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 July 3, 1996
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)
- ------------------------------------------------------------
-----------
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 July 3, 1996:
51,003,000 shares of common stock, $1.00 Par Value
<TABLE>
PART I. FINANCIAL INFORMATION
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share data)
<CAPTION>
Quarter Ended
July 3, June 28,
1996 1995
<S> <C> <C>
Restaurant sales $147,370 131,363
Operating expenses:
Food and beverage 58,159 53,699
Payroll and benefits 41,547 37,081
Depreciation and amortization 6,076 5,255
Other operating expenses 17,813 15,435
Total operating expenses 123,595 111,470
General and administrative expenses 6,910 5,433
Interest expense 767 455
Revenues from franchised restaurants (394) (432)
Other expense (income), net (284) 63
Earnings before income taxes 16,776 14,374
Income taxes 6,173 5,318
Net earnings $10,603 9,056
Net earnings per common and common
equivalent share $ .20 .17
Weighted average shares 51,908,000 53,443,000
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share data)
<CAPTION>
Six Months Ended
July 3, June 28,
1996 1995
<S> <C> <C>
Restaurant sales $278,219 248,629
Operating expenses:
Food and beverage 110,397 101,291
Payroll and benefits 78,481 71,054
Depreciation and amortization 11,768 10,269
Other operating expenses 34,484 29,844
Total operating expenses 235,130 212,458
General and administrative expenses 13,100 10,735
Interest expense 1,322 886
Revenues from franchised restaurants (796) (895)
Other income, net (813) (537)
Earnings before income taxes 30,276 25,982
Income taxes 11,169 9,613
Net earnings $19,107 16,369
Net earnings per common and common
equivalent share $ .36 .31
Weighted average shares 52,643,000 53,441,000
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
July 3, January 3,
1996 1996
<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 102 1,299
Receivables 1,944 1,731
Inventories 3,996 4,045
Deferred income taxes 2,923 2,923
Other current assets 2,139 1,491
Total current assets 11,104 11,489
Property and equipment:
Land and improvements 100,423 95,093
Buildings 253,990 233,674
Equipment 158,681 144,638
Construction in progress 38,114 31,311
551,208 504,716
Less accumulated depreciation 103,576 92,495
Net property and equipment 447,632 412,221
Other assets 1,896 1,784
$460,632 425,494
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable 15,300 72,200
Accounts payable 11,523 11,640
Income taxes payable 1,939 745
Accrued liabilities 25,455 23,761
Total current liabilities 54,217 108,346
Long-term debt 93,000 -
Deferred income taxes 14,566 14,454
Total liabilities 161,783 122,800
Shareholders' equity:
Common stock of $1.00 par value;
authorized 100,000,000 shares;
issued 51,003,000 shares in 1996
and 53,462,000 shares in 1995 51,003 53,462
Additional paid-in capital 46 6,751
Retained earnings 247,800 242,481
Total shareholders' equity 298,849 302,694
$460,632 425,494
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<CAPTION>
Quarter Ended
July 3, June 28,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net earnings $19,107 16,369
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 12,126 10,662
Loss (gain) on sale of property
and equipment (81) 69
Decrease (increase) in:
Receivables (213) (57)
Inventories 49 (494)
Other current assets (1,690) (1,505)
Other assets (115) 36
Increase (decrease) in:
Accounts payable (117) 4,978
Income taxes payable 1,194 (438)
Accrued liabilities 1,694 2,753
Deferred income taxes 112 96
Net cash provided by operating
activities 32,066 32,469
Cash flows from investing activities:
Proceeds from sale of property
and equipment 676 1,193
Capital expenditures (47,087) (35,789)
Net cash used in investing activities (46,411) (34,596)
Cash flows from financing activities:
Net proceeds from (repayment of)
notes payable (56,900) 1,800
Proceeds from issuance of
long-term debt 93,000 -
Proceeds from the issuance of
common stock 491 47
Purchase of common stock (23,443) -
Net cash provided by financing
activities 13,148 1,847
Net decrease in cash and cash
equivalents (1,197) (280)
Cash and cash equivalents -
beginning of period 1,299 695
Cash and cash equivalents -
end of period $ 102 415
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
I. For the Six Months ended July 3, 1996
(Unaudited)
<CAPTION>
$1 Par Value Additional
Common Paid-In Retained
Stock Capital Earnings Total
<S> <C> <C> <C> <C>
Balances at January 3, 1996 $53,462 6,751 242,481 302,694
Net earnings - - 19,107 19,107
Issuance of common stock
under Stock Option Plans 77 414 - 491
Purchases of common stock (2,536) (7,119) (13,788) (23,443)
Balances at July 3, 1996 $51,003 46 247,800 298,849
II. For the Six Months ended June 28, 1995
(Unaudited)
$1 Par Value Additional
Common Paid-In Retained
Stock Capital Earnings Total
Balances at December 28, 1994 $53,434 6,599 209,322 269,355
Net earnings - - 16,369 16,369
Issuance of common stock
under Stock Option Plans 8 39 - 47
Balances at June 28, 1995 $53,442 6,638 225,691 285,771
</TABLE>
See accompanying notes to consolidated financial statements.
