Annual Report for
Fiscal year end 6/4/00
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Ruby Tuesday, Inc. owns and operates three casual dining restaurant
concepts: Ruby Tuesday, American Cafe, and Tia's Tex-Mex. Additionally, the
Company franchises its Ruby Tuesday concept in selected domestic and
international markets. As of June 4, 2000, the Company owned and operated 402
restaurants including 336 Ruby Tuesday, 41 American Cafe (including 3 L & N
Seafood restaurants) and 25 Tia's Tex-Mex restaurants, located in 32 states. As
of year end, there were 137 domestic Ruby Tuesday franchise units located in 16
states and nine international Ruby Tuesday franchise units located in the Asian
Pacific Region, India, Chile, Honduras, and Iceland.
On April 7, 2000, the Company entered into a letter of intent which
provides for the sale of all open American Cafe and Tia's Tex-Mex restaurants
and three Tia's Tex-Mex restaurants then under construction to the
president and partner of the American Cafe concept and his management team.
For an understanding of the significant factors that influenced the
Company's performance during the past three fiscal years, the following should
be read in conjunction with the Consolidated Financial Statements and related
Notes found on pages 26 to 38.
--------------------------------------------------------------------------
--------------------------------------------------------------------------
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 Financial Statements of the Company included elsewhere in
this Annual Report. Fiscal 2000 amounts include a $10.0 million pre-tax charge
recorded in conjunction with the planned sale of the American Cafe and Tia's
Tex-Mex restaurants.
2000 1999 1998
------ ------ -----
Company restaurant sales 99.0% 99.3% 99.7%
Franchise revenues 1.0 0.7 0.3
------ ------ -----
Total revenues 100.0 100.0 100.0
Operating costs and expenses:
(As a percentage of Company restaurant sales):
Cost of merchandise 27.1 27.4 27.5
Payroll and related costs 31.9 32.0 32.2
Other 20.2 20.4 20.7
Loss on sale of American Cafe
and Tia's Tex-Mex restaurants 1.3
Depreciation and amortization 5.3 5.5 5.6
(As a percentage of Total revenues):
Selling, general and
administrative 7.1 6.9 7.4
Interest expense, net 0.2 0.4 0.5
------ ------ -----
Total operating costs and expenses 92.1 92.1 93.7
------ ------ -----
Income before income taxes 7.9 7.9 6.3
Provision for income taxes 3.3 2.8 2.2
------ ------ -----
Net income 4.6% 5.1% 4.1%
====== ====== ======
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Fiscal 2000 Compared to Fiscal 1999
Overview
During Fiscal 2000, the Company opened 46 Ruby Tuesday (three of which
related to the re-acquisition of franchised units) and three Tia's Tex-Mex
restaurants while closing three Ruby Tuesday, four American Cafe, and one Tia's
Tex-Mex restaurants. In addition, the Company sold 42 Ruby Tuesday restaurants
to six domestic franchise partners for aggregate consideration of $38.0 million
in cash and $20.5 million in the form of promissory notes due through Fiscal
2011 bearing interest at rates ranging from 8.0% to 15.6%. The sale of these
units resulted in a pre-tax gain of $5.4 million which is included in other
operating costs and expenses. Concurrent with the sale of the Ruby Tuesday
units, the Company also entered into a franchise agreement for each restaurant
and a development agreement with the franchise partners whereby the partners
have committed to open a varying number of Ruby Tuesday restaurants over the
next five to nine years in their respective areas. During Fiscal 2000, 22 Ruby
Tuesday franchise units were opened in conjunction with development agreements.
As a result of franchise transactions, unit closings, and the underperformance
of four Ruby Tuesday units operating in the state of Texas, the Company recorded
restaurant asset impairment charges of $6.3 million in Fiscal 2000.
Subsequent to June 4, 2000, the Company entered into a purchase agreement
with a potential franchise partner providing, among other things, for the sale
of six Ruby Tuesday restaurants in Fiscal 2001. The sale of these units, if
effected under the terms of the purchase agreement, is expected to result in a
minimal pre-tax gain.
Revenues
The Company's revenues increased to $797.5 million in Fiscal 2000 from
$722.3 million in Fiscal 1999. The 10.4% revenue increase was the result of a
3.8% increase in same-store sales for the Ruby Tuesday concept resulting from
increased traffic and an emphasis on combo promotions causing a slight average
check increase. In conjunction with the new menus introduced during 2000, the
Company focused on its combination platters which not only increased gross
profits, but also allowed the Company to benefit from purchases of large
quantities of singular items. In addition, franchise revenues increased $3.5
million as a result of increased royalties and license fees attributable to the
growth of the domestic franchise partner program including the sale of 42 units
and 22 new openings. These increases were offset by the reduction in total
revenues resulting from the sale of 42 Ruby Tuesday restaurants to franchisees.
Operating Profits
Pre-tax profit increased $5.6 million in Fiscal 2000 to $62.8 million.
This increase resulted from the revenue increase of $75.2 million as previously
discussed, coupled with the cost changes discussed below.
Cost of merchandise, as a percentage of Company restaurant sales,
decreased 0.3% due to large volume discounts and rebates associated with the
current year Combo platters and Fajita and Rib promotions, and efficiencies
realized through redesign of menu mix.
Payroll and related costs decreased 0.1% as a percentage of Company
restaurant sales due to savings in training costs associated with lower hourly
turnover.
Other operating expenses decreased 0.2% as a percentage of Company
restaurant sales due to leveraging associated with higher unit volumes and lower
general liability insurance expense as a result of favorable claims experience
offset by increased closing expenses, a substantial portion of which relate to
lease reserves established for the relocation of the Mobile, Alabama Support
Services Center which was closed in Fiscal 2000. Other operating expenses
included $5.4 million in Fiscal 2000 and $3.1 million in Fiscal 1999 of
refranchising gains.
As a result of the planned sale of the American Cafe and Tia's Tex-Mex
restaurants, the Company recorded a pre-tax loss of $10.0 million on the
transaction in the current fiscal year. A detail of the components of this
charge is included in Note 3 to the Consolidated Financial Statements.
Depreciation and amortization decreased 0.2% as a percentage of Company
restaurant sales as a result of higher average unit volumes and increased use of
the synthetic leasing program.
Selling, general, and administrative expenses increased 0.2% as a
percentage of total revenues due to higher management training payroll
attributable to more unit openings and slightly increased management turnover
and an increased use of the WOW-U training facilities.
Net interest expense decreased 0.2% as a percentage of total revenues
due to increased interest income associated with refranchising notes receivable.
Income tax expense increased 0.5% as a percentage of total revenues. The
effective income tax rate for 2000 was 41.8% as compared to 36.2% in 1999. The
increase resulted from the nondeductibility of goodwill written off in
association with the planned sale of Tia's Tex-Mex restaurants, which was offset
by the decrease which resulted from increases in tax credits. Excluding the
effect of the planned sale of the American Cafe and Tia's Tex-Mex restaurants,
the effective income tax rate was 36.0%.
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Fiscal 1999 Compared to Fiscal 1998
Overview
During Fiscal 1999, the Company opened 44 Ruby Tuesday and two Tia's
Tex-Mex restaurants while closing five Ruby Tuesday restaurants and one American
Cafe restaurant. In addition, the Company sold 19 Ruby Tuesday restaurants to
several domestic franchise partners for aggregate consideration of $11.4 million
in cash and $11.9 million in the form of promissory notes due through 2014
bearing interest at rates ranging from 9.5% to 10%. The sale of these units
resulted in a pre-tax gain of $3.1 million which is included in other operating
costs and expenses. Concurrent with the sale of the Ruby Tuesday units, the
Company also entered into a franchise agreement for each restaurant and a
development agreement with the franchise partners whereby the partners agree to
open varying numbers of Ruby Tuesday restaurants over the next five to nine
years in their respective areas. During 1999, eight new Ruby Tuesday franchise
units were opened by franchisees pursuant to development agreements. As a result
of franchise deals and unit closings, the Company recorded asset impairment
charges of $2.9 million during Fiscal 1999 which is also included in other
operating costs and expenses.
Revenues
The Company's revenues increased to $722.3 million in Fiscal 1999 from
$711.4 million in Fiscal 1998. The 1.5% revenue increase was the result of
increased same-store sales (2.0% for the Ruby Tuesday concept) resulting from an
emphasis on combo promotions causing a slight average check increase. In
conjunction with the new menus introduced during 1999, the Company focused on
its combination platters which not only increased gross profits, but also
allowed the Company to benefit from volume purchases of large quantities of
singular items. Also contributing to the increase was the net addition of 40 new
units during the year. In addition, franchise revenues increased $2.8 million as
a result of increased royalties and license fees due to growth of the domestic
franchise partner program. These increases were offset by the reduction in
revenues resulting from the sale of 19 Ruby Tuesday restaurants to franchisees
and the additional week in Fiscal 1998.
Operating Profits
Pre-tax profits increased $12.2 million in Fiscal 1999 to $57.2 million.
