FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter ended September 28, 1994
Commission File No. 0-10943
RYAN'S FAMILY STEAK HOUSES, INC.
(Exact name of registrant as specified in its charter)
South Carolina No. 57-0657895
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
405 Lancaster Avenue
P. O. Box 100
Greer, South Carolina 29652
(Address of principal executive
offices, including zip code)
803-879-1000
(Registrant's telephone number, including area code)
- - - --------------------------------------------------------------
---------
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Sections 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No ________
The number of shares outstanding of each of the registrant's
classes of common stock as of September 28, 1994:
53,430,000 shares of common stock, $1.00 Par Value
PART I. FINANCIAL INFORMATION
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Quarter Ended
September 28, September 29,
1994 1993
Restaurant sales $115,011,000 104,102,000
Operating expenses:
Food and beverage 46,591,000 42,694,000
Payroll and benefits 31,972,000 28,998,000
Depreciation 4,427,000 3,991,000
Amortization of pre-opening costs 583,000
552,000
Other operating expenses 14,104,000 12,453,000
Total operating expenses 97,677,000 88,688,000
General and administrative expenses 4,938,000
4,224,000
Interest expense 217,000 20,000
Revenues from franchised restaurants (110,000)
(596,000)
Other income (157,000) (69,000)
Earnings before income taxes 12,446,000 11,835,000
Income taxes 4,606,000 4,432,000
Net earnings $7,840,000 7,403,000
Net earnings per common and common
equivalent share $ .15 .14
Weighted average shares 53,520,000 53,686,000
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Nine Months Ended
September 28, September 29,
1994 1993
Restaurant sales $336,680,000 295,767,000
Operating expenses:
Food and beverage 136,545,000 122,080,000
Payroll and benefits 93,138,000 82,441,000
Depreciation 12,861,000 11,277,000
Amortization of pre-opening costs 1,868,000
1,486,000
Other operating expenses 40,349,000 33,641,000
Total operating expenses 284,761,000 250,925,000
General and administrative expenses 14,358,000
11,441,000
Interest expense 509,000 94,000
Revenues from franchised restaurants (263,000)
(1,999,000)
Other income (680,000) (473,000)
Earnings before income taxes 37,995,000 35,779,000
Income taxes 14,059,000 13,284,000
Net earnings $23,936,000 22,495,000
Net earnings per common and common
equivalent share $ .45 .42
Weighted average shares 53,592,000 53,696,000
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED BALANCE SHEETS
September 28,December 29,
1994 1993
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 242,000 1,946,000
Receivables 2,202,000 1,851,000
Inventories 3,027,000 2,684,000
Deferred income taxes 1,469,000 1,469,000
Other current assets 1,300,000 1,562,000
Total current assets 8,240,000 9,512,000
Property and equipment:
Land and improvements 81,751,000 77,601,000
Buildings 183,651,000 170,236,000
Equipment 127,207,000 116,357,000
Construction in progress 44,589,000 27,525,000
437,198,000 391,719,000
Less accumulated depreciation 84,886,000 71,866,000
Net property and equipment 352,312,000 319,853,000
Other assets 5,525,000 4,156,000
$366,077,000333,521,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable 60,500,000 58,100,000
Accounts payable 12,466,000 10,944,000
Income taxes payable 471,000 1,303,000
Accrued liabilities 19,839,000 14,515,000
Total current liabilities 93,276,000 84,862,000
Deferred income taxes 10,094,000 9,953,000
Shareholders' equity:
Common stock of $1.00 par value;
authorized 100,000,000 shares;
issued 53,430,000 shares in 1994
and 53,415,000 shares in 1993 53,430,000
53,415,000
Additional paid-in capital 6,563,000 6,513,000
Retained earnings 202,714,000178,778,000
Total shareholders' equity 262,707,000 238,706,000
$366,077,000 333,521,000
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 28, September 29,
1994 1993
Cash flows from operating activities:
Net earnings $23,936,000 22,495,000
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 15,650,000 13,287,000
Gain on sale of property and equipment(232,000) (74,000)
Decrease (increase) in:
Receivables (351,000) 56,000
