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 SEPTEMBER 5, 1999
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.)
150 West Church Avenue
Maryville, TN 37801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 379-5700
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 .
31,058,182
(Number of shares of $0.01 par value common stock outstanding as of October 15,
1999)
Exhibit Index appears on page 16
<PAGE>
INDEX
PAGE
NUMBER
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
SEPTEMBER 5, 1999 AND JUNE 6, 1999.............3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS ENDED
SEPTEMBER 5, 1999 AND SEPTEMBER 6, 1998........4
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS FOR THE THIRTEEN WEEKS ENDED
SEPTEMBER 5, 1999 AND SEPTEMBER 6, 1998........5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.....................................6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................................7-12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK....................................N/A
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..............................13
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...............14
SIGNATURES.............................................15
2
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1
RUBY TUESDAY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 5, JUNE 6,
1999 1999
(UNAUDITED) (NOTE A)
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments.................. $ 9,873 $ 9,117
Accounts and notes receivable.................... 3,973 5,406
Inventories...................................... 9,517 9,522
Income tax receivable............................ 2,544
Prepaid expenses................................. 6,898 10,275
Deferred income taxes............................ 2,803 2,165
Assets held for disposal......................... 22,663 15,725
Total current assets........................... 55,727 52,210
Property and equipment - at cost....................... 502,693 503,333
Less accumulated depreciation and amortization... (188,353) (185,842)
314,340 317,491
Costs in excess of net assets acquired................. 18,868 19,037
Other assets........................................... 43,606 42,077
Total assets................................. $432,541 $430,815
Liabilities & shareholders' equity
Current liabilities:
Accounts payable................................. $ 33,867 $ 27,605
Short-term borrowings............................ 11,215 8,720
Accrued liabilities:
Taxes, other than income taxes................. 9,736 11,256
Payroll and related costs...................... 8,839 13,283
Insurance...................................... 8,916 9,379
Rent and other................................. 15,078 13,789
Income taxes payable........................... 2,179
Current portion of long-term debt................ 128 126
Total current liabilities.................... 89,958 84,158
Long-term debt......................................... 76,735 76,767
Deferred income taxes.................................. 7,004 6,653
Deferred escalating minimum rents...................... 12,194 12,025
Other deferred liabilities............................. 30,767 29,411
Shareholders' equity:
Common stock, $0.01 par value;(authorized 100,000
shares; issued 31,314 @ 9/5/99; 32,017 @ 6/6/99) 313 320
Capital in excess of par value................... 7,253 4,049
Retained earnings................................ 208,892 218,007
216,458 222,376
Deferred compensation liability payable in
Company stock................................... 3,269 2,887
Company stock held by deferred compensation plan. (3,269) (2,887)
Accumulated other comprehensive income........... (575) (575)
215,883 221,801
Total liabilities & shareholders' equity..... $432,541 $430,815
The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
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<PAGE>
RUBY TUESDAY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER-SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
SEPTEMBER 5, SEPTEMBER 6,
1999 1998
<S> <C> <C>
Revenues:
Restaurant sales and operating revenues $193,589 $177,327
Franchise revenues..................... 1,696 820
195,285 178,147
Operating costs and expenses:
Cost of merchandise.................... 52,992 48,988
Payroll and related costs.............. 61,616 56,746
Other.................................. 40,385 37,161
Depreciation and amortization.......... 10,361 9,807
Selling, general and administrative.... 13,350 12,341
Interest expense, net.................. 420 946
179,124 165,989
Income before income taxes............... 16,161 12,158
Provision for income taxes............... 5,861 4,362
Net income............................... $ 10,300 $ 7,796
Earnings per share:
Basic.................................. $ 0.32 $ 0.24
Diluted................................ $ 0.31 $ 0.23
Weighted average shares:
Basic................................. 31,981 32,665
Diluted............................... 33,140 34,015
Cash dividends declared per share.......... $ 0.045 $ 0.045
The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
4
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<PAGE>
RUBY TUESDAY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
SEPTEMBER 5, SEPTEMBER 6,
1999 1998
<S> <C> <C>
Operating activities:
