UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 5, 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.
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(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 .
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30,778,141
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(Number of shares of $0.01 par value common stock outstanding as of
April 14, 2000)
Exhibit Index appears on page 15
<PAGE>
INDEX
PAGE
NUMBER
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
MARCH 5, 2000 AND JUNE 6, 1999.................3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED
MARCH 5, 2000 AND MARCH 7, 1999................4
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS FOR THE THIRTY-NINE WEEKS ENDED
MARCH 5, 2000 AND MARCH 7, 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..............................12
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...............13
SIGNATURES.............................................14
2
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PART I - FINANCIAL INFORMATION
ITEM 1
RUBY TUESDAY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
MARCH 5, JUNE 6,
2000 1999
(UNAUDITED) (NOTE A)
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments.................. $ 7,422 $ 9,117
Accounts and notes receivable.................... 5,377 5,406
Inventories...................................... 9,474 9,522
Income tax receivable............................ 2,544
Prepaid expenses................................. 6,956 7,731
Prepaid income taxes............................. 1,828 2,165
Assets held for disposal......................... 22,934 15,725
Total current assets........................... 53,991 52,210
Property and equipment - at cost....................... 528,631 503,333
Less accumulated depreciation and amortization... (203,474) (185,842)
325,157 317,491
Costs in excess of net assets acquired................. 18,530 19,037
Other assets........................................... 48,569 42,077
Total assets................................. $446,247 $430,815
Liabilities & shareholders' equity Current liabilities:
Accounts payable................................. $ 29,224 $ 27,605
Short-term borrowings............................ 8,720
Accrued liabilities:
Taxes, other than income taxes................. 11,221 11,256
Payroll and related costs...................... 12,940 13,283
Insurance...................................... 8,398 9,379
Income taxes payable........................... 4,571
Rent and other................................. 16,682 13,789
Current portion of long-term debt................ 132 126
Total current liabilities.................... 83,168 84,158
Long-term debt......................................... 85,670 76,767
Deferred income taxes.................................. 4,682 6,653
Deferred escalating minimum rents...................... 11,934 12,025
Other deferred liabilities............................. 37,508 29,411
Shareholders' equity:
Common stock, $0.01 par value;(authorized 100,000
shares; issued 30,650 @ 3/5/00; 32,017 @ 6/6/99) 306 320
Capital in excess of par value................... 2,410 4,049
Retained earnings................................ 221,144 218,007
223,860 222,376
Deferred compensation liability payable in
Company stock................................... 3,415 2,887
Company stock held by deferred compensation plan. (3,415) (2,887)
Accumulated other comprehensive income........... (575) (575)
223,285 221,801
Total liabilities & shareholders' equity..... $446,247 $430,815
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
3
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RUBY TUESDAY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER-SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
MARCH 5, MARCH 7, MARCH 5, MARCH 7,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales and operating revenues $207,160 $183,425 $592,744 $535,441
Franchise revenues..................... 2,062 1,304 5,542 3,229
209,222 184,729 598,286 538,670
Operating costs and expenses:
Cost of merchandise.................... 56,177 49,920 161,558 146,795
Payroll and related costs.............. 64,715 57,356 188,677 171,277
Other.................................. 41,978 36,207 122,612 110,586
Depreciation and amortization.......... 10,553 9,967 31,245 29,612
Selling, general and administrative.... 13,779 12,092 41,943 37,539
Interest expense, net.................. 603 568 1,522 2,430
187,805 166,110 547,557 498,239
Income before income taxes............... 21,417 18,619 50,729 40,431
Provision for income taxes............... 7,687 6,746 18,267 14,611
Net income............................... $ 13,730 $ 11,873 $ 32,462 $ 25,820
Earnings per share:
Basic.................................. $ 0.44 $ 0.36 $ 1.03 $ 0.79
Diluted................................ $ 0.43 $ 0.35 $ 1.00 $ 0.76
Weighted average shares:
Basic................................. 31,050 32,395 31,401 32,482
