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 4, 2001
-------------------
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
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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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64,489,294
-------------------------------------------------------------------------------
(Number of shares of $0.01 par value common stock outstanding as of
January 15, 2002)
Exhibit Index appears on page 17
INDEX
PAGE
NUMBER
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
DECEMBER 4, 2001 (UNAUDITED) AND JUNE 5, 2001........3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED) FOR THE THIRTEEN AND TWENTY-SIX
WEEKS ENDED DECEMBER 4, 2001 AND DECEMBER 3,
2000.................................................4
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (UNAUDITED) FOR THE TWENTY-SIX WEEKS
ENDED DECEMBER 4, 2001 AND DECEMBER 3, 2000..........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 AND USE OF PROCEEDS............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 4, JUNE 5,
2001 2001
------------------------------
(UNAUDITED) (NOTE A)
Assets
Current assets:
Cash and short-term investments................... $ 16,251 $ 10,636
Accounts and notes receivable..................... 10,303 6,754
Inventories:
Merchandise..................................... 6,854 6,661
China, silver and supplies...................... 3,329 2,711
Income tax receivable............................. 7,848 7,671
Prepaid expenses.................................. 6,336 7,726
Deferred income taxes............................. 2,410 64
Assets held for disposal.......................... 28,490 22,197
---------- ----------
Total current assets.......................... 81,821 64,420
---------- ----------
Property and equipment - at cost.................... 510,328 472,337
Less accumulated depreciation and amortization.... (194,080) (182,202)
---------- ----------
316,248 290,135
Goodwill, net....................................... 7,845 7,845
Notes receivable, net............................... 57,039 56,881
Other assets........................................ 30,606 26,386
---------- ----------
Total assets............................... $493,559 $445,667
========== ==========
Liabilities & shareholders' equity
Current liabilities:
Accounts payable.................................. $ 29,849 $ 27,910
Short-term borrowings............................. 14,700
Accrued liabilities:
Taxes, other than income taxes.................. 7,290 6,349
Payroll and related costs....................... 17,276 18,670
Insurance....................................... 4,682 4,221
Rent and other.................................. 18,498 16,083
Current portion of long-term debt............... 520 500
---------- ----------
Total current liabilities..................... 78,115 88,433
---------- ----------
Long-term debt, net of current portion.............. 23,948 15,212
Deferred income taxes............................... 7,850 4,127
Deferred escalating minimum rent.................... 9,090 8,810
Other deferred liabilities.......................... 55,398 44,814
Shareholders' equity:
Common stock, $0.01 par value;(authorized 100,000
shares; issued 63,960 @ 12/4/01; 63,211 @ 6/5/01) 640 632
Capital in excess of par value.................... 22,086 14,830
Retained earnings................................. 301,059 270,556
---------- ----------
323,785 286,018
Deferred compensation liability payable in
Company stock.................................... 4,566 4,248
Company stock held by Deferred Compensation Plan.. (4,566) (4,248)
Accumulated other comprehensive income............ (4,627) (1,747)
---------- ----------
Total liabilities & shareholders' equity... $493,559 $445,667
========== ==========
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. 4, DEC. 3, DEC. 4, DEC. 3,
2001 2000 2001 2000
---------------------- ----------------------
(NOTE A) (NOTE A)
Revenues:
Restaurant sales and operating
revenues................... $195,729 $192,768 $395,421 $393,419
Franchise revenues............ 3,256 2,838 6,548 5,625
-------- -------- -------- --------
198,985 195,606 401,969 399,044
Operating costs and expenses:
Cost of merchandise........... 52,511 52,984 105,880 107,761
Payroll and related costs..... 65,040 63,320 129,777 128,443
Other restaurant operating
costs...................... 39,769 39,959 80,137 80,391
Depreciation and amortization. 8,491 9,248 16,575 18,939
Selling, general and
administrative............. 11,249 13,053 22,857 26,754
Interest income, net. ........ (1,460) (64) (2,843) (426)
--------- --------- --------- ---------
175,600 178,500 352,383 361,862
--------- --------- --------- ---------
Income before income taxes and
cumulative effect of change
in accounting principle....... 23,385 17,106 49,586 37,182