Net income........................................ $ 10,300 $ 7,796
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 10,361 9,807
Amortization of intangibles..................... 182 180
Deferred income taxes........................... 156 327
Impairment charge............................... 644
Loss/(gain) on disposition of assets............ 115 (20)
Changes in operating assets and liabilities:
Decrease in receivables...................... 709 1,044
Decrease/(increase) in inventories........... 5 (260)
Decrease in prepaid and other assets......... 897 311
Increase in accounts payable,
accrued and other liabilities............... 2,277 8,557
Increase in income tax payable............... 4,723 2,285
Net cash provided by operating activities....... 30,369 30,027
Investing activities:
Purchases of property and equipment............... (15,411) (19,397)
Proceeds from disposal of assets.................. 433 663
Other, net........................................ (882) (1,609)
Net cash used by investing activities........... (15,860) (20,343)
Financing activities:
Proceeds from long-term debt...................... 13,000
Net change in short-term borrowings............... 2,495 (9,665)
Principal payments on long-term debt
and capital leases.............................. (30) (18)
Proceeds from issuance of stock, including
treasury stock.................................. 3,210 3,091
Stock repurchases................................. (18,002) (13,811)
Dividends paid.................................... (1,426) (1,482)
Net cash used by financing activities........... (13,753) (8,885)
Increase in cash and short-term investments....... 756 799
Cash and short-term investments:
Beginning of year............................... 9,117 8,291
End of quarter.................................. $ 9,873 $ 9,090
The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
5
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<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they 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. Operating results for the thirteen week period ended September
5, 1999 are not necessarily indicative of results that may be expected
for the year ended June 4, 2000.
The balance sheet at June 6, 1999 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in Ruby Tuesday, Inc.'s Annual Report on
Form 10-K for the fiscal year ended June 6, 1999.
NOTE B - EARNINGS PER SHARE
Basic earnings per share are based on the weighted average number of
shares outstanding during each period. The computation of diluted
earnings per share includes the dilutive effect of stock options. Such
stock options have the effect of increasing diluted weighted average
shares outstanding by approximately 1.2 million and 1.4 million for the
thirteen weeks ended September 5, 1999 and September 6, 1998,
respectively. The difference between basic and diluted weighted average
shares reflects the potential dilution from the exercise of stock
options.
NOTE C - COMPREHENSIVE INCOME
Comprehensive income for the thirteen week periods ending September 5,
1999 and September 6, 1998 was $10.3 million and $7.8 million,
respectively, which was the same as net income.
NOTE D - OTHER DEFERRED LIABILITIES
Other deferred liabilities at September 5, 1999 and June 6, 1999 included
$12.0 million and $11.7 million, respectively, for the liability due to
participants in the Company's Deferred Compensation Plan.
6
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<PAGE>
NOTE E - REFRANCHISING
The Company has pending the sale of restaurants to 5 potential franchise
partners. Such pending transactions provide, among other things, for the
sale of 22 units in Michigan, eight to nine in Illinois, eight to nine in
New York, and three in Indiana. The closing of the sale of these units is
expected to occur in the third quarter of fiscal 2000, and these units will
be operated as Ruby Tuesday restaurants under separate franchising
agreements. The aggregate sales price the Company expects to receive for these
units is $57.0 million - $58.0 million, of which approximately $37.0 - $38.0
million is expected to be paid in cash. The remaining amounts will be in the
form of notes due through fiscal 2011 bearing interest at a rate of 10.0% per
year. The sales of these units are expected to result in a pre-tax gain
of approximately $5.5 million - $6.5 million. The decrease from the
previously reported estimated pre-tax gain of $9.5 million results from a
reduction in the estimated portion of the sales proceeds to be received
in cash as it is the Company's policy to recognize gains realized in cash
and to defer gains realized up to the amount of the note received on each
transaction. Of the units expected to be sold, 37 were in operation as of
September 5, 1999. Revenues for the thirteen weeks ended September 5,
1999 from these 37 units totaled $17.2 million, with operating profits of
$1.5 million.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General:
The Company generates revenues from two primary sources: restaurant sales
(food and beverage sales) and franchise revenues consisting of franchise
royalties (based upon a percentage of each franchise restaurant's monthly
gross sales) and development and franchise fees (which typically total
$45,000 for each Ruby Tuesday's domestic restaurant opened).
