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 1, 1998
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 1, 1998:
44,513,000 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 per share data)
Quarter Ended
April 1, April 2,
1998 1997
Restaurant sales $153,186 146,402
Operating expenses:
Food and beverage 61,292 58,166
Payroll and benefits 45,415 41,258
Depreciation and amortization 6,531 6,422
Other operating expenses 18,357 17,851
Total operating expenses 131,595 123,697
General and administrative expenses 6,723 6,242
Interest expense 1,453 1,512
Revenues from franchised restaurants (278) (450)
Other income, net (675) (527)
Earnings before income taxes 14,368 15,928
Income taxes 5,186 5,841
Net earnings $ 9,182 10,087
Net earnings per common share:
Basic $ .20 .21
Diluted .20 .21
Weighted-average shares (diluted) 45,915 47,957
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
April 1, December 31,
1998 1997
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 398 289
Receivables 2,906 2,756
Inventories 4,464 4,294
Deferred income taxes 3,629 3,629
Other current assets 988 1,121
Total current assets 12,385 12,089
Property and equipment:
Land and improvements 110,180 108,397
Buildings 298,049 291,408
Equipment 185,641 182,524
Construction in progress 33,905 35,407
627,775 617,736
Less accumulated depreciation 143,668 137,204
Net property and equipment 484,107 480,532
Other assets 2,914 2,933
$499,406 495,554
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable 37,800 28,300
Accounts payable 10,272 9,330
Income taxes payable 5,223 600
Accrued liabilities 26,058 26,622
Total current liabilities 79,353 64,852
Long-term debt 93,000 93,000
Deferred income taxes 20,693 20,641
Total liabilities 193,046 178,493
Shareholders' equity:
Common stock of $1.00 par value;
authorized 100,000,000 shares;
issued 44,513,000 shares in
1998 and 46,978,000 shares
in 1997 44,513 46,978
Additional paid-in capital - 457
Retained earnings 261,847 269,626
Total shareholders' equity 306,360 317,061
Commitments
$499,406 495,554
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
April 1, April 2,
1998 1997
Cash flows from operating activities:
Net earnings $ 9,182 10,087
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 6,855 6,798
Gain on sale of property
and equipment (109) (13)
Decrease (increase) in:
Receivables (150) (76)
Inventories (170) (323)
Other current assets (256) (435)
Other assets 17 28
Increase (decrease) in:
Accounts payable 942 (4,446)
Income taxes payable 4,623 5,048
Accrued liabilities (564) (903)
Deferred income taxes 52 57
Net cash provided by operating
activities 20,422 15,822
Cash flows from investing activities:
Proceeds from sale of property
and equipment 199 1,867
Capital expenditures (10,129) (15,669)
Net cash used in investing
activities (9,930) (13,802)
Cash flows from financing activities:
Net proceeds from notes payable 9,500 10,000
Proceeds from issuance of
common stock 104 223
Purchases of common stock (19,987) (12,475)
Net cash used in financing
activities (10,383) (2,252)
Increase (decrease) in cash
and cash equivalents 109 (232)
Cash and cash equivalents -
beginning of period 289 746
Cash and cash equivalents -
end of period $ 398 514
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
I. For the Three Months ended April 1, 1998
(Unaudited)
$1 Par Value Additional
Common Paid-In Retained
Stock Capital Earnings Total
Balances at December 31, 1997 $ 46,978 457 269,626 317,061
Net earnings - - 9,182 9,182
Issuance of common stock
under Stock Option Plans 24 80 - 104
Purchases of common stock (2,489) (537) (16,961) (19,987)
Balances at April 1, 1998 $ 44,513 - 261,847 306,360
II. For the Three Months 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
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 1, 1998
(Unaudited)
Note 1. Description of Business
Ryan's Family Steak Houses, Inc. operates a single-concept
restaurant chain consisting of 274 Company-owned and 25
franchised restaurants located principally in the southern
and midwestern United States. The Company, organized in
1977, completed its initial public offering in 1982. The
Company does not operate or franchise any international
units and has no individually significant customers.
