-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F3jrNZN1xBUOT4Vn0NxNTBG/vpHiIEqpaAfzFq1BZig+ZPYxCVfgQm3EeU7WJQRv 33YO8BDO4HLJBQXNhYGg+w== 0000068270-01-000006.txt : 20010123 0000068270-01-000006.hdr.sgml : 20010123 ACCESSION NUMBER: 0000068270-01-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001203 FILED AS OF DATE: 20010117 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RUBY TUESDAY INC CENTRAL INDEX KEY: 0000068270 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 630475239 STATE OF INCORPORATION: GA FISCAL YEAR END: 0604 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12454 FILM NUMBER: 1509914 BUSINESS ADDRESS: STREET 1: 150 W CHURCH ST CITY: MARYVILLE STATE: TN ZIP: 37801 BUSINESS PHONE: 2053443000 MAIL ADDRESS: STREET 1: 150 W CHURCH ST CITY: MARYVILLE STATE: TN ZIP: 37801 FORMER COMPANY: FORMER CONFORMED NAME: MORRISON RESTAURANTS INC/ DATE OF NAME CHANGE: 19930923 FORMER COMPANY: FORMER CONFORMED NAME: MORRISON INC /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MORRISON CAFETERIAS CONSOLIDATED INC DATE OF NAME CHANGE: 19680605 10-Q 1 0001.txt SECOND QUARTER FISCAL 2001 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 DECEMBER 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 . - -------------------------------------------------------------------------------- 63,171,573 - -------------------------------------------------------------------------------- (Number of shares of $0.01 par value common stock outstanding as of January 12, 2001) Exhibit Index appears on page 19 INDEX PAGE NUMBER PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 3, 2000 (UNAUDITED) AND JUNE 4, 2000..3 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) FOR THE THIRTEEN AND TWENTY-SIX WEEKS ENDED DECEMBER 3, 2000 AND DECEMBER 5, 1999...........................................4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE TWENTY-SIX WEEKS ENDED DECEMBER 3, 2000 AND DECEMBER 5, 1999....5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).........................6-8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................9-14 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................N/A PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS..............................15 ITEM 2. CHANGES IN SECURITIES..........................NONE ITEM 3. DEFAULTS UPON SENIOR SECURITIES................NONE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............................16 ITEM 5. OTHER INFORMATION..............................NONE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...............17 SIGNATURES.............................................18 ---------- PART I - FINANCIAL INFORMATION ITEM 1 RUBY TUESDAY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT PER-SHARE DATA)
DECEMBER 3, JUNE 4, 2000 2000 -------------------------------- (UNAUDITED) (NOTE A) Assets Current assets: Cash and short-term investments.................. $ 9,337 $ 10,154 Accounts and notes receivable.................... 12,167 6,880 Inventories...................................... 8,545 9,378 Income tax receivable............................ 4,133 - Prepaid rent..................................... 3,104 3,392 Other prepaid expenses........................... 3,112 5,282 Deferred income tax benefit...................... 3,862 312 Assets held for disposal......................... 3,854 59,057 ---------- ---------- Total current assets........................... 48,114 94,455 ---------- ---------- Property and equipment - at cost....................... 471,564 451,474 Less accumulated depreciation and amortization... (179,960) (169,609) ---------- ---------- 291,604 281,865 Costs in excess of assets acquired, net................ 8,037 8,229 Notes receivable, net.................................. 51,152 23,126 Deferred income taxes.................................. 1,849 5,355 Other assets........................................... 29,496 26,182 ---------- ---------- Total assets................................. $430,252 $439,212 ========== ========== Liabilities & shareholders' equity Current liabilities: Accounts payable................................. $ 28,988 $ 35,346 Short-term borrowings............................ 1,050 3,400 Accrued liabilities: Taxes, other than income taxes................. 8,618 10,831 Payroll and related costs...................... 14,935 17,809 Insurance...................................... 4,321 4,071 Rent and other................................. 19,222 16,983 Income tax payable............................... - 222 Current portion of long-term debt................ 136 63,134 ---------- ---------- Total current liabilities.................... 