RYAN'S FAMILY STEAK HOUSES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 3, 1996
(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 principals 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 six months ended July 3, 1996 are not
necessarily indicative of the results that may be expected
for the fiscal year ending January 1, 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 3, 1996.
Note 2. Long-Term Debt
In June 1996, the Company entered into a credit agreement
with a group of banks for a $93 million term loan (the "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 July 3, 1996, the Company exceeded the most
restrictive minimum net worth covenant by approximately
$68.1 million.
The aggregate maturities of the Term Loan for the remainder
of 1996 and for each of the five years subsequent to January
1, 1997 are as follows: $0 for years 1996 through 1998;
$11.6 million in 1999; $23.3 million in 2000; and $23.3
million in 2001.
Note 3. Reclassifications
Certain 1995 amounts in the accompanying consolidated
financial statements have been reclassified to conform to
the 1996 presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter Ended July 3, 1996 versus June 28, 1995
The Company experienced strong sales growth during the
second quarter of 1996 with restaurant sales up 12% over the
comparable quarter of 1995. Substantially all of the
increase resulted from the 10% unit growth of company-owned
restaurants, which totaled 247 at July 3, 1996 and 222 at
June 28, 1995. The 1996 store count was comprised of 242
Ryan's restaurants and 5 other restaurants, representing 3
different test concepts (see "Liquidity and Capital
Resources"). The 1995 store count was comprised of 219
Ryan's and 3 of the test concept restaurants.
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 0.2% during the quarter
compared to a 3.0% increase during the second quarter of
1995. Management notes the difficult year-over-year
comparison during the second quarter as a significant factor
in the deceleration of same-store sales growth. In fact,
the second quarter of 1996 represented the seventh
consecutive quarter in which same-store sales have
increased. However, management also attributes a portion of
the sales improvement to the customer service improvement
programs implemented throughout 1995 (see the Company's
annual report on Form 10-K for the fiscal year ended January
3, 1996 under "Management's Discussion and Analysis of
Financial Condition and Results of Operations: Results of
Operations - 1995 Compared to 1994") and increased media
advertising (see second succeeding paragraph).
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 83.9% during the second quarter of 1996 compared
to 84.9% in 1995. Food and beverage costs decreased from
40.9% of sales in 1995 to 39.5% in 1996 due to lower beef
and produce prices and better store-level operating
procedures. Payroll and benefits amounted to 28.2% of sales
during both 1996 and 1995. All other operating costs,
including depreciation and amortization of pre-opening
costs, increased to 16.2% of sales in 1996 compared to 15.8%
in 1995 due principally to higher utility, repairs and
maintenance and sanitation costs. Based on these factors,
the Company's gross operating margins at the restaurant
level were 16.1% and 15.1%, a 100 basis point increase, for
the second quarters of 1996 and 1995, respectively.
General and administrative expenses increased to 4.7% of
sales in 1996 compared to 4.1% in 1995 due principally to
increased media advertising costs, which amounted to 0.5% of
sales in 1996 compared to an insignificant amount in 1995.
