EX-13.01 3 g67693ex13-01.txt 2000 ANNUAL REPORT TO SHAREHOLDERS 1 FAMILY STEAK HOUSES OF FLORIDA, INC. [RYAN'S FAMILY STEAK HOUSE LOGO] 2000 ANNUAL REPORT 2 FAMILY STEAK HOUSES OF FLORIDA, INC. CORPORATE PROFILE ABOUT THE COMPANY Family Steak Houses of Florida, Inc. is the sole franchisee of Ryan's Family Steak House restaurants in the state of Florida. The Company's first restaurant was opened in Jacksonville, Florida in May 1982. The Company presently operates 23 Ryan's restaurants in Florida. A Ryan's Family Steak House restaurant is a family-oriented restaurant serving high-quality, reasonably priced food in a casual atmosphere with server-assisted service. The restaurants feature self-service scatter bars, bakery and dessert bar, and table service of meals and drink refills. Each restaurant serves cuts of charbroiled steaks and hamburgers, seafood and various chicken entrees. In addition to traditional salad bar items, the scatter bars include a variety of hot meats and vegetables, as well as a variety of pre-made salads and cheeses. The bakery bar consists of fresh baked products such as hot yeast rolls, a variety of muffins, sweet rolls, brownies and cookies. Other selections include cobblers, fresh fruit, candy, cheesecake, pudding, ice cream, lowfat yogurt and a wide variety of dessert toppings. The bakery and dessert bar is included in the customer's meal price, and items can also be purchased for take-home. RYAN'S LOCATIONS: Jacksonville (1) Lakeland (2) Gainesville (1) Orange Park (1) Apopka (1) New Port Richey (1) Ocala (1) Winter Haven (1) Tampa (3) Tallahassee (1) Daytona Beach (1) Orlando (1) Melbourne (1) Clearwater (1) Lake City (1) Brooksville (1) Leesburg (1) Deland (1) Neptune Beach (1) St. Cloud (1)
---------------------------------(RYAN'S LOGO)--------------------------------- 3 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- DEAR SHAREHOLDERS: The year 2000 was a year of great improvement for the Company. We achieved an improvement in operating results of almost $2 million, and believe the Company has strong momentum for continued improvement in 2001 and beyond. We want to let you know some things we have done in 2000 to improve your Company, and some things you can look forward to in 2001. Same store sales were up 3.5% in 2000, the best performance by the Company since 1986. Total sales were up 2.7% despite the fact that we operated one less restaurant than in 1999 for most of the year. Perhaps the most exciting new development highlighting our sales building efforts was the outstanding success of our new restaurant in St. Cloud, Florida, which opened in December 2000. This restaurant broke the Company's all-time one-week sales record during two of its first three weeks of operation. The new restaurant in St. Cloud includes a display cooking area which we believe is a significant enhancement to the Company's concept. This addition includes a glass-enclosed grill area visible from the dining room where chicken, pork chops and other items are cooked in full view of our customers and served to them "hot off the grill". In addition, the display cooking area includes a fresh pizza oven, a rotisserie chicken machine and a wok for preparation of various Chinese food items. All of these items are included with the regular price of our famous buffet. Based on the record results from St. Cloud, the display cooking feature is very popular with our customers. We plan to open three new restaurants with this format in 2001. One is currently under construction in Titusville, Florida and is expected to open in the second quarter of 2001. In addition, we plan to add the display cooking area to some of our existing restaurants in 2001. Based on early results of similar additions to restaurants owned by our franchisor, Ryan's, Inc. of South Carolina, we expect significant increases in sales from these additions. The combination of the new restaurants and these conversions should have a significant positive impact on our sales and profitability in 2001. While we have emphasized increasing our sales this past year, we have also made progress controlling our costs and improving our operating margins. Our operating expenses in 2000 decreased to 87.3% of sales from 89.0% in 1999, a significant improvement. We reduced our food cost, despite some of the highest beef prices the Company has ever faced, and also decreased total payroll and other operating expenses as a percentage of sales. Our goals for 2001 include further improvement in these overall margins. We continue to believe that Ryan's is a strong concept which will grow and thrive in Florida, with its rapidly expanding population. For the sixth consecutive year, consumers in a nationwide survey by Restaurant & Institutions Magazine, rated Ryan's as the #1 choice for BEST FAMILY STEAKHOUSE CHAIN IN AMERICA. We are committed to doing everything we can to make Ryan's #1 in Florida. We appreciate the hard work of all of our team members over the past year to achieve these improvements. We believe we have the momentum to build your Company and increase shareholder value. Thank you for your continued support. Sincerely, Office of the President Edward B. Alexander Kevin R. Pickett ---------------------------------(RYAN'S LOGO)--------------------------------- 2 4 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- FIVE YEAR FINANCIAL SUMMARY
------------------------------------------------------------------------------------------------------------------ 2000(1) 1999 1998 1997 1996 ------------------------------------------------------------------------------------------------------------------ SELECTED INCOME STATEMENT DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues: Sales $39,960 $38,905 $38,412 $36,978 $37,978 Vending income 232 198 194 202 197 ------- ------- ------- ------- ------- 40,192 39,103 38,606 37,180 38,175 Cost and expenses: Food and beverage 15,469 15,161 15,015 14,642 15,090 Payroll and benefits 11,411 11,416 10,878 10,516 10,538 Depreciation and amortization 2,061 1,966 1,879 1,671 1,663 Other operating expenses 5,935 6,064 6,183 6,150 5,953 General and administrative expenses 2,622 2,703 2,472 2,681 2,220 Change in control payments -- 908 -- -- -- Franchise fees 1,198 1,165 1,151 1,108 1,139 Asset valuation charge 190 -- 209 550 -- Loss on store closings and disposition of equipment 149 140 193 146 57 ------- ------- ------- ------- ------- 39,035 39,523 37,980 37,464 36,660 ------- ------- ------- ------- ------- Earnings (loss) from operations 1,157 (420) 626 (284) 1,515 Investment income 487 28 -- -- -- Interest and other income 157 149 216 236 268 Gain (loss) on sale of property 62 (18) -- -- -- Interest expense (1,910) (1,721) (1,619) (1,577) (1,516) ------- ------- ------- ------- ------- (Loss) earnings before income taxes and extraordinary item (47) (1,982) (777) (1,625) 267 Benefit (provision) for income taxes -- -- 68 201 (53) ------- ------- ------- ------- ------- Net (loss) earnings before extraordinary item (47) (1,982) (709) (1,424) 214 Extraordinary item -- gain on early extinguishment of debt, net of income taxes of $89 -- -- -- -- 348 ------- ------- ------- ------- ------- Net (loss) earnings $ (47) $(1,982) $ (709) $(1,424) $ 562 ======= ======= ======= ======= ======= Basic (loss) earnings per share: (2) (Loss) earnings before extraordinary item $ (0.02) $ (0.82) $ (0.30) $ (0.65) $ 0.10 Extraordinary item -- gain on early extinguishment of debt -- -- -- -- 0.16 ------- ------- ------- ------- ------- Net (loss) earnings per share $ (0.02) $ (0.82) $ (0.30) $ (0.65) $ 0.26 ======= ======= ======= ======= ======= Diluted (loss) earnings per share: (2) (Loss) earnings before extraordinary item $ (0.02) $ (0.82) $ (0.30) $ (0.65) $ 0.09 Extraordinary item -- gain on early extinguishment of debt -- -- -- -- 0.15 ------- ------- ------- ------- ------- Net (loss) earnings per share $ (0.02) $ (0.82) $ (0.30) $ (0.65) $ 0.24 ======= ======= ======= ======= ======= SELECTED BALANCE SHEET DATA: Land and net property and equipment $26,356 $25,261 $26,138 $26,300 $26,350 Total assets 31,627 30,759 32,092 30,333 32,803 Long-term debt 17,869 17,336 16,574 14,403 15,107 Current portion of long-term debt 566 381 371 279 333 Shareholders' equity 7,770 8,335 10,275 10,644 11,998 SELECTED OPERATING DATA: Current ratio 0.4 0.4 0.8 0.6 0.9 Working capital (deficit) $(2,781) $(2,491) $ (744) $(1,795) $ (617) Cash provided by operating activities 1,937 130 1,525 626 1,645 Property and equipment additions 3,648 3,855 2,786 2,304 1,768
------------------------ (1) Fifty-three week period. (2) Per share amounts have been retroactively adjusted to reflect a 1-for-5 reverse stock split effected in March 1998. ---------------------------------(RYAN'S LOGO)--------------------------------- 3 5 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 -------------------- 2000 1999 VS VS 2000 1999 1998 1999 1998 ------------------------------------------------------------------------------------------------------------- Sales $39,959,600 $38,904,800 $38,412,400 2.7% 1.3% =========== =========== =========== ==== ==== -------------------------------------------------------------------------------------------------------------
