UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
---
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 3, 2000
------------------
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: (865) 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 .
--------------------------------------------------------------------------------
61,934,645
--------------------------------------------------------------------------------
(Number of shares of $0.01 par value common stock outstanding
as of October 13, 2000)
Exhibit Index appears on page 14
<PAGE>
INDEX
PAGE
NUMBER
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
SEPTEMBER 3, 2000 AND JUNE 4, 2000.............3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS ENDED
SEPTEMBER 3, 2000 AND SEPTEMBER 5, 1999........4
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS FOR THE THIRTEEN WEEKS ENDED
SEPTEMBER 3, 2000 AND SEPTEMBER 5, 1999........5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.....................................6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................................8-12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK....................................N/A
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.................................13
ITEM 2. CHANGES IN SECURITIES............................NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..................NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS................................NONE
ITEM 5. OTHER INFORMATION................................NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................14
SIGNATURES...............................................15
----------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1
RUBY TUESDAY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 3, JUNE 4,
2000 2000
----------------------------
(UNAUDITED) (NOTE A)
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments.................. $ 11,871 $ 10,154
Accounts and notes receivable.................... 8,161 6,880
Inventories...................................... 9,488 9,378
Prepaid rent..................................... 3,340 3,392
Other prepaid expenses........................... 4,902 5,282
Deferred income tax benefit...................... 263 312
Assets held for disposal......................... 63,729 59,057
------------ -----------
Total current assets........................... 101,754 94,455
------------ -----------
Property and equipment - at cost....................... 460,846 451,474
Less accumulated depreciation and amortization... (174,117) (169,609)
------------ ------------
286,729 281,865
Costs in excess of net assets acquired, net............ 8,133 8,229
Notes receivable, net.................................. 22,966 23,126
Deferred income taxes.................................. 3,243 5,355
Other assets........................................... 27,590 26,182
------------ -----------
Total assets................................. $450,415 $439,212
============ ===========
Liabilities & shareholders' equity Current liabilities:
Accounts payable................................. $ 36,705 $ 35,346
Short-term borrowings............................ 1,325 3,400
Accrued liabilities:
Taxes, other than income taxes................. 11,138 10,831
Payroll and related costs...................... 12,922 17,809
Insurance...................................... 4,293 4,071
Rent and other................................. 16,508 16,983
Income taxes payable........................... 222
Current portion of long-term debt................ 134 63,134
------------ -----------
Total current liabilities.................... 83,025 151,796
------------ -----------
Long-term debt......................................... 68,601 636
Deferred escalating minimum rent....................... 11,590 11,416
Other deferred liabilities............................. 47,099 45,540
Shareholders' equity:
Common stock, $0.01 par value;(authorized 100,000
shares; issued 62,068 @ 9/3/00; 61,719 @ 6/4/00) 621 617
Capital in excess of par value................... 10,863 4,597
Retained earnings................................ 229,225 225,219
------------ -----------
240,709 230,433
Deferred compensation liability payable in
Company stock................................... 3,571 3,507
Company stock held by deferred compensation plan. (3,571) (3,507)
Accumulated other comprehensive income........... (609) (609)
------------ ------------
240,100 229,824
------------ -----------
Total liabilities & shareholders' equity..... $450,415 $439,212
============ ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
<PAGE>
RUBY TUESDAY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER-SHARE DATA)
(UNAUDITED)
THIRTEEN WEEKS ENDED
SEPTEMBER 3, SEPTEMBER 5,
2000 1999
------------------------
Revenues:
Restaurant sales and operating revenues $202,223 $193,589
Franchise revenues..................... 2,787 1,696
-------- --------
205,010 195,285
Operating costs and expenses:
Cost of merchandise.................... 54,777 52,992
Payroll and related costs.............. 65,123 61,616
Other.................................. 40,428 40,385
Depreciation and amortization.......... 9,691 10,361
Selling, general and administrative.... 15,277 13,350
