12
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 April 2, 1997
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 (29650)
P. O. Box 100
Greer, South Carolina 29652
(Address of principal executive
offices, including zip code)
864-879-1000
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Sections 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of each of the registrant's
classes of common stock as of April 2, 1997:
47,408,000 shares of common stock, $1.00 Par Value
PART I. FINANCIAL INFORMATION
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except for per share data)
Quarter Ended
April 2, April 3,
1997 1996
Restaurant sales $146,402 130,849
Operating expenses:
Food and beverage 58,166 52,616
Payroll and benefits 41,258 36,934
Depreciation and amortization 6,422 5,692
Other operating expenses 17,851 16,671
Total operating expenses 123,697 111,913
General and administrative expenses 6,242 5,812
Interest expense 1,512 555
Revenues from franchised restaurants (450) (402)
Other income, net (527) (529)
Earnings before income taxes 15,928 13,500
Income taxes 5,841 4,996
Net earnings $10,087 8,504
Net earnings per common and common
equivalent share $ .21 .16
Weighted average shares 47,995,000 53,599,000
See accompanying notes to financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
April 2, January 1,
1997 1997
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $514 746
Receivables 2,017 1,941
Inventories 4,211 3,888
Deferred income taxes 3,405 3,405
Other current assets 1,627 1,932
Total current assets 11,774 11,912
Property and equipment:
Land and improvements 105,960 105,366
Buildings 274,409 267,220
Equipment 172,802 168,377
Construction in progress 38,996 37,546
592,167 578,509
Less accumulated depreciation 120,961 115,062
Net property and equipment 471,206 463,447
Other assets 2,237 2,267
$485,217 477,626
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable 45,300 35,300
Accounts payable 10,381 14,827
Income taxes payable 6,889 1,841
Accrued liabilities 23,675 24,578
Total current liabilities 86,245 76,546
Long-term debt 93,000 93,000
Deferred income taxes 14,161 14,104
Total liabilities 193,406 183,650
Shareholders' equity:
Common stock of $1.00 par value;
authorized 100,000,000 shares;
issued 47,408,000 shares
in 1997 and 49,031,000 shares
in 1996 47,408 49,031
Additional paid-in capital - 121
Retained earnings 244,403 244,824
Total shareholders' equity 291,811 293,976
Commitments
$485,217 477,626
See accompanying notes to financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
April 2, April 3,
1997 1996
Cash flows from operating activities:
Net earnings $10,087 8,504
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 6,798 5,777
Gain on sale of property and equipment (13) (58)
Decrease (increase) in:
Receivables (76) 57
Inventories (323) 75
Other current assets (435) (558)
Other assets 28 9
Increase (decrease) in:
Accounts payable (4,446) 4,267
Income taxes payable 5,048 4,424
Accrued liabilities (903) (476)
Deferred income taxes 57 50
Net cash provided by operating
activities 15,822 2,071
Cash flows from investing activities:
Proceeds from sale of property and
equipment 1,867 395
Capital expenditures (15,669) (24,813)
Net cash used in investing activities (13,802) (24,418)
Cash flows from financing activities:
Net proceeds from notes payable 10,000 10,700
Proceeds from issuance of common stock 223 11
Purchases of common stock (12,475) (9,141)
Net cash provided by (used in)
financing activities (2,252) 1,570
Decrease in cash and cash equivalents (232) (777)
Cash and cash equivalents -
beginning of period 746 1,299
Cash and cash equivalents -
end of period $514 522
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
I. For the Quarter ended April 2, 1997
(Unaudited)
$1 Par Value Additional
Common Paid-In Retained
Stock Capital Earnings Total
Balances at January 1, 1997 $49,031 121 244,824 293,976
Net earnings - - 10,087 10,087
Issuance of common stock
under Stock Option Plans 37 186 - 223
Purchases of common stock (1,660) (307) (10,508) (12,475)
Balances at April 2, 1997 $47,408 - 244,403 291,811
I. For the Quarter ended April 3, 1996
(Unaudited)
$1 Par Value Additional
Common Paid-In Retained
Stock Capital Earnings Total
Balances at January 3, 1996 $53,462 6,751 242,481 302,694
Net earnings - - 8,504 8,504
Issuance of common stock
under Stock Option Plans 3 8 - 11
Purchases of common stock (1,031) (6,759) (1,351) (9,141)
Balances at April 3, 1996 $52,434 - 249,634 302,068
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 2, 1997
(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 three months ended April 2, 1997 are not
necessarily indicative of the results that may be expected
for the fiscal year ending December 31, 1997. 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 January 1, 1997.
