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 MARCH 7, 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 .
31,974,632
(Number of shares of $0.01 par value common stock outstanding as of April 16,
1999)
Exhibit Index appears on page 16
INDEX
PAGE
NUMBER
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
MARCH 7, 1999 AND JUNE 6, 1998.....................3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED
MARCH 7, 1999 AND FEBRUARY 28, 1998................4
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS FOR THE THIRTY-NINE WEEKS ENDED
MARCH 7, 1999 AND FEBRUARY 28, 1998................5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.........................................6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS......................................7-13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK........................................N/A
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..................................13-14
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
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PART I - FINANCIAL INFORMATION
ITEM 1
RUBY TUESDAY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
MARCH 7, JUNE 6,
1999 1998
(UNAUDITED) (NOTE A)
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments.................. $ 9,802 $ 8,291
Accounts and notes receivable.................... 5,476 7,600
Inventories...................................... 9,514 9,522
Prepaid expenses................................. 6,896 9,070
Deferred income tax benefits..................... 3,740 2,506
Assets held for disposal......................... 3,670 9,894
Total current assets........................... 39,098 46,883
Property and equipment - at cost....................... 516,844 480,475
Less accumulated depreciation and amortization... (192,950) (170,083)
323,894 310,392
Costs in excess of net assets acquired................. 19,206 19,714
Other assets........................................... 38,945 32,639
Total assets................................. $421,143 $409,628
Liabilities & shareholders' equity
Current liabilities:
Accounts payable................................. $ 26,520 $ 22,570
Short-term borrowings............................ 2,265 16,220
Accrued liabilities:
Taxes, other than income taxes................. 10,787 12,748
Payroll and related costs...................... 9,586 12,731
Insurance...................................... 8,689 8,928
Rent and other................................. 14,503 11,136
Income taxes payable........................... 6,871
Current portion of long-term debt................ 116 110
Total current liabilities.................... 79,337 84,443
Long-term debt......................................... 81,813 65,895
Deferred income taxes.................................. 5,129 9,728
Deferred escalating minimum rents...................... 11,921 11,719
Other deferred liabilities............................. 27,563 25,693
Shareholders' equity:
Common stock, $0.01 par value;(authorized 100,000
shares; issued 31,936 @ 3/7/99; 32,787 @ 6/6/98) 319 328
Capital in excess of par value................... 1,769 5,250
Retained earnings................................ 213,754 207,034
215,842 212,612
Deferred compensation liability payable in
Company stock................................... 2,755 3,155
Company stock held by deferred compensation plan. (2,755) (3,155)
Other............................................ (462) (462)
215,380 212,150
Total liabilities & shareholders' equity..... $421,143 $409,628
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
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RUBY TUESDAY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER-SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
MARCH 7, FEB. 28, MARCH 7, FEB. 28,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues:
Company restaurant sales........... $183,425 $180,802 $535,441 $524,841
Franchise revenues................. 1,304 800 3,229 1,143
184,729 181,602 538,670 525,984
Operating costs and expenses:
Cost of merchandise................ 49,920 49,580 146,795 143,719
Payroll and related costs.......... 57,356 57,393 171,277 169,215
Other.............................. 36,207 36,033 110,586 109,592
Depreciation and amortization...... 9,967 9,758 29,612 30,083
Selling, general and administrative 12,092 13,703 37,539 39,125
Interest expense, net.............. 568 948 2,430 2,876
166,110 167,415 498,239 494,610
Income before income taxes........... 18,619 14,187 40,431 31,374
Provision for income taxes........... 6,746 5,026 14,611 11,112
Net income........................... $ 11,873 $ 9,161 $ 25,820 $ 20,262
Earnings per common share:
Basic.............................. $ 0.36 $ 0.28 $ 0.79 $ 0.61
Diluted............................ $ 0.35 $ 0.27 $ 0.76 $ 0.58
Weighted average common shares:
Basic............................. 32,395 32,582 32,482 33,406
Diluted........................... 33,877 33,885 33,880 34,731
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
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RUBY TUESDAY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
MARCH 7, FEBRUARY 28,
1999 1998
<S> <C> <C>
Operating activities:
Net income........................................ $ 25,820 $ 20,262