The Company reported net income of $10.3 million for the thirteen weeks
ended September 5, 1999 compared to $7.8 million for the corresponding
period of the prior year. Diluted earnings per share for the first
quarter were $0.31, a 34.8% increase over the diluted earnings per share
for the first quarter of fiscal 1999. Contributing to the increase was a
3.6% increase in same store sales for Company-owned Ruby Tuesday
restaurants and a reduction, as a percent of revenues, of operating costs
and expenses as discussed below. As of September 5, 1999, the Company
owned and operated 412 restaurants, including 346 Ruby Tuesday, 43
American Cafe, and 23 Tia's Tex-Mex restaurants. Franchised operations
included 83 domestic and seven international Ruby Tuesday restaurants.
7
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<PAGE>
Results of Operations:
The following table sets forth selected restaurant operating data as a
percentage of revenues, except where otherwise noted, for the periods
indicated. All information is derived from the unaudited condensed
consolidated financial statements of the Company included herein.
Thirteen weeks ended
September 5, September 6,
1999 1998
Revenues:
Restaurant sales and operating revenues 99.1% 99.5%
Franchise revenues..................... 0.9 0.5
Total revenues....................... 100.0% 100.0%
Operating costs and expenses:
Cost of merchandise (1)................ 27.4 27.6
Payroll and related costs (1).......... 31.8 32.0
Other (1).............................. 20.9 21.0
Depreciation and amortization (1)...... 5.4 5.5
Selling, general and administrative.... 6.8 6.9
Interest expense, net.................. 0.2 0.5
Income before income taxes.................. 8.3 6.9
Provision for income taxes.................. 3.0 2.5
Net income.................................. 5.3% 4.4%
(1) As a percentage of restaurant sales and operating revenues.
The following table shows year-to-date Company-owned restaurant openings,
closings, and total Company-owned 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
2000 1999 2000 1999 2000 1999
Ruby Tuesday 12 10 1 0 346 325
American Cafe 0 0 2 0 43 45
Tia's Tex-Mex 0 1 0 0 23 22
The following table shows year-to-date Ruby Tuesday franchised restaurant
openings, closings, and total Ruby Tuesday franchised 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
2000 1999 2000 1999 2000 1999
Domestic 5 2 0 0 83 51
International 0 0 0 0 7 6
The Company estimates that 30 additional Company-owned Ruby Tuesday
restaurants and three Tia's Tex-Mex restaurants will be opened during the
remainder of fiscal 2000. The Company expects domestic franchisees to
open approximately sixteen and international franchisees to open five
Ruby Tuesday restaurants during the remainder of fiscal 2000. Also, as
discussed in Note E, the Company has plans to sell 42 Ruby Tuesday
restaurants to domestic franchise partners during fiscal 2000.
8
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<PAGE>
Revenues:
Company restaurant sales increased $16.3 million (9.2%) to $193.6 million
for the quarter ended September 5, 1999 compared to the same quarter of
the prior year. This increase is primarily attributable to a 3.6%
increase in same store sales for the Ruby Tuesday concept and an increase
in the number of units in operation, offset by decreases in same store
sales for Tia's Tex-Mex and American Cafe for the quarter.
Franchise revenues totaled $1.7 million for the thirteen weeks ending
September 5, 1999 compared to $0.8 million for the same period in the
prior year. Franchise revenues are predominately comprised of domestic
and international royalties which totaled $1.4 million and $0.7 million
for the thirteen week periods ending September 5, 1999 and September 6,
1998, respectively.
Operating Profits:
Pre-tax income for the quarter ended September 5, 1999 was $16.2 million,
an increase of $4.0 million from the corresponding quarter of the prior
year. The increase in pre-tax income is the result of positive same
store sales for the Ruby Tuesday concept and the addition of new units
coupled with the cost changes discussed below.
Cost of merchandise increased $4.0 million (8.2%) to $53.0 million for
the quarter ended September 5, 1999 compared to the same quarter of the
prior year. However, as a percentage of Company restaurant sales, the
cost of merchandise decreased from 27.6% to 27.4% for the thirteen weeks
ended September 5, 1999. This decrease is attributable to adjusting the
items included in the current year Combo Platter and Fajita promotions.
Also, a 22 ounce beer introduced during the first quarter of fiscal 2000
provided increased revenue at a lower cost to the Company.
Payroll and related costs increased $4.9 million (8.6%) for the thirteen
weeks ended September 5, 1999, as compared to the same period of the
prior year. However, as a percentage of Company restaurant sales, these
expenses decreased from 32.0% to 31.8% for the thirteen week period ended
September 5, 1999. The decrease is due to a reduction in training costs
associated with lower hourly turnover and a reduction in unit bonuses
resulting from a more quantifiable, performance based evaluation system
being placed in service.