Diluted............................... 31,949 33,877 32,438 33,880
Cash dividends declared per share....... $ 0.045 $ 0.045 $ 0.09 $ 0.09
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
4
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RUBY TUESDAY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
MARCH 5, MARCH 7,
2000 1999
<S> <C> <C>
Operating activities:
Net income........................................ $ 32,462 $ 25,820
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 31,245 29,612
Amortization of intangibles..................... 520 546
Deferred income taxes........................... (2,185) (5,285)
Loss on impairment and disposition of assets.... 1,796 287
Changes in operating assets and liabilities:
(Increase)/decrease in receivables........... (458) 905
Increase in inventories...................... (116) (132)
Decrease in prepaid and other assets......... 1,313 203
Increase in accounts payable,
accrued and other liabilities............... 8,359 3,443
Increase in income tax payable............... 7,115 8,584
Net cash provided by operating activities....... 80,051 63,983
Investing activities:
Purchases of property and equipment............... (61,176) (53,432)
Proceeds from disposal of assets.................. 2,786 2,056
Proceeds from sale of restaurant properties
to franchisees................................... 9,992 10,899
Other, net........................................ (2,559) (1,374)
Net cash used by investing activities........... (50,957) (41,851)
Financing activities:
Proceeds from long-term debt...................... 9,000 16,000
Net change in short-term borrowings............... (8,720) (13,955)
Principal payments on long-term debt
and capital leases.............................. (91) (75)
Proceeds from issuance of stock, including
treasury stock.................................. 9,050 11,639
Stock repurchases, net of changes in the
Deferred Compensation Plan...................... (37,217) (31,299)
Dividends paid.................................... (2,811) (2,931)
Net cash used by financing activities........... (30,789) (20,621)
(Decrease)/increase in cash and
short-term investments.......................... (1,695) 1,511
Cash and short-term investments:
Beginning of year............................... 9,117 8,291
End of quarter.................................. $ 7,422 $ 9,802
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the thirteen and thirty-nine week periods
ended March 5, 2000, are not necessarily indicative of results that may be
expected for the year ending June 4, 2000.
The balance sheet at June 6, 1999, 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 6, 1999.
NOTE B - EARNINGS PER SHARE
Basic earnings per share are based on the weighted average number of shares
outstanding during each period. The computation of diluted earnings per share
includes the dilutive effect of stock options. Such stock options have the
effect of increasing diluted weighted average shares outstanding by
approximately 0.9 million and 1.5 million for the thirteen weeks ended March 5,
2000, and March 7, 1999, respectively, and approximately 1.0 million and 1.4
million for the thirty-nine week periods then ended, 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 and thirty-nine week periods ended March
5, 2000, was $13.7 million and $32.5 million, respectively, which was the same
as net income. Comprehensive income for the thirteen and thirty-nine week
periods ended March 7, 1999, was $11.9 million and $25.8 million, respectively,
which was the same as net income.
NOTE D - OTHER DEFERRED LIABILITIES
Other deferred liabilities at March 5, 2000, and June 6, 1999, included $13.0
million and $11.7 million, respectively, for the liability due to participants
in the Company's Deferred Compensation Plan.
NOTE E - REFRANCHISING
As described in Note 9 to the 1999 Audited Consolidated Financial Statements,
the Company entered into letters of intent with four potential franchise
partners. One of these letters of intent provided, among other things, for the
sale of seven Ruby Tuesday(R) units in Michigan and Indiana. During the quarter
ended March 5, 2000, the Company completed the sale of these units to a
franchise partner, and these units now operate as Ruby Tuesday restaurants under
a separate franchising agreement. The aggregate purchase price for the units
sold in this transaction was $13.7 million, consisting of $10.0 million in cash
and $3.7 million in the form of a note due through 2011 bearing interest at a
rate of 10.0% per year. The sale of these units resulted in a pre-tax gain of
$3.8 million. Revenues for the thirty-nine weeks ended March 5, 2000 from these
units totaled $9.6 million, with operating profits of $1.3 million.
6
<PAGE>
NOTE F - ASSET IMPAIRMENTS
During the quarter ended March 5, 2000, the Company recorded asset impairment
charges of $4.0 million associated with five underperforming Ruby Tuesday units
operating in the state of Texas. One of these units was closed subsequent to
quarter end.