77,270 151,796 ---------- ---------- Long-term debt......................................... 37,566 636 Deferred escalating minimum rent....................... 8,508 11,416 Other deferred liabilities............................. 49,280 45,540 Shareholders' equity: Common stock, $0.01 par value;(authorized 100,000 shares; issued 63,063 @ 12/3/00; 61,719 @ 6/4/00) 631 617 Capital in excess of par value................... 17,399 4,597 Retained earnings................................ 240,207 225,219 ---------- ---------- 258,237 230,433 Deferred compensation liability payable in Company stock................................... 3,965 3,507 Company stock held by deferred compensation plan. (3,965) (3,507) Accumulated other comprehensive income........... (609) (609) ---------- ----------- Total liabilities & shareholders' equity..... $430,252 $439,212 =========== =========== The accompanying notes are an integral part of the condensed consolidated financial statements.
RUBY TUESDAY, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS EXCEPT PER-SHARE DATA) (UNAUDITED)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED DEC. 3, DEC. 5, DEC. 3, DEC. 5, 2000 1999 2000 1999 ---------------------- ----------------------- Revenues: Restaurant sales and operating revenues $193,864 $191,995 $396,087 $385,584 Franchise revenues..................... 2,838 1,784 5,625 3,480 -------- -------- -------- -------- 196,702 193,779 401,712 389,064 Operating costs and expenses: Cost of merchandise.................... 52,984 52,389 107,761 105,381 Payroll and related costs.............. 63,320 62,346 128,443 123,962 Other restaurant operating costs....... 39,750 40,249 80,178 80,634 Depreciation and amortization.......... 9,248 10,331 18,939 20,692 Selling, general and administrative.... 14,358 14,814 29,635 28,164 Interest expense, net.................. (64) 499 (426) 919 -------- -------- -------- -------- 179,596 180,628 364,530 359,752 -------- -------- -------- -------- Income before income taxes............... 17,106 13,151 37,182 29,312 Provision for income taxes............... 6,124 4,719 13,311 10,580 -------- -------- -------- -------- Net income............................... $ 10,982 $ 8,432 $ 23,871 $ 18,732 ======== ======== ======== ======== Earnings per share: Basic.................................. $ 0.17 $ 0.14 $ 0.38 $ 0.30 ======== ======== ======== ======== Diluted................................ $ 0.17 $ 0.13 $ 0.37 $ 0.29 ======== ======== ======== ======== Weighted average shares: Basic................................. 62,291 62,342 62,099 63,152 ======== ======== ======== ======== Diluted............................... 64,483 64,448 64,370 65,364 ======== ======== ======== ======== Cash dividends declared per share....... $ - $ - $ 0.02 $ 0.02 ========= ======== ======== ======== The accompanying notes are an integral part of the condensed consolidated financial statements.
RUBY TUESDAY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) TWENTY-SIX WEEKS ENDED DECEMBER 3, DECEMBER 5, 2000 1999 ------------------------- Operating activities: Net income........................................ $ 23,871 $ 18,732 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................... 18,939 20,692 Amortization of intangibles..................... 366 365 Deferred income taxes........................... 404 (25) (Gain) loss on impairment and disposition of assets..................................... (1,243) 1,538 Other........................................... 93 94 Changes in operating assets and liabilities: Receivables.................................. (6,996) 555 Inventories.................................. (999) (410) Prepaid and other assets..................... 1,856 1,603 Accounts payable, accrued and other liabilities............... (7,389) 13,560 Income taxes................................. (4,355) (1,053) --------- ---------- Net cash provided by operating activities....... 24,547 55,651 --------- ---------- Investing activities: Purchases of property and equipment............... (35,495) (37,355) Proceeds from disposal of assets.................. 29,945 2,076 Proceeds from sale of restaurant properties to franchisees................................... 7,352 - Other, net........................................ (2,588) (1,532) ---------- --------- Net cash used in investing activities........... (786) (36,811) ---------- --------- Financing activities: Proceeds from long-term debt...................... 24,000 9,000 Net change in short-term borrowings............... (2,348) (8,720) Principal payments on long-term debt.............. (50,070) (68) Proceeds from issuance of stock, including treasury stock.................................. 