NET CHANGE IN PERCENTAGE ---------------- PERCENT OF SALES 2000 1999 --------------------------------- VS VS 2000 1999 1998 1999 1998 ----------------------------------------------------------------------------------------------------------- Vending revenue 0.6% 0.5% 0.5% 0.1% --% ---- ----- ---- ---- ---- Costs and expenses: Operating expenses 87.3% 89.0% 88.4% (1.7) 0.6 General and administrative expenses 6.5 6.9 6.4 (0.4) 0.5 Change in control payments -- 2.3 -- (2.3) 2.3 Franchise fees 3.0 3.0 3.0 -- -- Asset valuation charge 0.5 -- 0.6 0.5 (0.6) Loss on store closings and disposition of equipment 0.4 0.4 0.5 -- (0.1) ---- ----- ---- ---- ---- 97.7 101.6 98.9 (3.9) 2.7 ---- ----- ---- ---- ---- Earnings (loss) from operations 2.9 (1.1) 1.6 4.0 (2.7) Investment income 1.2 0.1 -- 1.1 0.1 Interest and other income 0.4 0.4 0.6 -- (0.2) Gain (loss) on sale of property 0.2 (0.1) -- 0.3 (0.1) Interest expense (4.8) (4.4) (4.2) (0.4) (0.2) ---- ----- ---- ---- ---- Loss before income taxes (0.1) (5.1) (2.0) 5.0 (3.1) Income tax benefit -- -- 0.2 -- (0.2) ---- ----- ---- ---- ---- Net loss (0.1)% (5.1)% (1.8)% 5.0% (3.3)% ==== ===== ==== ==== ==== Operating expenses: Food and beverage 38.7% 39.0% 39.1% (0.3)% (0.1)% Payroll and benefits 28.6 29.3 28.3 (0.7) 1.0 Depreciation and amortization 5.2 5.1 4.9 0.1 0.2 Other operating expenses 14.8 15.6 16.1 (0.8) (0.5) ---- ----- ---- ---- ---- 87.3% 89.0% 88.4% (1.7)% 0.6% ==== ===== ==== ==== ==== Restaurants open at end of year 23 23 26 ==== ===== ====
---------------------------------(RYAN'S LOGO)--------------------------------- 4 6 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- RESULTS OF OPERATIONS 2000 COMPARED TO 1999 For the year ended January 3, 2001, total sales increased 2.7% compared to 1999, due to an increase in same-store sales and an additional week of operations in 2000. The sales increase in 2000 compared to 1999 consisted of the following components:
------------------------------------------------------------------------------------------------------ % CHANGE FROM 1999 2000 1999 CHANGE TOTAL SALES ------------------------------------------------------------------------------------------------------ Same-Store Sales $35,285,600 $34,105,300 $ 1,180,300 3.0% New Restaurants (1) 3,783,600 2,442,100 1,341,500 3.5% Closed Restaurants (2) 96,700 2,357,400 (2,260,700) (5.8)% Extra Week Sales (3) 793,700 -- 793,700 2.0% ----------- ----------- ----------- ---- Total Sales $39,959,600 $38,904,800 $ 1,054,800 2.7% =========== =========== =========== ====
------------------------ (1) Sales at restaurants open for 18 months or less. (2) Sales from restaurants closed or sold in 1999 or 2000, not included in same-store sales. (3) The year 2000 was a 53-week fiscal year, while 1999 was a 52-week fiscal year. Same-store sales (average unit sales in restaurants that have been open for at least 18 months and operating during comparable weeks during the current and prior year) for 2000 increased 3.5% from the same period in 1999, compared to an increase of .2% from 1999 as compared to 1998. The increase in same-store sales was primarily due to menu price increases implemented at all restaurants in 1999 and 2000. Management is seeking to continue to improve sales trends by focusing on improved restaurant operations, devising competitive strategies to offset the effects of new competition and making improvements to certain restaurants. In 2000, the Company added exhibition cooking areas to two of its restaurants, and experienced improved sales trends at these locations. Management intends to make similar additions to several restaurants in 2001. The Company also is testing a program to emphasize take-out sales. This program will include a separate take-out section which has been added to one restaurant and will be added to three additional Company restaurants during 2001. The operating expenses of the Company's restaurants include food and beverage, payroll and benefits, depreciation and amortization, and other operating expenses, which include repairs, maintenance, utilities, supplies, advertising, insurance, property taxes, rents and licenses. The Company's food, beverage, payroll and benefits 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 87.3% in 2000 from 89.0% in 1999. ---------------------------------(RYAN'S LOGO)--------------------------------- 5 7 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- Food and beverage costs as a percentage of sales decreased to 38.7% in 2000 from 39.0% in 1999, primarily due to sales price increases implemented in 1999 and 2000, offset by higher beef costs. Payroll and benefits as a percentage of sales decreased to 28.6% in 2000 from 29.3% in 1999, primarily due to efficiencies gained from higher same-store sales and to lower workers' compensation insurance costs in 2000. Other operating expenses as a percentage of sales decreased to 14.8% in 2000 from 15.6% in 1999, primarily due to lower store opening costs and lower property insurance costs. Depreciation and amortization increased as a percentage of sales to 5.2% in 2000 from 5.1% in 1999, as a result of additions to property and equipment during 2000. General and administrative expenses as a percentage of sales decreased to 6.5% in 2000 from 6.9% in 1999, primarily due to costs incurred in 1999 associated with the proxy contest from the Company's 1999 Annual Meeting of Shareholders. In 1999 the Company incurred an expense of $907,500 for a one-time payment to four employees pursuant to the terms of their employment agreements upon the change in the control of the Company's Board of Directors. No such costs were incurred in 2000. The Company recognized an asset valuation charge of $189,700 in 2000 in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The charge was based upon a financial review of all Company-owned restaurants and applied to one restaurant, for which the Company's lease agreement was unexpectedly terminated effective March 2001. No such charges were considered necessary in 1999. Investment income increased to $487,100 in 2000 from $27,500 in 1999, due to net realized gains from transactions in marketable securities. Interest expense increased to $1,910,300 in 2000 from $1,720,700 during 1999, due primarily to higher interest rates and additional borrowing under the Company's credit facility in 2000. The Company capitalized interest costs of approximately $56,800 in 2000 and $52,800 in 1999, respectively. The effective income tax rate for the years ended January 3, 2001 and December 29, 1999 was 0.0%. An increase in the valuation allowance in deferred tax assets for 2000 and 1999 resulted in the lower than statutory effective rates for those periods. Net loss for 2000 was $46,700, compared to $1,982,200 in 1999. Loss per share assuming dilution was $.02 for 2000, compared to $.82 in 1999. ---------------------------------(RYAN'S LOGO)--------------------------------- 6 8 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- RESULTS OF OPERATIONS 1999 COMPARED TO 1998 For the year ended December 29, 1999, total sales increased 1.3% compared to 1998, due to an increase in same-store sales and two additional restaurants opened in 1999. The sales increase in 1999 compared to 1998 consisted of the following components:
------------------------------------------------------------------------------------------------------- % CHANGE FROM 1998 1999 1998 CHANGE TOTAL SALES ------------------------------------------------------------------------------------------------------- Same-Store Sales $34,539,500 $34,485,000 $ 54,500 0.2% New Restaurants (1) 4,365,300 2,282,400 2,082,900 5.4% Closed Restaurants (2) -- 1,645,000 (1,645,000) (4.3)% ----------- ----------- ----------- ---- Total Sales $38,904,800 $38,412,400 $ 492,400 1.3% =========== =========== =========== ====