This increase resulted from the revenue increase of $10.9 million as previously
discussed, coupled with reductions in other expense categories, as discussed
below.
Payroll and related costs, as a percentage of Company restaurant sales,
decreased 0.2% due to decreased management and hourly turnover. The decreased
turnover in management labor is attributable to the development of the WOW-U
training facility at the Maryville, Tennessee Restaurant Support Services Center
and the utilization of additional selection tools during the interview process.
WOW-U, which was completed in late Fiscal 1998, serves as the training facility
for the Company's restaurant managers. The training includes both educational
and team building activities in a relaxed environment. The decrease in hourly
turnover was the result of continued focus on the Company's certified trainer
program and the implementation of a newly developed six-step interview process.
Other operating expenses decreased 0.3% as a percentage of Company
restaurant sales. Rent and leasing decreased due to the sale of higher occupancy
cost units to franchise partners and the continued shift toward lower occupancy
cost, free standing units. This decrease was partially offset by the increased
use of the synthetic leasing program.
Selling, general and administrative expenses decreased 0.5% as a
percentage of total revenues. The decrease was the result of reductions in
coupon redemption and administrative costs related to the Company's local store
marketing program (the "Neighborhood Introduction Program") due to planned
reductions in the use of the program. Also contributing to the decrease was an
increase in marketing fees resulting from continued growth in the Company's
franchising program. Franchisees pay a fee, based on a percentage of revenues,
to help fund the Company's marketing efforts.
Income tax expense increased 0.6% as a percentage of total revenues. The
effective income tax rate for 1999 was 36.2% as compared to 35.4% in 1998. The
increase resulted from the Company's increased emphasis on its franchising
program for which the Company does not receive any tax credits.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
Cash provided by operating activities was $102.2 million in Fiscal 2000
and exceeded capital expenditures by approximately $8.0 million. Proceeds from
the issuance of stock pursuant to stock option exercises provided $15.1 million
of cash. Cash provided by the sale of restaurant properties to franchisees
totaled $38.0 million. Cash was used to reduce borrowings under the Company's
credit facilities by $18.4 million. Pursuant to the Company's financial strategy
approved by the Board during Fiscal 1994, $41.4 million of the Company's stock
was reacquired during Fiscal 2000 with cash provided by the above sources.
Additionally, dividends of $2.8 million were paid during Fiscal 2000.
Capital Expenditures
The Company requires capital principally for new restaurants, equipment
replacement, and remodeling of existing units. Property and equipment
expenditures for Fiscal 2000 were $94.3 million for new units, capital projects
on existing units, and information technology projects. In addition, $22.3
million was reimbursed to the Company for new unit construction under its
synthetic lease program. During Fiscal 2000, 43 Ruby Tuesday and three Tia's
Tex-Mex restaurants were opened. The Company also acquired three Ruby Tuesday
restaurants in Kentucky from a former franchisee. Capital expenditures for
Fiscal 2001 are budgeted to be $78.6 million which the Company intends to fund
with cash provided by operating activities and cash received in conjunction with
refranchising efforts and the sales of the American Cafe and Tia's Tex-Mex
restaurants. Expenditures for units to be leased by the Company under synthetic
leases are budgeted to be $71.2 million for Fiscal 2001. Planned Company-owned
Ruby Tuesday openings for Fiscal 2001 include approximately 45 Ruby Tuesday
restaurants. There can be no assurance, however, that the Company will be able
to open the projected number of restaurants in Fiscal 2001 or invest the
projected amount of money in capital expenditures and lease commitments. See
"Special Note Regarding Forward-Looking Information."
Borrowings and Credit Facilities
At June 4, 2000, the Company had committed lines of credit amounting to
$12.2 million and non-committed lines of credit amounting to $15.0 million with
several banks at various interest rates approximating 6.91%. All of these lines
are subject to periodic review by each bank and may be canceled by the Company
at any time. The Company utilized its lines of credit to meet operational cash
needs during Fiscal 2000 and 1999. Borrowings on these lines of credit were $3.4
million and $8.7 million at June 4, 2000 and June 6, 1999, respectively. In
addition to these lines of credit, the Company has a five-year credit facility
with several banks which allows the Company to borrow up to $100.0 million under
various interest rate options. The $100.0 million credit facility is comprised
of a $50.0 million five-year term note and a $50.0 million five-year revolving
credit facility. The Company had $63.0 million and $76.0 million of borrowings
outstanding under this agreement at June 4, 2000 and June 6, 1999, respectively.
As of June 4, 2000, the interest rate associated with this facility approximated
6.6%. The credit facility provides for certain restrictions on incurring
additional indebtedness, payment of dividends, and certain covenants regarding
funded debt, net worth, and fixed charge coverage requirements.
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 and
floating-rate lease obligations to rates ranging from 5.79% to 6.25% for periods
up through December 7, 2003.
During Fiscal 1998, the Company entered into a $40.0 million master
synthetic lease agreement for the purpose of leasing new free-standing units and
the Maryville, Tennessee Restaurant Support Services Center. This agreement was
amended in October, 1998 to provide for total funding of $80.0 million and to
change the agreement date to October 2, 1998. On June 3, 1999 the Company
entered into an additional $45.0 million master operating lease agreement also
for the purpose of leasing new free-standing units. Under both master
agreements, an operating lease agreement is entered into for each facility
providing for an initial lease term of five years from the applicable agreement
date with two five-year renewal options. The leases also provide for substantial
residual value guarantees and include purchase options at the lessor's original
cost of the properties. As of June 4, 2000, the Company has entered into leases
for 56 units (43 of which were open at June 4, 2000) and the Maryville,
Tennessee Restaurant Support Services Center at an aggregated original cost to
the lessor of approximately $105.5 million.
During Fiscal 2001, the Company expects to fund operations, capital
expansion, the repurchase of common stock, and the payment of dividends from
operating cash flows, proceeds from the sale of the American Cafe and Tia's
Tex-Mex restaurants and sales of units to franchisees, bank lines of credit, the
five-year revolving line of credit, and through operating leases. See "Special
Note Regarding Forward-Looking Information." (See Note 5 of Notes to
Consolidated Financial Statements for a further discussion of borrowings and
credit facilities.) Total Long-term debt including current maturities decreased
a net $13.1 million in Fiscal 2000 due to lower utilization of the revolving
credit facility while short-term borrowings under bank lines of credit decreased
$5.3 million.
Maturity of the Company's $100.0 million credit facility is March 11, 2001
and, accordingly, the Company has classified outstanding borrowings under the
revolving credit facility and term notes payable as current in the Consolidated
Balance Sheets. Negotiations for the replacement of this credit facility with a
similar five-year credit facility have begun and the Company anticipates that
the refinancing will be complete by October 1, 2000. There can, of course, be no
assurances that the Company will be able to successfully complete renegotiations
on similar terms. See "Special Note Regarding Forward-Looking Information."
Assuming the Company does successfully negotiate the credit facility, the
Company anticipates a net increase of debt in Fiscal 2001 of approximately $30.0
million. A larger increase in debt could result if actual cash flows from
operations are lower than currently anticipated or if capital expenditures
exceed budgeted amounts. See "Special Note Regarding Forward-Looking
Information."
Guarantee of Indebtedness of Others
As part of its domestic franchising program, the Company has negotiated
with various lenders a $52.5 million credit facility to assist franchise
partners with operational cash flow requirements. The Company, as sponsor of the
credit facility, serves as partial guarantor for the draws made on this
revolving line-of-credit facility. As of June 4, 2000, the amount guaranteed by
the Company on the facility was $11.1 million.
Working Capital
The Company's working capital deficiency and current ratio as of June 4,
2000 were $57.3 million and 0.6:1, respectively. As is common in the restaurant
industry, the Company typically carries current liabilities in excess of current
assets because cash (a current asset) generated from operating activities is
reinvested in capital expenditures (a long-term asset).
Dividends
During Fiscal 1997, the Board of Directors approved a dividend policy as
an additional means of returning excess capital to its shareholders. This policy
calls for payment of semi-annual dividends of $0.0225 per share. In accordance
with this policy, the Company paid dividends of $2.8 million in Fiscal 2000. The
payment of a dividend in any particular future period and the 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. See "Special Note Regarding Forward-Looking information." In
addition, the Company's credit facilities contain certain limitations on the
payment of dividends. See Note 5 of Notes to Consolidated Financial Statements
for more information.
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 its weighted average cost of capital while allowing
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. During Fiscal 2000, the Company
purchased 4.5 million shares of Company common stock at a total purchase price
of $41.4 million under its stock repurchase program. After taking into account
the repurchases made during Fiscal 2000, the total number of remaining shares
authorized to be repurchased as of June 4, 2000 was approximately 10.1 million.