22,468 7,285 Stock repurchases, net of changes in the Deferred Compensation Plan...................... (17,237) (24,144) Dividends paid.................................... (1,391) (1,426) ---------- --------- Net cash used in financing activities........... (24,578) (18,073) ---------- --------- (Decrease) increase in cash and short-term investments......................... (817) 767 Cash and short-term investments: Beginning of year............................... 10,154 9,117 ---------- --------- End of quarter.................................. $ 9,337 $ 9,884 ========== ========= The accompanying notes are an integral part of the condensed consolidated financial statements. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the thirteen and twenty-six week periods ended December 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 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 2.2 million and 2.1 million for the thirteen weeks ended December 3, 2000 and December 5, 1999, respectively, and approximately 2.3 million and 2.2 million for the twenty-six weeks ended December 3, 2000 and December 5, 1999, respectively. NOTE C - COMPREHENSIVE INCOME Comprehensive income for the thirteen and twenty-six week periods ended December 3, 2000 was $11.0 million and $23.9 million, respectively, which was the same as net income. Comprehensive income for the thirteen and twenty-six week periods ended December 5, 1999 was $8.4 million and $18.7 million, respectively, which was the same as net income. NOTE D - OTHER DEFERRED LIABILITIES Other deferred liabilities at December 3, 2000 and June 4, 2000 included $14.5 million and $13.4 million, respectively, for the liability due to participants in the Company's Deferred Compensation Plan. NOTE E - FRANCHISING As described in Note 11 to the Fiscal 2000 Audited Consolidated Financial Statements, the Company entered into a purchase agreement with a potential franchise partner which provided, among other things, for the sale of five units in Illinois and one in Iowa. During the quarter ended December 3, 2000, the Company completed the sale of these units to the franchise partner, and these units now operate as Ruby Tuesday restaurants under separate franchising agreements. The aggregate purchase price for the units sold in this transaction was $9.2 million, consisting of $7.4 million in cash and $1.8 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 $1.7 million. Revenues from these units in Fiscal 2001 through the date of sale totaled $4.0 million, with operating profits of $0.1 million. On September 4, 2000, the Company acquired an additional 49% limited partnership interest of RT Tampa Franchise, LP for $0.5 million pursuant to the terms of the Limited Partnership Agreement of RT Tampa Franchise, LP, dated July 2, 1997, as amended, bringing the Company's limited partnership interest of the Tampa franchise to 50%. The Company accounts for this investment under the equity method. Profits recognized during the quarter from the Company's 50% limited partnership interest of the Tampa franchise were not significant. NOTE F - SALE OF AMERICAN CAFE AND TIA'S TEX-MEX RESTAURANTS As disclosed in the Form 8-K filed on December 5, 2000, on November 20, 2000, the Company completed the sale of all of its American Cafe (including L&N Seafood) and Tia's Tex-Mex restaurants to Specialty Restaurant Group, LLC ("SRG"), a limited liability company owned by the former President and Partner of the Company's American Cafe and Tia's Tex-Mex concepts and certain members of his management team. The 69 restaurants sold to SRG had revenues of $50.0 million and operating losses of $1.1 million for the twenty-four weeks ended November 20, 2000. The sale of these restaurants was effected pursuant to an Agreement and Plan of Merger dated as of October 4, 2000, as amended by First Amendment to Agreement and Plan of Merger dated November 20, 2000, (collectively the "Merger Agreement") among the Company, Tia's, LLC and SRG. The purchase price for these restaurants was determined in arms-length negotiations between the Company and SRG. The consideration received by the Company pursuant to the Merger Agreement consisted of (i) $30.0 million in cash, (ii) a promissory note payable by SRG to the Company (the "Note") in the principal amount of $28.8 million, (iii) an option to acquire a 33% membership interest in SRG during the five-year period following November 20, 2000 at varying amounts, and (iv) a nonsolicitation agreement for the period during which the Note is outstanding and two years after the Note is paid in full. The Note has a term of 10 years, the first three of which are interest only, bears interest at a rate of 10% per annum, and is secured by a pledge of all of the outstanding membership interests of SRG. As described in Note 3 to the Fiscal 2000 Audited Consolidated Financial Statements, a pre-tax loss of $10.0 million was recorded in Fiscal 2000 in conjunction with the anticipated sale. NOTE G - LONG-TERM DEBT 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 was 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 $100.0 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 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 December 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 $60.0 million master synthetic operating lease agreement for the purpose of leasing new free-standing units. 