Note 2. 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 1, 1998 are not
necessarily indicative of the results that may be expected
for the fiscal year ending December 30, 1998. 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 31, 1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter ended April 1, 1998 versus April 2, 1997
Restaurant sales during the first quarter of 1998 increased
by 4.6% over the comparable quarter of 1997 with
substantially all of the growth resulting from the 3.8% unit
growth of Company-owned restaurants, which totaled 274 at
April 1, 1998 and 260 at April 2, 1997. 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 0.5% during the quarter compared to a
1.2% increase during the first quarter of 1997.
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 85.9% during the first quarter of 1998 compared
to 84.5% in 1997. Food and beverage costs increased to
40.0% of sales in 1998 from 39.7% in 1997 due principally to
upgraded dessert selections and higher produce prices.
Payroll and benefits increased to 29.6% of sales in 1998
compared to 28.2% of sales in 1997 due to higher hourly
wages (up 0.4% of sales) and increased claims under the
Company's self-insured team member medical insurance plan
(up 0.8% of sales). The higher medical claims resulted from
an increase in both the number and average cost of claims
paid during the first quarter of 1998 compared to the
comparable quarter in 1987. All other operating costs,
including depreciation and amortization of pre-opening
costs, decreased to 16.3% of sales in 1998 compared to 16.6%
in 1997 due principally to lower amortization and utilities
expense partially offset by higher repairs and maintenance
costs. Based on these factors, the Company's operating
margin at the restaurant level decreased to 14.1% of sales
in the first quarter of 1998 from 15.5% in 1997.
General and administrative expenses increased to 4.4% of
sales in 1998 compared to 4.3% in 1997. Total media
advertising costs for the first quarter of 1998 were
minimal, but are expected to approximate 1997's level of
0.3% of sales by the end of the year. The actual extent of
the Company's advertising program during the remainder of
1998 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 decreased by $59,000 to 0.9% of sales in
1998 compared to 1.0% in 1997 due to less outstanding debt
during most of the quarter. Near quarter-end, a large
purchase of common stock (see "Liquidity and Capital
Resources") increased total debt to $130.8 million at April
1, 1998 compared to $121.3 million at December 31, 1997.
The effective average interest rate during the first quarter
was 6.2% in 1998 compared to 5.9% in 1997.
Franchise revenues for the first quarter of 1998 decreased
to 0.2% of sales from 0.3% of sales in 1997 due to lower
average unit sales at franchised restaurants and the payoff
of a long-term note receivable from the Company's sole
franchisee, Family Steak Houses of Florida, Inc. ("Family"),
during the first quarter of 1997. Both principal and
interest payments from this note had consistently been
recognized as income on a cash basis in the Company's
consolidated financial statements. There were 25 franchised
Ryan's at both April 1, 1998 and April 2, 1997. In March
1998, Family announced that it had retained an investment
banker to assist Family in identifying and evaluating
strategic alternatives to enhance shareholder value. These
alternatives could include a sale of assets, which could
result in the termination of the Company's franchise
agreement with Family and the related royalty and license
fees. The Company does not intend to pursue new
franchisees. Accordingly, the continued receipt by the
Company of revenues from Family depends upon the resolution
of Family's strategic review of its business.
Effective income tax rates of 36.1% and 36.7% were used for
the first quarters of 1998 and 1997, respectively. The
lower rate in 1998 resulted from the benefit of various tax-
planning strategies implemented in prior years.
Net earnings for the first quarter of 1998 amounted to $9.2
million in 1998 compared to $10.1 million in 1997. Diluted
earnings per share amounted to 20 cents in 1998 and 21 cents
in 1997.
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 1, 1998, the Company's working capital was a $67.0
million deficit compared to a $52.8 million deficit at
December 31, 1997. Included in these amounts are notes
payable of $37.8 million and $28.3 million at April 1, 1998
and December 31, 1997, respectively, under bank lines of
credit (see fourth 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 $20.4 million for the three
months ended April 1, 1998 and $64.6 million for the year
ended December 31, 1997.
Total capital expenditures for the first three months of
1998 amounted to $10.1 million. The Company opened 4 new
Ryan's restaurants during the first three months of 1998 and
plans to open 7 additional Ryan's during the remainder of
the year for a total of 11 new restaurants. The Company
also plans to relocate 4 Ryan's during 1998. Management
defines a relocation as a restaurant opened within 18 months
after closing another restaurant in the same marketing area.
