UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended AUGUST 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-12454
RUBY TUESDAY, INC.
(Exact name of registrant as specified in charter)
GEORGIA 63-0475239
(State of incorporation or (I.R.S. Employer identifi-
organization) cation no.)
4721 Morrison Drive
P.O. Box 160266
Mobile, AL 36625
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (334)344-3000
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 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 .
17,783,277
(Number of shares of $0.01 par value common stock outstanding
as of October 11, 1996)
Exhibit Index appears on page 13
INDEX
PAGE
NUMBER
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF
AUGUST 31, 1996 AND JUNE 1, 1996....... 3
CONSOLIDATED STATEMENTS OF INCOME FOR
THE THIRTEEN WEEKS ENDED AUGUST 31,
1996 AND SEPTEMBER 2, 1995............. 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED
AUGUST 31, 1996 AND SEPTEMBER 2, 1995.. 5
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS............................. 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................. 7-11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...................... 11
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
ITEM 5. OTHER INFORMATION...................... NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....... 11-12
SIGNATURES..................................... 12
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1
RUBY TUESDAY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER-SHARE DATA)
August 31, June 1,
1996 1996
(UNAUDITED) (AUDITED)
<CAPTION>
<S> <C> <C>
CURRENT ASSETS:
Cash and short-term investments.................. $ 8,261 $ 7,139
Receivables - trade and other.................... 5,455 2,040
Inventories...................................... 9,027 8,681
Prepaid expenses................................. 10,989 12,410
Deferred income tax benefits..................... 3,906 2,988
Total current assets........................... 37,638 33,258
PROPERTY AND EQUIPMENT - at cost....................... 463,844 443,475
Less accumulated depreciation and amortization... (138,408) (129,937)
325,436 313,538
COSTS IN EXCESS OF NET ASSETS ACQUIRED................. 20,893 21,058
OTHER ASSETS........................................... 13,583 13,262
TOTAL ASSETS................................. $397,550 $381,116
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................. $ 28,493 $ 26,386
Short-term borrowings............................ 3,470 6,001
Accrued liabilities:
Taxes, other than income taxes................. 10,422 10,602
Payroll and related costs...................... 8,547 6,917
Insurance...................................... 9,397 7,478
Rent and other................................. 9,927 9,112
Current portion of notes and mortgages payable... 97 95
Total current liabilities.................... 70,353 66,591
NOTES AND MORTGAGES PAYABLE............................ 81,083 76,108
DEFERRED INCOME TAXES.................................. 9,566 8,232
OTHER DEFERRED LIABILITIES............................. 31,917 32,842
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value;(authorized 50,000
shares; issued 17,757 @ 8/31/96; 17,598 @ 6/01/96) 178 176
Capital in excess of par value................... 3,861 1,762
Retained earnings................................ 203,842 198,354
207,881 200,292
Less common stock held by deferred compensation
plan - at cost(146 shares @ 8/31/96; 134 shares
@ 6/01/96)...................................... ( 3,250) (2,949)
204,631 197,343
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY..... $397,550 $381,116
The accompanying notes are an integral part of the consolidated financial
statements
</TABLE>
</PAGE>
<PAGE>
<TABLE>
RUBY TUESDAY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER-SHARE DATA)
(UNAUDITED)
Thirteen Weeks Ended
August 31, September 2,
1996 1995
<CAPTION>
<S> <C> <C>
Revenues................................ $157,282 $145,964
Operating costs and expenses:
Cost of merchandise................ 42,325 39,416
Payroll and related costs.......... 51,834 48,955
Other, net......................... 34,862 32,145
Selling, general and administrative 9,483 10,573
Depreciation....................... 9,127 8,044
Interest expense, net.............. 1,142 620
148,773 139,753
Income from continuing
operations before income taxes..... 8,509 6,211
Provision for income taxes.............. 3,020 2,000
Income from continuing operations....... 5,489 4,211
Income from discontinued operations,
net of applicable income taxes..... 5,245
Net income.............................. $ 5,489 $ 9,456
Earnings per common and equivalent share:
Continuing operations................. $ 0.31 $ 0.24
Discontinued operations............... 0.00 0.29
Earnings per common and equivalent
share.............................. $ 0.31 $ 0.53
Weighted average common and common
equivalent shares.................. 17,942 17,775
The accompanying notes are an integral part of the consolidated financial
statements
</TABLE>
</PAGE>