Interest expense, net.................. (362) 420
--------- ---------
184,934 179,124
--------- --------
Income before income taxes............... 20,076 16,161
Provision for income taxes............... 7,187 5,861
--------- --------
Net income............................... $ 12,889 $ 10,300
========= ========
Earnings per share:
Basic.................................. $ 0.21 $ 0.16
========= ========
Diluted................................ $ 0.20 $ 0.16
========= ========
Weighted average shares:
Basic................................. 61,907 63,962
========= ========
Diluted............................... 64,258 66,280
========= ========
Cash dividends declared per share....... $ 0.0225 $ 0.0225
========= ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
RUBY TUESDAY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THIRTEEN WEEKS ENDED
SEPTEMBER 3, SEPTEMBER 5,
2000 1999
------------------------
Operating activities:
Net income........................................ $ 12,889 $ 10,300
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 9,691 10,361
Amortization of intangibles..................... 183 182
Deferred income taxes........................... 2,098 156
Loss on impairment and disposition of assets.... 195 759
Changes in operating assets and liabilities:
Receivables.................................. (1,121) 709
Inventories.................................. (110) 5
Prepaid and other assets..................... 297 897
Accounts payable, accrued and other
liabilities............................... (1,678) 2,277
Income tax payable........................... (222) 4,723
------------ -----------
Net cash provided by operating activities....... 22,222 30,369
------------ -----------
Investing activities:
Purchases of property and equipment............... (19,208) (15,411)
Proceeds from disposal of assets.................. 30 433
Other, net........................................ (1,604) (882)
------------ ------------
Net cash used in investing activities........... (20,782) (15,860)
------------ ------------
Financing activities:
Proceeds from long-term debt...................... 5,000 2,495
Net change in short-term borrowings............... (2,075)
Principal payments on long-term debt.............. (35) (30)
Proceeds from issuance of stock, including
treasury stock.................................. 11,209 3,210
Stock repurchases, net of changes in the Deferred
Compensation Plan............................... (12,431) (18,002)
Dividends paid.................................... (1,391) (1,426)
------------ ------------
Net cash provided by(used in) financing activities 277 (13,753)
------------ ------------
Increase in cash and short-term investments....... 1,717 756
Cash and short-term investments:
Beginning of year............................... 10,154 9,117
------------ -----------
End of quarter.................................. $ 11,871 $ 9,873
============ ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the thirteen week period ended September 3,
2000 are not necessarily indicative of results that may be expected for the year
ending June 3, 2001.
The balance sheet at June 4, 2000 has been derived from the audited consolidated
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in Ruby Tuesday, Inc.'s Annual Report on Form 10-K
for the fiscal year ended June 4, 2000.
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 2.4 million and 2.3 million for the thirteen weeks ended September
3, 2000 and September 5, 1999, respectively. The difference between basic and
diluted weighted average shares reflects the potential dilution from the
exercise of stock options.
NOTE C - COMPREHENSIVE INCOME
Comprehensive income for the thirteen week periods ended September 3, 2000 and
September 5, 1999 was $12.9 million and $10.3 million, respectively, which was
the same as net income.
NOTE D - OTHER DEFERRED LIABILITIES
Other deferred liabilities at September 3, 2000 and June 4, 2000 included $14.4
million and $13.4 million, respectively, for the liability due to participants
in the Company's Deferred Compensation Plan.
NOTE E - REFRANCHISING
As discussed in Note 11 to the Fiscal 2000 Audited Consolidated Financial
Statements, the Company entered into a purchase agreement for the sale of six
restaurants to a potential franchise partner which provides, among other things,
for the sale of five units in Illinois and one unit in Iowa. The closing of the
sale of these units is expected to occur in the second quarter of Fiscal 2001,
and these units will be operated as Ruby Tuesday restaurants under separate
franchising agreements. The aggregate sales price the Company expects to receive
for these units is $9.2 million, of which approximately $7.4 million is expected
to be paid in cash. The remaining amount will be in the form of notes due
through fiscal 2011 bearing interest at a rate of 10.0% per year. The sale of
these units is expected to result in a minimal pre-tax gain. As of September 3,
2000, five of the six units to be sold were open. The remaining unit is expected
to open prior to the completion of the sale. Revenues for the thirteen weeks
ended September 3, 2000 from these five open units totaled $2.2 million, with
operating profits of $0.2 million.