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 1996 amounts in the accompanying consolidated
financial statements have been reclassified to conform to
the 1997 presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter Ended April 2, 1997 versus April 3, 1996
The Company experienced strong sales growth during the first
quarter of 1997 with restaurant sales up 12% over the
comparable quarter of 1996. Substantially all of the
increase resulted from the 11% unit growth of Company-owned
restaurants, which totaled 260 at April 2, 1997 and 238 at
April 3, 1996. The 1997 store count was entirely comprised
of Ryan's restaurants, while the 1996 store count was
comprised of 233 Ryan's and 5 test-concept restaurants (see
"Liquidity and Capital Resources").
Same-store sales at the Company's Ryan's restaurants, or
average unit sales in units that have been open for at least
18 months and operating during comparable weeks during the
current and prior year, increased 1.2% during the quarter
compared to a 0.3% increase during the first quarter of
1996. The first quarter of 1997 represented the ninth
quarter with increased same-store sales out of the last 10
quarters.
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 84.5% during the first quarter of 1997 compared
to 85.5% in 1996. Food and beverage costs decreased from
40.2% of sales in 1996 to 39.7% in 1997 due principally to
lower beef and produce prices. Payroll and benefits stayed
level at 28.2% of sales during both quarters. All other
operating costs, including depreciation and amortization of
pre-opening costs, decreased from 17.1% of sales in 1996 to
16.6% in 1997 due principally to lower repairs and
maintenance costs. Based on these factors, the Company's
operating margin at the restaurant level increased by 1.0%
of sales to 15.5% of sales in the first quarter of 1997 from
14.5% in 1996.
General and administrative expenses decreased slightly to
4.3% of sales in 1997 compared to 4.4% in 1996 due
principally to lower advertising costs. However, the
Company plans to significantly expand its media advertising
program in 1997 with coverage extending to 21 markets and
111 stores compared to 10 markets and 67 stores in 1996.
Total media advertising costs are expected to amount to 0.4%
of sales in 1997 versus 0.3% in 1996. The actual extent of
the Company's 1997 advertising program depends on a number
of factors, including sales trends at restaurants receiving
media support, the Company's overall financial results and
the availability of reasonably priced media.
Interest expense increased by $957,000 to 1.0% of sales in
1997 compared to 0.4% in 1996. This increase is due
principally to the increase in the Company's total
outstanding debt, which amounted to $138.3 million at April
2, 1997 compared to $82.9 million at April 3, 1996 and
$128.3 million at January 1, 1997. The stock repurchase
program implemented in March 1996 was the principal factor
behind the higher debt level (see "Liquidity and
Capital Resources"). The Company's effective average interest
rate was 5.9% during the first quarters of both 1997 and 1996.
Effective income tax rates of 36.7% and 37.0% were used for
the first quarters of 1997 and 1996, respectively.
Net earnings for the first quarter of 1997 increased 19% to
$10.1 million compared to $8.5 million in 1996. Due to a
11% reduction in weighted-average shares resulting from the
Company's stock repurchase program (see "Liquidity and
Capital Resources"), earnings per share increased 31% to 21
cents in 1997 compared to 16 cents in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's restaurant sales are primarily derived from
cash. 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 April 2, 1997, the Company's working capital was a $74.5
million deficit compared to a $64.6 million deficit at
January 1, 1997. Included in these amounts are notes
payable of $45.3 million and $35.3 million at April 2, 1997
and January 1, 1997, respectively, under bank lines of
credit (see fifth 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 $15.8 million for the three
months ended April 2, 1997 and $68.9 million for the year
ended January 1, 1997.
Total capital expenditures for the first three months of
1997 amounted to $15.7 million. The Company opened 5 new
Ryan's restaurants during the first three months of 1997 and
plans to open 10 additional Ryan's during the remainder of
1997 for a total of 15 new restaurants (all Ryan's). Plans
for 1997 also call for 40 to 50 existing restaurants to be
remodeled. During 1996, the Company opened 30 restaurants
(all Ryan's). Total capital expenditures for 1997 are
estimated at $50 million. Expansion of Company-owned
restaurants will occur in states either within or contiguous
to the Company's current 21-state operating area. The
Company is currently concentrating its efforts on Company-
owned units and is not actively pursuing any additional
franchised locations, either domestically or
internationally.
During the first quarter of 1997, the Company closed one
underperforming Ryan's and five casual-dining restaurants,
representing three different test concepts. No further
expansion of the casual-dining concepts is planned.
Accordingly, at the end of the first quarter of 1997, the
Company's operations consisted entirely of Ryan's
restaurants. Management believes that substantially all
costs related to the closings were covered by a $13.3
million asset valuation charge recognized during the fourth
quarter of 1996 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". During the first quarter of 1997, one of the
casual-dining restaurants was sold, and, in May 1997, three
other casual-dining units were sold.
In November 1996, the Company announced its Focus 2000 plan.
The key goals of the plan include:
1. Reducing unit investment and further increasing
store-level profitability, thereby increasing
return on investment;
2. Realigning energies and resources to provide deeper
levels of training, resulting in greater team
member empowerment, performance and retention;
3. Opening new Ryan's units at the rate of 5% annually
for the next two to three years; and
4. Pursuing stock repurchases at a more aggressive
level to accelerate earnings per share growth.