<PAGE>
<TABLE>
RUBY TUESDAY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
Thirteen Weeks Ended
August 31, September 2,
1996 1995
<S> <C> <C>
Operating Activities:
Income from continuing operations................. $ 5,489 $ 4,211
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................... 9,127 8,044
Amortization of intangibles..................... 183 149
Deferred income taxes........................... 415 (285)
Loss on disposition of assets................... 127 121
Changes in operating assets and liabilities:
Increase in receivables...................... (3,415) (914)
Increase in inventories...................... (346) (654)
(Increase)/decrease in prepaid and other
assets...................................... 743 (665)
Increase in accounts payable,
accrued and other liabilities............... 5,366 1,838
Increase in income taxes payable.............. 708 2,533
Cash provided by continuing operations............ 18,397 14,378
Cash provided by discontinued operations.......... 13,282
Net cash provided by operating activities....... 18,397 27,660
Investing Activities:
Purchases of property and equipment............... (21,232) (41,611)
Proceeds from disposal of assets.................. 33 387
Other, net........................................ (321) (2,016)
Discontinued operations investing activities, net. (6,523)
Net cash used by investing activities........... (21,520) (49,763)
Financing Activities:
Proceeds from long-term debt...................... 5,000 14,765
Net change in short-term borrowings............... (2,531) 1,054
Principal payments on long-term debt and capital
leases.......................................... (23)
Proceeds from issuance of stock, including
treasury stock.................................. 2,100 754
Stock repurchases................................. (301) (148)
Dividends paid.................................... (3,021)
Discontinued operations financing activities, net. 9,187
Net cash provided by financing activities....... 4,245 22,591
Increase in cash and short-term investments....... 1,122 488
Cash and short-term investments:
Beginning of year............................... 7,139 5,957
End of quarter.................................. $ 8,261 $ 6,445
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
</PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with 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. The statements
should be read in conjunction with the notes to the consolidated financial
statements included in Ruby Tuesday, Inc.'s annual report for the fiscal
year ended June 1, 1996. The accompanying unaudited consolidated financial
statements reflect all adjustments for normal recurring accruals. These
adjustments are necessary, in the opinion of management, for a fair
presentation of the financial position, the results of operations and the
cash flows for the interim periods presented. The results of operations for
the interim periods reported herein are not necessarily indicative of
results to be expected for the full year.
NOTE B - DISCONTINUED OPERATIONS
On March 7, 1996 the shareholders of Morrison Restaurants Inc. ("Morrison")
approved the distribution of its family dining restaurant business
(Morrison Fresh Cooking, Inc. ("MFCI")) and its health care food and
nutrition services business (Morrison Health Care, Inc. ("MHCI")) to its
stockholders effective March 9, 1996. As of the distribution date, the
Company has no ownership interest in either MFCI or MHCI, except for stock
held in connection with employee benefit plans. In accordance with
Accounting Principles Board Opinion No. 30, the financial results of these
two businesses, together referred to as the Morrison Group, are reported as
discontinued operations.
NOTE C - ASSET IMPAIRMENT/RESTRUCTURE CHARGES
In the third quarter of fiscal 1996 the Board of Directors of the Company
approved the closing of ten Ruby Tuesdays, four Mozzarella's and two Tia's
restaurants based upon management's review of negative cash flow and
operating loss units and other considerations. A charge of $13.4 million
was recorded at that time, consisting of a $10.0 million loss on impairment
of assets (net of an assumed salvage value of $0.9 million), and $3.4
million for the settlement of the related lease obligations. As of August
31, 1996, ten of these units have been closed (seven Ruby Tuesdays and
three Mozzarella's). Two additional Ruby Tuesday restaurants closed
shortly after the end of the quarter. Management is currently negotiating
closing dates with landlords on the remaining four units and expects to
develop a plan to complete the closings during second quarter. Management
can normally negotiate lease settlements within 36 months of the closing
date on any unit which cannot be sublet. During the quarter, the Company
paid approximately $0.8 million in related lease obligations and settlement
costs relating to those units identified for closure. As of August 31,
1996, $2.2 million of the lease settlement reserve remains. At August 31,
1996, the remaining recorded salvage value is $0.6 million.