<PAGE>
NOTE F - PLANNED SALE OF AMERICAN CAFE AND TIA'S TEX-MEX RESTAURANTS
On October 4, 2000, the Company entered into an Agreement and Plan of Merger
with Specialty Restaurant Group, LLC (owned by the president and partner of the
American Cafe concept and his management team) which provides for the sale of
all American Cafe (including L&N Seafood) and Tia's Tex-Mex restaurants to
Specialty Restaurant Group, LLC. The purchase price, which will be finalized
upon the completion of construction of three units previously under development,
is projected to be approximately $60.0 million, of which the Company will
finance up to $30.0 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.
The sale is expected to be completed by the end of the second quarter of Fiscal
2001. After the closing of the transaction, the restaurants will be operated
under their current brand names and the current team members will remain in
place.
Included in Assets Held for Disposal at September 3, 2000 is $55.8 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
the thirteen weeks ended September 3, 2000 were $27.6 million, with operating
profit of $0.2 million.
NOTE G - SUBSEQUENT EVENTS
As discussed in Note 5 to the Fiscal 2000 Audited Consolidated Financial
Statements, the Company's $100.0 million five-year credit facility with several
banks is set to mature on March 11, 2001 and negotiations for a five-year
replacement facility had begun prior to June 4, 2000. On October 11, 2000 the
Company entered into a new five-year credit facility with its bank group. The
new facility is an $87.5 million Senior Revolving Credit Facility and includes a
$10.0 million Swing Line and a $15.0 million Letter of Credit sub-facility.
Borrowings under the Revolving Credit Facility will bear interest at various
rate options to be chosen by the Company. The rate will either be the Base Rate
(which is defined to be the higher of the issuing bank's prime lending rate or
the Federal Funds rate plus 0.5%) or LIBOR plus the Applicable Margin (which
ranges from 0.875% to 1.75% and is based on Adjusted Funded Debt to EBITDAR).
Commitment fees ranging from 0.15% to 0.375% are payable quarterly on the unused
portion of the Revolving Credit Facility.
As a result of the completion of its debt refinancing, the Company has
reclassified borrowings outstanding at September 3, 2000 under its previous
credit facility as long-term in the accompanying condensed consolidated balance
sheets.
Also on October 11, 2000, the Company entered into a new $52.5 million master
synthetic operating lease agreement for the purpose of leasing new free-standing
units. The Company currently leases 60 units (44 of which are open at September
3, 2000) and the Maryville, Tennessee Restaurant Support Services Center under
previous master synthetic operating lease agreements. Under the new facility, a
synthetic operating lease agreement will be entered into for each unit providing
for an initial lease term of five years from October 11, 2000 with two five-year
renewal options. Each lease will also provide for substantial residual value
guarantees and include purchase options at the lessor's original cost of the
properties.
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General:
--------------------------------------------------------------------------------
The Company generates revenues from two primary sources: restaurant sales (food
and beverage sales) and franchise revenues consisting of franchise royalties
(based upon a percentage of each franchise restaurant's monthly gross sales) and
development and franchise fees (which typically total $45,000 for each Ruby
Tuesday domestic restaurant opened).
The Company reported net income of $12.9 million for the thirteen weeks ended
September 3, 2000 compared to $10.3 million for the corresponding period of the
prior year. Diluted earnings per share for the first quarter were $0.20, a 25%
increase over the diluted earnings per share for the first quarter of Fiscal
2000. Contributing to the increase was a 2.1% increase in same store sales for
Company-owned Ruby Tuesday restaurants and a reduction, as a percent of
revenues, of operating costs and expenses as discussed below. As of September 3,
2000, the Company owned and operated 414 restaurants, including 346 Ruby
Tuesday, 41 American Cafe, and 27 Tia's Tex-Mex restaurants. Franchised
operations included 141 domestic and ten 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.