------------------------ (1) Sales at restaurants open for 18 months or less. (2) Sales from restaurants closed or sold in 1999, for the comparable period (after the date of closure) from 1998. Same-store sales for 1999 increased .2% from the same period in 1998, compared to an increase of 1.1% from 1998 as compared to 1997. Total sales (including restaurants open less than 18 months) increased 1.3%. The increase in same-store sales was primarily due to menu price increases implemented at all restaurants in 1999. These increases were somewhat offset by decreases in sales at other Company restaurants caused by the effects of increasing competition, including several new or remodeled restaurants opened by competitors in areas close to Company restaurants. In 1999, management implemented a plan to sell restaurants which were not meeting sales and profit expectations. To this end, the Company closed three restaurants during the first four months of 1999 and sold one restaurant in July 1999 and one in November 1999. In February 2000, the Company sold one additional restaurant. In 1999, the proceeds of the sales of restaurants were used to pay down long-term debt. Food and beverage costs as a percentage of sales decreased to 39.0% in 1999 from 39.1% in 1998, primarily due to sales price increases implemented in 1999. Payroll and benefits as a percentage of sales increased to 29.3% in 1999 from 28.3% in 1998, primarily due to higher group health insurance costs in 1999 and lower workers' compensation insurance costs in 1998. Other operating expenses as a percentage of sales decreased to 15.6% in 1999 from 16.1% in 1998, primarily due to lower property insurance costs and to reduced costs for utilities. Depreciation and amortization increased as a percentage of sales to 5.1% in 1999 from 4.9% in 1998, as a result of additions to property and equipment during 1999. General and administrative expenses as a percentage of sales increased to 6.9% in 1999 from 6.4% in 1998, primarily due to costs associated with the proxy contest from the Company's 1999 Annual Meeting of Shareholders, and to increased manager training costs resulting from higher manager turnover in 1999. In 1999 the Company incurred an expense of $907,500 for a one-time payment to four employees pursuant to the terms of their employment agreements upon the change in the control of the Company's Board of Directors. The Company recognized an asset valuation charge of $209,000 in 1998 in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets ---------------------------------(RYAN'S LOGO)--------------------------------- 7 9 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- to be Disposed Of". The charge was based upon a financial review of all Company-owned restaurants and applied to one underperforming restaurant held for sale. No such charges were considered necessary in 1999. Interest expense increased to $1,720,700 in 1999 from $1,618,900 during 1998 due to additional borrowing under the Company's credit facility in 1999. The Company capitalized interest costs of approximately $52,800 in 1999 and $52,600 in 1998, respectively. The effective income tax rates for the years ended December 29, 1999 and December 30, 1998 were 0.0% and (8.7%), respectively. An increase in the valuation allowance in deferred tax assets for 1999 and 1998 resulted in the lower than statutory effective rates for those periods. Net loss for 1999 was $1,982,200, compared to $709,300 in 1998. Loss per share assuming dilution was $.82 for 1999, compared to $.30 in 1998. 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. At January 3, 2001, the Company had a working capital deficit of $2,780,600 compared to a working capital deficit of $2,491,100 at December 29, 1999. The increase in the working capital deficit in 2000 was primarily due to accounts payable at the end of 2000 associated with the purchase of fixed assets for construction of a new restaurant. Cash provided by operating activities increased to $1,936,800 in 2000 from $129,800 in 1999, primarily due to the decrease in the net loss compared to 1999. Cash provided by operating activities decreased to $129,800 in 1999 from $1,525,100 in 1998 due to the increase in the net loss compared to 1998. The Company spent approximately $3,648,000 in 2000, $3,855,000 in 1999 and $3,226,000 in 1998 for land, new restaurant construction, restaurant remodeling and equipment. Capital expenditures for 2001, based on present costs and plans for capital improvements, are estimated to be $8.7 million. This amount is based on budgeted expenditures for land, buildings and equipment for three new restaurants in 2001, remodels of several restaurants, and normal recurring equipment purchases and minor building improvements ("Capital Maintenance Items"). The Company projects that proceeds from the Company's financing agreements (described below) and cash generated from operations may only be sufficient to cover two new restaurants and the estimated Capital Maintenance Items. The Company's ability to open the third restaurant and complete the remodels will be contingent upon its ability to obtain additional capital. The Company's ability to open new restaurants is also dependent upon its ability to locate suitable locations at acceptable prices, and upon certain other factors beyond its control, such as obtaining building permits from various government agencies. In December 1996, the Company entered into two loan agreements with FFCA Mortgage Corporation ("FFCA"). Pursuant to the first Loan Agreement (the "1996 Loan Agreement"), the Company borrowed $15.36 million, which loans are evidenced by fourteen Promissory Notes payable to FFCA. Each Note is secured by a mortgage on a Company restaurant property. The Promissory Notes provide for a term of twenty years and an interest rate equal to the thirty-day LIBOR rate plus 3.75%, adjusted monthly. The 1996 Loan Agreement provides for various covenants, including the maintenance of prescribed debt service coverages. As of January 3, 2001, the outstanding balance due under the 1996 Loan Agreement was $11,532,800. ---------------------------------(RYAN'S LOGO)--------------------------------- 8 10 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- The Company used the proceeds of the 1996 Loan Agreement to retire its Notes with Cerberus Partners, L.P. ("Cerberus") and its loans with the Daiwa Bank Limited and SouthTrust Bank of Alabama, N.A. In addition, the Company retired Warrants for 210,000 shares of the Company's common stock previously held by Cerberus. Cerberus continues to hold Warrants to purchase 140,000 shares of the Company's common stock at an exercise price of $2.00 per share. Pursuant to its second loan agreement with FFCA (the "1998 Loan Agreement"), the Company borrowed an additional $2,590,000 in 1998. The proceeds of the 1998 loan were used to fund the construction of a new restaurant in Leesburg, Florida, and the land and a portion of the cost of construction of a new restaurant in Deland, Florida. This additional financing is evidenced by three additional Promissory Notes secured by mortgages on three Company restaurant properties. The terms and conditions of the 1998 Loan Agreement are substantially identical to those of the 1996 Loan Agreement. As of January 3, 2001, the outstanding balance under the 1998 Loan Agreement was $2,464,600. In October 1998, the Company received two commitments for new financing from FFCA. The Company borrowed a total of $2.6 million in 1999 under the first commitment (the "1999 Loan"). The proceeds of the 1999 Loan were used to fund construction of new restaurants in Deland and Tampa, Florida. The 1999 Loan is secured by mortgages on two Company restaurant properties. As of January 3, 2001, the outstanding balance under the 1999 Loan was $2,526,400. The second commitment (the "2000 Loan") was for construction financing for two new restaurants to be built in 2000 and 2001. Terms of the 2000 Loan include funding of a maximum of $1,600,000 per restaurant. Other terms and conditions of the 1999 and 2000 Loans are substantially identical to those of the 1996 Loan Agreement. The Company borrowed $1,911,500 under the 2000 Loan to fund the purchase of land and for construction for new restaurants in St. Cloud and Titusville, Florida. The St. Cloud restaurant opened in December 2000, and the Titusville restaurant is expected to open in May 2001. The Company plans to open three new restaurants in 2001. In July 2000, the Company received a new commitment from FFCA to fund $1,600,000 each for two additional restaurants to be constructed in 2001. The preceding discussion of liquidity and capital resources contains certain forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, and in addition to the factors discussed herein, among the other factors that could cause actual results to differ materially are the following: failure of facts to conform to necessary management estimates and assumptions; the willingness of FFCA or other lenders to extend financing commitments; repairs or similar expenditures required for existing restaurants due to weather or acts of God; the Company's ability to identify and secure suitable locations on acceptable terms and open new restaurants in a timely manner; the Company's success in selling real property listed for sale; the economic conditions in the new markets into which the Company expands; changes in customer dining patterns; changes in food cost, competitive pressures from other national and regional restaurant chains and other food vendors; changes in business conditions, such as inflation or a recession; changes in growth in the restaurant industry and the general economy; and other risks identified from time to time in the Company's SEC reports, registration statements and public announcements. RECENT DEVELOPMENTS Potential Delisting of Company's Stock from NASDAQ On January 17, 2001, the Company received notice from NASDAQ that the Company's closing bid price had declined below $1.00 per share. Accordingly, NASDAQ informed the Company that in order to continue the listing of the Company's securities on the Nasdaq SmallCap Market, the Company would have to meet the following ---------------------------------(RYAN'S LOGO)--------------------------------- 9 11 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- conditions -- on or before April 17, 2001, the closing bid price of the Company's common stock must be a minimum of $1.00 per share for 10 consecutive trading days. In order to fully comply with the terms of this exception, the Company must be able to demonstrate compliance with all requirements for continued listing. In the event the Company fails to meet any of the terms of this exception, the Company's securities will be delisted from the Nasdaq SmallCap Market. As of March 12, 2001, the bid price had reached $1.00 per share for five consecutive trading days. If the Company's stock is delisted from NASDAQ, trading in the Common Stock would thereafter be conducted on the over-the-counter markets in the so-called "pink sheets" or the National Association of Securities Dealers, Inc.'s "Electronic Bulletin Board". Consequently, the liquidity of the Company's securities could be impaired, not only in the number of shares that could be bought and sold, but also as a result of delays in the timing of the transactions, a reduction in the number and quality of security analysts' and the news media's coverage of the Company, lower prices for the Company's securities than might otherwise be attained and a larger spread between the bid and asked prices for the Company's securities. In addition, if the Company's securities were to be delisted from the NASDAQ SmallCap Market, the Company's securities could become subject to Rule 15g-9 under the Exchange Act relating to penny stocks, which imposes additional sales practice requirements on broker-dealers which sell such securities to persons other than established customers and "accredited investors" (generally, individuals with net worth in excess of $1,000,000 or annual incomes exceeding $200,000,or $300,000 together with their spouses). Commission regulations define a "penny stock" to be any equity security that is not listed on The NASDAQ Stock Market or a national securities exchange and that has a market price (as therein defined) of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. If the Company's securities were subject to the rules on penny stocks, the market liquidity for the Company's securities could be adversely affected. IMPACT OF INFLATION Costs of food, beverage, and labor are the expenses most affected by inflation in the Company's business. Although inflation in recent years has been low and accordingly has not had a significant impact on the Company, there can be no assurance that inflation will not increase and impact the Company in the future. A significant portion of the Company's employees are paid by the federally established statutory minimum wage. Although no minimum wage increases have been signed into law, various proposals are presently being considered in the United States Congress. News reports suggest that the Federal minimum wage may increase by $1.00 per hour to $6.15 with a two to three year phase-in period, beginning sometime in 2001. The Company is typically able to increase its menu prices to cover most of the payroll rate increases; however, there can be no assurance that menu price increases will be able to offset labor cost increases in the future. Such changes in the federal minimum wage would impact the Company's payroll and benefits costs. Annual sales price increases have consistently ranged from 1.0% to 3.0%. ---------------------------------(RYAN'S LOGO)--------------------------------- 10 12 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------------------------------------ FOR THE YEARS ENDED ----------------------------------------------- JANUARY 3, DECEMBER 29, DECEMBER 30, 2001 1999 1998 ------------------------------------------------------------------------------------------------------------ Revenues: Sales $39,959,600 $38,904,800 $38,412,400 Vending revenue 232,200 198,400 193,800 ----------- ----------- ----------- Total revenues 40,191,800 39,103,200 38,606,200 ----------- ----------- ----------- Costs and expenses: Food and beverage 15,468,900 15,161,100 15,015,500 Payroll and benefits 11,411,100 11,416,100 10,878,300 Depreciation and amortization 2,061,600 1,966,200 1,879,000 Other operating expenses 5,935,100 6,064,100 6,183,100 General and administrative expenses 2,622,100 2,702,600 2,471,800 Change in control payments -- 907,500 -- Franchise fees 1,197,600 1,165,300 1,150,900 Asset valuation charge 189,700 -- 209,000 Loss on store closings and disposition of equipment 148,800 140,200 192,700 ----------- ----------- ----------- Total costs and expenses 39,034,900 39,523,100 37,980,300 ----------- ----------- ----------- Earnings (loss) from operations 1,156,900 (419,900) 625,900 Investment income 487,100 27,500 -- Interest and other income 157,300 149,300 216,100 Gain (loss) on sale of property 62,300 (18,400) -- Interest expense (1,910,300) (1,720,700) (1,618,900) ----------- ----------- ----------- Loss before income taxes (46,700) (1,982,200) (776,900) Income tax benefit -- -- 67,600 ----------- ----------- ----------- Net loss $ (46,700) $(1,982,200) $ (709,300) =========== =========== =========== Basic loss per share $ (0.02) $ (0.82) $ (0.30) =========== =========== =========== Diluted loss per share $ (0.02) $ (0.82) $ (0.30) =========== =========== ===========
See accompanying notes to consolidated financial statements. ---------------------------------(RYAN'S LOGO)--------------------------------- 11 13 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS
---------------------------------------------------------------------------------------------------- JANUARY 3, 2001 DECEMBER 29, 1999 ---------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 631,500 $ 747,300 Investments 815,200 92,300 Receivables 93,000 125,000 Current portion of mortgages receivable 172,000 77,800 Inventories 256,400 285,400 Prepaid and other current assets 193,600 204,800 ------------ ------------ Total current assets 2,161,700 1,532,600 Mortgages receivable 355,400 159,800 Certificate of deposit 10,800 10,800 Investments held to maturity -- 500,000 Property and equipment: Land 8,669,400 7,537,300 Buildings and improvements 22,128,300 21,156,000 Equipment 12,046,200 11,908,100 ------------ ------------ 42,843,900 40,601,400 Accumulated depreciation (16,487,500) (15,340,500) ------------ ------------ Net property and equipment 26,356,400 25,260,900 Property held for sale 1,903,600 2,488,700 Other assets, principally deferred charges, net of accumulated amortization 839,100 806,400 ------------ ------------ $ 31,627,000 $ 30,759,200 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,370,900 $ 1,275,300 Accounts payable -- construction 375,100 -- Accrued liabilities 2,461,600 2,363,600 Investment margin debt 165,100 -- Current portion of long-term debt 565,900 381,400 Current portion of obligation under capital lease 3,700 3,400 ------------ ------------ Total current liabilities 4,942,300 4,023,700 Long-term debt 17,869,400 17,335,600 Obligation under capital lease 1,045,600 1,049,300 Deferred revenue -- 15,200 ------------ ------------ Total liabilities 23,857,300 22,423,800 Shareholders' equity: Preferred stock of $.01 par; authorized 10,000,000 shares; none issued -- -- Common stock of $.01 par; authorized 4,000,000 shares; outstanding 2,416,200 and 2,409,000 shares 24,200 24,100 Additional paid-in capital 8,631,400 8,624,700 Retained earnings (accumulated deficit) (372,000) (325,300) Accumulated other comprehensive (loss) income (513,900) 11,900 ------------ ------------ Total shareholders' equity 7,769,700 8,335,400 ------------ ------------ $ 31,627,000 $ 30,759,200 ============ ============
See accompanying notes to consolidated financial statements. ---------------------------------(RYAN'S LOGO)--------------------------------- 12 14 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED JANUARY 3, 2001, DECEMBER 29, 1999, AND DECEMBER 30, 1998
------------------------------------------------------------------------------------------------------------------------- RETAINED COMMON STOCK ADDITIONAL EARNINGS ACCUMULATED OTHER ------------------- PAID-IN (ACCUMULATED COMPREHENSIVE SHARES AMOUNT CAPITAL DEFICIT) INCOME (LOSS) TOTAL ------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 2,216,200 $22,200 $8,256,100 $ 2,366,200 -- $10,644,500 Exercise of stock options 14,108 100 4,700 4,800 Sale of common stock 141,340 1,400 303,900 305,300 Directors' fees in the form of stock options............................. 30,000 30,000 Comprehensive loss: Net loss (709,300) (709,300) --------- ------- ---------- ----------- --------- ----------- Balance, December 30, 1998 2,371,648 23,700 8,594,700 1,656,900 -- 10,275,300 Exercise of stock options 37,383 400 400 Directors' fees in the form of stock options 30,000 30,000 Comprehensive loss: Net loss (1,982,200) (1,982,200) Other comprehensive income: Unrealized gains on securities: Unrealized holding gains arising during the period $ 39,400 39,400 Less: reclassification adjustment for gains included in net loss (27,500) (27,500) ----------- Total comprehensive loss (1,970,300) --------- ------- ---------- ----------- --------- ----------- Balance, December 29, 1999 2,409,031 24,100 8,624,700 (325,300) 11,900 8,335,400 Exercise of stock options 7,200 100 100 Directors' fees in the form of stock options 6,700 6,700 Comprehensive loss: Net loss (46,700) (46,700) Other comprehensive income: Unrealized losses on securities: Net unrealized holding losses arising during the period (38,700) (38,700) Less: reclassification adjustment for net gains included in net loss (487,100) (487,100) ----------- Total comprehensive loss (572,500) --------- ------- ---------- ----------- --------- ----------- Balance, January 3, 2001 2,416,231 $24,200 $8,631,400 ($ 372,000) ($513,900) $ 7,769,700 ========= ======= ========== =========== ========= ===========