Other operating costs increased $3.2 million (8.7%) for the thirteen
weeks ended September 5, 1999, as compared to the same period of the
prior year. As a percentage of Company restaurant sales, however, these
costs decreased 10 basis points for the thirteen week period ended
September 5, 1999, from 21.0% to 20.9%. This decrease is due to the sale
of units that had higher than system average occupancy costs to
franchisees beginning in the second quarter of the prior year, offset by
additional rent resulting from increased use of the synthetic lease
program and current year impairment charges on one unit reclassified to
Assets Held for Disposal ($0.4 million) and one operating unit with poor
performance ($0.2 million).
Depreciation and amortization expense increased $0.6 million (5.6%) for
the thirteen weeks ended September 5, 1999, as compared to the same
period of the prior year. As a percentage of Company restaurant sales,
depreciation and amortization for the thirteen weeks decreased 10 basis
points from 5.5% to 5.4%. The decrease results from sales of units to
franchisees beginning in the second quarter of the prior year coupled
with increased use of the synthetic leasing program and higher average
unit volumes.
9
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<PAGE>
Selling, general and administrative expenses increased $1.0 million
(8.2%) for the thirteen weeks ended September 5, 1999, as compared to the
same period of the prior year. These expenses for the thirteen weeks,
however, decreased 10 basis points as a percentage of total revenues from
6.9% to 6.8%, due to additional marketing and support services fees
received from the franchise partners resulting from growth in that
program.
Net interest expense decreased $0.5 million (55.6%) for the thirteen
weeks ended September 5, 1999, as compared to the same period of the
prior year. The decrease is due to increased interest income associated
with refranchising notes receivable.
Income Taxes:
The effective income tax rate was 36.3% for the thirteen weeks ended
September 5, 1999 compared to 35.9% for the same period of the prior
year. The increase in the effective income tax rate is due to the
Company's emphasis on its franchising program for which the Company does
not receive any tax credits.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $30.4 million for the thirteen
weeks ended September 5, 1999 as compared to $30.0 million for the same
period in the prior year. The increase over the prior year resulted from
increased earnings partially offset by the timing of operational
payments. Cash provided by operating activities for the thirteen weeks
ended September 5, 1999 exceeded capital expenditures by $15.0 million.
Proceeds from the issuance of stock pursuant to stock option exercises
provided $3.2 million of cash and additional borrowings under the
Company's credit facilities provided $2.5 million of cash. Pursuant to
the Company's financial strategy approved by the Board during fiscal
1994, $18.0 million of the Company's common stock was reacquired during
the quarter. Additionally, dividends of $1.4 million were paid to
shareholders during the quarter.
The Company requires capital principally for new restaurants, equipment
replacement, and remodeling of existing units. Capital expenditures for
the thirteen weeks ended September 5, 1999 were $15.4 million and
expenditures for construction of new units under the Company's synthetic
operating lease program were $11.7 million. Capital expenditures for the
remainder of fiscal 2000 are projected to be approximately $63.8 million
which the Company intends to fund with cash from operating activities.
Expenditures for units to be leased by the Company under synthetic
operating lease agreements are projected to be $34.1 million for the
remainder of fiscal 2000.
At September 5, 1999, the Company had committed lines of credit amounting
to $12.2 million ($1.0 million which remained available at September 5,
1999) and non-committed lines of credit amounting to $15.0 million with
several 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. In addition, the Company has a $100.0 million, five-year credit
facility of which $24.0 million was available as of September 5, 1999.
The Company's synthetic lease agreements provide for a total of $125.0
million funding for the purpose of leasing new free-standing restaurants
and the Maryville Restaurant Support Services Center. As of September 5,
1999, $37.5 million was available for expenditures in accordance with
these agreements.
To control future interest costs relating to borrowings under the above-
mentioned $100.0 million credit facility and the Company's $125.0 million
master operating lease agreements, the Company has entered into five
interest rate swap agreements with notional amounts aggregating $125.0
million. The swap agreements effectively fix the interest rate on an
equivalent amount of the Company's debt (including floating-rate lease
obligations) to rates ranging from 5.79% to 6.25% for periods up to
December 7, 2003.