Thirteen weeks ended
September 3, September 5,
2000 1999
-------------------------
Revenues:
Restaurant sales and operating revenues 98.6% 99.1%
Franchise revenues..................... 1.4 0.9
------------- --------
Total revenues....................... 100.0% 100.0%
Operating costs and expenses:
Cost of merchandise (1)................ 27.1 27.4
Payroll and related costs (1).......... 32.2 31.8
Other (1).............................. 20.0 20.9
Depreciation and amortization (1)...... 4.8 5.4
Selling, general and administrative.... 7.5 6.8
Interest expense, net.................. (0.2) 0.2
------------- --------
Income before income taxes.................. 9.8 8.3
Provision for income taxes.................. 3.5 3.0
------------- --------
Net income.................................. 6.3% 5.3%
============= =========
(1) As a percentage of restaurant sales and operating revenues.
<PAGE>
The following table shows year-to-date Company-owned restaurant openings,
closings, and total Company-owned restaurants as of the end of the first
quarter.
Year-to-date Year-to-date Total Open at End
Openings Closings of First Quarter
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
2001 2000 2001 2000 2001 2000
------ ----- ------ ----- ------ -----
Ruby Tuesday 12 12 2 1 346 346
American Cafe 0 0 0 2 41 43
Tia's Tex-Mex 2 0 0 0 27 23
The following table shows year-to-date Ruby Tuesday franchised restaurant
openings, closings, and total Ruby Tuesday franchised restaurants as of the end
of the first quarter.
Year-to-date Year-to-date Total Open at End
Openings Closings of First Quarter
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
2001 2000 2001 2000 2001 2000
------ ----- ------ ----- ------ -----
Domestic 5 5 1 0 141 83
International 1 0 0 0 10 7
The Company estimates that 35 additional Company-owned Ruby Tuesday restaurants
and one Tia's Tex-Mex restaurants will be opened during the remainder of Fiscal
2001. The Company expects domestic and international franchisees to open
approximately 29 Ruby Tuesday restaurants during the remainder of Fiscal 2001,
including the six to be re-franchised during the second quarter. As discussed in
Notes E and F to the condensed consolidated financial statements, the Company
has plans to sell six Ruby Tuesday restaurants to a domestic franchise partner
and sell all American Cafe and Tia's Tex-Mex restaurants during Fiscal 2001.
Revenues:
--------------------------------------------------------------------------------
Company restaurant sales increased $8.6 million (4.5%) to $202.2 million for the
quarter ended September 3, 2000 compared to the same quarter of the prior year.
This increase is primarily attributable to a 4.5% increase in average unit
volumes and a 2.1% increase in same store sales for the Ruby Tuesday concept.
The increase in average unit volumes is primarily attributable to the strong
performance of new units.
Franchise revenues totaled $2.8 million for the thirteen weeks ended September
3, 2000 compared to $1.7 million for the same period in the prior year.
Franchise revenues are predominately comprised of domestic and international
royalties which totaled $2.5 million and $1.4 million for the thirteen week
periods ending September 3, 2000 and September 5, 1999, respectively.
<PAGE>
Operating Profits:
--------------------------------------------------------------------------------
Pre-tax income for the quarter ended September 3, 2000 was $20.1 million, an
increase of $3.9 million (19.4%) from the corresponding quarter of the prior
year. The increase in pre-tax income is the result of increased average unit
volumes and positive same store sales for the Ruby Tuesday concept and a
reduction, as a percent of revenues, of operating costs and expenses as
discussed below.
Cost of merchandise increased $1.8 million (3.4%) to $54.8 million for the
quarter ended September 3, 2000 compared to the same quarter of the prior year.
However, as a percentage of Company-owned restaurant sales, the cost of
merchandise decreased from 27.4% to 27.1% for the thirteen weeks ended September
3, 2000. This decrease is attributable to increased vendor rebates due to higher
volume discounts and to a new menu rolled out in April which provided improved
costs and a slightly higher check.
Payroll and related costs increased $3.5 million (5.7%) for the thirteen weeks
ended September 3, 2000, as compared to the same period of the prior year. As a
percentage of Company-owned restaurant sales, these expenses increased from
31.8% to 32.2% for the thirteen week period ended September 3, 2000. The
increase is due to increased bonus from enhanced performance and added focus on
increasing unit staffing to optimum service levels.
