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 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)
------------------------------------------------------------
-----------
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 2, 1997:
47,290,000 shares of common stock, $1.00 Par Value
PART I. FINANCIAL INFORMATION
<TABLE>
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except for per share data)
Quarter Ended
July 2, July 3,
1997 1996
<S> <C> <C>
Restaurant sales $157,199 147,370
Operating expenses:
Food and beverage 61,893 58,562
Payroll and benefits 43,872 41,547
Depreciation and amortization 6,596 6,076
Other operating expenses 18,347 17,813
Total operating expenses 130,708 123,998
General and administrative expenses 7,320 6,507
Interest expense 1,533 767
Revenues from franchised restaurants (305) (394)
Other income, net (314) (284)
Earnings before income taxes 18,257 16,776
Income taxes 6,716 6,173
Net earnings $11,541 10,603
Net earnings per common and common
equivalent share $ .24 .20
Weighted average shares 48,164,000 51,994,000
See accompanying notes to consolidated financial statements.
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<TABLE>
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except for per share data)
Six Months Ended
July 2, July 3,
1997 1996
<S> <C> <C>
Restaurant sales $303,601 278,219
Operating expenses:
Food and beverage 120,059 111,178
Payroll and benefits 85,130 78,481
Depreciation and amortization 13,018 11,768
Other operating expenses 36,198 34,484
Total operating expenses 254,405 235,911
General and administrative expenses 13,562 12,319
Interest expense 3,045 1,322
Revenues from franchised restaurants (755) (796)
Other income, net (841) (813)
Earnings before income taxes 34,185 30,276
Income taxes 12,557 11,169
Net earnings $21,628 19,107
Net earnings per common and common
equivalent share $ .45 .36
Weighted average shares 48,080,000 52,797,000
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
July 2, January 1,
1997 1997
ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $752 746
Receivables 2,366 1,941
Inventories 4,049 3,888
Deferred income taxes 3,405 3,405
Other current assets 1,871 1,932
Total current assets 12,443 11,912
Property and equipment:
Land and improvements 105,639 105,366
Buildings 282,583 267,220
Equipment 177,829 168,377
Construction in progress 31,890 37,546
597,941 578,509
Less accumulated depreciation 125,622 115,062
Net property and equipment 472,319 463,447
Other assets 2,205 2,267
$486,967 477,626
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable 40,300 35,300
Accounts payable 8,038 14,827
Income taxes payable 3,454 1,841
Accrued liabilities 25,939 24,578
Total current liabilities 77,731 76,546
Long-term debt 93,000 93,000
Deferred income taxes 14,228 14,104
Total liabilities 184,959 183,650
Shareholders' equity:
Common stock of $1.00 par value; authorized
100,000,000 shares; issued 47,290,000 shares
in 1997 and 49,031,000 shares in 1996 47,290 49,031
Additional paid-in capital - 121
Retained earnings 254,718 244,824
Total shareholders' equity 302,008 293,976
Commitments
$486,967 477,626
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
July 2, July 3,
1997 1996
Cash flows from operating activities:
<S> <C> <C>
Net earnings $21,628 19,107
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 13,739 12,126
Gain on sale of property and equipment (34) (81)
Decrease (increase) in:
Receivables (425) (213)
Inventories (161) 49
Other current assets (1,343) (1,690)
Other assets 58 (115)
Increase (decrease) in:
Accounts payable (6,789) (117)
Income taxes payable 1,613 1,194
Accrued liabilities 1,361 1,694
Deferred income taxes 124 112
Net cash provided by operating
activities 29,771 32,066
Cash flows from investing activities:
Proceeds from sale of property and
equipment 4,269 676
Capital expenditures (25,438) (47,087)
Net cash used in investing activities (21,169) (46,411)
Cash flows from financing activities:
Net proceeds from (repayments of)
notes payable 5,000 (56,900)
Proceeds from issuance of long-term debt - 93,000
Proceeds from issuance of common stock 991 491
Purchases of common stock (14,587) (23,443)
Net cash provided by (used in)
financing activities (8,596) 13,148
Increase (decrease) in cash and
cash equivalents 6 (1,197)
Cash and cash equivalents -
beginning of period 746 1,299
Cash and cash equivalents -
end of period $752 102
See accompanying notes to consolidated financial statements.