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. 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 $11.0 million for the thirteen weeks ended December 3, 2000 compared to $8.4 million for the corresponding period of the prior year, a 30.2% increase. Diluted earnings per share for the second quarter were $0.17, a 30.8% increase over the diluted earnings per share of $0.13 for the second quarter of Fiscal 2000. Contributing to the increase was a 4.3% increase in average unit volumes including a 2.8% increase in same store sales for Company-owned Ruby Tuesday restaurants as well as a reduction, as a percent of revenues, of operating costs and expenses as discussed below. The Company also reported net income of $23.9 million for the twenty-six weeks ended December 3, 2000 compared to $18.7 million for the corresponding period of the prior year, a 27.4% increase. Diluted earnings per share for the year-to-date period were $0.37, a 27.6% increase over the same period of Fiscal year 2000. As of December 3, 2000, the Company owned and operated 350 Ruby Tuesday restaurants located in 26 states. Franchised operations included 154 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. Twenty-six weeks ended December 3, December 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)................ 27.2 27.3 Payroll and related costs (1).......... 32.4 32.1 Other restaurant operating costs (1)... 20.2 20.9 Depreciation and amortization (1)...... 4.8 5.4 Selling, general and administrative.... 7.4 7.2 Interest expense, net.................. (0.1) 0.2 ------------- ------------ Income before income taxes.................. 9.2 7.5 Provision for income taxes.................. 3.3 2.7 ------------- ------------ Net income.................................. 5.9% 4.8% ============= ============= (1) As a percentage of restaurant sales and operating revenues. The following table shows year-to-date Company-owned restaurant openings, closings, and total Company-owned restaurants as of the end of the second quarter. Year-to-date Year-to-date Total Open at End Openings Closings of Second Quarter -------------- -------------- ----------------- Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal 2001 2000 2001 2000 2001 2000 ------ ----- ------ ----- ------ ------ Ruby Tuesday 27 26 13* 1 350 360 American Cafe (including L&N) 0 0 41** 3 0 42 Tia's Tex-Mex 3 3 28** 0 0 26 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 second quarter. Year-to-date Year-to-date Total Open at End Openings Closings of Second Quarter -------------- -------------- ----------------- Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal 2001 2000 2001 2000 2001 2000 ------ ------ ------ ------ ------ ------ Domestic 18* 13 1 0 154 91 International 1 0 0 1 10 6 * Includes 6 units sold to franchisees ** Includes 38 American Cafe, 3 L&N and 28 Tia's Tex-Mex units sold to SRG The Company estimates that approximately 20 additional Company-owned Ruby Tuesday restaurants will be opened during the remainder of Fiscal 2001. The Company expects domestic and international franchisees to open approximately 15 Ruby Tuesday restaurants during the remainder of Fiscal 2001. Revenues: - -------------------------------------------------------------------------------- Company restaurant sales increased $1.9 million (1.0%) to $193.9 million for the thirteen weeks ended December 3, 2000 compared to the same period of the prior year. Restaurant sales increased $10.5 million (2.7%) for the twenty-six weeks ended December 3, 2000. This increase is attributable to positive same store sales for the Ruby Tuesday concept contributing to a 4.3% increase in average unit volumes. This increase was partially offset by the sale of 42 units in Fiscal 2000 and six in the second quarter of Fiscal 2001 to franchise partners. System-wide sales for the twenty-six week period increased 13.5%. Franchise revenues totaled $2.8 million for the thirteen weeks ended December 3, 2000 compared to $1.8 million for the same period in the prior year. For the twenty-six week period ended