See accompanying notes to consolidated financial statements. ---------------------------------(RYAN'S LOGO)--------------------------------- 13 15 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------- FOR THE YEARS ENDED -------------------------------------------------------------- JANUARY 3, 2001 DECEMBER 29, 1999 DECEMBER 30, 1998 ------------------------------------------------------------------------------------------------------------- Operating activities: Net loss $ (46,700) $(1,982,200) $ (709,300) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 2,061,600 1,966,200 1,879,000 Asset valuation charge 189,700 -- 209,000 Directors' fees in the form of stock options 6,700 30,000 30,000 Net realized gains on investments (487,100) (27,500) -- Amortization of loan fees 32,100 28,800 24,700 Loss on disposition of equipment 84,100 93,200 139,700 (Gain) loss on sale of property (62,300) 18,400 -- Decrease (increase) in: Receivables 32,000 (18,000) (13,800) Income taxes receivable -- 60,200 237,700 Inventories 29,000 48,000 (52,900) Prepaids and other current assets 11,200 91,800 14,600 Other assets (91,900) (17,000) (101,700) Increase (decrease) in: Accounts payable 95,600 (105,700) 94,000 Accrued liabilities 98,000 (48,400) (218,300) Deferred revenue (15,200) (8,000) (7,600) ----------- ----------- ----------- Net cash provided by operating activities 1,936,800 129,800 1,525,100 ----------- ----------- ----------- Investing activities: Principal receipts on mortgages receivable 185,200 71,100 124,900 Purchases of investments (3,272,300) (1,129,500) (43,700) Proceeds from sales of investments 3,010,700 565,800 -- Proceeds from maturities of investments -- 644,000 -- Proceeds from sale of restaurants 687,100 -- -- Proceeds from sale of property held for sale 104,100 1,641,600 263,200 Capital expenditures (3,647,500) (3,855,200) (3,225,800) ----------- ----------- ----------- Net cash used in investing activities (2,932,700) (2,062,200) (2,881,400) ----------- ----------- ----------- Financing activities: Payments on long-term debt and obligation under capital lease (1,196,600) (1,830,900) (329,600) Proceeds from issuance of long-term debt 1,911,500 2,600,000 2,590,000 Proceeds from investment margin debt 165,100 -- -- Proceeds from the issuance of common stock 100 400 310,100 ----------- ----------- ----------- Net cash provided by financing activities 880,100 769,500 2,570,500 ----------- ----------- ----------- Net (decrease) increase in cash and cash equivalents (115,800) (1,162,900) 1,214,200 Cash and cash equivalents -- beginning of year 747,300 1,910,200 696,000 ----------- ----------- ----------- Cash and cash equivalents -- end of year $ 631,500 $ 747,300 $ 1,910,200 =========== =========== =========== Noncash investing and financing activities: Issuance of mortgage receivable on sale of property $ 475,000 $ -- $ -- =========== =========== =========== Net change in unrealized (loss) gain on investments $ (525,800) $ 11,900 $ -- =========== =========== =========== Supplemental disclosures of cash flow information: Cash paid during the year for interest $ 1,995,800 $ 1,736,000 $ 1,634,400 =========== =========== =========== Cash paid during the year for income taxes $ -- $ -- $ -- =========== =========== ===========
See accompanying notes to consolidated financial statements. ---------------------------------(RYAN'S LOGO)--------------------------------- 14 16 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 subsidiary, Steak House Construction. 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 years 1998 and 1999 consisted of fifty-two weeks, and fiscal year 2000 consisted of fifty-three weeks. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 AVAILABLE FOR SALE Investments available for sale represent marketable securities and are stated at fair market value as determined by quoted market prices. Proceeds from sales of these investments were $3,010,700, $565,800, and $0 in 2000, 1999, and 1998, respectively. Gross gains of $577,500, $59,500, and $0 and gross losses of $90,400, $32,000, and $0 were realized on these sales in 2000, 1999 and 1998 respectively. CERTIFICATES OF DEPOSIT Certificates of deposit are stated at cost. ---------------------------------(RYAN'S LOGO)--------------------------------- 15 17 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- INVESTMENTS HELD TO MATURITY Investments held to maturity in 1999 represented an investment of Company funds in zero-coupon bonds by an insurance company. The bonds were held as collateral for a $1 million bond provided by the insurance company to the State of Florida to support the Company's self-insured workers' compensation liability. Due to the downgraded financial rating of the insurance company that provided the bonds, the bonds were transferred to investments available for sale and sold in 2000. No gain or loss was realized on the sale of the bonds. See Note 5 for discussion of the change in the Company's workers' compensation policy. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market and consist of food items, 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 expensed as incurred. Depreciation is provided for financial reporting purposes principally on the straight-line method over the following estimated lives: buildings -- 25 years, land improvements -- 25 years and equipment -- 3-8 years. Leasehold improvements are amortized over the life of the related lease, or the life of the asset, whichever is less. Interest expense from the FFCA loan is capitalized to the extent that such proceeds are used for the construction of new restaurants. Interest costs of approximately $56,800, $52,800, and $52,600 were capitalized in 2000, 1999, and 1998, respectively. PROPERTY HELD FOR SALE Property held for sale consists of two restaurant properties and an outparcel stated at the lower of cost or estimated net realizable value. OTHER ASSETS Other assets consist of deferred charges. Deferred charges and related amortization periods are as follows: financing costs -- term of the related loan, and initial franchise rights -- 40 years. 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. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefit, or that future deductibility is uncertain. ---------------------------------(RYAN'S LOGO)--------------------------------- 16 18 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- EARNINGS PER SHARE Basic earnings per common share is calculated by dividing net income by the average number of common shares outstanding during the year. Diluted earnings per common share is calculated by adjusting outstanding shares, assuming conversion of all potentially dilutive stock options. RECLASSIFICATIONS Certain items in the prior year financial statements have been reclassified to conform to the 2000 presentation. NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". In June 2000, the FASB issued SFAS No. 138, which amends certain provisions of SFAS 133 to clarify four areas causing difficulties in implementation. The amendment included expanding the normal purchase and sale exemption for supply contracts, permitting the offsetting of certain intercompany foreign currency derivatives and thus reducing the number of third party derivatives, permitting hedge accounting for foreign-currency denominated assets and liabilities, and redefining interest rate risk to reduce sources of ineffectiveness. The Company adopted SFAS 133 and the corresponding amendments under SFAS 138 on January 4, 2001. SFAS 133, as amended by SFAS 138, did not have a material impact on the Company's consolidated results of operations, financial position or cash flows. NOTE 2. CLOSED RESTAURANT COSTS In 1998, the Company established a reserve to close two restaurants in 1999, resulting in a pre-tax charge to earnings in 1998 of $53,000. The charge to earnings reflected anticipated costs associated with closing the restaurants. The two restaurants in Jacksonville, Florida were closed in January 1999. A third restaurant was closed in Orlando, Florida in April 1999. One of the closed Jacksonville restaurants was sold in 2000. The total book value of the two remaining closed restaurants as of January 3, 2001 was