NOTE G - SUBSEQUENT EVENTS
On March 27, 2000, the Company consummated a series of agreements with four new
franchise partners and sold 34 Ruby Tuesday units in Michigan, Illinois, and New
York. The aggregate sales price for the units sold was approximately $44.3
million, consisting of approximately $27.5 million in cash and $16.8 million in
the form of interest-bearing notes due through 2011. The sale of these units
resulted in a minimal pre-tax gain. Revenues for the thirty-nine weeks ended
March 5, 2000 from the units sold totaled $46.4 million, with operating income
of $4.1 million for the same period. The net book values of the units sold
totaled $19.5 million and are included in Assets Held for Disposal at March 5,
2000.
At its meeting held on April 10-11, 2000, the Board of Directors declared a
two-for-one split of the Company's common stock to be affected as a stock
dividend. One additional share of common stock will be issued for each share of
common stock held by stockholders of record as of the close of business on April
28, 2000. The additional shares will be distributed on May 19, 2000. Although
the financial statements and related footnotes included herein have not been
adjusted to reflect the stock split, beginning in fourth quarter of fiscal year
2000, operating results will be retroactively restated to give effect for the
stock split for all periods presented.
On April 11, 2000, the Company announced that it had reached an agreement in
principle for the sale of the Company's American Cafe(R) and Tia's Tex-Mex(R)
restaurants to the president and partner of the American Cafe concept, James
CarMichael, and his management team. The Company currently owns and operates 42
American Cafe and 26 Tia's Tex-Mex restaurants. The transaction, which is
expected to close late in the first quarter of fiscal year 2001, is valued at
approximately $55 million of which the Company expects to receive $30 million to
$40 million in cash. Under the terms of the agreement, the restaurants will be
operated under their current brand names and the current team members are
expected to remain in place. The transaction is expected to result in a pre-tax
loss approximating $10 million which the Company will recognize in the fourth
quarter of fiscal year 2000. Revenues for the American Cafe and Tia's Tex-Mex
units for fiscal year 2000 are expected to be approximately $108 million with
operating losses of approximately $1 million.
7
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General:
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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 $13.7 million for the thirteen weeks ended
March 5, 2000, compared to $11.9 million for the corresponding period of the
prior year. Diluted earnings per share for the third quarter was $0.43, a 22.9%
increase over the diluted earnings per share of $0.35 for the third quarter of
fiscal 1999. Contributing to the increase was a 4.0% increase in same store
sales for Company-owned Ruby Tuesday restaurants and a net addition of 30
Company-owned units in operation. The Company also reported net income of $32.5
million for the thirty-nine weeks ended March 5, 2000, compared to $25.8 million
for the corresponding period of the prior year. Diluted earnings per share for
the year-to-date period was $1.00, a 31.6% increase over the same period of
fiscal year 1999. As of March 5, 2000, the Company owned and operated 428
restaurants, including 360 Ruby Tuesday, 42 American Cafe, and 26 Tia's Tex-Mex
restaurants. Franchised operations included 101 domestic and seven international
Ruby Tuesday restaurants.
Results of Operations:
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The following table sets forth selected restaurant operating data as a
percentage of revenues, except where otherwise noted, for the periods indicated.
All information is derived from the unaudited condensed consolidated financial
statements of the Company included herein.
Thirty-nine weeks ended
March 5, March 7,
2000 1999
Revenues:
Restaurant sales and operating revenues 99.1% 99.4%
Franchise revenues..................... 0.9 0.6
Total revenues....................... 100.0 100.0
Operating costs and expenses:
Cost of merchandise (1)................ 27.3 27.4
Payroll and related costs (1).......... 31.8 32.0
Other (1).............................. 20.7 20.7
Depreciation and amortization (1)...... 5.3 5.5
Selling, general and administrative.... 7.0 7.0
Interest expense, net.................. 0.3 0.5
Income before income taxes.................. 8.5 7.5
Provision for income taxes.................. 3.1 2.7
Net income.................................. 5.4% 4.8%
(1) As a percentage of restaurant sales and operating revenues.