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<TABLE>
RYAN'S FAMILY STEAK HOUSES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
I. For the Six Months ended July 2, 1997
(Unaudited)
$1 Par Value Additional
Common Paid-In Retained
Stock Capital Earnings Total
<S> <C> <C> <C> <C>
Balances at January 1, 1997 $49,031 121 244,824 293,976
Net earnings - - 21,628 21,628
Issuance of common stock
under Stock Option Plans 174 817 - 991
Purchases of common stock (1,915) (938) (11,734) (14,587)
Balances at July 2, 1997 $47,290 - 254,718 302,008
</TABLE>
<TABLE>
II. For the Six Months ended July 3, 1996
(Unaudited)
$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
See accompanying notes to consolidated financial statements.
</TABLE>
RYAN'S FAMILY STEAK HOUSES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 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 six months ended July 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 July 2, 1997 versus July 3, 1996
Restaurant sales during the second quarter of 1997 increased
by 7% over the comparable quarter of 1996 with substantially
all of the growth resulting from the 8% unit growth of
Company-owned Ryan's restaurants, which totaled 266 at July
2, 1997 and 247 at July 3, 1996. The 1997 total store count
consisted entirely of 266 Ryan's restaurants, while the 1996
total store count included 242 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, decreased 1.2% during the quarter
compared to a 0.2% increase during the second quarter of
1996.
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 83.1% during the second quarter of 1997 compared
to 84.1% in 1996. Food and beverage costs decreased from
39.7% of sales in 1996 to 39.4% in 1997 due principally to
lower dairy, poultry and potato prices. Payroll and
benefits decreased from 28.2% of sales in 1996 to 27.9% of
sales in 1997 due to improved hourly staffing levels and
lower medical insurance costs. All other operating costs,
including depreciation and amortization of pre-opening
costs, decreased to 15.8% of sales in 1997 compared to 16.2%
in 1996 due principally to lower repairs and maintenance
costs. Based on these factors, the Company's operating
margin at the restaurant level increased to 16.9% of sales
in the second quarter of 1997, a 100 basis point increase
from 15.9% in 1996.
General and administrative expenses increased to 4.7% of
sales in 1997 compared to 4.4% in 1996 due principally to
higher advertising costs. The Company has significantly
expanded its media advertising program in 1997 with coverage
extending to 20 markets and 97 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 advertising
program during the remainder of 1997 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 $766,000 to 1.0% of sales in
1997 compared to 0.5% in 1996. This increase is due
principally to the increase in the Company's outstanding
debt, which amounted to $133.3 million at July 2, 1997
compared to $108.3 million at July 3, 1996 and $128.3
million at January 1, 1997. The increase in debt resulted
principally from a common stock repurchase program
implemented in March 1996 (see "Liquidity and Capital
Resources"). An increase in the Company's effective average
interest rate from 5.7% in 1996 to 6.1% in 1997 also
contributed to the higher interest expense.
Franchise revenues for the second quarter of 1997 decreased
to $305,000, or 0.2% of sales, from $394,000 (0.3% of sales)
in 1996 resulting principally from the payoff of a long-term
note receivable from a franchisee during the first quarter
of 1997. Both principal and interest payments from this note
have consistently been recognized as income on a cash basis
in the Company's financial statements. There were 25
franchised Ryan's at both July 2, 1997 and July 3, 1996.
An effective income tax rate of 36.8% was used for the
second quarters of 1997 and 1996.
Net earnings for the second quarter of 1997 increased 9% to
$11.5 million compared to $10.6 million in 1996. Due to a
7% reduction in weighted average shares resulting from the
Company's stock repurchase program (see "Liquidity and
Capital Resources"), earnings per share increased 20% to 24
cents in 1997 compared to 20 cents in 1996.
Six Months Ended July 2, 1997 versus July 3, 1996
For the six months ended July 2, 1997, restaurant sales were
up 9% compared to the same period in 1996, principally due
to 9% average unit growth. Same-store sales were flat for
the first six months of 1997 compared to a 0.3% increase in
1996.