Provision for income taxes...... 8,303 6,124 17,605 13,311
Cumulative effect of change
in accounting principle, net
of tax........................ - - 58 -
-------- -------- -------- ---------
Net income...................... $ 15,082 $ 10,982 $ 31,923 $ 23,871
======== ======== ======== ========
Earnings per share:
Basic......................... $ 0.23 $ 0.17 $ 0.50 $ 0.38
========= ======== ======== ========
Diluted....................... $ 0.23 $ 0.17 $ 0.49 $ 0.37
========= ======== ======== ========
Weighted average shares:
Basic......................... 63,652 62,291 63,449 62,099
========= ======== ======== ========
Diluted....................... 65,360 64,483 65,273 64,370
========= ======== ======== ========
Cash dividends declared
per share..................... - - 2.25(cent) 2.25(cent)
========= ======== ========== ==========
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 4, DECEMBER 3,
2001 2000
---------------------------
(Note A)
Operating activities:
Net income........................................ $ 31,923 $ 23,871
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 16,575 18,939
Amortization of intangibles..................... 10 366
Cumulative effect of accounting change, net
of tax........................................ 58
Deferred income taxes........................... 1,620 404
Loss (gain) on impairment and disposition
of assets..................................... 2,938 (1,243)
Loss on derivatives............................. 82
Other........................................... 315 93
Changes in operating assets and liabilities:
Receivables.................................. (2,207) (6,996)
Inventories.................................. (762) (999)
Prepaid and other assets..................... 1,188 1,856
Accounts payable,
accrued and other liabilities............... 12,217 (7,389)
Income tax payable........................... (177) (4,355)
----------- ------------
Net cash provided by operating activities....... 63,780 24,547
----------- ------------
Investing activities:
Purchases of property and equipment............... (52,416) (35,495)
Acquisition of restaurant properties from
franchisee...................................... (1,700)
Proceeds from disposal of assets.................. 12 29,945
Proceeds from sale of restaurant properties
to franchisees.................................. 7,352
Other, net........................................ (3,647) (2,588)
----------- ------------
Net cash used in investing activities........... (57,751) (786)
----------- ------------
Financing activities:
Proceeds from long-term debt...................... 11,000 24,000
Net change in short-term borrowings............... (14,700) (2,348)
Principal payments on long-term debt.............. (2,244) (50,070)
Proceeds from issuance of stock, including
treasury stock.................................. 11,853 22,468
Stock repurchases, net of changes in the
Deferred Compensation Plan...................... (4,903) (17,237)
Dividends paid.................................... (1,420) (1,391)
------------ -----------
Net cash used in financing activities........... (414) (24,578)
------------ -----------
Increase (decrease) in cash and
short-term investments.......................... 5,615 (817)
Cash and short-term investments:
Beginning of year............................... 10,636 10,154
------------ -----------
End of quarter.................................. $ 16,251 $ 9,337
============ ===========
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 accounting principles generally accepted in the
United States of America 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 accounting
principles generally accepted in the United States of America 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 4, 2001 are not necessarily indicative of results that may be
expected for the year ending June 4, 2002.
The balance sheet at June 5, 2001 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements.
As discussed in Note 1 to the Fiscal 2001 Audited Consolidated Financial
Statements, the Company has reclassified coupon expenses against revenues in
accordance with Emerging Issues Task Force No. 00-14 "Accounting for Certain
Sales Incentives." Accordingly, certain prior year amounts have been
reclassified to conform to the current year presentation. These
reclassifications had no effect on previously reported net income.
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 5, 2001.
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 basic weighted average shares outstanding by approximately
1.7 million and 2.2 million for the thirteen weeks ended December 4, 2001 and
December 3, 2000, respectively, and approximately 1.8 million and 2.3 million
for the twenty-six weeks ended December 4, 2001 and December 3, 2000,
respectively.