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 29,612 30,083
Amortization of intangibles..................... 546 534
Deferred income taxes........................... (5,285) 312
Loss on disposition of assets................... 287 811
Changes in operating assets and liabilities:
Decrease/(increase) in receivables........... 905 (4,444)
Increase in inventories...................... (132) (853)
Decrease/(increase) in prepaid and other
assets...................................... 203 (1,086)
Increase in accounts payable,
accrued and other liabilities............... 3,443 9,248
Increase in income taxes payable............. 8,584 1,120
Net cash provided by operating activities....... 63,983 55,987
Investing activities:
Purchases of property and equipment............... (53,432) (44,053)
Proceeds from disposal of assets.................. 2,056 580
Proceeds from the sale of restaurant units
to franchisees................................... 10,899 12,769
Proceeds from sale of home office building........ 5,266
Other, net........................................ (1,374) (1,052)
Net cash used by investing activities........... (41,851) (26,490)
Financing activities:
Proceeds from long-term debt...................... 16,000 500
Net change in short-term borrowings............... (13,955) 11,801
Principal payments on long-term debt.............. (75) (61)
Proceeds from issuance of stock, including
treasury stock.................................. 11,639 4,953
Stock repurchases, net of changes in the deferred
compensation plan............................... (31,299) (42,709)
Dividends paid.................................... (2,931) (1,474)
Net cash used by financing activities........... (20,621) (26,990)
Increase in cash and short-term investments....... 1,511 2,507
Cash and short-term investments:
Beginning of year............................... 8,291 7,608
End of quarter.................................. $ 9,802 $ 10,115
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
5
<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 and thirty-nine week periods
ended March 7, 1999 are not necessarily indicative of results that may be
expected for the year ended June 6, 1999.
The balance sheet at June 6, 1998 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/A for the fiscal year ended June 6, 1998.
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 1.5 million and 1.3 million for the
thirteen weeks ended March 7, 1999 and February 28, 1998, respectively,
and approximately 1.4 million and 1.3 million for the thirty-nine week
periods then ended, respectively. The difference between basic and
diluted weighted average shares reflects the potential dilution that the
exercise of stock options could create.
NOTE C - COMPREHENSIVE INCOME
During the first quarter of fiscal 1999, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general-purpose
financial statements. Comprehensive income for the thirteen and thirty-
nine week periods ending March 7, 1999 was $11.9 million and $25.8
million, respectively, which was the same as net income. Comprehensive
income for the thirteen and thirty-nine week periods ending February 28,
1998 was $9.2 million and $20.3 million, respectively, which was the same
as net income.
NOTE D - OTHER DEFERRED LIABILITIES
Other deferred liabilities at March 7, 1999 and June 6, 1998 included
$10.6 million and $10.5 million, respectively, for the liability due to
participants in the Company's Deferred Compensation Plan.
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NOTE E - REFRANCHISING
The Company entered into a series of agreements with three entities (one
of which is a new franchise partner and two are existing franchise
partners) providing, among other things, for the sale of one Ruby Tuesday
unit each in Nebraska and Kentucky, and two in Kansas. During the
quarter ended March 7, 1999, the Company completed the sales of these
units which now operate as Ruby Tuesday restaurants under separate
franchising agreements. The aggregate purchase price for the units sold
in these transactions was $5.6 million, consisting of approximately $1.0
million in cash and approximately $4.6 million in the form of interest-
bearing notes due through 2004 bearing interest at a rate of 10.0% per
year. The sales of these units resulted in a pre-tax gain of $0.6
million. Revenues for fiscal year 1998 from the units sold totaled $3.6
million, with operating profits of $0.2 million.
NOTE F - SUBSEQUENT EVENT
The Company has entered into a series of agreements on April 12, 1999
with a new franchise partner providing, among other things, for the sale
of two Ruby Tuesday units in Massachusetts. The two units sold on April
12, 1999 will be operated as Ruby Tuesday restaurants under separate
franchising agreements. The aggregate purchase price was $1.1 million,
consisting of approximately $0.5 million in cash and approximately $0.6
million in the form of a 10.0% interest-bearing note due through 2004.
The net book values of the two Massachusetts units sold totaled $1.1
million (after consideration of a $0.9 million impairment charge) and are
included in assets held for disposal at March 7, 1999.
A portion of the above impairment charge, $0.6 million, which was
included in other operating costs and expenses, was recorded in the third
quarter of fiscal 1999.