A relocation represents a redeployment of assets within a
market. Total capital expenditures for 1998 are estimated
at $55 million. Expansion of Company-owned restaurants will
occur in states either within or contiguous to the Company's
current 22-state operating area. The Company is currently
concentrating its efforts on Company-owned units and is not
actively pursuing any additional franchised locations,
either domestic or international.
The Company's operating strategies are consistent with its
Focus 2000 plan, which was announced in November 1996. The
key elements of the plan are as follows:
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% 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. In connection with the
Focus 2000 plan, the repurchase authorization was later
raised to 10.0 million shares in November 1996. Repurchases
may be made from time to time in the open market or in
privately negotiated transactions in accordance with
applicable securities regulations, depending on market
conditions, share price and other factors. During the first
three months of 1998, approximately 2.5 million shares had
been purchased at an aggregate cost of $20.0 million.
Cumulative purchases from March 1996 through April 1, 1998
amounted to approximately 9.4 million shares, or 18% of
total shares available at the beginning of the repurchase
program, at an aggregate cost of $76.3 million. Management
intends to proceed with the repurchase program during 1998,
subject to the continued availability of capital and the
other factors described in "Forward-Looking Information"
(see "Subsequent Event").
The extent of the Company's external funding requirements
for 1998 will depend significantly upon the level of stock
repurchase transactions during the remainder of the year.
If no further stock is repurchased, management currently
estimates that its additional external funding requirements
will be minimal. Based on current target debt levels, a
maximum repurchase scenario would require approximately $35
million of additional borrowings. All other funding needs,
including capital expenditures, 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 $110 million at various short-term rates of which
$37.8 million was utilized at April 1, 1998.
The term loan agreement contains, 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 1, 1998,
the Company exceeded the most restrictive minimum net worth
covenant by approximately $44.1 million.
Management believes that its current capital structure is
sufficient to meet the Company's 1998 financing
requirements, but intends to continue monitoring the credit
and interest rate environments and may enter into new credit
agreements or 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 number of the Company's restaurant employees are
paid at the minimum wage and, accordingly, legislated
changes to the minimum wage affect the Company's payroll
costs. In September 1997, previously enacted legislation
increased the Federal minimum wage from $4.75 per hour to
$5.15. The $2.13 rate for servers was not changed.
Although no additional increases have been legislated, the
possibility is mentioned frequently in various political
discussions.
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%.
YEAR 2000 CONVERSION
The Company recognizes the need to ensure its operations
will not be adversely impacted by software failures
associated with programming incompatibilities with the year
2000 ("Y2K"). In 1997, the Company identified which systems
were not currently Y2K-compliant and began researching
conversion and replacement options. The current Y2K
conversion plan provides for system replacements,
enhancements and upgrades to be completed by late-1999. The
total cost of the project is estimated not to exceed $1.0
million and will be funded through operating cash flows.
Costs associated with the Y2K plan that represent
significant functional or technology improvements will be
capitalized. Other costs related principally to Y2K
compatibility will be charged to expense as incurred.
During 1998, management plans to substantially complete the
conversion of the Company's principal financial systems. At
April 1, 1998, conversion of the general ledger, accounts
payable, payroll and benefits systems was in process.
SUBSEQUENT EVENT
On April 15, 1998, the Company announced that its Board of
Directors authorized the repurchase of an additional ten
million shares of common stock through December 31, 2000.
This authorization increased the total number of shares
authorized for repurchase to 20 million. As of May 14,
1998, the Company had purchased a total of 10.3 million
shares since the inception of the stock repurchase program.
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; the
Company's ability 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 10-K for the fiscal year ending December 31, 1997.
The Company's ability 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 1998
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)On January 6, 1998, the Company filed a report
on Form 8-K regarding sales information for
December 1997.
On February 9, 1998, the Company filed a report
on Form 8-K regarding sales information for
January 1998.
On March 9, 1998, the Company filed a report on
Form 8-K regarding sales information for
February 1998.
On April 6, 1998, the Company filed a report on
Form 8-K regarding sales information for March
1998.
On May 12, 1998, the Company filed a report on
Form 8-K regarding sales information for April
1998.
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, 1998 /s/Charles D. Way
Charles D. Way
Chairman, President and Chief
Executive Officer
May 15, 1998 /s/Fred T. Grant, Jr.
Fred T. Grant, Jr.
Vice President-Finance and
Treasurer
May 15, 1998 /s/Richard D. Sieradzki
Richard D. Sieradzki
Controller