In March 1996, management announced its intention to
repurchase an aggregate 6.4 million shares of the Company's
common stock through December 1998. The repurchase
authorization was later raised to 10.0 million shares in
November 1996. Repurchases may be made from time to time on
the open market or in privately negotiated transactions in
accordance with applicable securities regulation, depending
on market conditions, share price and other factors. During
the first three months of 1997, approximately 1.7 million
shares had been purchased at an aggregate cost of $12.5
million. Cumulative purchases since March 1996 through
April 2, 1997 amounted to 6.2 million shares at an
aggregate cost of $50.6 million. Management intends to
proceed with the repurchase program during 1997, subject to
the continued availability of capital and the other factors
described in "Forward-Looking Information".
Management currently estimates that its external funding
requirements in 1997 will approximate $27 million. This
amount could be either higher or lower depending upon the
level of stock repurchases incurred during the remainder of
the year. Other funding needs are expected to be met by
internally generated cash from operations. The Company's
debt structure currently consists of a $93 million term loan
(see following paragraph) and several uncommitted bank lines
totaling $90 million at various short-term rates of which
$45.3 million was utilized at April 2, 1997.
In June 1996, the Company entered into a credit agreement
with a group of banks for a $93 million term loan ("Term
Loan") payable in quarterly installments of $5,813,000
commencing September 1999 with the final quarterly
installment due June 2003. The Term Loan is unsecured and
bears interest at various rates generally equal to LIBOR, or
the London Interbank Offered Rate, plus 0.5% for periods
ranging from one to six months. The terms of the credit
agreement contain, among other provisions, requirements for
the Company to maintain a minimum net worth level and
certain financial ratios and restrictions on the Company's
ability to incur additional indebtedness, merge,
consolidate, and acquire or sell assets. At April 2, 1997,
the Company exceeded the most restrictive minimum net worth
covenant by approximately $50.7 million.
Under the current borrowing arrangements, no interest rates
have been fixed and generally change in response to LIBOR.
However, in October 1996, the Company entered into a
interest rate collar agreement with a major regional bank,
placing a ceiling of 7.25% and a floor of 5.00% on the three-
month LIBOR through October 1998 on a principal amount of
$75,000,000. The three-month LIBOR has stayed between the
ceiling and the floor since the commencement of the
transaction.
Management believes that its current capital structure is
sufficient to meet its 1997 requirements, but intends to
continue monitoring the interest rate environment and may
enter into future interest rate hedging transactions if
deemed advantageous.
IMPACT OF INFLATION
The Company's operating costs that may be affected by
inflation consist principally of food, payroll and utility
costs. A significant number of the Company's restaurant
employees are paid at the minimum wage and, accordingly,
legislated changes to the minimum wage will affect the
Company's payroll costs. In July 1996, Congress legislated
an increase in the Federal minimum wage from $4.25 per hour
to $4.75 on October 1, 1996 and then to $5.15 on September
1, 1997. This measure effectively freezes the $2.13 rate
for servers. Management estimates that the $5.15 change
will require rate changes for approximately 20% of the
Company's team members and plans menu price increases to
cover the higher payroll costs.
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%.
FORWARD-LOOKING INFORMATION
Statements in this discussion as to anticipated future
performance and results constitute forward-looking
statements that involve risks and uncertainties, and actual
results could differ materially from these expectations. In
addition to those discussed herein, the factors that could
cause the actual results to differ materially from such
expectations include, but are not limited to, the following:
general economic conditions; competitive factors; being able
to open new restaurants or sell closed restaurants; food and
labor supply costs; weather factors; interest rate changes;
changes in the Company's common stock price; and the risks
and factors described from time to time in the Company's
reports filed with the Securities and Exchange Commission,
including the Company's annual report on Form 10K for the
fiscal year ended January 1, 1997. The ability of the
Company to open new restaurants depends on a number of
factors, including its ability to find suitable locations
and negotiate acceptable land acquisition and construction
contracts, its ability to attract and retain sufficient
numbers of restaurant managers and team members, and the
availability of reasonably priced capital. The extent of
the Company's share repurchase program during 1997 and
future years depends on the financial performance of the
Company's restaurants, the investment required to open new
restaurants, share price, the availability of reasonably
priced capital, the financial covenants contained in the
Term Loan agreement, and the maximum debt and share
repurchase levels authorized by the Company's Board of
Directors.
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)
May 15, 1997 /s/Charles D. Way
Charles D. Way
Chairman, President and Chief
Executive Officer
May 15, 1997 /s/Fred T. Grant, Jr.
Fred T. Grant, Jr.
Vice President-Finance
and Treasurer
May 15, 1997 /s/Richard D. Sieradzki
Richard D. Sieradzki
Controller