Six-month costs and expenses as detailed above were 83.8%
and 84.8% of sales for 1997 and 1996, respectively. During
the first six months of 1997, costs and expenses were most
affected by lower other operating expenses (down 0.5% of
sales) and lower food costs (down 0.4% of sales). Food
costs were favorably impacted by lower beef and produce
costs, and other operating expenses decreased due to lower
repairs and maintenance and miscellaneous operating costs.
Based on these factors, the Company's operating margin at
the restaurant level increased to 16.2% of sales for the
first six months of 1997 compared to 15.2% in 1996.
General and administrative expenses increased as a
percentage of sales to 4.5% in 1997 from 4.4% in 1996 due
primarily to higher advertising costs. Interest expense
increased by $1,723,000 to 1.0% of sales due principally to
the increase in debt resulting from the common stock
repurchase program (see "Liquidity And Capital Resources")
combined with an increase in the Company's effective average
interest rate from 5.8% in 1996 to 6.0% in 1997. Effective
income tax rates of 36.7% and 36.9% were used for the first
six months of 1997 and 1996, respectively.
Net earnings for the first six months of 1997 increased 13%
to $21.6 million compared to $19.1 million in 1996. Due to
a 9% reduction in weighted-average shares resulting from the
Company's stock repurchase program (see "Liquidity and
Capital Resources"), earnings per share increased 25% to 45
cents in 1997 compared to 36 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 July 2, 1997, the Company's working capital was a $65.3
million deficit compared to a $64.6 million deficit at
January 3, 1997. Included in these amounts are notes
payable of $40.3 million and $35.3 million at July 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 $29.8 million for the six
months ended July 2, 1997 and $68.9 million for the year
ended January 1, 1997.
Total capital expenditures for the first six months of 1997
amounted to $25.4 million. The Company opened 11 new Ryan's
restaurants during the first six months of 1997 and plans to
open 4 additional Ryan's during the remainder of the year
for a total of 15 new restaurants (all Ryan's). 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 domestic or internation.
During the first quarter of 1997, the Company closed one
underperforming Ryan's and all five of its casual-dining
restaurants, representing three different test concepts. No
further expansion of the casual-dining concepts is planned.
Accordingly, during the entire second quarter of 1997, the
Company's operations consisted entirely of Ryan's
restaurants. At the end of the second quarter of 1997, four
of the five closed casual-dining units had been sold.
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".
In November 1996, the Company announced its FOCUS 2000 plan.
The key elements of the plan, which continues to be
implemented during 1997, 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. 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 six months of 1997, approximately 1.9 million
shares had been purchased at an aggregate cost of $14.6
million. Cumulative purchases from March 1996 through July
2, 1997 amounted to approximately 6.5 million shares at an
aggregate cost of $52.7 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".
The extent of the Company's external funding requirements
for 1997 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 target debt levels, a maximum
repurchase scenario would require approximately $22 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 $40.3 million was utilized
at July 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 July 2, 1997,
the Company exceeded the most restrictive minimum net worth
covenant by approximately $54.3 million.
Under the current borrowing arrangements, no interest rates
have been fixed and generally change in response to changes
in LIBOR. However, in October 1996, the Company entered
into an 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 the Company's 1997 financing
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 hourly
rate for tipped employees. Management currently estimates that
the $5.15 change will require rate changes for approximately
10% to 15% 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 10-K for the
fiscal year ending 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)On August 13, 1997, the Company filed a report
on Form 8-K regarding sales information for July
1997.
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, 1997 /s/Charles D. Way
Charles D. Way
Chairman, President and Chief
Executive Officer
August 15, 1997 /s/Fred T. Grant, Jr.
Fred T. Grant, Jr.
Vice President-Finance and
Treasurer
August 15, 1997 /s/Richard D. Sieradzki
Richard D. Sieradzki
Controller
<TABLE> <S> <C>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUL-02-1997
<CASH> 752
<SECURITIES> 0
<RECEIVABLES> 2,615
<ALLOWANCES> 249
<INVENTORY> 4,049
<CURRENT-ASSETS> 12,443
<PP&E> 597,941
<DEPRECIATION> 125,622
<TOTAL-ASSETS> 486,967
<CURRENT-LIABILITIES> 777,731
<BONDS> 93,000
0
0
<COMMON> 47,290
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<CGS> 205,189
<TOTAL-COSTS> 267,967
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</TABLE>