NOTE C - INTANGIBLE ASSETS
The Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"), effective June 6, 2001.
This statement requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead tested for impairment at least
annually. The Company currently has unamortized goodwill remaining from the
acquisition of the Ruby Tuesday concept in 1982 by the Company, then known as
Morrison Restaurants Inc., in the amount of $7.8 million which is subject to the
transition provisions of SFAS 142. A negligible amount of amortization expense
has been recorded during the year, which represents the amortization of
trademarks as required under SFAS 142. For each of the next five years
amortization expense relating to identified intangibles is expected to be
negligible. The effect of the adoption of SFAS 142 as of December 4, 2001 and
June 6, 2001 is summarized in the following table (in thousands):
DECEMBER 4, 2001 JUNE 6, 2001
--------------------- --------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
Goodwill $ 14,669 $ 6,824 $ 14,669 $ 6,824
Trademarks 554 75 402 68
-------- -------- --------- --------
Total $ 15,223 $ 6,899 $ 15,071 $ 6,892
======== ======== ========= ========
As required by SFAS 142, the results for the first two quarters of Fiscal 2001
have not been restated. A reconciliation of net income, as if SFAS 142 had been
adopted, is presented below for the thirteen and twenty-six weeks ended December
3, 2000.
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
December 3, 2000 December 3, 2000
----------------------- ------------------------
(in thousands) (in thousands)
Reported net income $ 10,982 $ 23,871
Goodwill amortization 169 338
-------- --------
Adjusted net income $ 11,151 $ 24,209
======== ========
The adoption of SFAS 142 in Fiscal 2001 would not have resulted in a change to
previously reported basic or diluted earnings per share for the thirteen weeks
ended December 3, 2000. However, because of rounding, the one-half cent per
share impact that the adoption of SFAS 142 would have had for the 26 weeks ended
December 3, 2000 would have been an increase to previously reported basic
earnings per share from $0.38 to $0.39 and an increase in diluted earnings per
share from $0.37 to $0.38.
NOTE D - DERIVATIVE INSTRUMENTS
The Company adopted Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
effective June 6, 2001. SFAS 133 requires recognition of all derivatives as
either assets or liabilities on the balance sheet measured at fair value.
Changes in the fair value of derivatives will be recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designed as part of a hedge transaction and, if it is, the type of hedge
transaction. For derivative instruments that are designated and qualify as cash
flow hedges, the effective portion of the gains or losses on the derivative
instruments are reported as a component of other comprehensive income and
reclassified into earnings in the same period during which the hedged
transaction affects earnings. Any ineffective portion of the gains or losses on
the derivative instruments is recorded in results of operations immediately.
Adoption of this new accounting standard resulted in a cumulative effect charge,
net of tax, totaling $0.1 million to expense and $1.0 million to other
comprehensive income.
The Company utilizes interest rate swap agreements to manage interest rate
exposure on the Company's floating-rate lease obligations. At December 4, 2001,
the Company had five interest rate swaps with notional amounts aggregating $125
million. These swaps have been designated as cash flow hedges and effectively
fix the interest rate on an equivalent amount of the Company's floating-rate
lease obligations. The amount included in rent expense representing the amount
of the hedges' ineffectiveness was $0.2 million for both the thirteen and
twenty-six weeks ended December 4, 2001.
At December 4, 2001, based on interest rates then in effect, the Company had a
deferred loss, net of tax, associated with cash flow hedges of $2.9 million. Due
to the expected continuation of lower interest rates, the Company estimates that
a significant portion of this deferred loss will be reclassified from other
comprehensive income to rent expense in the upcoming year. These losses result
from LIBOR interest rates which have declined below those of calendar 1998, the
year in which the Company entered into its interest rate swaps with notional
amounts of $125 million. Rent expense on the units operated under $125 million
of synthetic lease arrangements has been fixed through various dates in calendar
2003.