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
restaurant 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 $11.9 million for the thirteen weeks
ended March 7, 1999 compared to $9.2 million for the corresponding period
of the prior year. Diluted earnings per share for the third quarter were
$0.35, a 29.6% increase over the diluted earnings per share for the third
quarter of fiscal 1998. Contributing to the increase was a $1.6 million
reduction in selling, general, and administrative expenses coupled with
the net addition in 1999 of ten Company-owned and 40 franchised units.
The Company also reported net income of $25.8 million for the thirty-nine
weeks ended March 7, 1999 compared to $20.3 million for the corresponding
period of the prior year. Diluted earnings per share for the year-to-
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date period were $0.76, a 31.0% increase over the same period of fiscal
year 1998. As of March 7, 1999, the Company owned and operated 398
restaurants, including 330 Ruby Tuesday, 45 American Cafe, and 23 Tia's
Tex-Mex restaurants. Franchised operations included 72 domestic and
eight international Ruby Tuesday restaurants.
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.
Thirty-nine weeks ended
March 7, February 28,
1999 1998
Revenues:
Company restaurant sales........... 99.4% 99.8%
Franchise revenues................. 0.6 0.2
Total operating revenues......... 100.0% 100.0%
Operating costs and expenses:
Cost of merchandise (1)............ 27.4 27.4
Payroll and related costs (1)...... 32.0 32.2
Other (1).......................... 20.7 20.9
Depreciation and amortization (1).. 5.5 5.7
Selling, general and administrative 7.0 7.4
Interest expense, net.............. 0.5 0.5
Income before income taxes.............. 7.5 6.0
Provision for income taxes.............. 2.7 2.1
Net income.............................. 4.8% 3.9%
(1) As a percentage of Company restaurant sales.
The following table shows year-to-date Company-owned restaurant openings,
closings, and total Company-owned restaurants as of the end of the third
quarter.
Year-to-date Year-to-date Total Open at End
Openings Closings of Third Quarter
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
1999 1998 1999 1998 1999 1998
Ruby Tuesday 36 25 21 30 330 320
American Cafe 0 1 1 2 45 47
Tia's Tex-Mex 2 1 0 0 23 21
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 third quarter.
Year-to-date Year-to-date Total Open at End
Openings Closings of Third Quarter
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
1999 1998 1999 1998 1999 1998
Domestic 23* 31** 0 0 72 32
International 2 3 0 0 8 5
* - Includes 17 units sold to franchisees.
**- Includes 29 units sold to franchisees.
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The Company estimates that approximately eight additional Company-owned
Ruby Tuesday restaurants will be opened during the remainder of fiscal
1999. Also, the Company expects domestic franchisees to open
approximately four Ruby Tuesday restaurants (exclusive of the two units
in Massachusetts sold to a new franchise partner on April 12, 1999).
Revenues:
Company restaurant sales increased $2.6 million (1.5%) to $183.4 million
for the quarter ended March 7, 1999 compared to the same quarter of the
prior year. Restaurant sales increased $10.6 million (2.0%) for the
thirty-nine weeks ended March 7, 1999. This increase is primarily
attributable to an increase in units, offset by same store sales which
were down slightly for the quarter (but up year-to-date).
Franchise revenues totaled $1.3 million for the thirteen weeks ending
March 7, 1999 compared to $0.8 million for the same period in the prior
year. For the thirty-nine week period ended March 7, 1999, franchise
revenues were $3.2 million compared to $1.1 million for the same period
in the prior year. Franchise revenues are predominately comprised of
domestic and international royalties which totaled $2.8 million and $1.0
million for the thirty-nine week periods ending March 7, 1999 and
February 28, 1998, respectively.
Operating Profits:
Pre-tax income for the quarter ended March 7, 1999 was $18.6 million, an
increase of $4.4 million from the corresponding quarter of the prior
year. For the thirty-nine week period ended on that same date, pre-tax
income was $40.4 million, a $9.1 million increase over the corresponding
period of the prior year. The increases in pre-tax income are the result
of the addition of new units coupled with the cost changes discussed
below.