December 3, 2000, franchise revenues were $5.6 million compared to $3.5 million for the same period in the prior year. Franchise revenues are predominately comprised of domestic and international royalties which totaled $5.0 million and $2.8 million for the twenty-six week periods ending December 3, 2000 and December 5, 1999, respectively. Operating Profits: - -------------------------------------------------------------------------------- Pre-tax income for the thirteen weeks ended December 3, 2000 was $17.1 million, an increase of $4.0 million (30.0%) over the corresponding period of the prior year. For the twenty-six week period ended on that same date, pre-tax income was $37.2 million, a $7.9 million (26.8%) increase over the corresponding period 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 percentage of revenue, of other restaurant operating costs and depreciation and amortization as discussed below. Cost of merchandise increased $0.6 million (1.1%) to $53.0 million for the thirteen weeks ended December 3, 2000 compared to the same period of the prior year and $2.4 million (2.3%) for the twenty-six weeks ended December 3, 2000 compared to the same period of the prior year. However, as a percentage of Company restaurant sales, the cost of merchandise decreased from 27.3% to 27.2% for the twenty-six weeks ended December 3, 2000. The decrease is attributable to increased vendor rebates due to stronger negotiating and the increasing buying power which results from the growth of the brand. Payroll and related costs increased $1.0 million (1.6%) and $4.5 million (3.6%) for the thirteen and twenty-six weeks ended December 3, 2000, as compared to the same periods of the prior year. As a percentage of Company restaurant sales, these expenses increased 30 basis points to 32.4% for the twenty-six week period ended December 3, 2000. The increase is due to higher bonuses from enhanced performance and the Company's focus on increasing unit level staffing. Other restaurant operating costs decreased $0.5 million (1.2%) and $0.5 million (0.6%) for the thirteen and twenty-six weeks ended December 3, 2000, as compared to the same periods of the prior year. As a percentage of Company restaurant sales these costs decreased 70 basis points to 20.2% for the twenty-six week period ended December 3, 2000, which is attributable to the effects of the 4.3% increase in average unit volumes, lower occupancy costs from the refranchising of 42 units in the prior year that ran higher than system average occupancy costs and a gain on the refranchise of six units during the quarter (See note E). Offsetting these decreases were higher closing expenses which predominantly resulted from increasing the lease reserve on the closed Mobile, Alabama Restaurant Support Center. Depreciation and amortization expense decreased $1.1 million (10.5%) and $1.8 million (8.5%) for the thirteen and twenty-six weeks ended December 3, 2000, as compared to the same periods of the prior year. As a percentage of Company restaurant sales, depreciation and amortization for the twenty-six weeks decreased 60 basis points 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 decreased $0.5 million (3.1%) and increased $1.5 million (5.2%) for the thirteen and twenty-six weeks ended December 3, 2000, as compared to the same periods of the prior year. As a percentage of total operating revenues, these expenses increased 20 basis points to 7.4% for the twenty-six week period ended December 3, 2000. The increase is attributable to the increased training as a result of a continuing investment in teams and costs associated with media testing. Net interest expense decreased $0.6 million and $1.3 million for the thirteen and twenty-six weeks ended December 3, 2000, as compared to the same periods of the prior year. The decrease is due to increased interest income associated with notes receivable from franchisees and SRG in addition to lower debt outstanding balances. Income Taxes: - -------------------------------------------------------------------------------- The effective income tax rate was 35.8% for the thirteen weeks ended December 3, 2000 compared to 35.9% for the same period of the prior year. The effective income tax rate was 35.8% for the twenty-six weeks ended December 3, 2000 compared to 36.1% 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 - -------------------------------------------------------------------------------- The following table presents a summary of the Company's cash flows from operating, investing and financing activities for the periods indicated (in thousands). Twenty-Six Twenty-Six Weeks Ended Weeks Ended December 3, 2000 December 5, 1999 ---------------- ---------------- Net