Inventories (343,000) (461,000)
Other current assets (1,628,000) (223,000)
Other assets (1,375,000) (2,641,000)
Increase (decrease) in:
Accounts payable 1,522,000 2,747,000
Income taxes (832,000) (924,000)
Accrued liabilities 5,324,000 3,615,000
Deferred income taxes 141,000 133,000
Net cash provided by operating activities 41,812,000
38,010,000
Cash flows from investing activities:
Proceeds from sale of property and equipment2,928,000 302,000
Capital expenditures (48,909,000) (49,796,000)
Net cash used in investing activities (45,981,000) (49,494,000)
Cash flows from financing activities:
Net proceeds from notes payable 2,400,000 9,600,000
Proceeds from issuance of common stock 65,000
324,000
Net cash provided by financing activities 2,465,000
9,924,000
Net decrease in cash and cash equivalents(1,704,000) (1,560,000)
Cash and cash equivalents - beginning of period 1,946,000
1,730,000
Cash and cash equivalents - end of period $ 242,000
170,000
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
I. For the Nine Months ended September 28, 1994
(Unaudited)
Additional
Common Paid-In Retained
Stock Capital Earnings Total
Balances at December 29, 1993$53,415,0006,513,000178,778,000
238,706,000
Net earnings - - 23,936,000
23,936,000
Issuance of common stock
under Stock Option Plans 15,000 50,000 -
65,000
Balances at September 28, 1994$53,430,000 6,563,000202,714,000
262,707,000
II. For the Nine Months ended September 29, 1993
(Unaudited)
Additional
Common Paid-In Retained
Stock Capital Earnings Total
Balances at December 30, 1992$53,337,0006,106,000150,236,000
209,679,000
Net earnings - - 22,495,000
22,495,000
Issuance of common stock
under Stock Option Plans 67,000 257,000 - 324,000
Balances at September 29, 1993$53,404,0006,363,000172,731,000
232,498,000
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 28, 1994
(Unaudited)
Note 1. Basis of Presentation
The consolidated financial statements include the financial
statements of Ryan's Family Steak Houses, Inc. and its
wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in
consolidation.
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and
the instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Consolidated operating
results for the quarter and the nine months ended September
28, 1994 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 28,
1994. For further information, refer to the consolidated
financial statements and footnotes included in the Company's
annual report on Form 10-K for the fiscal year ended
December 29, 1993.
Note 2. Earnings Per Share
Earnings per share are computed based on the weighted
average number of common and common equivalent shares
outstanding during the period. Common equivalent shares are
represented by shares under option.
Note 3. Reclassifications
Certain 1993 amounts in the accompanying consolidated
financial statements have been reclassified to conform to
the 1994 presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter Ended September 28, 1994 versus September 29, 1993
The Company experienced strong sales growth during the third
quarter of 1994 with restaurant sales up 10% over the
comparable quarter of 1993. Substantially all of the
increase resulted from the 13% unit growth of Company-owned
restaurants, which totaled 208 at September 28, 1994 and 186
at September 29, 1993. Same-store sales, or average unit
sales in restaurants that have been open for at least 18
months and operated during comparable weeks during the
current and prior years, declined 2.0% during the quarter
compared to a 1.2% decline during the third quarter of 1993.
An improving sales trend was apparent at the end of the
quarter as September's same-store sales declined by only
0.8%. The Company's management attributes this improvement
principally to the accelerated rollout of scatter bar
systems into its restaurants. At the end of the third
quarter, scatter bars had been installed in 47 existing
restaurants, with approximately one-half of the
installations occurring during the third quarter. All new
restaurants open with scatter bars. Management anticipates
that approximately 50% of all Company-owned restaurants will
have scatter bars at the end of 1994. Substantially all
restaurants will have scatter bars by the end of 1995.