Franchising and Development Agreements
Subsequent to June 4, 2000, the Company entered into a purchase agreement
with a potential franchise partner. This purchase agreement provides, among
other things, for the sale of five units in Illinois and one in Iowa. The
closing of the sale is expected to occur in the second quarter of Fiscal 2001
and is subject to various conditions, including the transfer of liquor licenses,
third party consents, and availability of financing. If the sale is completed as
contemplated by the purchase agreement, the six units will be operated as Ruby
Tuesday restaurants and the Company will receive an aggregate purchase price of
$9.2 million, of which approximately $6.9 million is expected to be paid in
cash. The remaining amount will be in the form of interest bearing notes due
through Fiscal 2011. The sale of these units is expected to result in a minimal
pre-tax gain. As of June 4, 2000, five of the six units to be sold were open.
The remaining unit is expected to open by the date of sale. Fiscal 2000 revenues
from the five units in operation totaled $8.8 million, with operating profits of
$0.9 million.
On April 7, 2000, the Company entered into a letter of intent which
provides for the sale of all American Cafe and Tia's Tex-Mex restaurants,
including three Tia's Tex-Mex restaurants then under construction, to the
president and partner of the American Cafe concept and his management team. The
purchase price is $54.5 million plus the cost of developing the new units
(currently estimated to be $4.5 million), of which the Company will finance up
to $20 million. As a result of this planned sale, the Company recorded a pre-tax
loss of $10.0 million on the transaction in Fiscal 2000. Included in the loss is
$8.5 million, which represents an impairment charge on a majority of the Tia's
Tex-Mex goodwill, $0.7 million for compensation expense resulting from the
acceleration of unvested options, and $0.8 million for other write-offs and
charges. The options had original vesting dates ranging from September, 2000
through October, 2002.
The sale is expected to be completed by the end of September. Under the
terms of the letter of intent, the restaurants will be operated under their
current brand names and the current team members are expected to remain in
place.
Revenues for the American Cafe and Tia's Tex-Mex units for Fiscal 2000
were $108.2 million with operating losses of $2.3 million. Included in Fiscal
2000 operating losses were asset impairment charges of $1.2 million.
Disclosures About Market Risk
The Company manages its exposure to changes in short-term interest rates,
particularly to reduce the impact on its debt and floating-rate lease
obligations, by entering into interest rate swap agreements. The counterparties
to these contracts are high credit quality commercial banks. Consequently,
credit risk, which is inherent in all swaps, had been minimized to a large
extent. Interest expense is adjusted for the differential to be paid or received
as interest rates change. The effect of such adjustments on interest expense has
not been significant. The level of floating-rate debt not fixed by swap
agreements was not significant during the year, and management does not expect a
significant increase in these amounts in Fiscal 2001. Accordingly, the Company
does not presently believe it has material exposure to potential, near-term
losses in future earnings and/or cash flows from reasonably possible near-term
changes in market rates.
Change in Accounting Firms
On December 6, 1999, the Company engaged KPMG LLP as the Company's
principal independent accountants. Prior to the engagement of KPMG LLP,
Ernst & Young LLP, independent certified public accountants, had served as the
principal independent accountants for the Company and their reports with respect
to the Company's financial statements for each of the past two fiscal years
ended June 6, 1999 and June 6, 1998 contained no adverse opinion or disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles. The recommendation to change accountants was made by the
Company's Audit Committee and approved by the Company's Board of Directors.
During those fiscal years, the Company has had no disagreements with
Ernst & Young LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Ernst & Young LLP, would have caused Ernst
& Young LLP to make a reference thereto in its report on the financial
statements of the Company for such periods.
New Accounting Standards
In June 2000, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities" ("FAS 138"), which is an amendment of a similarly
titled statement, FAS 133. Both FAS 138 and FAS 133 are effective for the
Company beginning in Fiscal 2002. FAS 133 requires recognition of all
derivatives as either assets or liabilities on the balance sheet measured at
fair value. The Company utilizes interest rate swap agreements to manage
interest rate exposure. The Company is currently studying the expected impact of
FAS 133 on the consolidated financial statements, but anticipates this impact to
be insignificant.
Impact of Inflation
Historically, the Company has been able to recover inflationary cost
increases to items such as food and beverages through increased menu prices.
There have been, and there may be in the future, delays in the implementation of
such menu price increases. Competitive pressures may also limit the Company's
ability to recover such cost increases in their entirety. Historically, the
effect of inflation on the Company's net income has not been materially adverse.
Management's Outlook
The Company continues to strategically position itself for growth through
the continuing emphasis on its core brand (Ruby Tuesday) and focus on its
franchising and partnering programs. Ruby Tuesday, with its menu that features
fun-to-eat food, large portions, and a wide variety, including a signature salad
bar, burgers, ribs, fajitas, chicken, soups and sandwiches, will maintain its
aggressive posture. In Fiscal 2001, the Company will continue its focus on
improving same-store sales, average-unit volume, customer frequency, and check
average through constant improvement of guest service, food quality, and
appealing promotions. Also, the Company is committed to continually focus on
building the best teams through the use of our six-step interview process,
"certified programs", career pathway opportunities into management, and our
WOW-U training facilities for managers. The Company strongly believes proper
staffing, good teams and low turnover are essential to the success of its
business.
The Company continues to identify potential restaurant managers - internal
and external -- to become partners. Internally, approximately one-half of the
Company's restaurant managers have a financial stake in the success of their
units as internal managing partners. Externally, the Company currently has 21
domestic Ruby Tuesday franchise partners and a signed purchase agreement with
one other as previously discussed. In addition to operating existing
restaurants, this agreement provides for the development of new restaurants in
the partner's region over the next five years. The domestic franchising program
provides the Company with the opportunity to have restaurants operating outside
its priority growth markets. Current business plans over the next four to five
years are for half of all Ruby Tuesday restaurant openings to be franchised
units. Internationally, the Company is continually developing relationships with
existing and potential franchisees. The Company has plans which call for the
franchise opening of 35-40 units (including international) in Fiscal 2001 and
the continuous identification of potential new franchisees in targeted areas in
the United States and around the world. See "Special Note Regarding
Forward-Looking Information."
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 the following: future financial performance and unit growth (both
Company-owned and franchised), future capital expenditures, future borrowings
and repayment of debt, and payment of dividends. 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 in which
Company-owned and franchised restaurants are operated; 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; changes in the availability and general economic conditions.
<PAGE>
RUBY TUESDAY, INC.
STATEMENT OF OPERATIONS
(In thousands except per-share data)
Fiscal
Year
2000 1999 1998 1997 1996
System-wide revenues $975,707 $841,059 $758,803 $660,776 $620,134
======= ======= ======= ======= =======
Revenues $797,495 $722,338 $711,420 $655,407 $620,134
======= ======= ======= ======= =======
Income (loss) from continuing
operations before income taxes $62,771* $57,208 $45,031 $38,813 $(2,313)**
Provision for income taxes 26,231 20,694 15,951 13,768 (1,651)
------- ------- -------- ------- -------
Income (loss) from continuing
operations 36,540 36,514 29,080 25,045 (662)
Income (loss) from discontinued operations,
net of applicable income taxes (2,222)***
------- ------- -------- ------- -------
Net income (loss) $36,540 $36,514 $29,080 $25,045 $(2,884)
======= ======= ======== ======= =======
Earnings (loss) per share:
Basic:
Continuing operations $0.58 $0.56 $0.44 $0.36 $(0.01)
Discontinued operations (0.03)
------- ------- ------- ------- -------
$0.58 $0.56 $0.44 $0.36 $(0.04)
======= ======= ======= ======= =======
Diluted:
Continuing operations $0.57 $0.54 $0.42 $0.35 $(0.01)
Discontinued operations (0.03)
------- ------- ------- ------- -------
$0.57 $0.54 $0.42 $0.35 $(0.04)
======= ======= ======= ======= =======
Weighted average common and common equivalent shares:
Basic 62,532 64,774 66,410 70,380 69,252
======= ======= ======= ======= =======
Diluted 64,576 67,528 69,140 71,500 70,754
======= ======= ======= ======= =======
All fiscal years are composed of 52 weeks except for 1998 which is composed of
53 weeks.
Weighted average shares and all per-share data for years prior to a stock split
have been restated from their original presentation to give effect to the
2-for-1 stock splits which occured in Fiscal year 2000 and 1998.
Other financial data:
Total assets $439,212 $428,650 $409,628 $418,871 $381,116
Long-term debt $636 $76,767 $65,895 $78,006 $76,108
Shareholders' equity $229,824 $221,801 $212,150 $223,640 $197,343
Cash dividends per share
of common stock $0.045 $0.045 $0.0225 $0.00 $0.135
* Includes a pre-tax charge of $10.0 million recorded in conjunction with the
planned sale of the American Cafe and Tia's Tex-Mex restaurants
** Includes a pre-tax charge of $25.9 million recognized as a result of the
implementation of FAS 121 and other asset impairment charges and a $5.3
million restructure charge.
*** In fiscal year 1996, the Company (then named Morrison Restaurants Inc.)
distributed the common stock of its family dining restaurant business
(Morrison Fresh Cooking, Inc.) and its health care contract food and
nutrition. business (Morrison Management Specialists, Inc., formerly
Morrison Health Care, Inc.) to its shareholders. The financial results of
the two spun-off businesses are reported as discontinued operations.