Cost of merchandise increased $0.3 million (0.7%) to $49.9 million for
the quarter ended March 7, 1999 compared to the same quarter of the prior
year and $3.1 million (2.1%) for the thirty-nine weeks ended March 7,
1999 compared to the same period of the prior year. As a percentage of
Company restaurant sales, the cost of merchandise remained flat at 27.4%
for the thirty-nine weeks ended March 7, 1999. This is primarily
attributable to the Shrimp Stampede promotion in the current year having
a lower plate cost than the Overboard for Shrimp promotion in the prior
year, offset by increased dairy product costs.
Payroll and related costs remained relatively flat for the thirteen weeks
ended March 7, 1999, but increased $2.1 million for the thirty-nine weeks
March 7, 1999, as compared to the same periods of the prior year.
However, as a percentage of Company restaurant sales, these expenses
decreased slightly from 32.2% to 32.0% for the thirty-nine week period
ended March 7, 1999. The decrease is due to improved staffing
efficiencies and favorable workers compensation and accident and health
insurance claims experience in the current period.
Other operating costs increased $0.2 million (0.5%) and $1.0 million
(0.9%) for the thirteen and thirty-nine weeks ended March 7, 1999,
respectively, as compared to the same periods of the prior year. As a
percentage of Company restaurant sales, however, these costs decreased 20
basis points for the thirty-nine week period ended March 7, 1999. This
decrease is primarily 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, partially offset by additional rent resulting
from increased use of the synthetic lease program.
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Depreciation and amortization expense increased $0.2 million (2.1%) for
the thirteen weeks ended March 7, 1999, but decreased $0.5 million
(1.6%) for the thirty-nine weeks ended March 7, 1999, as compared to the
same periods of the prior year. As a percentage of Company restaurant
sales, depreciation and amortization for the thirty-nine weeks decreased
20 basis points. The decrease primarily results from sales of units to
franchisees beginning in the second quarter of the prior year coupled
with the increased use of synthetic leases for new unit growth.
Additionally, increased average unit volumes caused depreciation and
amortization to decrease as a percent of Company restaurant sales.
Selling, general and administrative expenses decreased $1.6 million
(11.8%) and $1.6 million (4.1%) for the thirteen and thirty-nine weeks
ended March 7, 1999, respectively, as compared to the same periods of the
prior year. These expenses for the thirty-nine weeks decreased 40 basis
points as a percentage of total revenues primarily due to a reduction in
advertising costs resulting from decreased use of the "Neighborhood
Introduction Program," a couponing program, for the Ruby Tuesday concept.
Net interest expense decreased $0.4 million (40.1%) and $0.4 million
(15.5%) for the thirteen and thirty-nine weeks ended March 7, 1999,
respectively, as compared to the same periods of the prior year. The
decrease is due to increased interest income as a result of additional
notes receivable relating to refranchising and reduced interest on lines
of credit due to lower rates.
Income Taxes:
The effective income tax rate was 36.2% and 36.1%, respectively, for the
thirteen and thirty-nine weeks ended March 7, 1999 compared to 35.4% and
35.4% for the same periods of the prior year. The Company has placed a
greater emphasis on its franchising program in the current year for which
it will not realize any tax credits. Accordingly, the effective income
tax rate has increased.
LIQUIDITY AND CAPITAL RESOURCES
Total assets at March 7, 1999 were $421.1 million, a $11.5 million
increase from $409.6 million as of the prior fiscal year end. The
significant changes since the end of the prior fiscal year are discussed
below.
Cash increased $1.5 million from June 6, 1998. See the Condensed
Consolidated Statement of Cash Flows for components comprising the change
in cash.
Prepaid expenses decreased $2.2 million from June 6, 1998 primarily due
to the application of the prior year's income tax receivable against the
current year's estimated income tax liability.
Net property and equipment increased $13.5 million from June 6, 1998
primarily due to capital expenditures of $53.4 million offset by
depreciation and amortization of $29.6 million, net book value of the
Kentucky, Nebraska, and Kansas units sold to franchisees during the
current year ($3.5 million), reclassification of units sold on April 12,
1999 in Massachusetts to assets held for disposal ($2.0 million) and
reclassification of the salvage value of three closed units in Texas to
assets held for disposal ($2.2 million). Additionally, asset impairment
charges totaling $2.1 million were recorded in conjunction with the
closing of the Texas units and the reclassification of the Massachusetts
units to be sold to assets held for disposal.