NOTE D - SUBSEQUENT EVENTS
In March 1996, the Company entered into a five-year credit facility with
various banks which included a $50.0 million five-year term note. At that
same time, the Company entered into an interest rate swap agreement in
order to control interest costs on that loan. The agreement effectively
limited the interest rate to 6.25% for the period ended August 31, 2001.
Based on current projections of long term interest rates, the Company
elected to unwind its interest rate swap agreement because it felt its net
effective floating interest rate for the five-year period would be less
than the 6.25% fixed rate associated with the swap agreement. The Company
terminated the interest rate swap agreement on September 10, 1996 and
received approximately $1.7 million in cash. The gain on the interest rate
swap agreement will be amortized to interest expense over the previously
remaining life of the swap agreement.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General:
The Company reported net income from continuing operations of $5.5 million
for the thirteen weeks ended August 31, 1996 compared to $4.2 million for
the corresponding period of the prior year.
In the third quarter of fiscal 1996 the Board of Directors of the Company
approved the closing of ten Ruby Tuesdays, four Mozzarella's and two Tia's
restaurants based upon management's review of negative cash flow and
operating loss units and other considerations. A charge of $13.4 million
was recorded at that time, consisting of a $10.0 million loss on impairment
of assets (net of an assumed salvage value of $0.9 million), and $3.4
million for the settlement of the related lease obligations. As of August
31, 1996, ten of these units have been closed (seven Ruby Tuesdays and
three Mozzarella's). Two additional Ruby Tuesday restaurants closed
shortly after the end of the quarter. Management is currently negotiating
closing dates with landlords on the remaining four units and expects to
develop a plan to complete the closings during second quarter. Management
can normally negotiate lease settlements within 36 months of the closing
date on any unit which cannot be sublet. During the quarter, the Company
paid approximately $0.8 million in related lease obligations and settlement
costs relating to those units identified for closure. As of August 31,
1996, $2.2 million of the lease settlement reserve remains. At August 31,
1996, the remaining recorded salvage value is $0.6 million.
Results of Operations:
The following table sets forth selected restaurant operating data as a
percentage of revenues for the periods indicated. All information is
derived from the consolidated statements of the Company included herein.
Thirteen Weeks Ended
August 31, September 2,
1996 1995
Revenues................................ 100.0% 100.0%
Operating costs and expenses:
Cost of merchandise................ 26.9 27.0
Payroll and related costs.......... 33.0 33.5
Other, net......................... 22.2 22.0
Selling, general and administrative 6.0 7.3
Depreciation....................... 5.8 5.5
Interest expense, net.............. 0.7 0.4
94.6 95.7
Income from continuing
operations before income taxes..... 5.4 4.3
Provision for income taxes.............. 1.9 1.4
Income from continuing
operations......................... 3.5 2.9
Income from discontinued operations,
net of applicable income taxes..... 3.6
Net income.............................. 3.5% 6.5%
The following table shows year-to-date restaurant openings, closings, and
total restaurants as of the end of the first quarter.
Year-to-date Year-to-date Total Open at End
Openings Closings of First Quarter
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
1997 1996 1997 1996 1997 1996
Ruby Tuesday 7 11 1 3 307 283
Mozzarella's 1 3 0 0 47 47
Tia's 0 2 0 0 18 16
The Company estimates that approximately 25 additional Ruby Tuesdays, two
Mozzarella's, and four Tia's units will be opened during the remainder of
fiscal 1997.
Company Restaurant Sales:
Company revenues from continuing operations increased $11.3 million or 7.8%
to $157.3 million for the quarter ended August 31, 1996. These increases
are the result of a net addition of 26 units consisting of 24 Ruby Tuesdays
and two Tia's as of August 31, 1996 offset by declining same store sales.