<PAGE>
RUBY TUESDAY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per-share data)
For the Fiscal Year Ended
June 4, June 6, June 6,
2000 1999 1998
Revenues:
Restaurant sales and operating revenues $789,240 $717,629 $709,518
Franchise revenues 8,255 4,709 1,902
------------------------------
797,495 722,338 711,420
------------------------------
Operating costs and expenses:
Cost of merchandise 214,136 196,341 194,765
Payroll and related costs 251,463 229,949 228,676
Other 159,398 146,723 146,655
Loss on sale of American Cafe and
Tia's Tex-Mex restaurants 10,003
Depreciation and amortization 41,855 39,390 39,519
Selling, general and administrative 56,454 49,865 52,994
Interest expense net of interest
income totaling $2,944 in 2000,
$1,691 in 1999 and $900 in 1998 1,415 2,862 3,780
------------------------------
734,724 665,130 666,389
------------------------------
Income before income taxes 62,771 57,208 45,031
Provision for income taxes 26,231 20,694 15,951
------------------------------
Net income $ 36,540 $ 36,514 $ 29,080
==============================
Earnings per share:
Basic $ 0.58 $ 0.56 $ 0.44
==============================
Diluted $ 0.57 $ 0.54 $ 0.42
==============================
Weighted average shares:
Basic 62,532 64,774 66,410
==============================
Diluted 64,576 67,528 69,140
==============================
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
RUBY TUESDAY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 4, June 6,
2000 1999
Assets:
Current assets:
Cash and short-term investments $10,154 $9,117
Accounts and notes receivable 6,880 5,406
Inventories:
Merchandise 5,763 5,599
China, silver and supplies 3,615 3,923
Income tax receivable 2,544
Prepaid rent 3,392 3,039
Deferred income tax benefit 312
Other prepaid expenses 5,282 4,692
Assets held for disposal 59,057 15,725
-------- --------
Total current assets 94,455 50,045
-------- --------
Property and equipment - at cost:
Land 36,265 38,913
Buildings 73,298 76,040
Improvements 165,855 186,673
Restaurant equipment 114,489 130,722
Other equipment 46,134 47,396
Construction in progress 15,433 23,589
-------- --------
451,474 503,333
Less accumulated depreciation and amortization 169,609 185,842
-------- --------
281,865 317,491
-------- --------
Costs in excess of net assets acquired, net 8,229 19,037
-------- --------
Notes receivable, net 23,126 18,512
-------- --------
Deferred income taxes 5,355
-------- --------
Other assets 26,182 23,565
-------- --------
Total assets $439,212 $428,650
======== ========
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable $35,346 $27,605
Short-term borrowings 3,400 8,720
Accrued Liabilities:
Taxes, other than income taxes 10,831 11,256
Payroll and related costs 17,809 13,283
Insurance 4,071 3,270
Income taxes payable 222
Rent and other 16,983 13,789
Deferred income taxes 233
Current portion of long-term debt 63,134 126
-------- --------
Total current liabilities 151,796 78,282
-------- --------
Long-term debt 636 76,767
-------- --------
Deferred income taxes 2,333
-------- --------
Deferred escalating minimum rent 11,416 12,025
-------- --------
Other deferred liabilities 45,540 37,442
-------- --------
Shareholders' Equity:
Common stock, $0.01 par value; (authorized:
100,000 shares; issued: 2000-61,719 shares,
1999-64,034 shares) 617 640
Capital in excess of par value 4,597 3,729
Retained earnings 225,219 218,007
-------- --------
230,433 222,376
Deferred compensation liability
payable in Company stock 3,507 2,887
Company stock held by deferred
compensation plan (3,507) (2,887)
Accumulated other comprehensive income (609) (575)
-------- --------
229,824 221,801
-------- --------
Total liabilities and shareholders' equity $439,212 $428,650
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
RUBY TUESDAY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands except per-share data)
<TABLE>
<CAPTION>
Company Stock
Held by Capital in Accumulated
Deferred Excess of Deferred Other Total
Common Stock Issued Compensation Plan Par Retained Compensation Comprehensive Shareholders'
Shares Amount Shares Amount Value Earnings Liability Income Equity
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1997 70,880 $708 $(508) $(2,665) $2,198 $223,399 $0 $0 $223,640
Net income 29,080 29,080
Minimum pension liability
adjustment, net of taxes
of $299 (462) (462)
------
Comprehensive income 28,618
Shares issued under stock bonus
and stock options plans 13,102 132 20,710 20,842
Cash dividends of $0.0225
per common share (1,468) (1,468)
Stock repurchases, net of
changes in Deferred
Compensation Plan (18,408) (184) (31) (490) (17,986) (43,977) (62,637)
Deferred Compensation Plan
liability payable in
Company stock 3,155 3,155
------------------------------------------------------------------------------------------------------------------------------------
Balance, June 6, 1998 65,574 656 (539) (3,155) 4,922 207,034 3,155 (462) 212,150
Net income 36,514 36,514
Minimum pension liability
adjustment, net of taxes
of $73 (113) (113)
------
Comprehensive income 36,401
Shares issued under stock bonus
and stock option plans 3,604 35 22,009 22,044
Cash dividends of $0.045
per common share (2,940) (2,940)
Stock repurchases (5,144) (51) (23,202) (22,601) (45,854)
Changes in Deferred
Compensation Plan 85 268 (268) 0
------------------------------------------------------------------------------------------------------------------------------------
Balance, June 6, 1999 64,034 640 (454) (2,887) 3,729 218,007 2,887 (575) 221,801
Net income 36,540 36,540
Minimum pension liability
adjustment net of taxes
of $22 (34) (34)
------
Comprehensive income 36,506
Shares issued under stock bonus
and stock option plans 2,176 22 15,066 15,088
Cash dividends of $0.045
per common share (2,811) (2,811)
Stock repurchases (4,491) (45) (14,877) (26,517) (41,439)
Acceleration of vesting of stock
options held by American Cafe
and Tia's Tex-Mex employees 679 679
Changes in Deferred
Compensation Plan (62) (620) 620 0
------------------------------------------------------------------------------------------------------------------------------------
Balance, June 4, 2000 61,719 $617 (516) $(3,507) $4,597 $225,219 $3,507 $(609) $229,824
====================================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
RUBY TUESDAY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Fiscal Year Ended
June 4, June 6, June 6,
2000 1999 1998
--------------------------------------------------------------------------------
Operating activities:
Net income $36,540 $36,514 $29,080
Adjustments to reconcile net income to net
cash provided by operating activities:
Loss on sale of American Cafe and
Tia's Tex-Mex restaurants 10,003
Depreciation and amortization 41,855 39,390 39,519
Amortization of intangibles 708 727 729
Deferred income taxes (6,865) (2,545) (1,080)
Loss on impairment and disposition of assets 3,090 328 2,552
Changes in operating assets and liabilities:
Receivables (3,689) 309 (2,631)
Inventories (820) (140) (1,040)
Income tax receivable 2,766 (831) (397)
Prepaid and other assets (3,600) (548) (3,017)
Accounts payable,accrued and
other liabilities 22,252 12,803 4,977
------------------------------
Net cash provided by operating activities 102,240 86,007 68,692
------------------------------
Investing activities:
Purchases of property and equipment (94,264) (72,582) (65,750)
Proceeds from disposal of assets 5,945 2,095 650
Proceeds from sale of restaurant properties
to franchisees 37,972 11,399 34,782
Proceeds from sale of home office building 5,450
Other, net (3,251) (2,731) (3,461)
------------------------------
Net cash used by investing activities (53,598) (61,819) (28,329)
------------------------------
Financing activities:
Proceeds from long-term debt 9,000 16,000
Net change in short-term borrowings (5,312) (7,500) 15,686
Principal payments on long-term debt (22,131) (5,112) (12,103)
Proceeds from issuance of stock,
including treasury stock 15,088 22,044 20,842
Stock repurchases, net of changes
in the Deferred Compensation Plan (41,439) (45,854) (62,637)
Dividends paid (2,811) (2,940) (1,468)
------------------------------
Net cash used by financing activities (47,605) (23,362) (39,680)
------------------------------
Increase in cash and short-term investments 1,037 826 683
Cash and short-term investments:
Beginning of period 9,117 8,291 7,608
------------------------------
End of period $10,154 $9,117 $8,291
==============================
Supplemental disclosure of cash flow information- Cash paid for:
Interest (net of amount capitalized) $3,757 $4,750 $5,885
Income taxes, net $26,087 $17,812 $12,224
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
Ruby Tuesday, Inc. (the "Company") operates three casual dining concepts
comprised of Ruby Tuesday, American Cafe and Tia's Tex-Mex restaurants. The
Company also offers franchises for the Ruby Tuesday concept in domestic and
international markets. At June 4, 2000, the Company owned and operated 402
restaurants, including 336 Ruby Tuesday, 41 American Cafe, and 25 Tia's Tex-Mex
restaurants. The Ruby Tuesday concept units are concentrated primarily in the
Northeast, Southeast, Mid-Atlantic and the Midwest. The American Cafe concept
units are primarily located in the Mid-Atlantic and Southeast regions. Tia's
Tex-Mex operates units in the Southwest, Southeast, and Mid-Atlantic regions.