Other assets increased $6.3 million from June 6, 1998. The majority of
the increase resulted from the receipt of 10.0% interest bearing notes in
conjunction with the sale of units to franchisees during the second and
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third quarters ($11.6 million), accrued interest on notes receivable from
franchise partners ($0.9 million) and increased value of investments,
primarily Company-owned life insurance policies and assets held in the
Deferred Compensation Plan ($1.2 million), offset by an additional
valuation allowance on the notes receivable ($7.2 million).
Total liabilities at March 7, 1999 were $205.8 million, a $8.3 million
increase from $197.5 million as of the end of the prior fiscal year. At
March 7, 1999, the Company had $81.0 million in borrowings outstanding
under its five-year $100.0 million credit facility and $2.3 million
outstanding under committed lines of credit. Total debt increased $2.0
million from the end of the prior fiscal year primarily as a result of
additional borrowings to finance construction of new units and stock
repurchases. The weighted average interest rate on these borrowings and
lines of credit was 5.73% during the third quarter.
At March 7, 1999, the Company had committed lines of credit amounting to
$12.2 million ($9.9 million which remained available at March 7, 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.
To control future interest costs relating to borrowings under the above-
mentioned $100.0 million credit facility and the Company's $80.0 million
master operating lease agreement, 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 5.49% to 6.63% for periods up to
December 7, 2003.
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 has purchased 1.8 million shares
year-to-date. After these repurchases, approximately 1.5 million shares
remain available for repurchase under the Company's stock repurchase
programs. At the April 12, 1999 meeting of the Company's Board of
Directors, the Board authorized the repurchase of an additional 6.5 million
shares of Company common stock, bringing the total number of remaining
shares authorized to be repurchased to approximately 8.0 million shares.
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 $2.9 million
were paid through the third quarter of fiscal 1999.
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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 Company continues to make great strides towards ensuring that its
information technology and other systems and third party vendor systems
will be Year 2000 compliant. 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 systems, the Company has
implemented a new client-server system for its financial, payroll and
human resources systems at its support centers and regional offices. The
Company activated the financial system in October, 1998 and the payroll
and human resource systems in March, 1999. These systems have been
successfully tested through Year 2043. The Company intends to upgrade
and further enhance the installed software to a version certified to be
Year 2000 compliant. Current expectations are that this certified version
will be fully implemented and operational by July, 1999. In addition,
older systems in the individual restaurants have already been replaced by
new Year 2000 compliant systems.
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 compliant. Currently, there are several
vendors which are still completing their implementations of Year 2000
compliant systems. At the present time, the Company does not expect
there to be any major vendors which will not be compliant by calendar
year end. Accordingly, the Company does not expect its operations to be
materially adversely affected.
The Company has incurred approximately 74% 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.
Regarding the Year 2000 issue, the greatest risk to the Company 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 July, 1999. As previously disclosed, although there
are several vendors not Year 2000 compliant 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 having to look for alternative vendors, the Company does not
anticipate any problems locating them. Based on progress to date as
12
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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.
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 four 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 stated its
intention to appeal 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. 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.
13
<PAGE>
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.
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
REPORTS ON FORM 8-K
None
14
<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)
4/20/99 By: /s/ J. RUSSELL MOTHERSHED
DATE J. RUSSELL MOTHERSHED
Senior Vice President and
Chief Financial Officer
15
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
27.1 Financial Data Schedule
16
<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 THIRTY-NINE
WEEKS ENDED MARCH 7, 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-06-1999
<PERIOD-END> MAR-07-1999
<CASH> 9,802
<SECURITIES> 0
<RECEIVABLES> 5,476
<ALLOWANCES> 0
<INVENTORY> 9,514
<CURRENT-ASSETS> 39,098
<PP&E> 516,844
<DEPRECIATION> 192,950
<TOTAL-ASSETS> 421,143
<CURRENT-LIABILITIES> 79,337
<BONDS> 81,813
0
0
<COMMON> 319
<OTHER-SE> 215,061
<TOTAL-LIABILITY-AND-EQUITY> 421,143
<SALES> 535,441
<TOTAL-REVENUES> 538,670
<CGS> 146,795
<TOTAL-COSTS> 311,475
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,430
<INCOME-PRETAX> 40,431
<INCOME-TAX> 14,611
<INCOME-CONTINUING> 25,820
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,820
<EPS-PRIMARY> $0.79
<EPS-DILUTED> $0.76
</TABLE>