cash provided by operating activities $ 24,547 $ 55,651 Net cash used in investing activities (786) (36,811) Net cash used in financing activities (24,578) (18,073) -------- -------- Net (decrease) increase in cash and short- term investments $ (817) $ 767 ======== ======== Cash provided by operating activities was $24.5 million for the twenty-six weeks ended December 3, 2000 as compared to $55.7 million for the same period in the prior year. Cash provided by operating activities as compared to the prior year reflect an increase in net income of $5.1 million. Offsetting this were increases in cash used resulting from increases in accounts and notes receivable, and decreases in accounts payable (which includes accrued and other liabilities) and income taxes payable. Fiscal 2001 increases in accounts and notes receivable exceeded those of Fiscal 2000 by $7.6 million due to the growth of franchising, increases in vendor rebates receivable, and amounts due as of December 3, 2000 from the Company's bank group for reimbursement of synthetic lease expenditures. The payment in Fiscal 2001 for accounts payable and accrued liabilities used $20.9 million more cash than Fiscal 2000. This was due to lower spending for synthetic lease expenditures in Fiscal 2000 resulting in an increase in accounts payable at the end of the quarter, the timing of operational cash payments, and the reduction in payables which resulted from the sale of 69 units to SRG. The reduction in income taxes payable is due to additional deductions from employee exercises of stock options. These deductions have lowered taxes in Fiscal 2001 by $8.3 million. This is an increase of $6.7 million over Fiscal 2000. Net cash used in investing activities was $36.0 million less than Fiscal 2000 due to the proceeds received from the sale of assets to SRG ($30.0 million) and a franchise partner ($7.4 million). Capital expenditures exceeded cash provided by operating activities for the twenty-six weeks ended December 3, 2000 by $10.9 million due to the unusual uses of operating cash noted above. Net cash used in Fiscal 2001 financing activities was $6.5 million more than Fiscal 2000 due to the net paydown of debt which was possible due to the funds received from the sale of American Cafe and Tia's Tex-Mex units to SRG. Partially offsetting this use of cash was an increase over the prior year in proceeds from issuance of stock ($15.2 million) due to increased stock option exercises by employees and a reduction of $6.9 million from the prior year level of stock repurchases. Pursuant to the Company's financial strategy approved by the Board during Fiscal 1994, $17.2 million of the Company's common stock was reacquired during the twenty-six weeks ended December 3, 2000. Additionally, dividends of $1.4 million were paid to shareholders during the first quarter of Fiscal 2001. The Company requires capital principally for new restaurants, equipment replacement, and remodeling of existing units. Capital expenditures for the twenty-six weeks ended December 3, 2000 were $35.5 million and expenditures for construction of new units under the Company's synthetic operating lease program were $30.5 million. Capital expenditures for the remainder of Fiscal 2001 are projected to be between $40.0 and $45.0 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 approximately $36.0 million for the remainder of Fiscal 2001. On October 11, 2000 the Company entered into a new five-year credit facility with its bank group. The new facility was initially 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. On November 14, 2000, the Senior Revolving Credit Facility was increased to $100.0 million. Borrowings under the Revolving Credit Facility bear interest at 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 December 3, 2000, the Company's synthetic lease agreements provide for a total of $185.0 million funding for the purpose of leasing new free-standing restaurants and the Maryville Restaurant Support Services Center. As of December 3, 2000, $63.8 million was available for expenditures in accordance with these agreements. The Company currently leases 72 units (53 of which are open at December 3, 2000 and 19 are under construction) and the Maryville, Tennessee Restaurant Support Services Center under synthetic operating lease agreements. At December 3, 2000, the Company had committed lines of credit with several banks at varying interest rates amounting to $12.5 million, with $11.5 available. These lines are subject to periodic review by each bank and may be canceled by the Company at any time. To control future interest costs relating to borrowings under the above-mentioned $100.0 million credit facility and the Company's master synthetic 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 5.95% to 6.73% for periods up to December 7, 2003. Two of the five swaps, with notional amounts totaling $50.0 million, are callable by the banks as of the date of this filing. The Company has not received notification that the swaps will be called. 