Other operating costs for the thirteen weeks ended September 3, 2000 of $40.4
million were consistent to the same period of the prior year. However, as a
percentage of Company-owned restaurant sales, these costs decreased 90 basis
points for the thirteen week period ended September 3, 2000, from 20.9% to
20.0%, which is attributable to the effects of the 4.5% increase in average unit
volumes and to lower occupancy costs from the refranchising of 42 units in the
prior year that ran higher than system average occupancy costs. In addition,
prior year amounts include an asset impairment charge recorded in conjunction
with one American Cafe unit and a charge for the write-off of old china
inventory.
Depreciation and amortization expense decreased $0.7 million (6.5%) for the
thirteen weeks ended September 3, 2000 as compared to the same period of the
prior year. As a percentage of Company-owned restaurant sales, depreciation and
amortization for the thirteen weeks decreased 60 basis points from 5.4% to 4.8%.
The decrease resulted from an increased use of the synthetic leasing program
along with the effect of the increased average unit volumes and various
information technology assets becoming fully depreciated in Fiscal 2000.
Selling, general and administrative expenses increased $1.9 million (14.4%) for
the thirteen weeks ended September 3, 2000, as compared to the same period of
the prior year. These expenses for the thirteen weeks increased 70 basis points
as a percentage of total revenues from 6.8% to 7.5% primarily due to increased
use of the Neighborhood Introduction Program, a local store marketing tool,
increased training as a result of a continuing investment in teams and costs
associated with media testing.
Net interest expense decreased $0.8 million for the thirteen weeks ended
September 3, 2000, as compared to the same period of the prior year. The
decrease is due to increased interest income associated with refranchising notes
receivable.
<PAGE>
Income Taxes:
--------------------------------------------------------------------------------
The effective income tax rate was 35.8% for the thirteen weeks ended September
3, 2000 compared to 36.3% for the same period of the prior year. The decrease in
the effective income tax rate is principally due to reduced state taxes.
LIQUIDITY AND CAPITAL RESOURCES
--------------------------------------------------------------------------------
Cash provided by operating activities was $22.2 million for the thirteen weeks
ended September 3, 2000 and exceeded capital expenditures by $3.0 million.
Proceeds from the issuance of stock pursuant to stock option exercises provided
$11.2 million of cash and additional borrowings under the Company's credit
facilities provided a net $2.9 million of cash. Pursuant to the Company's
financial strategy approved by the Board during Fiscal 1994, $12.4 million of
the Company's common stock was reacquired during the quarter. Additionally,
dividends of $1.4 million were paid to shareholders during the quarter.
The Company requires capital principally for new restaurants, equipment
replacement, and remodeling of existing units. Capital expenditures for the
thirteen weeks ended September 3, 2000 were $19.2 million and expenditures for
construction of new units under the Company's synthetic operating lease program
were $8.7 million. Capital expenditures for the remainder of Fiscal 2001 are
projected to be between $51.0 and $56.0 million which the Company intends to
fund with cash from operating activities. Expenditures for units to be leased by
the Company under synthetic operating lease agreements are projected to be
between $58.0 and $62.0 million for the remainder of Fiscal 2001.
At September 3, 2000, the Company had committed lines of credit amounting to
$12.2 million ($10.9 million which remained available at September 3, 2000) 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.
As discussed in Note G to the condensed consolidated financial statements, the
Company's $100.0 million five-year credit facility with several banks is set to
mature on March 11, 2001 and negotiations for a five-year replacement facility
had begun prior to June 4, 2000. On October 11, 2000 the Company entered into a
new five-year credit facility with its bank group. The new facility is an $87.5
million Senior Revolving Credit Facility with a $10.0 million Swing Line and a
$15.0 million Letter of Credit sub-facility. Borrowings under the Revolving
Credit Facility will bear interest at various rate options to be chosen by the
Company. The rate will either be the Base Rate (which is defined to be the
higher of the issuing bank's prime lending rate or the Federal Funds rate plus
0.5%) or LIBOR plus the Applicable Margin (which ranges from 0.875% to 1.75% and
is based on Adjusted Funded Debt to EBITDAR). Commitment fees ranging from 0.15%
to 0.375% are payable quarterly on the unused portion of the Revolving Credit
Facility.