Cost of Merchandise, Payroll and Related Costs and Other Operating Costs:
Cost of merchandise of continuing operations increased $2.9 million or 7.4%
to $42.3 million for the quarter ended August 31, 1996. However, these
costs have remained relatively constant as a percentage of revenues.
Payroll and related costs increased $2.9 million or 5.9% for the quarter
ended August 31, 1996 as compared to the same quarter of the prior year.
Payroll and related expenses decreased to 33.0% of revenues for the
thirteen weeks ended August 31, 1996 compared to 33.5% for the thirteen
weeks ended September 2, 1995. The decrease is primarily attributable to
management labor reductions made in an effort to more accurately match the
number of managers needed for each unit to unit volume levels.
Other operating costs for the first quarter of fiscal 1997 increased $2.7
million or 8.5% compared to the first quarter of fiscal 1996; however,
these costs remained relatively consistent as a percentage of revenues.
Selling, general and administrative expenses have decreased in total ($1.1
million) and as a percentage of revenues (6.0% compared to 7.3% for the
first quarters of fiscal 1997 and 1996, respectively). Advertising expense
in the first quarter of fiscal 1996 was higher due to several promotional
projects that were underway at that time. In addition, management training
expense was down due to the decrease in the number of managers discussed
above.
Depreciation expense increased $1.1 million or 13.5% for the quarter due to
the net addition of 26 restaurants, a continued focus on expansion with
freestanding units which are typically owned as opposed to mall or strip
units which are leased, offset by the depreciation savings resulting from
the asset write-off associated with the impairment charge of $25.9 million
recognized in the third quarter of fiscal 1996 as a result of the adoption
of FAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of".
Interest Expense (net of Interest Income):
Net interest expense increased to $1.1 million for the quarter period ended
August 31, 1996 from $0.6 million for the same period of the prior year due
to the net addition of $24.1 million in borrowings on the Company's
revolving credit facility and other bank lines of credit.
Income Taxes
The effective income tax rate on continuing operations for the thirteen
weeks ended August 31, 1996 was 35.5% compared to 32.2% for the same period
of the prior year. The effective rate increased due to a decrease in the
Targeted Jobs Tax Credit.
Earnings per Share
Earnings per share are based on the weighted average number of shares
outstanding during each quarter and are adjusted for the assumed conversion
of shares issuable upon exercise of options, after the assumed repurchase
of common shares with the related proceeds. The difference between primary
and fully diluted weighted average shares reflects the maximum extent of
potential dilution that conversions of shares could create.
LIQUIDITY AND CAPITAL RESOURCES
Total assets at August 31, 1996 were $397.6 million, a $16.5 million
increase from $381.1 million as of the prior fiscal year end. Net property
and equipment increased $11.9 million from June 1, 1996. The increase was
primarily the net result of capital expenditures of $21.2 million, offset
by a reduction in depreciation expense totaling $9.1 million and $0.2
million in retirements. The Company anticipates that during the remainder
of fiscal 1996, capital expansion will be financed primarily by funds
generated by operations with minimal incremental financing from borrowings
on lines of credit when necessary.
Total liabilities at August 31, 1996 were $192.9 million, a $9.1 million
increase from $183.8 million as of the end of the prior fiscal year. At
August 31, 1996 the Company had $80.0 million in borrowings outstanding
under its five-year credit facility. Long-term borrowings of continuing
operations increased $5.0 million from the end of the prior fiscal year
primarily as a result of additional borrowings under this agreement. The
weighted average interest rate on these borrowings including the effective
cost of an interest rate swap agreement during the quarter was 6.10%.
In addition, at August 31, 1996, the Company had committed lines of credit
amounting to $25.0 million (of which $21.5 million remained available at
August 31, 1996) and non-committed lines of credit amounting to $10.0
million with various banks at varying interest rates. These lines are
subject to periodic review by each bank and may be canceled by the Company
at any time.
SUBSEQUENT EVENTS
In March 1996, the Company entered into a five-year credit facility with
various banks which included a $50.0 million five-year term note. At that
same time, the Company entered into an interest rate swap agreement in
order to control interest costs on that loan. The agreement effectively
limited the interest rate to 6.25% for the period ended August 31, 2001.