The Company has significantly expanded its media advertising
program in 1996 with plans to run campaigns in 10 markets
during selected periods in 1996 compared to 2 markets during
1995. Total media advertising costs are expected to amount
to 0.3% of sales in 1996 versus 0.1% in 1995.
Interest expense increased by $312,000, amounting to 0.5% of
sales in 1996 and 0.3% in 1995, due principally to increased
outstanding debt, which increased from $72.2 million at
January 3, 1996 to $108.3 million at July 3, 1996. This
increase in debt resulted principally from a common stock
repurchase program implemented in March 1996 (see "Liquidity
And Capital Resources"). The Company's effective average
interest rate decreased to 5.7% in 1996 compared to 6.5% in
1995.
Franchise revenues for the second quarter of 1996 decreased
by 9%, amounting to $394,000, or 0.3% of sales, compared to
$432,000 (0.3% of sales) in 1995, due principally to a
lesser number of franchised restaurants. At July 3, 1996,
there were 25 franchised Ryan's compared to 28 at June 28,
1995.
Other income in 1996 amounted to $284,000 compared to a net
expense of $63,000 in 1995 due to losses on 1995 sales of
excess real estate and higher miscellaneous vending income
in 1996.
Effective income tax rates of 36.8% and 37.0% were used for
the second quarters of 1996 and 1995, respectively.
Net earnings for the second quarter of 1996 increased 17% to
$10.6 million compared to $9.1 million in 1995. Due to a 3%
reduction in weighted average shares resulting from the
Company's stock repurchase program (see "Liquidity and
Capital Resources"), earnings per share increased 18% to 20
cents in 1996 compared to 17 cents in 1995.
Six Months Ended July 3, 1996 versus June 28, 1995
For the six months ended July 3, 1996, restaurant sales were
up 12% compared to the same period in 1995, principally due
to 9% average unit growth. Same-store sales increased 0.3%
during the first six months of 1996 compared to a 1.6%
increase in 1995.
Six-month costs and expenses as detailed above were 84.5%
and 85.5% of sales for 1996 and 1995, respectively. During
the first six months of 1996, costs and expenses were most
affected by lower food and payroll costs (down 1.1% and 0.4%
of sales, respectively) and higher other operating expenses
(up 0.4% of sales). Food costs were favorably impacted by
lower beef costs, and hourly payroll costs benefited from
higher average unit sales and better labor scheduling
procedures. These gains were partially offset by increased
utility costs, resulting in higher other operating expenses.
Based on these factors, the Company's gross operating
margins at the restaurant level were 15.5% and 14.5%, a 100
basis point increase, for the first six months of 1996 and
1995, respectively.
General and administrative expenses as a percentage of sales
were 4.7% in 1996 and 4.3% in 1995 due to higher advertising
costs. Interest expense increased by $436,000 to 0.5% of
sales due principally to the increase in debt resulting from
the common stock repurchase program (see "Liquidity And
Capital Resources"). The Company's effective average
interest rate decreased to 5.8% in 1996 compared to 6.4% in
1995. Revenues from franchised restaurants decreased by
$99,000 and other income increased by $276,000 due to the
same factors noted in the second quarter discussion.
Effective income tax rates of 36.9% and 37.0% were used for
the first six months of 1996 and 1995, respectively.
Net earnings for the first six months of 1996 increased 17%
to $19.1 million compared to $16.4 million in 1995.
Earnings per share increased to 36 cents in 1996 compared to
31 cents in 1995.
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 July 3, 1996, the Company's working capital was a $43.1
million deficit compared to a $96.9 million deficit at
January 3, 1996. The principal reason for the deficit
reduction was the refinancing in June 1996 of $93 million of
short-term debt into a long-term credit facility. 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 $32.1 million for
the six months ended July 3, 1996 and $61.8 million for the
year ended January 3, 1996.
Total capital expenditures for the first six months of 1996
amounted to $47.1 million. The Company opened 16 new Ryan's
restaurants during the first six months of 1996 and, for the
remainder of 1996, plans to open 14 additional Ryan's for a
total of 30 new restaurants (all Ryan's). During 1995, the
Company opened 24 restaurants (21 Ryan's and 3 test
concepts). Total capital expenditures for 1996 are
estimated at approximately $83 million. Expansion will
occur in states within or contiguous to the Company's
current 21-state operating area. The Company currently does
not plan any international expansion of company-owned
stores.