Also, as of year-end, there were 137 domestic Ruby Tuesday franchise units
located in sixteen states and nine international Ruby Tuesday franchise units
located in the Asia Pacific Region, India, Chile, Honduras, and Iceland.
Fiscal Year
The Company's fiscal year ends on the first Sunday following May 30. Prior
to fiscal 1999, the Company's fiscal year ended on the first Saturday following
May 30. The fiscal years ended June 4, 2000 and June 6, 1999, comprised 52
weeks, and the fiscal year ended June 6, 1998 comprised 53 weeks.
Cash and Short-Term Investments
The Company's cash management program provides for the investment of excess
cash balances in short-term money market instruments. Short-term investments are
stated at cost, which approximates market value. The Company considers amounts
receivable from credit card companies and marketable securities with a maturity
of three months or less when purchased to be short-term investments.
Inventories
Inventories consist of materials, food supplies, china and silver and are
stated at the lower of cost (first-in, first-out) or market.
Property and Equipment and Depreciation
Depreciation for financial reporting purposes is computed using the
straight-line method over the estimated useful lives of the assets or, for
capital lease property, over the term of the lease, if shorter. Annual rates of
depreciation range from 3% to 5% for buildings and improvements and from 8% to
34% for restaurant and other equipment.
Income Taxes
Deferred income taxes are determined utilizing the asset and liability
approach. This method gives consideration to the future tax consequences
associated with differences between financial accounting and tax bases of assets
and liabilities.
Pre-Opening Expenses
Salaries, personnel training costs and other expenses of opening new
facilities are charged to expense as incurred.
Intangible Assets
The excess of cost over the fair value of net assets acquired of purchased
businesses ("goodwill") generally is amortized on a straight-line basis over 40
years. As discussed in Note 3 of Notes to the Consolidated Financial Statements,
the Company wrote off $8.5 million of Tia's Tex-Mex goodwill as part of its
$10.0 million charge recognized due to the planned disposition of the American
Cafe and Tia's Tex-Mex concepts. The remaining portion of the Tia's Tex-Mex
goodwill, $1.6 million, is included in Assets Held for Disposal.
At June 4, 2000 and June 6, 1999, accumulated amortization for cost in
excess of net assets acquired was $6.4 million and $7.4 million, respectively.
Advertising Costs
The Company generally expenses advertising costs as incurred. Advertising
expense totaled $8.2 million, $7.5 million, and $12.7 million for Fiscal 2000,
1999, and 1998, respectively.
Fair Value of Financial Instruments
The Company's financial instruments at June 4, 2000 and June 6, 1999
consisted of cash and short-term investments, Deferred Compensation Plan
investments, notes receivable, short-term borrowings, long-term debt and
interest rate swap agreements. The fair value of these financial instruments
approximated the carrying amounts reported in the Consolidated Balance Sheets
with the exception of Ruby Tuesday stock held by the Deferred Compensation Plan,
which is included in shareholders' equity at cost, and the interest rate swaps,
which had a value to the Company at June 4, 2000 of $5.6 million. Estimates of
the fair value of the financial instruments are based upon current market
conditions, quoted market prices, and present values of future cash flows.
Franchise Revenues
Franchise development and license fees received are recognized when all
material services have been substantially performed by the Company and the
restaurant has opened for business. Franchise royalties (based on a percentage
of monthly sales) are recognized as franchise revenue on the accrual basis.
Support service fees and marketing fees charged to franchisees are included in
selling, general and administrative expenses as an offset to the related costs
incurred by the Company to provide these services. Costs associated with
franchise operations are expensed as incurred.
Refranchising Gains (Losses)
Refranchising gains (losses), included in other operating costs and
expenses, include gains or losses on sales of restaurants to franchisees. All
direct costs associated with refranchising are included in the calculation of
the gain or loss. Upon making the decision to sell a restaurant to a franchisee,
the restaurant is reclassified to Assets Held For Disposal at the lower of book
value or fair market value and any anticipated loss is immediately recognized.
When the sale occurs, any loss not previously recognized is recorded
concurrently with the sale. The Company records an appropriate allowance for
doubtful notes for any gain up to the full amount of the note received in
conjunction with the transaction. Notes receivable presented in the Consolidated
Balance Sheets are net of an allowance for doubtful notes of $25.1 million and
$8.0 million at June 4, 2000 and June 6, 1999, respectively. Gains in excess of
the notes are recognized currently.
Earnings Per Share
Basic earnings per share is computed by dividing net earnings by the
weighted average number of common shares outstanding during each year presented.
Diluted earnings per share gives effect to options outstanding during the
applicable periods. The dilutive effect of the Company's stock options increased
the diluted weighted average shares outstanding by 2,044,000, 2,754,000, and
2,730,000 for Fiscal 2000, 1999, and 1998, respectively.
The Company effected a two-for-one stock split in the form of a 100% stock
dividend paid on May 19, 2000 to shareholders of record on April 28, 2000. All
references to the number of common shares and common share amounts have been
restated to give retroactive effect to the stock split for all periods
presented.
Stock-Based Employee Compensation Plans
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options and adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("FAS 123"). The Company grants
stock options for a fixed number of shares to employees with an exercise price
equal to the fair value of the shares at the date of grant and, accordingly,
recognizes no compensation expense for the stock option grants.
Impairment of Long-Lived Assets
The Company reviews underlying assets related to each of its restaurants
for impairment when circumstances indicate the carrying amount may not be
recoverable. An impairment is recognized when the sum of undiscounted estimated
future cash flows expected to result from the use of the asset is less than the
carrying value.
Comprehensive Income
Comprehensive income includes net income adjusted for certain revenues,
expenses, gains and losses that are excluded from net income in accordance with
generally accepted accounting principles, such as adjustments to the minimum
pension liability. Comprehensive income is shown as a separate component in the
Consolidated Statements of Shareholders' Equity.
Segment Reporting
Operating segments are components of an enterprise about which separate
financial information is available that is reviewed by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The Company aggregates similar operating segments into a single
operating segment if the businesses are considered similar under the criteria of
generally accepted accounting principles. The Company considers its three
restaurant concepts and franchising operations as similar and has aggregated
them.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation. These reclassifications had no effect on previously
reported net.
2. Franchising
The Company's domestic franchise program currently includes 21 franchise
partners whom it considers to be the nation's top restaurant operators. In
conjunction with this program, the Company has sold 106 Ruby Tuesday restaurants
to these franchise partners as of June 4, 2000. These units are now operating as
franchised Ruby Tuesday restaurants under separate franchising agreements.
During Fiscal 2000 and 1999, the Company sold 42 and 19 units, respectively, to
franchise partners for collective sales prices of $58.5 million and $23.3
million, respectively. The portion of sales prices not received in cash ($20.5
million in 2000 and $11.9 million in 1999) was received in the form of notes
bearing interest at rates ranging from 8.0-15.6% and due through 2011. The sales
of these units resulted in a pre-tax gain of $5.4 million in 2000 and $3.1
million in 1999. The gains are included in other operating costs and expenses.
The Company has entered into development agreements with its franchisees
whereby they will open varying numbers of Ruby Tuesday restaurants over the next
five to nine years following their respective agreement dates. During fiscal
years 2000 and 1999, 22 and eight Ruby Tuesday franchise units were opened,
respectively, by franchisees pursuant to development agreements which resulted
in the recognition of development and licensing fees of $1.0 million and $0.5
million, respectively. Deferred development fees associated with all domestic
franchisees totaled $1.5 million and $1.3 million as of June 4, 2000 and June 6,
1999, respectively.
As discussed in Note 10 to the Consolidated Financial Statements, the
Company sponsors and serves as partial guarantor for a revolving line-of-credit
to assist franchise partners with working capital and operational cash flow
requirements.
The Company acquired three units in Kentucky from a franchise partner in
Fiscal 2000 for a purchase price of $0.1 million.
During Fiscal 2000 and 1999, four and two Ruby Tuesday international
franchise units were opened, respectively, by franchisees pursuant to
territorial development agreements which resulted in the recognition of
development and licensing fees of $0.4 million and $0.1 million, respectively.
Deferred territorial development fees, which will be recognized as income as
units are opened in accordance with the various development agreements, totaled
$1.1 million at June 4, 2000 and June 6, 1999.
3. Planned Sale of American Cafe and Tia's Tex-Mex Restaurants
On April 7, 2000, the Company entered into a letter of intent which
provides for the sale of all open American Cafe and Tia's Tex-Mex restaurants
and three Tia's Tex-Mex restaurants then under construction to the president and
partner of the American Cafe concept and his management team (together to be
known as "Specialty Restaurant Group, LLC"). The purchase price is $54.5 million
plus the cost of developing the three new units (currently estimated to be $4.5
million), of which the Company will finance up to $20 million. The Company will
have the right to acquire 33% of Specialty Restaurant Group, LLC following
closing through the fifth anniversary at varying pre-determined amounts.