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<PAGE>
KNOWN EVENTS, UNCERTAINTIES AND TRENDS
Financial Strategy and Stock Repurchase Plan
The Company employs a financial strategy which utilizes a prudent amount
of debt to minimize the weighted average cost of capital while allowing
the Company to maintain financial flexibility and the equivalent of an
investment-grade (BBB) bond rating. This financial strategy sets a target
debt-to-capital ratio of no more than 60%, including operating leases.
The strategy also provides for repurchasing Company stock whenever cash
flow exceeds funding requirements while maintaining the target capital
structure. Pursuant to this strategy, the Company repurchased 1.0 million
shares during the first quarter of fiscal 2000. The total number of
remaining shares authorized to be repurchased as of September 5, 1999 is
6.3 million. Additional repurchases will be funded by additional
borrowings on the credit facilities and/or cash received in conjunction
with the sale of units to franchisees.
Cash Dividend
During fiscal 1997, the Board of Directors approved a dividend policy as
a means of returning excess capital to its shareholders. This policy
calls for payment of semi-annual dividends of $0.045 per share. The
payment of a dividend in any particular future period and actual amount
thereof remain, however, at the discretion of the Board of Directors and
no assurance can be given that dividends will be paid in the future as
currently anticipated. Dividends totaling approximately $1.4 million
were paid to shareholders during the first quarter of fiscal 2000.
Year 2000 Issue
The Company recognizes the need to ensure that its operations, as well as
those of third parties with whom the Company conducts business, will not
be adversely impacted by Year 2000 software failures. Software failures
due to processing errors potentially arising from calculations using the
Year 2000 date are a known risk. The Company is addressing this risk to
the availability and integrity of financial systems and the reliability
of operational systems through a combination of actions including the
implementation, upgrading, and enhancing of new financial, payroll, and
human resource software packages that are Year 2000 compliant and a
coordinated review of the Year 2000 readiness of key suppliers, financial
institutions and others with which it does business. The
telecommunications systems at both the Maryville and Mobile Restaurant
Support Centers have been replaced with systems that are believed to be
Year 2000 compliant and are currently being used.
With regard to information technology, the Company has implemented a new
client-server platform for its financial, payroll and human resources
systems at its support centers. The Company activated the financial
system in October, 1998 and the payroll and human resource systems in
March, 1999. The financial system is certified to be Year 2000
compliant. The payroll and human resources systems have been
successfully tested through Year 2043. The Company intends to upgrade
and further enhance the installed payroll and human resources system
software to a version certified to be Year 2000 compliant. Current
expectations are that this certified version will be fully implemented
and operational for the payroll and human resource systems by mid
November, 1999. In addition, older systems in the individual restaurants
have already been replaced by new systems which are Year 2000 compliant.
11
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<PAGE>
The Company has compiled a list of third party vendors who are being
monitored continuously regarding their compliance with Year 2000 issues.
The vendors identified are being requested to provide representation to
the Company when they become Year 2000 compliant. Currently, there are
several vendors which are still completing their implementations of Year
2000 compliant systems. At the present time, the Company expects that
all its major vendors will be Year 2000 compliant by calendar year end.
Accordingly, the Company does not expect its operations to be materially
adversely affected.
The Company has incurred approximately 98% of the total estimated $6.6
million to be spent on converting, upgrading, and enhancing systems which
address, among other priorities, the Year 2000 issue. The majority of
these costs relate to the new financial, payroll and human resource
software packages. Funds have been, and will continue to be, provided by
income from continuing operations. The computer systems in the individual
restaurants and the telecommunications systems for the Company were
scheduled to be replaced as a result of Company growth and not as a
direct result of Year 2000 issues.