NOTE E - OTHER DEFERRED LIABILITIES
Other deferred liabilities at December 4, 2001 and June 5, 2001 included $15.7
million and $13.2 million, respectively, for the liability due to participants
in the Company's Deferred Compensation Plan and $8.7 million and $8.4 million,
respectively, for the liability due to participants of the Company's Executive
Supplemental Pension Plan.
NOTE F - REFRANCHISING
On October 10, 2001, the Company acquired three units in Massachusetts from an
existing franchise partner for a cash purchase price of $1.7 million. Income
recognized during the quarter from these units was not significant.
As discussed in Note 12 to the Fiscal 2001 Audited Consolidated Financial
Statements, the Company entered into purchase agreements with three new
franchise partners and one existing franchise partner which provide, among other
things, for the sale of 12 units in Missouri, five in Indiana, and one each in
Kansas, Arkansas, and Illinois. During the quarter ended September 4, 2001, the
Company completed the sale of the unit in Kansas for a purchase price of $1.5
million, which approximated book value. The purchase price was paid in the form
of a note bearing interest at a rate of 10%. The sales of the remaining 19 units
occurred subsequent to the second quarter of Fiscal 2002 (see Note I for further
information).
NOTE G - COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130") requires the disclosure of certain revenues, expenses,
gains and losses that are excluded from net income in accordance with accounting
principles generally accepted in the United States of America. Total
comprehensive income for the thirteen and twenty-six weeks ended December 4,
2001 and December 3, 2000 are as follows (in thousands):
THIRTEEN WEEKS ENDED
DECEMBER 4, 2001 DECEMBER 3, 2000
---------------- ----------------
Net income................................. $ 15,082 $ 10,982
Other comprehensive income:
Change in current period market value.. (1,530) -
Losses reclassified into the
consolidated statment of earnings.... 312 -
--------- --------
Total comprehensive income................. $ 13,864 $ 10,982
========= ========
TWENTY-SIX WEEKS ENDED
DECEMBER 4, 2001 DECEMBER 3, 2000
---------------- ----------------
Net income................................. $ 31,923 $ 23,871
Other comprehensive income:
Unrecognized loss on interest rate swaps:
Cumulative effect of change in
accounting principle, net............ (1,032) -
Change in year-to-date market value.... (2,303) -
Losses reclassified into the
consolidated statement of earnings... 455 -
--------- --------
Total comprehensive income................. $ 29,043 $ 23,871
========= ========
NOTE H - IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically reviews the recorded value of its long-lived assets to
determine if the future cash flows to be derived from those assets will be
sufficient to recover the remaining recorded asset values. Restaurants in
particular are reviewed on a quarterly basis for negative cash flows. Management
believes that units with recurring negative cash flows might be impaired based
upon poor operating performance. In addition to restaurant unit impairments, the
Company recorded a $1.1 million impairment charge in Fiscal 2002 for the
abandonment of information technology software which had been developed to
produce more automated unit, region and division level management reports. The
Company instead is currently developing software with a third party vendor to
produce these same and further reports which will be more compatible with its
current systems.
NOTE I - SUBSEQUENT EVENTS
As discussed in Note F, on December 5, 2001 the Company completed the sales of
19 units in Missouri, Indiana, Arkansas, and Illinois to three new franchise
partners. The Company received approximately $30.7 million for these units, of
which approximately $20.7 million was paid in cash. The remaining amounts
received were in the form of notes due through Fiscal 2013 bearing interest at a
rate of 10.0% per year. These units will be operated as Ruby Tuesday restaurants
under separate franchising agreements. The sales of these units resulted in
minimal pre-tax gains. As of December 4, 2001, all of the units to be sold were
open. Revenues for the thirteen and twenty-six weeks ended December 4, 2001 from
these 19 units totaled $8.3 million and $17.0 million, respectively. Operating
profits for the same thirteen and twenty-six weeks periods from these 19 units
totaled $0.7 million and $1.6 million, respectively. The Company defines
operating profit as gross profit less depreciation and allocated selling,
general and administrative expense.