As of September 3, 2000, the Company's synthetic lease agreements provide for a
total of $125.0 million funding for the purpose of leasing new free-standing
restaurants and the Maryville Restaurant Support Services Center. As of
September 3, 2000, $10.8 million was available for expenditures in accordance
with these agreements. As discussed in Note G to the condensed consolidated
financial statements, on October 11, 2000, the Company entered into an
additional $52.5 million master synthetic operating lease agreement. The Company
currently leases 60 units (44 of which are open at September 3, 2000) and the
Maryville, Tennessee Restaurant Support Services Center under the previous
master synthetic operating lease agreements. Under the new facility, a synthetic
operating lease agreement will be entered into for each unit providing for an
initial lease term of five years from October 11, 2000 with two five-year
renewal options. Each lease will also provide for substantial residual value
guarantees and include purchase options at the lessor's original cost of the
properties.
The Company has entered into five interest rate swap agreements with notional
amounts aggregating $125.0 million. The swap agreements effectively fix the
interest rate on an equivalent amount of the Company's debt (including
floating-rate lease obligations) to rates ranging from 5.79% to 6.25% for
various periods through December 7, 2003.
<PAGE>
KNOWN EVENTS, UNCERTAINTIES AND TRENDS
--------------------------------------------------------------------------------
Financial Strategy and Stock Repurchase Plan
The Company employs a financial strategy which utilizes a prudent amount of debt
to minimize the weighted average cost of capital while allowing the Company to
maintain financial flexibility and the equivalent of an investment-grade (BBB)
bond rating. This financial strategy sets a target debt-to-capital ratio of no
more than 60%, including operating leases. The strategy also provides for
repurchasing Company stock whenever cash flow exceeds funding requirements while
maintaining the target capital structure. Pursuant to this strategy, the Company
repurchased 1.1 million shares during the first quarter of Fiscal 2001. The
total number of remaining shares authorized to be repurchased as of September 3,
2000 is approximately 9.0 million. To the extent not funded with cash from
operating activities, additional repurchases will be funded by borrowings on the
credit facilities and/or cash received in conjunction with the sale of
restaurant units.
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 $0.0225 per share. The payment of a dividend in any
particular future period and actual amount thereof remain, however, at the
discretion of the Board of Directors and no assurance can be given that
dividends will be paid in the future as currently anticipated. Dividends
totaling approximately $1.4 million were paid to shareholders during the first
quarter of Fiscal 2001.
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; 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; changes in
the availability of capital; and general economic conditions.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
The Company is currently, and from time to time, subject to pending claims and
lawsuits arising in the ordinary course of its business. In addition, the
Company, as successor to Morrison Restaurants Inc. ("Morrison"), is a party to a
case (Morrison Restaurants Inc. v. United States of America, et al.), originally
filed by Morrison in 1994 to claim a refund of taxes paid in the amount of
approximately $3,000 and abatement of taxes assessed by the Internal Revenue
Service ("IRS") against Morrison on account of the employer's share of FICA
taxes on unreported tips allegedly received by employees. The IRS filed a
counterclaim for approximately $7,000 in additional taxes. The case was decided
by the U.S. District Court in favor of the Company in February 1996 on summary
judgment. The IRS appealed the District Court's decision and, on August 12,
1997, the U.S. Court of Appeals for the Eleventh Circuit reversed the award of
summary judgment and remanded the case to the District Court for proceedings
consistent with the Court's opinion. In its reversal, the Eleventh Circuit
upheld the IRS' enforcement policy with respect to the employer's share of FICA
taxes on allegedly unreported tips. The Company subsequently petitioned the U.S.