8
<PAGE>
The following table shows year-to-date Company-owned restaurant openings,
closings, and total Company-owned restaurants as of the end of the third
quarter.
Year-to-date Year-to-date Total Open at End
Openings Closings of Third Quarter
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
2000 1999 2000 1999 2000 1999
Ruby Tuesday 33 36 8* 21** 360 330
American Cafe 0 0 3 1 42 45
Tia's Tex-Mex 3 2 0 0 26 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 third quarter.
Year-to-date Year-to-date Total Open at End
Openings Closings of Third Quarter
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
2000 1999 2000 1999 2000 1999
Domestic 25* 23** 2 0 101 72
International 2 2 2 0 7 8
* Includes 7 units sold to franchisees. **Includes 17 units sold to franchisees.
The Company estimates that nine to ten additional Company-owned Ruby Tuesday
restaurants will be opened during the remainder of fiscal 2000. The Company
expects domestic franchisees to open five to six and international franchisees
to open two to three Ruby Tuesday restaurants during the remainder of fiscal
2000. Also, as discussed in Note G - Subsequent Events, on March 27, 2000, the
Company sold 34 Ruby Tuesday restaurants to domestic franchise partners.
Revenues:
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Company restaurant sales increased $23.8 million (13.0%) to $207.2 million for
the thirteen weeks ended March 5, 2000, compared to the same period of the prior
year. Restaurant sales increased $57.3 million (10.7%) for the thirty-nine weeks
ended March 5, 2000. This increase is attributable to positive same store sales
for the Ruby Tuesday concept, an increase in the number of units in operation,
and new units that are generating higher average unit volumes.
Franchise revenues totaled $2.1 million for the thirteen weeks ended March 5,
2000, compared to $1.3 million for the same period in the prior year. For the
thirty-nine week period ended March 5, 2000, franchise revenues were $5.5
million compared to $3.2 million for the same period in the prior year.
Franchise revenues are predominately comprised of domestic and international
royalties which totaled $4.4 million and $2.8 million for the thirty-nine week
periods ending March 5, 2000, and March 7, 1999, respectively.
Operating Profits:
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Pre-tax income for the thirteen weeks ended March 5, 2000, was $21.4 million, an
increase of $2.8 million (15.0%) over the corresponding period of the prior
year. For the thirty-nine week period then ended, pre-tax income was $50.7
million, a $10.3 million (25.5%) increase over the corresponding period of the
prior year. The increase in pre-tax income is the result of positive same store
sales for the Ruby Tuesday concept and new units that are generating higher
average unit volumes, coupled with the cost changes discussed below.
Cost of merchandise increased $6.3 million (12.6%) and $14.8 million (10.1%) for
the thirteen and thirty-nine weeks ended March 5, 2000, compared to the same
periods of the prior year. However, as a percentage of Company restaurant sales,
the cost of merchandise decreased 10 basis points to 27.3% for the thirty-nine
weeks ended March 5, 2000. This decrease is attributable to a second quarter
redesigned menu which features some of the Ruby Tuesday concept's more popular
combos as platters in addition to Combo, Fajita, and Rib promotions.
9
<PAGE>
Payroll and related costs increased $7.3 million (12.7%) and $17.4 million
(10.2%) for the thirteen and thirty-nine weeks ended March 5, 2000, as compared
to the same periods of the prior year. However, as a percentage of Company
restaurant sales, these expenses decreased 20 basis points to 31.8% for the
thirty-nine week period ended March 5, 2000. The decrease is due to a continual
reduction in training costs associated with lower hourly turnover, favorable
worker's compensation experience, and a reduction in unit bonuses resulting from
a more performance-based evaluation system being placed in service during the
current year. During fiscal year 1999, under the prior evaluation system, many
managers maximized their bonus potential earlier in the year.
Other operating costs increased $5.8 million (16.0%) and $12.0 million (10.8%)
for the thirteen and thirty-nine weeks ended March 5, 2000, as compared to the
same periods of the prior year. As a percentage of Company restaurant sales,
however, these costs were flat.