On January 3, 2002, the 99% owner of the Company's Denver franchise resigned
from his employment with the franchise. The owner and the Company are
cooperating to transfer the franchise to an individual approved by the Company.
The Company believes this transfer of ownership can be completed by the end of
the fiscal year. No gain or loss is anticipated on the transaction.
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 $15.1 million for the thirteen weeks ended
December 4, 2001 compared to $11.0 million for the corresponding period of the
prior year, a 37.3% increase. Diluted earnings per share for the second quarter
was $0.23, a 35.3% increase over the diluted earnings per share of $0.17 for the
second quarter of Fiscal 2001. Contributing to the increase was a 1.9% increase
in same store sales for Company-owned restaurants and a reduction, as a
percentage of revenues, of operating costs and expenses as discussed below. The
Company also reported net income of $31.9 million for the twenty-six weeks ended
December 4, 2001 compared to $23.9 million for the corresponding period of the
prior year, a 33.7% increase. Diluted earnings per share for the year-to-date
period was $0.49, a 32.4% increase over the same period of Fiscal 2001. As of
December 4, 2001, the Company owned and operated 400 Ruby Tuesday restaurants
located in 26 states. Franchised operations included 161 domestic and 14
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 4, December 3,
2001 2000
--------------------------------
Revenues:
Restaurant sales and operating revenues 98.4% 98.6%
Franchise revenues..................... 1.6 1.4
------------- ----------------
Total revenues....................... 100.0 100.0
Operating costs and expenses:
Cost of merchandise (1)................ 26.8 27.4
Payroll and related costs (1).......... 32.8 32.6
Other restaurant operating costs (1)... 20.3 20.4
Depreciation and amortization (1)...... 4.2 4.8
Selling, general and administrative.... 5.7 6.7
Interest income, net................... (0.7) (0.1)
------------- ----------------
Income before income taxes and cumulative
effect of change in accounting principle.. 12.3 9.3
Provision for income taxes.................. 4.4 3.3
Cumulative effect of change in accounting
principle, net of tax..................... - -
------------- ----------------
Net income.................................. 7.9% 6.0%
============= ================
(1) As a percentage of restaurant sales and operating revenues.
The following table shows year-to-date Company-owned restaurant openings and
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
2002 2001 2002 2001 2002 2001
------ ------ ------ ------ ------ ------
Ruby Tuesday 32* 27 6 13** 400 350
American Cafe/Tia's Tex-Mex 0 3 0 69*** 0 0***
The following table shows year-to-date Ruby Tuesday franchised restaurant
openings and 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
2002 2001 2002 2001 2002 2001
------ ----- ------ ------ ------ ------
Domestic 15 18** 5* 1 161 154
International 2 1 0 0 14 10
* Includes 3 units acquired from an existing franchise partner.
** Includes 6 units sold to franchisees.
*** All American Cafe, L&N and Tia's Tex-Mex units were sold to Specialty
Restaurant Group, LLC ("SRG") during the second quarter of Fiscal 2001. The
units sold to SRG included 38 American Cafe, 3 L&N, and 28 Tia's Tex-Mex
units.
The Company estimates that approximately 20 to 24 additional Company-owned Ruby
Tuesday restaurants will be opened during the remainder of Fiscal 2002. The
Company expects franchisees to open approximately 12 to 15 Ruby Tuesday
restaurants during the remainder of Fiscal 2002, excluding 19 units acquired by
franchisees from the Company on December 5, 2001 (see Note I to the condensed
consolidated financial statements).
Revenues:
--------------------------------------------------------------------------------
Company restaurant sales increased $3.0 million (1.5%) to $195.7 million for the
thirteen weeks ended December 4, 2001 compared to the same period of the prior
year. Company restaurant sales increased $2.0 million (0.5%) to $395.4 million
for the twenty-six weeks ended December 4, 2001. The quarterly increase is
primarily attributable to a net increase of 50 Company-owned Ruby Tuesday units,
a 1.9% increase in same store sales, and a 1.6% increase in average unit
volumes. This sales increase is offset by the inclusion in Fiscal 2001's
revenues of 69 American Cafe, L&N, and Tia's Tex-Mex units that were sold to SRG
during the second quarter of Fiscal 2001. Excluding the sales from these units,
Company restaurant sales increased $25.3 million (14.9%).