As a result of this planned sale, the Company recorded a pre-tax loss of
$10.0 million on the transaction in the current fiscal year. Included in the
loss is $8.5 million, which represents an impairment charge on a majority of the
Tia's Tex-Mex goodwill, $0.7 million for compensation expense resulting from the
acceleration of unvested options held by employees of these concepts, and $0.8
million for other write-offs and charges. The accelerated stock options had
original vesting dates ranging from September, 2000 through October, 2002.
The sale is expected to be completed by the end of September, 2000. Under
the terms of the letter of intent, the restaurants will be operated under their
current brand names and the current team members are expected to remain in
place.
Included in Assets Held for Disposal at June 4, 2000 is $56.0 million
which represents the remaining book value of the American Cafe and Tia's Tex-Mex
fixed assets and goodwill. Revenues for the American Cafe and Tia's Tex-Mex
units for Fiscal 2000 were $108.2 million, with operating losses of $2.3 million
4. Impairment of Long-Lived Assets
The Company periodically reviews the recorded value of its long-lived
assets to determine if the future cash flows to be derived from those assets
will be sufficient to recover the remaining recorded asset values. Restaurants
in particular are reviewed on a quarterly basis for negative cash flows.
Management believes that units with recurring negative cash flows might be
impaired based upon poor operating performance. Based upon its reviews in Fiscal
2000, 1999, and 1998, the Company recorded restaurant impairments of $6.3
million, $2.9 million and $0.4 million, respectively. Fiscal 2000 included $4.0
million for five underperforming Ruby Tuesday units in the state of Texas, one
of which closed prior to June 4, 2000. In addition to the restaurant
impairments, the Company recorded a $2.8 million impairment charge in Fiscal
2000 for capitalized software and systems.
5. Long-Term Debt
Long-term debt consists of the following:
(In Thousands)
Fiscal Year
2000 1999
Revolving credit facility $13,000 $26,000
Term notes payable to banks 50,000 50,000
Other long-term debt 770 893
------- -------
63,770 76,893
Less current maturities 63,134 126
------- -------
$ 636 $76,767
======= =======
Annual maturities of long-term debt at June 4, 2000 are as follows:
(In Thousands)
2001 $63,134
2002 143
2003 155
2004 84
2005 48
Subsequent years 206
-------
Total $63,770
=======
The Company has a five-year credit facility with several banks which
allows the Company to borrow up to $100.0 million under various short-term
interest rate options. The $100.0 million credit facility is comprised of a
$50.0 million five-year interest only term note (bearing interest at 6.55% at
June 4, 2000) and a $50.0 million five-year revolving credit facility.
Commitment fees equal to 0.1875% per annum are payable quarterly on the unused
portion of the revolving credit facility. At June 4, 2000, the Company had $13.0
million of borrowings outstanding with various banks under the revolving credit
facility at interest rates approximating 6.91% per annum. Maturity of the credit
facility is March 11, 2001 and, accordingly, the Company has classified
outstanding borrowings under the revolving credit facility and term notes
payable as current in the Consolidated Balance Sheets. Negotiations for the
replacement of this credit facility with a similar five-year credit facility
have begun and the Company anticipated that the refinancing will be complete by
October 1, 2000.
The credit facility contains restrictions on incurring additional
indebtedness and payment of dividends and has certain covenants regarding funded
debt, net worth, and fixed charge coverage. At June 4, 2000, the Company was in
compliance with all such covenants. Retained earnings in the amount of $49.8
million were available for distribution at June 4, 2000 under these debt
covenants.
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 and
floating-rate lease obligations to rates ranging from 5.79% to 6.25% for periods
up through December 7, 2003.
In addition, at June 4, 2000, the Company had committed lines of credit
amounting to $12.2 million and non-committed lines of credit amounting to $15.0
million with several banks at various interest rates approximating 6.91% and
5.18% at June 4, 2000 and June 6, 1999, respectively. All of these lines are
subject to periodic review by each bank. The Company utilized its lines of
credit to meet operational cash needs during Fiscal 2000 and 1999. Borrowings on
these lines of credit were $3.4 million and $8.7 million at June 4, 2000 and
June 6, 1999, respectively.
Interest expense capitalized in connection with financing additions to
property and equipment amounted to approximately $0.7 million and $0.8 million
for the years ended June 4, 2000 and June 6, 1999
6. Leases
Various operations of the Company are conducted in leased premises. Initial
lease terms expire at various dates over the next 21 years and may provide for
escalation of rent during the lease term. Most of these leases provide for
additional contingent rents based upon sales volume and contain options to renew
(at adjusted rentals for some leases).
At June 4, 2000, the future minimum lease payments, including guaranteed
residual values, under operating leases for the next five years and in the
aggregate are as follows:
(In Thousands)
--------------------------------------------
2001 $ 43,933
2002 42,733
2003 42,183
2004 41,155
2005 39,134
Subsequent years 219,262
---------
Total minimum lease payments $ 428,400
=========
Future minimum sub-lease payments to be received for the next five years
and in the aggregate under noncancelable sub-lease agreements are as follows:
(In Thousands)
--------------------------------------------
2001 $ 7,784
2002 7,557
2003 7,633
2004 7,402
2005 7,036
Subsequent years 38,822
----------
Total minimum sub-lease payments $ 76,234
==========
Rental expense pursuant to operating leases is summarized as follows:
(In Thousands)
2000 1999 1998
-------------------------
Minimum rent $36,806 $35,809 $36,288
Contingent rent 4,307 3,527 3,490
-------------------------
$41,113 $39,336 $39,778
=========================
During Fiscal 1998, the Company entered into a $40.0 million master
synthetic lease agreement for the purpose of leasing new free-standing units and
the Maryville, Tennessee Restaurant Support Services Center. This agreement was
amended in October, 1998 to provide for total funding of $80.0 million and to
change the agreement date to October 2, 1998. On June 3, 1999, the Company
entered into an additional $45.0 million master operating lease agreement also
for the purpose of leasing new free-standing units. An operating lease agreement
will be entered into for each facility providing for an initial lease term of
five years from the applicable agreement date with two five-year renewal
options. Each lease also provides for substantial residual value guarantees and
includes purchase options at the lessor's original cost of the properties. As of
June 4, 2000, the Company has entered into leases for 56 units (43 of which were
open at June 4, 2000) and the Maryville, Tennessee Restaurant Support Services
Center at an aggregated original cost to the lessor of approximately $105.5
million. Lease commitments applicable to such leases entered into are included
in the commitment amounts presented above.
Subsequent to June 4, 2000, the Company entered into an interim synthetic
lease agreement for an additional $10.0 million pending a new comprehensive
synthetic lease financing facility.
7. Income Taxes
The components of income tax expense are as follows:
(In Thousands)
2000 1999 1998
-----------------------------------------
Current:
Federal $ 28,987 $ 20,144 $ 13,898
State 4,109 3,095 3,133
-----------------------------------------
33,096 23,239 17,031
Deferred:
Federal (5,372) (2,162) (953)
State (1,493) (383) (127)
-----------------------------------------
(6,865) (2,545) (1,080)
-----------------------------------------
$ 26,231 $ 20,694 $ 15,951
=========================================
Taxes payable were reduced by $3.7 million, $6.6 million, and $5.2 million
in 2000, 1999, and 1998, respectively, as a result of stock options exercises.
Deferred tax assets and liabilities are comprised of the following:
(In Thousands)
2000 1999
------------------------------
Deferred tax assets:
Employee benefits $ 11,679 $ 10,337
Insurance reserves 4,283 4,168
Escalating rents 4,483 4,721
Acquired net operating losses 1,532 2,193
Bad debt reserve 9,860 3,148
Closed unit and asset
impairment reserves 3,568 1,045
Deferred development fees 1,316 1,168
Other 2,568 2,417
------------------------------
Total deferred tax assets 39,289 29,197
------------------------------
Deferred tax liabilities:
Depreciation 28,112 27,103
Assets held for disposal 2,075 1,652
Prepaid deductions 1,687 1,461
Retirement plans 991 882
Other 757 665
------------------------------
Total deferred tax liabilities 33,622 31,763
------------------------------
Net deferred tax asset (liability) $ 5,667 $ (2,566)
==============================
Management believes it is more likely than not the Company will realize the
benefits of its deferred tax assets and therefore no valuation allowance has
been provided.