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. The strategy provides for repurchasing Company stock whenever cash flow exceeds funding requirements while maintaining the target capital structure. Pursuant to this strategy, the Company repurchased 1.5 million shares during the twenty-six weeks ended December 3, 2000. The total number of remaining shares authorized to be repurchased as of December 3, 2000 is approximately 8.6 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. On January 8, 2001, the Board of Directors declared a semi-annual dividend of $0.0225 per share, payable on February 9, 2001, to shareholders of record at the close of business on January 26, 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. 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, on August 12, 1997, 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 on November 26, 1997. The District Court issued an order consistent with the opinion of the Eleventh Circuit on December 11, 1997. While the issue is not yet finally resolved, the case has been inactive since that time. There have been six additional lawsuits on this issue, three of which are still pending, filed by other restaurant companies in other U.S. federal courts including (1) Fior d Italia v. United States ("Fior") (September, 1998, District Court in Northern California) holding in favor of the taxpayer, the IRS has appealed the district court's ruling on Fior; (2) The Bubble Room v. United States(October 1998, United States Court of Appeals for the Federal Circuit) unfavorable to the taxpayer; and (3) Quietwater Entertainment, Inc. v. United States(June, 1999, United States District Court for the Northern District of Florida, Pensacola Division) in favor of the taxpayer notwithstanding and distinguishing the controlling law in the Eleventh Circuit in Morrison. It is anticipated that the United States Supreme Court will ultimately decide this issue. 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - -------------------------------------------------------------------------------- At the Annual Meeting of Shareholders held on October 5, 2000, the shareholders of the Company elected Class II Directors to serve a three year term on the Board. The results of the votes were as follows: Authority Director Nominees For Withheld - --------------------- -------------- ---------- Dr. Ronald Ratajczak 52,810,020 362,467 Samuel E. Beall, III 52,762,417 410,070 Claire L. Arnold 52,807,341 365,146 The Directors continuing in office are: Dolph W. von Arx, John B. McKinnon, James A. Haslam, III, Elizabeth L. Nichols, Dr. Benjamin F. Payton. In addition to the above proposal, the shareholders voted on a proposal to approve an Amendment to the Company's 1996 Stock Incentive Plan to (i) increase the number of shares with respect to which equity incentives may be granted during any fiscal year to any employee to 750,000 to accommodate both of the two-for-one stock splits of the Company's common stock effected on each of May 11, 1998 and May 19, 2000, and (ii) provide for automatic adjustments in the number of shares with respect to which equity incentives may be granted during any fiscal year in the event of future stock splits or other similar changes in the Company's capital structure. The results of the voting were as follows: 36,717,112 shares FOR the Amendment 16,225,075 shares AGAINST the Amendment 230,300 shares ABSTAIN ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - -------------------------------------------------------------------------------- EXHIBITS The following exhibits are filed as part of this report: Exhibit No. None REPORTS ON FORM 8-K On December 5, 2000, the Company filed a report on Form 8-K reporting the sale of all of its American Cafe (including L&N Seafood) and Tia's Tex-Mex restaurants to Specialty Restaurant Group, LLC. This report contained unaudited pro forma condensed consolidated financial information 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) 1/17/01 By: /s/ J. RUSSELL MOTHERSHED - -------- --------------------------- DATE J. RUSSELL MOTHERSHED Senior Vice President and Chief Financial Officer EXHIBIT INDEX - -------------------------------------------------------------------------------- Exhibit Number Description - ------- ----------------------------------------------------------------------- None -----END PRIVACY-ENHANCED MESSAGE-----