approximately $1,515,200, which is included in property held for sale. Continuing losses incurred to maintain the closed restaurants in 2000 and 1999 were $65,000 and $47,000, respectively. These three restaurants incurred a combined pre-tax loss of $231,000 in fiscal year 1998. NOTE 3. ASSET VALUATION CHARGE In accordance with SFAS No. 121, the Company recognized asset valuation charges of $189,700, $0, and $209,000 in 2000, 1999, and 1998, respectively. These charges were based upon a financial review of all Company-owned restaurants and applied to one restaurant as to which the Company's lease was terminated in 2000, and an underperforming restaurant in 1998. The restaurant for which the charge was recognized in 1998 was sold in 1999. The charges were based on the difference between each unit's net book value and estimated fair value, which equaled the estimated proceeds from disposal as determined by management. Considerable management judgment is necessary to estimate proceeds from disposal and, accordingly, actual proceeds could vary significantly from such estimates. ---------------------------------(RYAN'S LOGO)--------------------------------- 17 19 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- NOTE 4. FRANCHISE AGREEMENT In October 1996, the Company amended its Franchise Agreement with Ryan's Family Steak Houses, Inc. ("Ryan's"). The amended agreement requires the Company to pay a monthly royalty fee of 3.0% through December 2001, and 4.0% thereafter of the gross receipts of each Ryan's Family Steak House restaurant. Total royalty fee expenses were $1,197,600, $1,165,300, and $1,150,900 for fiscal years 2000, 1999, and 1998, respectively. 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 North and Central Florida. In 1999, the Company and Ryan's amended the number of restaurants required to be in operation as detailed below. The Company operated 23 restaurants as of fiscal year end 2000 and was therefore in compliance with the Franchise Agreement. 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 ---------------------------------------------------------------------------------------- 2000 23 2001 25 2002 and subsequent years Increases by two each year
NOTE 5. ACCRUED LIABILITIES Accrued liabilities are summarized as follows:
---------------------------------------------------------------------------------------------- 2000 1999 ---------------------------------------------------------------------------------------------- Property taxes $ 429,900 $ 16,500 Payroll and payroll taxes 636,900 589,200 Workers' compensation liability 837,800 1,067,400 Other 557,000 690,500 ---------- ---------- $2,461,600 $2,363,600 ========== ==========
The Company self-insures workers' compensation losses up to certain limits. The liability for workers' compensation claims represents an estimate for the ultimate cost of uninsured losses which are unpaid as of the balance sheet date. The estimate is continually reviewed and adjustments to the Company's estimated claim liability, if any, are reflected in current operations. The State of Florida Division of Workers' Compensation ("the Division") requires self-insured companies to pledge collateral in favor of the Division in an amount sufficient to cover the Company's projected outstanding liability. In compliance with this requirement, in July 2000 the Company provided a $1 million letter of credit to the Division with an expiration date of July 1, 2001. The letter of credit was guaranteed on behalf of the Company by Bisco Industries, Inc. ("Bisco"). The Chairman of the Company's Board of Directors, Glen F. Ceiley, is the President of Bisco. ---------------------------------(RYAN'S LOGO)--------------------------------- 18 20 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- NOTE 6. LONG-TERM DEBT Long-term debt is summarized as follows:
----------------------------------------------------------------------------------------------- 2000 1999 ----------------------------------------------------------------------------------------------- Collateralized notes payable to FFCA Mortgage Corporation, monthly principal and interest payments totaling $176,900 effective December 2000, interest at thirty-day LIBOR rate +3.75% (10.37% at January 3, 2001) $18,435,300 $17,717,000 Less current portion: (565,900) (381,400) ----------- ----------- $17,869,400 $17,335,600 =========== ===========
Total maturities of long-term debt are as follows: 2001 $ 565,900 2002 607,200 2003 669,400 2004 733,200 2005 813,200 Thereafter 15,046,400 ----------- $18,435,300 ===========
In December 1996, the Company entered into two loan agreements with FFCA Mortgage Corporation ("FFCA"). Pursuant to the first Loan Agreement (the "1996 Loan Agreement"), the Company borrowed $15.36 million, which loans are evidenced by fourteen Promissory Notes payable to FFCA. Each Note is secured by a mortgage on a Company restaurant property. The Promissory Notes provide for a term of twenty years and an interest rate equal to the thirty-day LIBOR rate plus 3.75%, adjusted monthly. The 1996 Loan Agreement provides for various covenants, including the maintenance of prescribed debt service coverages. As of January 3, 2001, the outstanding balance due under the 1996 Loan Agreement was $11,532,800. The Company used the proceeds of the 1996 Loan Agreement to retire its Notes with Cerberus Partners, L.P. ("Cerberus") and its loans with the Daiwa Bank Limited and SouthTrust Bank of Alabama, N.A. In addition, the Company retired Warrants for 210,000 shares of the Company's common stock previously held by Cerberus. Cerberus continues to hold Warrants to purchase 140,000 shares of the Company's common stock at an exercise price of $2.00 per share. Pursuant to its second loan agreement with FFCA (the "1998 Loan Agreement"), the Company borrowed an additional $2,590,000 in 1998 to fund construction of a new restaurant in Leesburg, Florida and the land and a portion of the cost of construction of a new restaurant in Deland, Florida. This additional financing is evidenced by three additional Promissory Notes secured by mortgages on three Company restaurant properties. The terms and conditions of the 1998 Loan Agreement are substantially identical to those of the 1996 Loan Agreement. As of January 3, 2001, the outstanding balance under the 1998 Loan Agreement was $2,464,600. ---------------------------------(RYAN'S LOGO)--------------------------------- 19 21 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- In October 1998, the Company received two commitments for new financing from FFCA. The Company borrowed a total of $2.6 million in 1999 under the first commitment (the "1999 Loan"). The proceeds of the 1999 Loan were used to fund construction of new restaurants in Deland and Tampa, Florida. The 1999 Loan is secured by mortgages on two Company restaurant properties. As of January 3, 2001, the outstanding balance under the 1999 Loan was $2,526,400. The second commitment (the "2000 Loan") was for construction financing for two new restaurants to be built in 2000 and 2001. Terms of the 2000 Loan include funding of a maximum of $1,600,000 per restaurant. Other terms and conditions of the 1999 and 2000 Loans are substantially identical to those of the 1996 Loan Agreement. The Company borrowed $1,911,500 under the 2000 Loan to fund the purchase of land and construction for new restaurants in St. Cloud and Titusville, Florida. The St. Cloud restaurant opened in December 2000, and the Titusville restaurant is expected to open in May 2001. The Company plans to open three new restaurants in 2001. In July 2000, the Company received a new commitment from FFCA to fund $1,600,000 each for two additional restaurants to be constructed in 2001. NOTE 7. INCOME TAXES The income tax benefit is comprised of the following:
--------------------------------------------------------------------------------------------------- 2000 1999 1998 --------------------------------------------------------------------------------------------------- Current: Federal $ -- $ -- $(67,600) ======== ======== ========
Income taxes for the years ended January 3, 2001, December 29, 1999 and December 30, 1998 differ from the amount computed by applying the federal statutory corporate rate to earnings before income taxes. The differences are reconciled as follows:
------------------------------------------------------------------------------------------------- 2000 1999 1998 ------------------------------------------------------------------------------------------------- Income tax benefit at statutory rate $(16,200) $(693,900) $(271,900) Increase (decrease) in taxes due to: Effect of graduated tax rates 500 19,800 7,800 State tax net of Federal benefit (1,700) (72,000) (28,200) Change in deferred tax asset valuation allowance 16,500 732,400 224,500 Expiration of capital loss carryforward -- 14,100 -- Other 900 (400) 200 -------- --------- --------- Income tax benefit $ -- $ -- $ (67,600) ======== ========= =========