Depreciation and amortization expense increased $0.6 million (6.0%) and $1.6
million (5.4%) for the thirteen and thirty-nine weeks ended March 5, 2000, as
compared to the same periods of the prior year. As a percentage of Company
restaurant sales, depreciation and amortization for the thirty-nine weeks
decreased 20 basis points to 5.3%. The decrease results from sales of units to
franchisees beginning in the second quarter of the prior year coupled with
increased use of the synthetic leasing program and higher average unit volumes.
Selling, general and administrative expenses increased $1.7 million (14.0%) and
$4.4 million (11.7%) for the thirteen and thirty-nine weeks ended March 5, 2000,
as compared to the same periods of the prior year. These expenses were
consistent with prior year as a percentage of total revenues.
Despite remaining flat for the thirteen week period ended March 5, 2000, net
interest expense decreased $0.9 million (37.5%) for the thirty-nine weeks then
ended, as compared to the same period of the prior year. The decrease is due to
increased interest income associated with notes receivable from franchisees.
Income Taxes:
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The effective income tax rate was 35.9% and 36.0% for the thirteen and
thirty-nine weeks ended March 5, 2000, respectively, an improvement of 0.3% and
0.1% over the same periods of the prior year. This improvement is due to various
reasons including increased tax credits.
LIQUIDITY AND CAPITAL RESOURCES
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Cash provided by operating activities was $80.1 million for the thirty-nine
weeks ended March 5, 2000, as compared to $64.0 million for the same period in
the prior year. The increase over the prior year resulted from increased
earnings in addition to the timing of operational payments, particularly
accounts payable and other accrued liabilities. Cash provided by operating
activities for the thirty-nine weeks ended March 5, 2000, exceeded capital
expenditures by $18.9 million. Proceeds from the issuance of stock pursuant to
stock option exercises provided $9.1 million of cash. Pursuant to the Company's
financial strategy approved by the Board during fiscal 1994, $37.2 million of
the Company's common stock was reacquired during the thirty-nine weeks ended
March 5, 2000. Additionally, dividends totaling $2.8 million were paid to
shareholders during the current fiscal year.
10
<PAGE>
The Company requires capital principally for new restaurants, equipment
replacement, and remodeling of existing units. Capital expenditures for the
thirty-nine weeks ended March 5, 2000, were $61.2 million and expenditures for
construction of new units under the Company's synthetic operating lease program
were $25.6 million. Capital expenditures for the remainder of fiscal 2000 are
projected to be approximately $27.9 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 $15.6
million for the remainder of fiscal 2000.
At March 5, 2000, the Company had committed lines of credit amounting to $12.2
million available and non-committed lines of credit amounting to $15.0 million
available with several banks at varying interest rates. These lines are subject
to periodic review by each bank and may be canceled by the Company at any time.
In addition, the Company has a $100.0 million, five-year credit facility of
which $15.0 million was available as of March 5, 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 March 5, 2000, $28.3 million was available for
expenditures in accordance with these agreements.
To control future interest costs relating to borrowings under the
above-mentioned $100.0 million credit facility and the Company's $125.0 million
master operating lease agreements, the Company has entered into five interest
rate swap agreements with notional amounts aggregating $125.0 million. The swap
agreements effectively fix the interest rate on an equivalent amount of the
Company's debt (including floating-rate lease obligations) to rates ranging from
5.79% to 6.25% for periods up to December 7, 2003.
KNOWN EVENTS, UNCERTAINTIES AND TRENDS
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Financial Strategy and Stock Repurchase Plan
The Company employs a financial strategy which utilizes a prudent amount of debt
to minimize the weighted average cost of capital while allowing the Company to
maintain financial flexibility and the equivalent of an investment-grade (BBB)
bond rating. This financial strategy sets a target debt-to-capital ratio of no
more than 60%, including operating leases. The strategy also provides for
repurchasing Company stock whenever cash flow exceeds funding requirements while
maintaining the target capital structure. Pursuant to this strategy, the Company
has repurchased 2.0 million shares during the thirty-nine weeks ended March 5,
2000. The total number of remaining shares authorized to be repurchased as of
March 5, 2000, is 5.3 million. Additional repurchases will be funded by
additional borrowings on the credit facilities and/or cash received in
conjunction with the sale of units to franchisees and excess cash from
operations.