A reconciliation from the statutory federal income tax expense to the
reported income tax expense is as follows:
(In Thousands)
2000 1999 1998
-------------------------------------
Statutory federal income taxes $ 21,970 $ 20,023 $ 15,761
State income taxes, net
of federal income tax benefit 1,690 1,763 1,954
Tax credits (1,907) (1,123) (1,146)
Write-off of Tia's Tex-Mex 2,985
goodwill
Other, net 1,493 31 (618)
-------------------------------------
$ 26,231 $ 20,694 $ 15,951
=====================================
8. Employee Benefit Plans
Salary Deferral Plan - The Company maintains the Ruby Tuesday, Inc. Salary
Deferral Plan, which is a 401(k) plan. The Company makes matching contributions
to the Plan based on each eligible employee's pre-tax contribution and years of
service. The Company contributes 20% of the employee's pre-tax contribution
after three years of service, 30% after ten years of service and 40% after 20
years of service. The Company's expense related to the Plan approximated $0.2
million for each of 2000, 1999, and 1998.
Deferred Compensation Plan - The Company maintains the Ruby Tuesday, Inc.
Deferred Compensation Plan for certain selected employees. The provisions of
this Plan are similar to those of the Salary Deferral Plan except that the Plan
allows up to 100% deferral of annual earnings (net of withholdings). The
Company's expenses under the Plan approximated $0.2 million for Fiscal 2000 and
$0.1 million for 1999 and 1998. Company assets earmarked to pay benefits under
the Plan are held by a rabbi trust. Assets and liabilities of a rabbi trust must
be accounted for as if they are assets or liabilities of the Company, therefore,
all earnings and expenses are recorded in the Company's financial statements.
The Plan's assets and liabilities, which approximated $16.9 million and $14.6
million in 2000 and 1999, respectively, are included in Other Assets and Other
Liabilities in the Consolidated Balance Sheets, except for the investment in
Ruby Tuesday common stock and the related liability payable in Ruby Tuesday
common stock which are reflected in Shareholders' Equity in the Consolidated
Balance Sheets.
Retirement Plan - The Company, along with Morrison Fresh Cooking, Inc.
(which was subsequently purchased by Piccadilly Cafeterias, Inc.) and Morrison
Management Specialists, Inc. (formerly Morrison Health Care, Inc.), sponsors
the Morrison Restaurants Inc. Retirement Plan. Effective December 31, 1987, the
Plan was amended so that no additional benefits will accrue and no new
participants will enter the Plan after that date. Participants receive
benefits based upon salary and length of service. Certain responsibilities
involving the administration of the Plan are jointly shared by each of the
three companies. No contribution was made to the Plan in 2000, 1999, or 1998.
Executive Supplemental Pension Plan and Management Retirement Plan - Under
these unfunded defined benefit pension plans, eligible employees earn
supplemental retirement income based upon salary and length of service, reduced
by social security benefits and amounts otherwise receivable under other
specified Company retirement plans.
To provide a source for the payment of benefits under these Plans, the
Company owns whole-life insurance contracts on some of the participants. The
cash value of these policies net of policy loans is $7.1 million and $5.9
million at June 4, 2000 and June 6, 1999, respectively. The Company maintains a
rabbi trust to hold the policies and death benefits as they are received. During
Fiscal 2000, the Company received 147,200 shares of common stock from an
insurance company which provides a majority of the whole-life policies as a
result of the insurance company's demutualization. In accordance with this
receipt, the Company recognized income of $1.7 million.
The following table details the reconciliation of the benefit obligations
and fair value of plan assets in addition to the components of pension expense,
the funded status and amounts recognized in the Company's Consolidated Financial
Statements for the Management Retirement Plan, the Executive Supplemental
Pension Plan, and the Retirement Plan. Amounts presented are in thousands.
Pension Benefits
2000 1999 1998
-------- -------- --------
Change in benefit obligation:
Benefit obligation at beginning of year $20,002 $17,825 $13,674
Service cost 170 159 123
Interest cost 1,472 1,288 1,077
Actuarial loss 705 2,291 3,917
Benefits paid (1,547) (1,561) (966)
--------- --------- ---------
Benefit obligation at end of year 20,802 20,002 17,825
--------- --------- ---------
Change in plan assets:
Fair value of plan assets at beginning of year 8,199 7,883 4,730
Retiree liability transfer 2,592
Actual return on plan assets 780 1,251 1,018
Benefits paid (918) (935) (457)
--------- --------- ---------
Fair value of plan assets at end of year 8,061 8,199 7,883
--------- --------- ---------
Reconciliation of funded status:
Funded status (12,741) (11,803) (9,942)
Unrecognized net actuarial loss 3,632 3,491 1,767
Unrecognized transition obligation 759 927 1,095
Unrecognized prior service cost 545 333 502
--------- --------- ---------
Accrued benefit cost $(7,805) $(7,052) $(6,578)
========= ========= =========
Amounts recognized in the Consolidated Balance Sheets consist of:
Prepaid benefit cost $ 1,441 $ 1,331 $ 1,137
Accrued benefit liability (11,333) (10,255) (9,258)
Intangible asset 1,084 925 782
Accumulated other comprehensive income 1,003 947 761
--------- --------- ---------
Net amount recognized at year-end $(7,805) $(7,052) $(6,578)
========= ========= =========
Additional year-end information for pension plans with benefit obligations in
excess of plan assets:
Projected benefit obligation $13,068 $11,821 $10,896
Accumulated benefit obligation 11,333 10,255 9,258
Components of net periodic benefit cost:
Service cost $ 170 $ 159 $ 123
Interest cost 1,472 1,288 1,077
Expected return on plan assets (778) (752) (454)
Amortization of transition obligation 168 168 168
Amortization of prior service cost 169 169 169
Recognized actuarial loss 181 67 14
--------- --------- ---------
Net periodic benefit cost $ 1,382 $ 1,099 $ 1,097
========= ========= =========
Assumptions used:
Discount Rate 8.00% 7.50% 7.50%
Expected return on plan assets 10.00% 10.00% 10.00%
Rate of compensation increase 4.00% 4.00% 4.00%
9. Capital Stock, Options and Bonus Plans
Preferred Stock-Under its Certificate of Incorporation, the Company is
authorized to issue preferred stock with a par value of $0.01 in an amount not
to exceed 250,000 shares which may be divided into and issued in designated
series, with dividend rates, rights of conversion, redemption, liquidation
prices and other terms or conditions as determined by the Board of Directors. No
preferred shares have been issued as of June 4, 2000.
The Ruby Tuesday, Inc. 1996 Stock Incentive Plan - A Committee, appointed
by the Board, administers the Ruby Tuesday, Inc. 1996 Stock Incentive Plan on
behalf of the Company and has complete discretion to determine participants and
the terms and provisions of Stock Incentives, subject to the Plan. The Plan
permits the Committee to make awards of shares of common stock, awards of
derivative securities related to the value of the common stock, and certain cash
awards to eligible persons. These discretionary awards may be made on an
individual basis or pursuant to a program approved by the Committee for the
benefit of a group of eligible persons. All options awarded under the Plan have
been at the prevailing market value at the time of grant. At June 4, 2000, the
Company had reserved a total of 9,342,000 shares of common stock for this Plan.
The Ruby Tuesday, Inc. Stock Incentive and Deferred Compensation Plan for
Directors - Under the Ruby Tuesday, Inc. Stock Incentive and Deferred
Compensation Plan for Directors, non-employee directors have the opportunity to
defer the receipt of their retainer fees or to allocate their retainer fees to
the purchase of shares of the Company. The Plan provides that the directors must
use 60% of their retainer to purchase shares of the Company if they have not
attained a specified level of ownership of shares of Company common stock. Each
director purchasing stock receives additional shares equal to 15% of the shares
purchased and three times the total shares in options, which after six months
are exercisable for five years from the grant date. All options awarded under
the Plan have been at the prevailing market value at the time of grant. A
Committee, appointed by the Board, administers the Plan on behalf of the
Company. At June 4, 2000, the Company had reserved 324,000 shares of common
stock for the Plan.
The Ruby Tuesday, Inc. 1996 Non-Executive Stock Incentive Plan - A
Committee, appointed by the Board, administers the Ruby Tuesday, Inc. 1996
Non-Executive Stock Incentive Plan on behalf of the Company and has full
authority in its discretion to determine the officers and key employees to whom
Stock Incentives are granted and the terms and provisions of Stock Incentives,
subject to the Plan. The Plan permits the Committee to make awards of shares of
common stock, awards of derivative securities related to the value of the common
stock, and certain cash awards to eligible persons. These discretionary awards
may be made on an individual basis or pursuant to a program approved by the
Committee for the benefit of a group of eligible persons. All options awarded
under the Plan have been at the prevailing market value at the time of grant. At
June 4, 2000, the Company had reserved a total of 10,840,000 shares of common
stock for this Plan.
In addition to the above plans, stock options are outstanding under a
terminated plan, the Ruby Tuesday, Inc. Stock Bonus and Non-Qualified Stock
Option Plan, which was effective from 1986 to 1992. Options to purchase 398,000
shares remain outstanding under the terms of the Plan at June 4, 2000.
The Company applies APB 25 and related interpretations in accounting for
its employee stock options. In contrast to the intrinsic value based method
employed by APB 25, FAS 123 utilizes a fair value based method. FAS 123 requires
the use of option valuation models developed for estimating the fair value of
traded options which are fully transferable and have no vesting restrictions.