The most significant risk to the Company with regard to the Year 2000
issue is that the systems placed in service by the Company itself and/or
its vendors will not be fully operational by the end of calendar year
1999. This could adversely impact the day to day operations of the
Company. However, it is the Company's belief that all of its systems
will be Year 2000 compliant by mid November, 1999. As discussed above,
although there are several vendors not acknowledging Year 2000 compliance
at this time, the Company currently does not anticipate any material
problems with its major vendors. The Company believes at this time that
no changes to its current major vendors will be required, however, as the
end of calendar year 1999 approaches, the Company will begin identifying
alternative vendors for those vendors not Year 2000 compliant. Although
the Company does not expect that alternative vendors will be necessary,
the Company also does not anticipate any difficulty in locating
alternative vendors if necessary. Based on progress to date as described
above, the Company does not believe that its operations will be
materially impacted by the Year 2000 problems.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
The foregoing section contains various "forward-looking statements" which
represent the Company's expectations or beliefs concerning future events,
including future financial performance and unit growth (both Company-
owned and franchised). 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; increased competition in the casual dining restaurant market;
weather conditions in the regions in which Company-owned and franchised
restaurants are operated; consumers' acceptance of the Company's
development concepts; laws and regulations affecting labor and employee
benefit costs; costs and availability of food and beverage inventory; the
Company's ability to attract qualified managers and franchisees; the
state of Year 2000 readiness of third parties with which the Company does
business; changes in the availability of capital; and general economic
conditions.
12
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<PAGE>
PART II - OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
The Company is currently, and from time to time, subject to pending
claims and lawsuits arising in the ordinary course of its business. In
addition, the Company, as successor to Morrison Restaurants Inc.
("Morrison"), is a party to a case (Morrison Restaurants Inc. v. United
States of America, et al.), originally filed by Morrison in 1994 to claim
a refund of taxes paid in the amount of approximately $3,000 and
abatement of taxes assessed by the Internal Revenue Service ("IRS")
against Morrison on account of the employer's share of FICA taxes on
unreported tips allegedly received by employees. The IRS filed a
counterclaim for approximately $7,000 in additional taxes. The case was
decided by the U.S. District Court in favor of the Company in February
1996 on summary judgment. The IRS appealed the District Court's decision
and, on August 12, 1997, the U.S. Court of Appeals for the Eleventh
Circuit reversed the award of summary judgment and remanded the case to
the District Court for proceedings consistent with the Court's opinion.
In its reversal, the Eleventh Circuit upheld the IRS' enforcement policy
with respect to the employer's share of FICA taxes on allegedly
unreported tips. The Company subsequently petitioned the U.S. Court of
Appeals for a review of the matter by the full Court. Such petition was
denied. There are three additional lawsuits on this issue filed by other
restaurant companies pending in other U.S. federal courts. In September,
1998, the District Court in Northern California held in favor of the
taxpayer on the identical issue in Fior d Italia v. United States
("Fior"). The District Court rejected the holding of the Eleventh
Circuit holding, inter alia, that the Eleventh Circuit opinion was
rejected by recently expressed congressional intent. The IRS' motion for
reconsideration in light of the Federal Circuit's decision in The Bubble
Room v. United States (infra) was denied. The IRS has appealed the
district court's ruling on Fior. In October 1998, in a split decision,
the United States Court of Appeals for the Federal Circuit issued a
decision unfavorable to the taxpayer in The Bubble Room v. United States.
The taxpayer's petition for a rehearing En Banc was also denied. In
June, 1999, the United States District Court for the Northern District of
Florida, Pensacola Division, in Quietwater Entertainment, Inc. v. United
States, GA No. 3:98CV160, held in favor of the taxpayer notwithstanding
and distinguishing the controlling law in the citation of Morrison. The
IRS has appealed the Quietwater decision. Although the amount in dispute
is not material, it is possible that the IRS will attempt to assess taxes
in additional units of the Company (as well as other restaurant
companies). In such event, the Company believes that a business tax
credit would be available to the Company to offset, over a period of
years, a majority of any additional taxes determined to be due.
Moreover, the Company is a participant in an IRS enforcement program
which would eliminate the risk of additional assessments by the IRS in
return for a restaurant employer's proactive role in encouraging employee
tip reporting. In light of the proactive role of the Company, the
protection against additional assessment afforded by the agreement should
be available to the Company. In the opinion of management, the ultimate
resolution of all pending legal proceedings will not have a material
adverse effect on the Company's operations or financial position.
13
</PAGE>
<PAGE>
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following exhibits are filed as part of this report:
Exhibit
No.
