes the carrying amount is a reasonable estimate of such fair value. [RYAN'S LOGO] 20 20 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS THE BOARD OF DIRECTORS AND SHAREHOLDERS FAMILY STEAK HOUSES OF FLORIDA, INC. We have audited the accompanying consolidated balance sheets of Family Steak Houses of Florida, Inc. and subsidiaries as of January 3, 1996 and December 28, 1994, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended January 3, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Family Steak Houses of Florida, Inc. and subsidiaries as of January 3, 1996 and December 28, 1994, and the results of their operations and their cash flows for each of the three years in the period ended January 3, 1996 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Jacksonville, Florida February 23, 1996 [RYAN'S LOGO] 21 21 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- COMPANY'S REPORT ON FINANCIAL STATEMENTS Family Steak Houses of Florida, Inc. has prepared and is responsible for the accompanying consolidated financial statements and related consolidated financial information included in this report. These consolidated financial statements were prepared in accordance with generally accepted accounting principles and are appropriate in the circumstances. These consolidated financial statements necessarily include amounts determined using management's best judgements and estimates. Family Steak Houses of Florida, Inc. maintains accounting and other control systems which the Company believes provides reasonable assurance that assets are safeguarded and that the books and records reflect the authorized transactions of the Company, although there are inherent limitations in all internal control structure elements, as well as cost/benefit considerations. Family Steak Houses of Florida, Inc.'s independent certified public accountants, Deloitte & Touche LLP, have audited the accompanying consolidated financial statements for 1995. The objective of their audit, performed in accordance with generally accepted auditing standards, is to express an opinion on the fairness, in all material respects, of the Company's consolidated financial position, results of its operations and its cash flows in accordance with generally accepted accounting principles. They consider the internal control structure to the extent considered necessary to determine the audit procedures required for the purpose of expressing their opinion on the consolidated financial statements. [RYAN'S LOGO] 22 22 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- CORPORATE DIRECTORS AND OFFICERS DIRECTORS: Lewis E. Christman, Jr. President, Chief Executive Officer Joseph M. Glickstein, Jr. Partner, Glickstein & Glickstein, P.A. Richard M. Gray Partner, Gray & Kelley Robert J. Martin Vice President William S. Smith, Jr. Executive Vice President OFFICERS: Lewis E. Christman, Jr. President, Chief Executive Officer William S. Smith, Jr. Executive Vice President Robert J. Martin Vice President Robert Scott Vice President Edward B. Alexander Chief Financial Officer Secretary and Treasurer [PHOTO] Left to right; Richard M. Gray, Robert J. Martin, Joseph M. Glickstein, Williams S. Smith, Jr. Seated; Lewis E. Christman, Jr. [PHOTO] Left to right; Robert Scott, Robert J. Martin, Lewis E. Christman, Jr., William S. Smith, Jr., Edward B. Alexander [RYAN'S LOGO] 23 23 FAMILY STEAK HOUSES OF FLORIDA, INC. - -------------------------------------------------------------------------------- CORPORATE INFORMATION Annual Meeting The annual meeting will be held at: Sea Turtle Inn One Ocean Boulevard Atlantic Beach, FL 32233 Tuesday, June 18 at 10:00 a.m. Independent Certified Public Accountants Deloitte & Touche LLP Suite 2801, Independent Square One Independent Drive Jacksonville, FL 32202-5034 General Counsel Mahoney Adams & Criser, P.A. 3400 Barnett Center 50 North Laura Street P.O. Box 4099 Jacksonville, FL 32201 Transfer Agent Chemical Mellon Shareholder Services Four Station Square Third Floor Pittsburg, PA 15219-1173 Executive Office Family Steak Houses of Florida, Inc. 2113 Florida Boulevard Neptune Beach, FL 32266 Form 10-K A copy of the Company's Annual Report on Form 10-K for fiscal 1995, as filed with the Securities and Exchange Commission, may be obtained by writing to: Corporate Secretary Family Steak Houses of Florida, Inc. 2113 Florida Boulevard Neptune Beach, FL 32266 Common Stock Data The Company's common stock is traded on the NASDAQ National Market System under the trading symbol "RYFL". As of March 12, 1996, there were approximately 2,840 shareholders of record, not including individuals holding shares in street names. The closing sale price for the Company's stock on March 12, 1996 was $.66. The Company has never paid cash dividends on its common stock and is not allowed to pay dividends under its loan agreements. Management of the Company presently intends to retain all available funds for expansion of the business. The quarterly high and low closing prices of the Company's common stock are as shown below:
- ---------------------------------------------------- Market Price of Common Stock - ---------------------------------------------------- 1995 1994 Quarter High Low High Low - ---------------------------------------------------- First 15/16 9/32 13/19 1/2 Second 15/16 9/16 9/16 1/4 Third 1 11/16 1/2 1/4 Fourth 1 3/16 5/8 7/16 1/4
[RYAN'S LOGO] 24 EX-23.01 5 CONSENT OF DELOITTE & TOUCHE LLP 1 INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' CONSENT ------------------------------------------------- We consent to the incorporation by reference in this Annual Report of Family Steak Houses of Florida, Inc. on Form 10-K of our report dated February 23, 1996, appearing in the 1995 Annual Report to Shareholders of Family Steak Houses of Florida, Inc. We additionally consent to the incorporation by reference in Registration Statement No. 33-11684 pertaining to the 1986 Employee Incentive Stock Option Plan of Family Steak Houses of Florida, Inc. on Form S-8 of our report dated March 15, 1996 appearing in and incorporated by reference in this Annual Report on Form 10-K of Family Steak Houses of Florida, Inc. for the year ended January 3, 1996. We further consent to the incorporation by reference in Registration Statement No. 33-12556 pertaining to the 1986 Stock Option Plan for Non-Employee Directors of Family Steak Houses of Florida, Inc. on Form S-8 of our report dated February 23, 1996 appearing in and incorporated by reference in this Annual Report on Form 10-K of Family Steak Houses of Florida, Inc. for the year ended January 3, 1996. We further consent to the incorporation by reference in Registration Statement No. 33-62101 pertaining to the 1995 Long Term Incentive Plan of Family Steak Houses of Florida, Inc. on Form S-8 of our report dated February 23, 1996 appearing in and incorporated by reference in this Annual Report on Form 10-K of Family Steak Houses of Florida, Inc. for the year ended January 3, 1996. Deloitte & Touche LLP Jacksonville, Florida March 25, 1996 F-1 EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FAMILY STEAK HOUSES OF FLORIDA, INC'S. ANNUAL REPORT ON FORM 10-K, AS OF AND FOR THE YEAR ENDED JANUARY 3, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR JAN-03-1996 JAN-03-1996 711,400 600,300 229,600 0 247,400 2,045,300 40,057,600 (13,220,900) 31,259,700 5,330,200 0 0 0 108,500 11,351,200 31,259,700 42,105,400 42,105,400 16,591,300 39,487,400 0 0 (1,693,800) 1,491,300 147,100 1,344,200 0 0 0 1,344,200 .11 .11 REPRESENTS INVESTMENTS IN CERTIFICATES OF DEPOSITS WITH MATURITIES OF LESS THAN ONE YEAR.
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