Total costs and expenses of Company-owned restaurants
include food and beverage, payroll, payroll taxes and
employee benefits, depreciation and amortization, repairs,
maintenance, utilities, supplies, advertising, insurance,
property taxes and licenses. Such costs, as a percentage of
sales, were 84.9% during the third quarter of 1994 compared
to 85.2% in 1993. In 1994, the Company benefited from lower
chicken and soft drink syrup prices, resulting in 0.5%
reduction in food costs, as a percent of sales. Payroll and
benefits decreased slightly to 27.8% of sales in 1994 from
27.9% in 1993 due to lower workers' compensation costs. All
other operating costs, including depreciation and
amortization of pre-opening costs, increased to 16.6% of
sales in 1994 compared to 16.3% in 1993. Increases in
utility, sanitation, property taxes and store-based
promotional costs were substantially offset by lower
insurance costs. It should be noted that many other
operating costs, including depreciation and amortization of
pre-opening costs, are fixed costs, and a decline in same-
store sales would increase their impact on margins. Based
on these factors, the Company's gross operating margins at
the restaurant level were 15.1% and 14.8% for the third
quarters of 1994 and 1993, respectively.
General and administrative expenses increased to 4.3% of
sales compared to 4.1% in 1993. Increases in personnel and
advertising costs were partially offset by lower legal
costs. It should again be noted that many general and
administrative expenses are fixed costs, and a decline in
same-store sales would increase their impact on margins.
Revenues from franchised restaurants, which numbered 30 at
September 28, 1994 and 35 at September 29, 1993, decreased
by $486,000 due principally to the nonrecognition of royalty
income from the Company's largest franchisee, Family Steak
Houses of Florida, Inc. ("Family"). Prior to the third
quarter, this franchisee had not paid any royalty fees since
August 1993. During the third quarter, an agreement was
reached with Family regarding both past-due and future
royalty fees. This agreement provided for a $236,000 cash
payment by Family, the relinquishment of Family's exclusive
development rights in certain counties in South Florida and
the Florida panhandle (subject to first refusal and buy-back
rights of Family), an $800,000 long-term note payable to the
Company and a reduction in the royalty fee rate from 4.25%
to 3% until April 30, 1997, at which time the rate will
increase to 4%. The relinquishment of development rights
was valued at $500,000 and treated as a write-off of
Family's past-due royalty fees. In addition, the agreement
with Family decreased the required number of Ryan's Family
Steak House restaurants in operation to 24 through the end
of 1996 and to 25 at the end of 1997. Pursant to the
agreement, the required number of restaurants in operation
will then increase by 1 for each year after 1997. All
required payments from Family to the Company subsequent to
the agreement have been received in a timely manner.
Commencing in 1994, the Company's accounting policy
regarding Family's royalty fees has been to recognize future
royalty fees on a cash basis pending the payment of a
receivable balance outstanding at December 31, 1993. This
outstanding receivable was fully paid during the third
quarter, and, accordingly, all future payments, including
payments required under the long-term note payable, will be
recognized as revenue when received. Based on projected
payment dates, management anticipates that royalty income
will increase by approximately $375,000 per quarter,
commencing with the fourth quarter of 1994. However, in
spite of the third quarter's developments, there can be no
assurance that either the remaining past due or future
royalty fees will be collected.
Interest expense increased by $197,000 to 0.2% of sales,
resulting principally from less capitalized interest, which
reflects 1994's lower level of construction activity in
relation to the Company's outstanding debt. Also, the
Company's effective average interest rate increased to 5.0%
in 1994 compared to 3.5% in 1993.
The effective income tax rates used for the third quarters
of 1994 and 1993 were 37.0% and 37.4%, respectively.
Net earnings for the third quarter of 1994 amounted to $7.8
million compared to $7.4 million in 1993.
Nine Months September 28, 1994 versus September 29, 1993
For the nine months ended September 28, 1994, revenues were
up 14% compared to the same period in 1993, principally due
to 15% average unit growth. Same-store sales declined 1.0%
during the first nine months of 1994 compared to a 2.9%
decline in 1993.