Cash Dividend
During fiscal 1997, the Board of Directors approved a dividend policy as a means
of returning excess capital to its shareholders. This policy calls for payment
of semi-annual dividends of $0.045 per share. The payment of a dividend in any
particular future period and actual amount thereof remain, however, at the
discretion of the Board of Directors and no assurance can be given that
dividends will be paid in the future as currently anticipated. Dividends
totaling approximately $2.8 million were paid to shareholders during the current
fiscal year.
11
<PAGE>
Refranchising
Sales of Company-owned units to franchise partners during and subsequent to the
quarter ended March 5, 2000 are discussed in Notes E and G to the Condensed
Consolidated Financial Statements.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
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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.
PART II - OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
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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
12
<PAGE>
appealed the district court's ruling on Fior. In October 1998, in a split
decision, the United States Court of Appeals for the Federal Circuit issued a
decision unfavorable to the taxpayer in The Bubble Room v. United States. The
taxpayer's petition for a rehearing En Banc was also denied. In June, 1999, the
United States District Court for the Northern District of Florida, Pensacola
Division, in Quietwater Entertainment, Inc. v. United States, GA No. 3:98CV160,
held in favor of the taxpayer notwithstanding and distinguishing the controlling
law in the Eleventh Circuit in Morrison. The IRS has appealed the Quietwater
decision forcing the Eleventh Circuit to revisit the issue and the Morrison
decision. Although the amount in dispute is not material, it is possible that
the IRS will attempt to assess taxes in additional units of the Company (as well
as other restaurant companies). In such event, the Company believes that a
business tax credit would be available to the Company to offset, over a period
of years, a majority of any additional taxes determined to be due. Moreover, the
Company is a participant in an IRS enforcement program which would eliminate the
risk of additional assessments by the IRS in return for a restaurant employer's
proactive role in encouraging employee tip reporting. In light of the proactive
role of the Company, the protection against additional assessment afforded by
the agreement should be available to the Company. In the opinion of management,
the ultimate resolution of all pending legal proceedings will not have a
material adverse effect on the Company's operations or financial position.
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
EXHIBITS
The following exhibits are filed as part of this report:
Exhibit
No.
27.1 Financial Data Schedule
REPORTS ON FORM 8-K
As reported in Form 10-Q for the quarter ended December 5, 1999, the
Company filed a report on Form 8-K on December 10, 1999 reporting a change in
independent accountants.
13
<PAGE>
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RUBY TUESDAY , INC.
(Registrant)
4/19/00 By: /s/ J. RUSSELL MOTHERSHED
DATE J. RUSSELL MOTHERSHED
Senior Vice President and
Chief Financial Officer
14
<PAGE>
EXHIBIT INDEX
- --------------------------------------------------------------------------------
Exhibit
Number Description
27.1 Financial Data Schedule
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF RUBY TUESDAY, INC. AS OF AND FOR THE THIRTY-NINE WEEKS ENDED
MARCH 5, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-04-2000
<PERIOD-END> MAR-05-2000
<CASH> 7,422
<SECURITIES> 0
<RECEIVABLES> 5,377
<ALLOWANCES> 0
<INVENTORY> 9,474
<CURRENT-ASSETS> 53,991
<PP&E> 528,631
<DEPRECIATION> 203,474
<TOTAL-ASSETS> 446,247
<CURRENT-LIABILITIES> 83,168
<BONDS> 85,670
0
0
<COMMON> 306
<OTHER-SE> 222,979
<TOTAL-LIABILITY-AND-EQUITY> 446,247
<SALES> 592,744
<TOTAL-REVENUES> 598,286
<CGS> 161,558
<TOTAL-COSTS> 342,534
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,522
<INCOME-PRETAX> 50,729
<INCOME-TAX> 18,267
<INCOME-CONTINUING> 32,462
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,462
<EPS-BASIC> 1.03
<EPS-DILUTED> 1.00
</TABLE>