Franchise revenues totaled $3.3 million for the thirteen weeks ended December 4,
2001 compared to $2.8 million for the same period in the prior year. For the
twenty-six week period ended December 4, 2001, franchise revenues were $6.5
million compared to $5.6 million for the same period in the prior year.
Franchise revenues are predominately comprised of domestic and international
royalties which totaled $5.8 million and $5.0 million for the twenty-six week
periods ending December 4, 2001 and December 3, 2000, respectively.
Operating Profits:
--------------------------------------------------------------------------------
Pre-tax income for the thirteen weeks ended December 4, 2001 was $23.4 million,
an increase of $6.3 million (36.7%) over the corresponding period of the prior
year. For the twenty-six week period ended on that same date, pre-tax income was
$49.6 million, a $12.4 million (33.4%) 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 a reduction, as a percentage of
revenue, of cost of merchandise, other restaurant operating costs, and
depreciation and amortization, selling, general and administrative expenses, and
net interest expense as discussed below.
Cost of merchandise decreased $0.5 million (0.9%) to $52.5 million for the
thirteen weeks ended December 4, 2001 and $1.9 million (1.8%) to $105.9 million
for the twenty-six weeks ended December 4, 2001 compared to the same periods of
the prior year. As a percentage of Company restaurant sales, the cost of
merchandise decreased from 27.4% to 26.8% for the twenty-six weeks ended
December 4, 2001. The decrease resulted from lower food cost which is primarily
attributable to the implementation of a new food cost theoretical system that
greatly reduced food waste and increased vendor rebates and discounts due to
aggressive negotiations.
Payroll and related costs increased $1.7 million (2.7%) and $1.3 million (1.0%)
for the thirteen and twenty-six weeks ended December 4, 2001, as compared to the
same periods of the prior year. As a percentage of Company restaurant sales,
these expenses increased from 32.6% to 32.8% for the twenty-six week period
ended December 4, 2001, which is attributable to higher management and hourly
labor resulting from improved staffing levels offset by corresponding decreased
overtime. In addition, unit bonus expense increased due to a change in the
manager bonus program.
Other restaurant operating costs decreased $0.2 million (0.5%) and $0.3 million
(0.3%) for the thirteen and twenty-six weeks ended December 4, 2001, as compared
to the same periods of the prior year. As a percentage of Company restaurant
sales, these costs decreased from 20.4% to 20.3% for the twenty-six week period
ended December 4, 2001, due to decreased repairs expense resulting from an
increased unit level focus on reducing these costs and the prior year sale of
restaurant units to SRG.
Depreciation and amortization expense decreased $0.8 million (8.2%) and $2.4
million (12.5%) for the thirteen and twenty-six weeks ended December 4, 2001, 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 from 4.8% to 4.2%. The decrease is attributable to higher Ruby Tuesday
average unit volumes coupled with the prior year sale of restaurant units to SRG
which had run higher depreciation as a percentage of sales than Ruby Tuesday
concept units.
Selling, general and administrative expenses decreased $1.8 million (13.8%) and
$3.9 million (14.6%) for the thirteen and twenty-six weeks ended December 4,
2001, as compared to the same period of the prior year. As a percentage of total
operating revenues, these expenses decreased 100 basis points to 5.7% for the
twenty-six week period ended December 4, 2001. The decrease is attributable to
the sale of restaurant units to SRG, higher average unit volumes, and prior year
relocation costs associated with the transition of support employees from Mobile
to Maryville.
Net interest income increased $1.4 million and $2.4 million for the thirteen and
twenty-six weeks ended December 4, 2001, as compared to the same period of the
prior year. The increase is due to additional notes receivable relating to
refranchising, the note receivable related to the sale of restaurant units to
SRG, and a decrease in net outstanding debt balances.