Nine-month costs and expenses as detailed above were 84.6%
and 84.8% of sales for 1994 and 1993, respectively. During
the first nine months of 1994, costs and expenses were most
affected by the following offsetting factors: (1) lower beef
and chicken costs and (2) the negative leverage of fixed
costs resulting from the decline in same-store sales.
Depreciation, amortization of pre-opening costs and other
operating expenses increased to 16.4% in 1994 compared to
15.7% in 1993. Based on these factors, the Company's gross
operating margins at the restaurant level were 15.4% and
15.2% for the first nine months of 1994 and 1993,
respectively.
General and administrative expenses as a percentage of total
revenues were 4.3% in 1994 and 3.9% in 1993. Interest
expense increased by $415,000 to 0.2% of sales due to the
same factors indicated in the third quarter discussion.
Revenues from franchised restaurants decreased by $1,736,000
due principally to the nonrecognition of royalty income from
the Company's largest franchisee, Family Steak Houses of
Florida, Inc. (see third quarter discussion above).
Effective income tax rates used for the nine-month periods
were 37.0% in 1994 and 37.1% in 1993.
Net earnings for the first nine months of 1994 amounted to
$23.9 million compared to $22.5 million in 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's revenues are primarily derived from cash
sales. Inventories are purchased on credit and are rapidly
converted to cash. Therefore, the Company does not maintain
significant receivables or inventories, and other working
capital requirements for operations are not significant.
At September 28, 1994, the Company's working capital was a
$85.0 million deficit compared to a $75.4 million deficit at
December 29, 1993. Included in these amounts are borrowings
of $60.5 million and $58.1 million, respectively, under bank
lines of credit (see third succeeding paragraph). The
Company does not anticipate any adverse effects from the
current working capital deficit due to significant cash flow
provided by operations, which amounted to $41.8 million for
the nine months ended September 28, 1994.
Total capital expenditures for the first nine months of 1994
amounted to $48.9 million. During the same period, the
Company opened 17 new Ryan's Family Steak House restaurants,
closed 3 units and installed scatter bars in 35 existing
restaurants. Current plans for the balance of 1994 call for
3 additional Ryan's, resulting in 20 new Ryan's for the
year, and 26 additional scatter bars. Total capital
expenditures for 1994 are estimated at $66 million.
The Company is also actively progressing with several casual
dining concepts. The first two concepts will each open a
restaurant during the fourth quarter of 1994. Both
restaurants will serve as test units, and further expansion
of these concepts will be limited pending review of their
operating results.
The Company has formal and informal bank lines of credit
totaling $105 million at floating short-term rates, of which
$60.5 million was utilized and classified as current debt at
September 28, 1994. Management estimates that for 1994
incremental external funding requirements will amount to
approximately $10 million. Accordingly, total borrowings at
the end of 1994 should approximate $68 million. The Company
owns all of its property and equipment and is under no
significant lease obligations other than for three parcels of
land which are under lease for at least 35 years.
IMPACT OF INFLATION
The Company's operating costs that may be affected by
inflation consist principally of food, payroll and utilities
costs. Also, a significant number of the Company's
restaurant employees are paid at the minimum wage and,
accordingly, changes in the Federal minimum wage affect the
Company's payroll costs. The Federal minimum wage last
increased in April 1991, and no further increases have been
legislated. Future benefit costs may be affected by future
legislated changes in medical insurance coverage.
The Company considers its current price structure to be very
competitive. This factor, among others, is considered by
the Company when passing increased costs on to its
customers. Annual menu price increases have consistently
ranged from 1% to 3%.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None reportable.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote
of Security Holders.
None reportable.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-
K.
(a) None.
(b) None.
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
RYAN'S FAMILY STEAK HOUSES, INC.
(Registrant)
November 14, 1994 Charles D. Way
Chairman, President and Chief
Executive Officer
November 14, 1994 Fred T. Grant, Jr.
Vice President-Finance and
Treasurer
November 14, 1994 Richard D. Sieradzki
Controller