Court of Appeals for a review of the matter by the full Court. Such petition was
denied. There are three additional lawsuits on this issue filed by other
restaurant companies pending in other U.S. federal courts. In September, 1998,
the District Court in Northern California held in favor of the taxpayer on the
identical issue in Fior d Italia v. United States ("Fior"). The District Court
rejected the holding of the Eleventh Circuit holding, inter alia, that the
Eleventh Circuit opinion was rejected by recently expressed congressional
intent. The IRS' motion for reconsideration in light of the Federal Circuit's
decision in The Bubble Room v. United States (infra) was denied. The IRS has
appealed the district court's ruling on Fior. In October 1998, in a split
decision, the United States Court of Appeals for the Federal Circuit issued a
decision unfavorable to the taxpayer in The Bubble Room v. United States. The
taxpayer's petition for a rehearing En Banc was also denied. In June, 1999, the
United States District Court for the Northern District of Florida, Pensacola
Division, in Quietwater Entertainment, Inc. v. United States, GA No. 398CV160,
held in favor of the taxpayer notwithstanding and distinguishing the controlling
law in the Eleventh Circuit in Morrison. Although the amount in dispute is not
material, it is possible that the IRS will attempt to assess taxes in additional
units of the Company (as well as other restaurant companies). In such event, the
Company believes that a business tax credit would be available to the Company to
offset, over a period of years, a majority of any additional taxes determined to
be due. Moreover, the Company is a participant in an IRS enforcement program
which would eliminate the risk of additional assessments by the IRS in return
for a restaurant employer's proactive role in encouraging employee tip
reporting. In light of the proactive role of the Company, the protection against
additional assessment afforded by the agreement should be available to the
Company. In the opinion of management, the ultimate resolution of all pending
legal proceedings will not have a material adverse effect on the Company's
operations, financial position or cash flows.
<PAGE>
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
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EXHIBITS
The following exhibits are filed as part of this report:
Exhibit
No.
27.1 Financial Data Schedule
99.1 Ruby Tuesday, Inc. 1996 Stock Incentive Plan restated as of
September 30, 1999.
99.2 First Amendment to the restated Ruby Tuesday, Inc. 1996 Stock
Incentive Plan dated July 10, 2000.
99.3 Ruby Tuesday, Inc. Executive Supplemental Pension Plan
restated as of July 1, 1999.
99.4 Third Amendment to the Morrison Retirement Plan dated July 10,
2000.
99.5 Agreement and Plan of Merger dated October 4, 2000 among Ruby
Tuesday, Inc., Tia's LLC and Specialty Restaurant Group, LLC.
99.6 Master Agreement dated as of October 11, 2000 among Ruby
Tuesday, Inc., as Lessee and Guarantor, Atlantic Financial
Group, LTD., as lessor, Certain Financial Institutions Party
Hereto, as Lenders and SunTrust Bank, as Agent; together with
the Lease Agreement dated as of October 11, 2000 between
Atlantic Financial Group, LTD., as lessor and Ruby Tuesday,
Inc. as lessee; Guaranty from Ruby Tuesday, Inc. dated as of
October 11, 2000; Loan Agreement dated as of October 11, 2000
among Atlantic Financial Group, LTD., as lessor and borrower,
the financial institutions party hereto, as lenders, and
SunTrust Bank Atlanta, as Agent; and Construction Agency
Agreement dated as of October 11, 2000 among Atlantic
Financial Group, Ltd. and Ruby Tuesday, Inc. as Construction
Agent.
99.7 Revolving Credit Agreement dated as of October 11, 2000 among
Ruby Tuesday, Inc., as Borrowers, The Lenders from Time to
Time Party thereto and SunTrust Bank, as Administrative Agent,
Issuing Bank and Swingline Lender together with Exhibits
thereto.
99.8 Amended and Restated Loan Facility Agreement and Guaranty by
and among Ruby Tuesday, Inc., SunTrust Bank, as Servicer and
Each of the Participants Party thereto dated as of October 11,
2000 together with Exhibits thereto.
REPORTS ON FORM 8-K
None
<PAGE>
SIGNATURES
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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.
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(Registrant)
10/18/00 By:/s/ J. RUSSELL MOTHERSHED
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DATE J. RUSSELL MOTHERSHED
Senior Vice President and
Chief Financial Officer
