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
<TABLE>
PART I. FINANCIAL INFORMATION
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<CAPTION>
Quarter Ended
September 28, September 29,
1994 1993
s> <C> <C>
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
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<CAPTION>
Nine Months Ended
September 28, September 29,
1994 1993
<S> <C> <C>
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
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED BALANCE SHEETS
September 28, December 29,
1994 1993
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
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
$366,077,000 333,521,000
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 202,714,000 178,778,000
Total shareholders' equity 262,707,000 238,706,000
$366,077,000 333,521,000
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Ended
September 28, September 29,
1994 1993
Cash flows from operating activities:
<S> <C> <C>
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 equipment 2,928,000 302,000
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
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
I. For the Nine Months ended September 28, 1994
(Unaudited)
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings Total
<S> <C> <C> <C> <C>
Balances at December 29, 1993 $53,415,000 6,513,000 178,778,000 238,706,000
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 6,563,000 202,714,000 262,707,000
</TABLE>
<TABLE>
II. For the Nine Months ended September 29, 1993
(Unaudited)
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings Total
<S> <C> <C> <C> <C>
Balances at December 30, 1992 $53,337,000 6,106,000 150,236,000 209,679,000
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 $53,404,000 6,363,000 172,731,000 232,498,000
</TABLE>
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, restaurant sales
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% of
sales 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 sales 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 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 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)
/s/Charles D. Way
November 14, 1994 Charles D. Way
Chairman, President and Chief Executive
Officer
/s/Fred T Grant, Jr.
November 14, 1994 Fred T. Grant, Jr.
Vice President-Finance and Treasurer
/s/Richard D. Sieradzki
November 14, 1994 Richard D. Sieradzki
Controller
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1994
<PERIOD-END> SEP-28-1994
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<RECEIVABLES> 2303
<ALLOWANCES> 101
<INVENTORY> 3027
<CURRENT-ASSETS> 8240
<PP&E> 437198
<DEPRECIATION> 84886
<TOTAL-ASSETS> 366077
<CURRENT-LIABILITIES> 93276
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<COMMON> 53430
0
0
<OTHER-SE> 209277
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</TABLE>