Based on current projections of long term interest rates, the Company
elected to unwind its interest rate swap agreement because it felt its net
effective floating interest rate for the five-year period would be less
than the 6.25% fixed rate associated with the swap agreement. The Company
terminated the interest rate swap agreement on September 10, 1996 and
received approximately $1.7 million in cash. The gain on the interest rate
swap agreement will be amortized to interest expense over the previously
remaining life of the swap agreement.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
The foregoing sections contain various "forward-looking" statements which
represent the Company's expectations or beliefs concerning future events,
including the following: statements regarding unit growth, future capital
expenditures and future borrowings. The Company cautions that a number of
important factors could, individually or in the aggregate, cause actual
results to differ materially from those included in the forward-looking
statements including, without limitation, the following: consumer spending
trends and habits; mall-traffic trends; increased competition in the casual
dining restaurant market; weather conditions in the regions of the country
in which the Company operates restaurants; consumers' acceptance of the
Company's development concepts; and laws and regulations affecting labor
and employee benefit costs.
PART II - OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
The Company is, from time to time, party to ordinary, routine litigation
incidental to its business. In the opinion of management, the ultimate
resolution of all pending legal proceedings will not have a material
adverse effect on the Company's business, financial position, results of
operations or liquidity.
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following exhibits are filed as part of this report:
Exhibit
No.
11 Computation of Primary and Fully Diluted Earnings Per Share
27 Financial Data Schedule
REPORTS ON FORM 8-K
None
SIGNATURES
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.
RUBY TUESDAY , INC.
(Registrant)
10/10/96 /s/ J. RUSSELL MOTHERSHED
DATE J. RUSSELL MOTHERSHED
Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number Description
11 Computation of Primary and Fully Diluted Earnings Per Share
27 Financial Data Schedule
13
ITEM 6.(a)
EXHIBIT 11: COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS EXCEPT PER-SHARE DATA)
Thirteen Weeks Ended
Aug. 31,1996 Sept. 2,1995
PRIMARY EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE
Average common shares outstanding..... 17,672 17,271
Average additional common shares
issuable on exercise of dilutive
stock options (computed by use of
the "treasury stock method" at the
average market price)............... 270 504
TOTALS............. 17,942 17,775
Net Income:
Continuing operations................. $5,489 $4,211
Discontinued operations............... 5,245
$5,489 $9,456
Primary earnings per common and
common equivalent share.............
Continuing operations................. $0.31 $0.24
Discontinued operations............... 0.29
$0.31 $0.53
FULLY DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE
Average common shares outstanding..... 17,672 17,271
Average additional common shares
issuable on exercise of dilutive
stock options (computed by use of
the "treasury stock method" at the
higher of perioed end or average
market price)....................... 270 505
TOTALS............. 17,942 17,776
Net Income:
Continuing operations................. $5,489 $4,211
Discontinued operations............... 5,245
$5,489 $9,456
Primary earnings per common and
common equivalent share.............
Continuing operations................. $0.31 $0.24
Discontinued operations............... 0.29
$0.31 $0.53
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RUBY
0TUESDAY, INC. FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDED AUGUST
31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> AUG-31-1996
<CASH> 8,261
<SECURITIES> 0
<RECEIVABLES> 5,455
<ALLOWANCES> 0
<INVENTORY> 9,027
<CURRENT-ASSETS> 37,638
<PP&E> 463,844
<DEPRECIATION> 138,408
<TOTAL-ASSETS> 397,550
<CURRENT-LIABILITIES> 70,353
<BONDS> 81,083
0
0
<COMMON> 178
<OTHER-SE> 204,453
<TOTAL-LIABILITY-AND-EQUITY> 397,550
<SALES> 157,044
<TOTAL-REVENUES> 157,282
<CGS> 42,325
<TOTAL-COSTS> 105,306
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,142
<INCOME-PRETAX> 8,509
<INCOME-TAX> 3,020
<INCOME-CONTINUING> 5,489
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,489
<EPS-PRIMARY> $0.31
<EPS-DILUTED> $0.31
</TABLE>