27.1 Financial Data Schedule
99.1 Second Amendment to the Ruby Tuesday, Inc. 1996 Stock
Incentive Plan
REPORTS ON FORM 8-K
None
14
</PAGE>
<PAGE>
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)
10/20/99 By: /s/ J. RUSSELL MOTHERSHED
DATE J. RUSSELL MOTHERSHED
Senior Vice President and
Chief Financial Officer
15
</PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
27.1 Financial Data Schedule
99.1 Second Amendment to the Ruby Tuesday, Inc. 1996 Stock Incentive Plan
16
</PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RUBY TUESDAY, INC. AS OF AND FOR THE THIRTEEN
WEEKS ENDED SEPTEMBER 5, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-04-2000
<PERIOD-END> SEP-05-1999
<CASH> 9,873
<SECURITIES> 0
<RECEIVABLES> 3,973
<ALLOWANCES> 0
<INVENTORY> 9,517
<CURRENT-ASSETS> 55,727
<PP&E> 502,693
<DEPRECIATION> 188,353
<TOTAL-ASSETS> 432,541
<CURRENT-LIABILITIES> 89,958
<BONDS> 76,735
0
0
<COMMON> 313
<OTHER-SE> 215,883
<TOTAL-LIABILITY-AND-EQUITY> 432,541
<SALES> 193,589
<TOTAL-REVENUES> 195,285
<CGS> 52,992
<TOTAL-COSTS> 112,362
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 420
<INCOME-PRETAX> 16,161
<INCOME-TAX> 5,861
<INCOME-CONTINUING> 10,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,300
<EPS-BASIC> $0.32
<EPS-DILUTED> $0.31
</TABLE>
SECOND AMENDMENT TO THE
RUBY TUESDAY, INC. 1996 STOCK INCENTIVE PLAN
THIS SECOND AMENDMENT is made as of April 12, 1999, by Ruby Tuesday, Inc.,
a corporation organized and existing under the laws of the State of Georgia
(hereinafter called the "Company").
W I T N E S S E T H:
WHEREAS, the Company maintains the Ruby Tuesday, Inc. 1996 Stock
Incentive Plan (the "Plan"); and
WHEREAS, the Company wishes to amend the Plan to reflect the following
chain of events: the approval by the Board of Directors of an increase in
the number of shares reserved for issuance under the Plan on July 1, 1997;
the approval by the Board of Directors of a two-for-one stock split as of
April 17, 1998; and the approval by the Board of Directors of an increase in
the number of shares reserved under the Plan on April 12, 1999;
NOW, THEREFORE, the Company does hereby amend the Plan, effective as of the
dates provided below, as follows:
1. By deleting, effective July 1, 1997, Plan Section 2.2 in its entirety and
substituting therefor the following:
"2.2 Stock Subject to the Plan. Subject to adjustment in
accordance with Section 5.2, 1,500,000 shares of Stock (the `Maximum Plan
Shares') are hereby reserved exclusively for issuance pursuant to Stock
Incentives. At no time shall the Company have outstanding Stock
Incentives and shares of Stock issued in respect of Stock Incentives in
excess of the Maximum Plan Shares. The shares of Stock attributable to
the nonvested, unpaid, unexercised, unconverted or otherwise unsettled
portion of any Stock Incentive that is forfeited or cancelled or expires
or terminates for any reason without becoming vested, paid, exercised,
converted or otherwise settled in full shall again be available for
purposes of the Plan."
2. By deleting, effective April 17, 1998, the first sentence of Plan
Section 2.2 and substituting therefor the following:
"Subject to adjustment in accordance with Section 5.2, 3,000,000
shares of Stock (the `Maximum Plan Shares') are hereby reserved
exclusively for issuance pursuant to Stock Incentives."
<PAGE>
3. By deleting, effective April 12, 1999, the first sentence of Plan
Section 2.2 and substituting therefor the following:
"Subject to adjustment in accordance with Section 5.2, 6,000,000
shares of Stock (the `Maximum Plan Shares') are hereby reserved
exclusively for issuance pursuant to Stock Incentives."
Notwithstanding the foregoing, the adoption of paragraph 3 of this
Second Amendment is subject to the approval of the stockholders of the
Company and in the event that the stockholders of the Company fail to
approve such adoption within twelve (12) months of April 12, 1999, the
adoption of paragraph 3 of this Second Amendment shall be null and void.
Except as specifically provided herein, the Plan shall remain in
full force and effect as prior to this Second Amendment.
IN WITNESS WHEREOF, the Company has caused this Second Amendment to
be executed on the day and year first above written.
RUBY TUESDAY, INC.
By: Samuel E. Beall, III
Title: Chairman and Chief Executive Officer
Attest:
By: Daniel T. Cronk
Title: Secretary
[CORPORATE SEAL]
2
</PAGE>