Option valuation models also utilize highly subjective assumptions such as
expected stock price volatility. Changes in the assumptions can materially
impact the fair value estimate and, in management's opinion, do not necessarily
provide a reliable single measure of the fair value of its employee stock
options. Since the Company has elected to account for its employee stock options
in accordance with APB 25, the required pro forma disclosures as if the option
valuation models were used are presented below in accordance with FAS 123.
All stock options are awarded at the prevailing market rate on the date of
grant; therefore, under the intrinsic value method employed by APB 25, no
compensation expense is recognized. For purposes of FAS 123 disclosure, the
estimated fair value of the options is expensed over the vesting period of the
options. Fair value was estimated at the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions for 2000,
1999, and 1998:
2000 1999 1998
Risk-free interest rate 6.02% 5.50% 5.75%
Expected dividend yield 0.48% 0.56% .00-.69%
Stock price volatility factor 0.359 0.465 0.412
Expected life of options (in years) 3.5-7 3.5-4 3-7
If the Company had adopted FAS 123 in accounting for its stock options
granted in 2000, 1999, and 1998, its net income and earnings per share would
approximate the pro forma amounts below (in thousands except for per share
data):
2000 1999 1998
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
Net income $36,540 $33,236 $36,514 $33,089 $29,080 $26,194
Earnings per
share:
Basic $ 0.58 $ 0.53 $ 0.56 $ 0.51 $ 0.44 $ 0.40
Diluted $ 0.57 $ 0.51 $ 0.54 $ 0.49 $ 0.42 $ 0.38
As discussed in Note 3 of Notes to Consolidated Financial Statements, the
Company recorded a charge of $0.7 million in Fiscal 2000 as a result of the
acceleration of vesting of Company stock options for American Cafe and Tia's
Tex-Mex employees.
The following table summarizes the activity in options under these stock
option plans:
(In Thousands Number of Shares Under Option
Except Per-Share Data) ------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
2000 Price 1999 Price 1998 Price
------ -------- ------ -------- ------- --------
Beginning of year 9,738 $ 5.73 9,587 $ 4.65 11,052 $ 4.44
Granted 2,626 $ 9.23 2,682 $ 8.43 1,036 $ 6.43
Exercised (1,966) $ 4.75 (2,144) $ 4.38 (2,048) $ 4.38
Forfeited (279) $ 6.78 (387) $ 5.31 (453) $ 4.57
------ -------- ------ -------- ------- --------
End of year 10,119 $ 6.80 9,738 $ 5.73 9,587 $ 4.65
====== ======== ====== ======== ======= ========
Exercisable 5,005 $ 4.70 4,204 $ 4.49 3,066 $ 4.32
====== ======== ====== ======== ======= ========
Outstanding option prices $2.17-$9.91 $2.17-$9.78 $2.17-$7.64
================ ================ ================
Exercised option prices $2.78-$7.11 $2.31-$7.11 $2.31-$7.11
================ ================ ================
Granted option prices $8.53-$9.91 $6.53-$9.78 $5.38-$6.75
================ ================ ================
Weighted avg. fair value of options
granted during the year $3.34 $3.42 $2.14
The weighted average remaining contractual life of the options outstanding at
June 4, 2000 was 2.98 years.
10. Commitments and Contingencies
At June 4, 2000, the Company was committed under letters of credit
totaling $7.6 million issued primarily in connection with its workers'
compensation and casualty insurance programs.
As part of its domestic franchise partner program, the Company has
negotiated with various lenders a $52.5 million credit facility to assist
franchise partners with working capital and operational cash flow requirements.
The Company, as sponsor of the credit facility, serves as partial guarantor for
the draws made on this revolving line-of-credit. As of June 4, 2000, the amount
guaranteed by the Company on the facility was $11.1 million.
The Company is presently, and from time to time, subject to pending claims
and lawsuits arising in the ordinary course of its business. In the opinion of
management, the ultimate resolution of these pending legal proceedings will not
have a material adverse effect on the Company's operations, consolidated
financial position or liquidity.
11. Subsequent Event
Subsequent to June 4, 2000, the Company entered into a purchase agreement
with a potential franchise partner which provides, among other things, for the
sale of five units in Illinois and one in Iowa. The closing of the sale of these
units, expected to occur in the second quarter of Fiscal 2001, is subject to
various conditions, including the transfer of liquor licenses, third party
consents, and availability of financing. Upon completion of the sale, the six
units will be operated as Ruby Tuesday restaurants and the Company will receive
an aggregate purchase price of $9.2 million, of which approximately $6.9 million
is expected to be paid in cash. The remaining amount will be in the form of an
interest bearing note due through 2011. The sale of these units is expected to
result in a minimal pre-tax gain. As of June 4, 2000, five of the six units to
be sold were open. The remaining unit is expected to open by the end of the
first quarter of Fiscal 2001. Fiscal 2000 revenues from the five units in
operation totaled $8.8 million, with operating profits of $0.9 million.
12. Supplemental Quarterly Financial Data (Unaudited)
Quarterly financial results for the years ended June 4, 2000 and June 6,
1999, are summarized below.
(In Thousands Except Per-Share Data)
--------------------------------------------------------------------------------
For the Year Ended June 4, 2000
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
--------------------------------------------------------------------------------
Revenues $195,285 $193,779 $209,222 $199,209 $797,495
================================================================================
Gross profit* $ 40,292 $ 38,795 $ 46,352 $ 47,059 $172,498
================================================================================
Income before income taxes $ 16,161 $ 13,151 $ 21,417 $ 12,042** $ 62,771
Provision for income taxes 5,861 4,719 7,687 7,964 26,231
--------------------------------------------------------------------------------
Net income $ 10,300 $ 8,432 $ 13,730 $ 4,078 $ 36,540
================================================================================
Earnings per share:
Basic $ 0.16 $ 0.14 $ 0.21 $ 0.07 $ 0.58
Diluted $ 0.16 $ 0.13 $ 0.21 $ 0.07 $ 0.57
================================================================================
(In Thousands Except Per-Share Data)
--------------------------------------------------------------------------------
For The Year Ended June 6, 1999
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
--------------------------------------------------------------------------------
Revenues $178,147 $175,794 $184,729 $183,668 $722,338
================================================================================
Gross profit* $ 35,252 $ 33,514 $ 41,246 $ 39,313 $149,325
================================================================================
Income before income taxes $ 12,158 $ 9,654 $ 18,619 $ 16,777 $ 57,208
Provision for income taxes 4,362 3,503 6,746 6,083 20,694
--------------------------------------------------------------------------------
Net income $ 7,796 $ 6,151 $ 11,873 $ 10,694 $ 36,514
================================================================================
Earnings per share:
Basic $ 0.12 $ 0.09 $ 0.18 $ 0.17 $ 0.56
Diluted $ 0.11 $ 0.09 $ 0.18 $ 0.16 $ 0.54
================================================================================
* The Company defines gross profit as revenue less cost of merchandise, payroll
and related costs, and other operating costs and expenses.
** Includes a pre-tax charge of $10.0 million recorded in conjunction with the
planned disposition of American Cafe and Tia's Tex-Mex restaurants.
Ruby Tuesday, Inc. common stock is publicly traded on the New York Stock
Exchange under the ticker symbol RI. The following table sets forth the reported
high and low prices of the common stock and cash dividends paid thereon for each
quarter during Fiscal 2000 and 1999.
----------------------------------------------
Fiscal Year Ended June 4, 2000
----------------------------------------------
Per Share
Cash
Quarter High Low Dividends
----------------------------------------------
First $11.03 $ 8.85 $0.0225
Second $11.03 $ 9.00 --
Third $ 9.94 $ 7.85 $0.0225
Fourth $11.56 $ 8.09 --
----------------------------------------------
Fiscal Year Ended June 6, 1999
----------------------------------------------
Per Share
Cash
Quarter High Low Dividends
----------------------------------------------
First $ 8.72 $ 6.91 $0.0225
Second $ 9.60 $ 7.00 --
Third $10.69 $ 9.00 $0.0225
Fourth $10.00 $ 8.22 --
On July 10, 2000, the Company's Board of Directors declared a semi-annual
cash dividend of $0.0225 per share payable on August 7, 2000, to shareholders of
record on July 24, 2000. As of July 28, 2000, there were approximately 5,600
holders of record of the Company's common stock.
<PAGE>
Report of Independent Auditors
Shareholders and Board of Directors
Ruby Tuesday, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Ruby
Tuesday, Inc. and Subsidiaries as of June 4, 2000, and the related consolidated
statements of income, shareholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The accompanying financial statements
of Ruby Tuesday, Inc. and Subsidiaries as of June 6, 1999, and for the two years
then ended, were audited by other auditors whose report thereon dated June 28,
1999, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 2000 financial statements referred to above present
fairly, in all material respects, the financial position of Ruby Tuesday, Inc.
and Subsidiaries as of June 4, 2000, and the results of their operations and
their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
Louisville, Kentucky
June 30, 2000