---------------------------------(RYAN'S LOGO)--------------------------------- 20 22 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- The components of deferred taxes at January 3, 2001 and December 29, 1999 are summarized below:
----------------------------------------------------------------------------------------- JANUARY 3, 2001 DECEMBER 29, 1999 ----------------------------------------------------------------------------------------- Deferred tax assets: Net operating loss $ 855,400 $ 977,800 Federal and state tax credits 589,400 589,400 Accruals not currently deductible 317,200 405,100 Excess tax over book basis: Asset valuation reserve 278,300 207,000 Property held for sale 22,400 -- Unrealized loss on investments 193,400 -- Capital loss not currently deductible -- 35,200 Unearned revenue, previously taxed 6,000 9,000 ----------- ----------- 2,262,100 2,223,500 Valuation allowance (1,686,300) (1,476,400) ----------- ----------- Total deferred tax assets 575,800 747,100 ----------- ----------- Deferred tax liabilities: Excess of tax over book depreciation and amortization 575,800 735,800 Excess book over tax basis: Property held for sale -- 11,300 ----------- ----------- Total deferred tax liabilities 575,800 747,100 ----------- ----------- Net deferred taxes $ -- $ -- =========== ===========
At January 3, 2001, the Company's federal and state tax credit was comprised of $49,200 in general business credits which expire in 2013 and alternative minimum tax credits of $540,200 which have no expiration date. Additionally, at January 3, 2001, the Company has Federal net operating losses of $2,125,000, which begin expiring in 2018 and State net operating losses of $3,637,000 which begin expiring in 2012. NOTE 8. COMMON SHAREHOLDERS' EQUITY Stock Split The Company effected a 1-for-5 reverse stock split of its common stock in March 1998, which was recorded by transferring the aggregate par value of the shares retired from common stock to additional paid in capital. Accordingly, the weighted average number of common and equivalent shares, per share amounts for net earnings, and stock option and warrant data have been retroactively adjusted to reflect the reverse stock split for all periods presented. ---------------------------------(RYAN'S LOGO)--------------------------------- 21 23 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- Earnings per Share The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for net loss and net loss available to common shareholders:
----------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 ------------------------------------ ------------------------------------ --------------------------- INCOME SHARES PER INCOME SHARES PER INCOME SHARES (NUMERATOR) (DENOMINATOR) SHARE (NUMERATOR) (DENOMINATOR) SHARE (NUMERATOR) (DENOMINATOR) ----------------------------------------------------------------------------------------------------------------------------------- BASIC EPS: Net loss available to common shareholders $(46,700) 2,414,500 $ (.02) $(1,982,200) 2,403,400 $(0.82) $(709,300) 2,348,000 ====== ====== Effect of Dilutive Securities: Stock options 6,200 5,800 1,200 Warrants -- -- 5,800 DILUTED EPS: Net loss available to common shareholders plus assumed conversions........... $(46,700) 2,420,700 $ (.02) $(1,982,200) 2,409,200 $(0.82) $(709,300) 2,355,000 ====== ====== ------------------------ ------ 1998 ------ PER SHARE ------------------------ ------ BASIC EPS: Net loss available to common shareholders $(0.30) ====== Effect of Dilutive Securities: Stock options Warrants DILUTED EPS: Net loss available to common shareholders plus assumed conversions........... $(0.30) ======
The Company has a stock option plan for non-employee directors pursuant to which up to an aggregate of 180,000 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 the term as a director. The Company also had an employee incentive stock option plan pursuant to which up to an aggregate of 108,000 shares of the common stock were 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. Certain 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 long-term incentive plan pursuant to which an additional 200,000 shares of common stock are authorized to be granted in the form of stock options or restricted stock. All options granted under this plan expire no later than ten years after the date of grant or in most cases three months after termination of employment. If compensation cost for stock option grants had been determined based on the fair value at the grant dates for 2000, 1999, and 1998 consistent with the method prescribed by SFAS No. 123, the Company's net loss and loss per share would have been adjusted to the pro forma amounts indicated below:
-------------------------------------------------------------------------------- 2000 1999 1998 -------------------------------------------------------------------------------- Net loss As reported $(46,700) $(1,982,200) $(709,300) Pro forma (59,400) (2,055,200) (735,700) Diluted loss As reported $ (.02) $ (.82) $ (.30) per share Pro forma (.02) (.85) (.31)
Under SFAS No. 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weight-average assumptions used for grants in 2000, 1999, and 1998 ---------------------------------(RYAN'S LOGO)--------------------------------- 22 24 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- respectively: dividend yield 0 percent each year, expected volatility of 76, 76 and 75 percent, risk-free interest rates of 5.1, 6.4 and 5.1 percent, and expected lives of 10 years for each year. The following table summarizes the changes in the total number of stock option shares outstanding during the three years ended January 3, 2001.
-------------------------------------------------------------------------------------------------------------- 2000 1999 1998 --------------------------- --------------------------- --------------------------- WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE -------------------------------------------------------------------------------------------------------------- Options outstanding at beginning of year 229,440 $2.25 190,940 $2.66 181,940 $3.08 Options granted 29,100 .80 102,883 1.08 42,478 .77 Options exercised (7,200) .01 (37,383) .01 (14,028) .37 Options forfeited (9,400) 2.09 (27,000) 3.55 (19,450) 4.20 -------- -------- -------- Options outstanding at end of year 241,940 2.15 229,440 2.25 190,940 2.66 ======== ======== ======== Options exercisable at end of year 191,615 2.37 188,940 2.41 123,830 2.65 ======== ======== ======== Weighted average fair value of options granted during the year $ 12,700 $ 72,800 $ 26,400 Common shares reserved for future grants at end of year 47,989 68,289 98,289
The following table summarizes information about fixed stock options outstanding at January 3, 2001:
-------------------------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE YEAR EXERCISE OPTIONS OPTIONS REMAINING LIFE GRANTED PRICE OUTSTANDING EXERCISABLE (IN YEARS) -------------------------------------------------------------------------------------------------------------------- 1991 $4.06 9,400 9,400 .3 1992 5.63 2,800 2,800 1.1 1993 3.13 4,600 4,600 2.3 1994 1.25 11,500 11,500 4.0 1995 3.75 21,540 21,540 4.7 1995 2.00 47,500 47,500 4.7 1996 2.81 15,200 15,200 6.0 1997 3.28 19,200 19,200 7.0 1998 1.00 25,400 25,400 7.9 1999 2.00 25,000 25,000 8.8 1999 1.50 37,900 9,475 8.9 2000 1.06 21,900 -- 10.0 ------- ------- 241,940 191,615 ======= =======
---------------------------------(RYAN'S LOGO)--------------------------------- 23 25 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- Remaining non-exercisable options as of January 3, 2001 become exercisable as follows: 2001 14,950 2002 14,950 2003 14,950 2004 5,475 ------ 50,325 ======
Cerberus Partners, L.P., holds detachable warrants to purchase 140,000 shares of the Company's common stock at $2.00 per share at any time prior to October 1, 2003. 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, 2001 there were no shares of Preferred Stock issued. Rights Plan On March 18, 1997, the Company entered into a Rights Agreement (the "Rights Agreement") with ChaseMellon Shareholder Services, LLC and declared a dividend of rights to purchase Junior Participating Preferred Stock of the Company ("Rights") to shareholders of record as of March 19, 1997. In accordance with the Agreement, in August 1999 the Company's newly elected Board of Directors redeemed the Rights. Shareholders were paid $.001 per share, resulting in a total redemption cost of approximately $12,000 to the Company. NOTE 9. 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 profit-sharing contributions have been made since the inception of the plan. The profit sharing plan includes a 401(k) feature by which employees can contribute, by payroll deduction only, 1% to 15% of their annual compensation not to exceed $10,500 in 2000. ---------------------------------(RYAN'S LOGO)--------------------------------- 24 26 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- The plan provides for a Company matching contribution of $.25 per dollar of the first 6% of employee contributions. The Company's matching contribution was $36,000 in 2000, $37,100 in 1999, and $30,900 in 1998. Employees vest in Company contributions based on the following schedule:
----------------------------------------------------------------------------------------------------------- YEARS OF VESTING SERVICE PERCENTAGE ----------------------------------------------------------------------------------------------------------- Less than 3 0% 3 20% 4 40% 5 60% 6 80% 7 100%
NOTE 10. COMMITMENTS AND CONTINGENCIES Lease Obligations At January 3, 2001, the Company is committed under the terms and conditions of real and personal property operating leases for minimum rentals aggregating $2,991,300 plus insurance, common area expenses and taxes. The Company has various renewal options on these leases covering periods of five to twenty years. In September 1996, the Company entered into a twenty-year lease agreement with two five-year renewal options for a restaurant building. The total net book value of the assets covered by the lease amount to $940,200 at January 3, 2001. Interest is computed at an annual rate of 10.65%. Future minimum lease obligations under noncancelable capital leases and operating leases consist of the following as of January 3, 2001:
----------------------------------------------------------------------------------------------------------------- CAPITAL OPERATING LEASES LEASES ----------------------------------------------------------------------------------------------------------------- 2001 $ 115,400 $ 394,800 2002 129,300 337,700 2003 129,300 268,700 2004 129,300 259,000 2005 129,300 256,400 Future years 1,663,400 1,474,700 ----------- ---------- Total minimum lease payments 2,296,000 $2,991,300 =========== ========== Amount representing interest (1,246,700) ----------- Present value of net minimum payments 1,049,300 Current portion (3,700) ----------- Long-term capital lease obligations $ 1,045,600 ===========
Rental expense for operating leases for the years ended January 3, 2001, December 29, 1999 and December 30, 1998, was $594,700, $531,400, and $490,000 respectively. ---------------------------------(RYAN'S LOGO)--------------------------------- 25 27 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- The Company received notice in December 2000 from its landlord of the Clearwater, Florida restaurant that the lease for the restaurant would be terminated effective March 20, 2001. The Company had expected to renew the lease for at least an additional year. Accordingly, the Company recognized an asset valuation charge of $189,700 in 2000 to record the loss in value of the leasehold improvements at the restaurant. Legal Matters The Company, in the normal course of business, is subject 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 Company's consolidated results of operations, financial position or cash flows. NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS 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 Available for Sale -- The Company's investments available for sale consist of marketable securities which are valued at the quoted market price. Certificates of Deposit -- The Company believes that the carrying amount is a reasonable estimate of the fair value of the certificates of deposit. Investments Held to Maturity -- The Company's investments held to maturity represent zero-coupon bonds for which the carrying amount is believed to be a reasonable estimate of fair value. Mortgages Receivable -- The fair value of mortgages receivable 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. NOTE 12. SUBSEQUENT EVENT On January 17, 2001, the Company received notice from NASDAQ that the Company's closing bid price had declined below $1.00 per share, and has remained below the $1.00 minimum requirement since that time. Accordingly, NASDAQ informed the Company that in order to continue the listing of the Company's securities on the Nasdaq SmallCap Market, the Company would have to meet the following conditions -- on or before April 17, 2001, the Company must meet or exceed a closing bid price of $1.00 per share; immediately thereafter, the Company's closing bid price must meet or exceed $1.00 per share for a minimum of ten consecutive trading days. In ---------------------------------(RYAN'S LOGO)--------------------------------- 26 28 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- order to fully comply with the terms of this exception, the Company must be able to demonstrate compliance with all requirements for continued listing. In the event the Company fails to meet any of the terms of this exception, the Company's securities will be delisted from the Nasdaq SmallCap Market. ---------------------------------(RYAN'S LOGO)--------------------------------- 27 29 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT 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 subsidiary as of January 3, 2001 and December 29, 1999 and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended January 3, 2001. 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 auditing standards generally accepted in the United States of America. 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 subsidiary as of January 3, 2001 and December 29, 1999, and the results of their operations and their cash flows for each of the three years in the period ended January 3, 2001 in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Certified Public Accountants Jacksonville, Florida February 23, 2001 ---------------------------------(RYAN'S LOGO)--------------------------------- 28 30 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 accounting principles generally accepted in the United States of America and are appropriate under 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. ---------------------------------(RYAN'S LOGO)--------------------------------- 29 31 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- CORPORATE LISTING CORPORATE OFFICERS AND DIRECTORS Edward B. Alexander Executive Vice President Steve Catanzaro Director CFO, Bisco Industries, Inc. Glen F. Ceiley Chairman of the Board President & CEO, Bisco Industries, Inc. Jay Conzen Director Principal, Jay Conzen Investments William Means Director Vice President of Corporate Development Bisco Industries, Inc. Kevin R. Pickett Vice President ANNUAL MEETING The annual meeting will be held at: Sea Turtle Inn One Ocean Boulevard Atlantic Beach, FL 32233 June 6, 2001 INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Deloitte & Touche LLP Suite 2801, Independent Square One Independent Drive Jacksonville, FL 32202-5034 GENERAL COUNSEL McGuireWoods LLP 3300 Barnett Center 50 North Laura Street P.O. Box 4099 Jacksonville, FL 32201 TRANSFER AGENT/RIGHTS AGENT Chase Mellon Shareholder Services Four Station Square Third Floor Pittsburgh, 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 2000, 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 ---------------------------------(RYAN'S LOGO)--------------------------------- 30 32 FAMILY STEAK HOUSES OF FLORIDA, INC. -------------------------------------------------------------------------------- COMMON STOCK DATA The Company's common stock is traded on the NASDAQ SmallCap Market System under the trading symbol "RYFL". As of February 16, 2001, there were 2,309 shareholders of record, not including individuals holding shares in street names. The closing sale price for the Company's stock on February 16, 2001 was $.80. The Company has never paid cash dividends on its common stock and does not expect to pay any dividends in the next few years. 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
-------------------------------------------------------------------------------------- 2000 1999 QUARTER HIGH LOW HIGH LOW -------------------------------------------------------------------------------------- First $1.56 $ .91 $1.50 $ .81 Second 1.50 1.00 1.22 .72 Third 1.47 1.22 1.88 .78 Fourth 1.25 .75 1.56 1.00
Pursuant to a Standstill and Settlement Agreement with Bisco Industries, Inc. ("Bisco") and its affiliates, on February 27, 1998, the Company sold 141,340 shares of its common stock to Bisco at a purchase price of $2.16, which was the average closing price of the Company's common stock for the ten trading days immediately preceding the date of the sale. The total price paid by Bisco to the Company was $305,312. These shares of common stock were sold without registration under the exemption granted under Rule 506 of Regulation D since the sale was made to only one purchaser who qualified as an accredited investor. ---------------------------------(RYAN'S LOGO)--------------------------------- 31 33 [RYAN'S FAMILY STEAK HOUSE LOGO & MAP OF FLORIDA] RYAN'S LOCATIONS H Headquarters o Apopka(1) o Brooksville(1) o Clearwater(1) o Daytona Beach(1) o Deland(1) o Gainesville(1) o Jacksonville(1) o Lake City(1) o Lakeland(2) o Leesburg(1) o Melbourne(1) o Neptune Beach(1) o New Port Richey(1) o Ocala(1) o Orange Park(1) o Orlando(1) o St. Cloud(1) o Tallahassee(1) o Tampa(3) o Winter Haven(1) 34 FAMILY STEAK HOUSES OF FLORIDA, INC. A [RYAN'S FAMILY STEAK HOUSE LOGO] FRANCHISEE