The Company is also actively testing several casual-dining
concepts. As noted earlier, the restaurant count at July 3,
1996 includes 5 such units, representing 3 different
concepts. Three of these restaurants were converted from
existing Ryan's, while the other 2 units were new
construction. Further expansion of these concepts will be
limited pending review of their operating results.
The Company is currently concentrating its efforts on
Company-owned stores and is not actively pursuing any
additional franchised locations, either domestically or
internationally.
In March 1996, management announced its intention to
repurchase an aggregate 6.4 million shares of the Company's
common stock through December 1998. Through July 3, 1996,
the Company had repurchased approximately 2.5 million shares
at an aggregate cost of approximately $23.4 million.
Repurchases have and will be made from time to time on the
open market or in privately negotiated transactions in
accordance with applicable securities regulations, depending
on market conditions, share price and other factors.
Management currently estimates that its external funding
requirements in 1996 will approximate $45 million. This
amount could be higher 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 $110 million at various short-term rates of which
$15.3 million was utilized at July 3, 1996.
In June 1996, the Company entered into a credit agreement
with a group of banks for a $93 million term loan (the "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 July 3, 1996,
the Company exceeded the most restrictive minimum net worth
covenant by approximately $68.1 million. The aggregate
maturities of the Term Loan for the remainder of 1996 and
for each of the five years subsequent to January 1, 1997 are
as follows: $0 for years 1996 through 1998; $11.6 million in
1999; $23.3 million in 2000; and $23.3 million in 2001.
Under the current borrowing arrangements, no interest rates
have been fixed and generally change in response to changes
in LIBOR. Management believes that the Company's current
banking relationships provide the opportunity to fix the
interest rate on all or portions of the outstanding debt for
various periods of time, based upon the Company's
preference. Management frequently reviews various interest
rate options in order to determine their economic
feasibility.
Management believes that the current debt structure will be
sufficient to meet the Company's financing requirements at
least through 1998.
IMPACT OF INFLATION
The Company's operating costs that may be affected by
inflation consist principally of food, payroll and utility
costs. Additionally, a significant number of the Company's
restaurant employees are paid at the minimum wage and,
accordingly, legislated changes to the minimum wage will
normally affect the Company's payroll costs. In July 1996,
Congress legislated an increase in the Federal minimum wage
from the current $4.25 per hour to an eventual $5.15 per
hour. Assuming President Clinton signs the measure, the
minimum wage will first increase to $4.75 on October 1, 1996
and then to $5.15 on September 1, 1997. However, this
measure also freezes the wage for tipped employees at $2.13.
Due to the Company's current wage levels and the law's
provisions regarding tipped employees, management believes
that these increases will have minimal impact on 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%.
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)
August 15, 1996 /s/Charles D. Way
Charles D. Way
Chairman, President and Chief Executive
Officer
August 15, 1996 /s/Fred T. Grant, Jr.
Fred T. Grant, Jr.
Vice President-Finance and Treasurer
August 15, 1996 /s/Richard D. Sieradzki
Richard D. Sieradzki
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-01-1997
<PERIOD-END> JUL-03-1996
<CASH> 102
<SECURITIES> 0
<RECEIVABLES> 2,130
<ALLOWANCES> 186
<INVENTORY> 3,996
<CURRENT-ASSETS> 11,104
<PP&E> 551,208
<DEPRECIATION> 103,576
<TOTAL-ASSETS> 460,632
<CURRENT-LIABILITIES> 54,217
<BONDS> 93,000
0
0
<COMMON> 51,003
<OTHER-SE> 247,846
<TOTAL-LIABILITY-AND-EQUITY> 460,632
<SALES> 278,219
<TOTAL-REVENUES> 279,828
<CGS> 188,878
<TOTAL-COSTS> 248,230
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,322
<INCOME-PRETAX> 30,276
<INCOME-TAX> 11,169
<INCOME-CONTINUING> 19,107
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,107
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0
</TABLE>