Income Taxes:
--------------------------------------------------------------------------------
The effective income tax rate was 35.5% for the thirteen weeks ended December 4,
2001 compared to 35.8% for the same period of the prior year. The effective
income tax rate was 35.5% for the twenty-six weeks ended December 4, 2001
compared to 35.8% 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 Weeks Ended
December 4, 2001 December 3, 2000
---------------- ----------------
Net cash provided by operating activities $ 63,780 $ 24,547
Net cash used in investing activities (57,751) (786)
Net cash used in financing activities (414) (24,578)
------------ -------------
Net increase (decrease)in cash and short-
term investments $ 5,615 $ (817)
============ =============
Cash provided by operating activities was $63.8 million for the twenty-six weeks
ended December 4, 2001 as compared to $24.5 million for the same period in the
prior year. Cash provided by operating activities as compared to the prior year
period reflected an increase in net income of $8.1 million. Changes in operating
assets and liabilities provided a $28.1 million increase. The $28.1 million
increase in changes in operating assets and liabilities is primarily due to the
sale of restaurant units to SRG in the prior year, the change in payroll taxes
associated with a change in pay week from Sunday to Tuesday, the interest rate
swap liability booked in Fiscal 2002 following the adoption of SFAS 133, and the
timing of income tax payments during the current year. Losses on disposition of
assets, including SFAS 121 impairment charges, accounted for a $4.2 million
increase. Offsetting these increases was $2.4 million less depreciation expense
in the current year.
Net cash used in investing activities was $57.8 million for the twenty-six weeks
ended December 4, 2001 as compared to $0.8 million for the same period in the
prior year. The increased use of cash is attributable to a decrease of $29.9
million in cash proceeds from the sale of assets, primarily to SRG, in the prior
year, $16.9 million of additional purchases of property and equipment, and the
purchase of three units from a franchise partner for $1.7 million. Offsetting
these decreases were proceeds of $7.4 million received in Fiscal 2001 resulting
from refranchising.
Net cash used in financing activities was $0.4 million for the twenty-six weeks
ended December 4, 2001 as compared to $24.6 million for the same period in the
prior year. This decrease in cash used in financing activities is due to a net
paydown of debt of $5.9 million in Fiscal 2002 as compared to $28.4 million in
Fiscal 2001 and stock repurchases of $4.9 million in Fiscal 2002 as compared to
$17.2 million in Fiscal 2001. Fiscal 2001's debt reduction was attributable in
part to funds received from the sale of restaurant units to SRG. Offsetting
these decreases in cash used in financing activities is a net decrease of $10.6
million in proceeds from issuance of stock.
The Company requires capital principally for new restaurants, equipment
replacement, and remodeling of existing units. Capital expenditures for the
twenty-six weeks ended December 4, 2001 were $52.4 million and expenditures for
construction of new units under the Company's synthetic lease program were $27.1
million. Capital expenditures for the remainder of Fiscal 2002 are projected to
be approximately $41.0 to $46.0 million. Expenditures for units to be leased by
the Company under synthetic lease agreements are projected to be approximately
$24.0 to $27.0 million for the remainder of Fiscal 2002. See "Special Note
Regarding Forward-Looking Information."
During Fiscal 2001 the Company entered into a five-year $50.0 million Senior
Revolving Credit Facility with several banks. This facility includes a $10.0
million current credit line ("Swing Line") and a $15.0 million Letter of Credit
sub-facility. Borrowings under the Senior 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 Earnings Before Interest, Tax, Depreciation, Amortization and
Rent). Commitment fees ranging from 0.15% to 0.375% are payable quarterly on the
unused portion of the Senior Revolving Credit Facility. At December 4, 2001, the
Company had $17.0 million of borrowings outstanding under the agreement at
interest rates approximating 3.08%. The credit facility provides for certain
restrictions on incurring additional indebtedness, payment of dividends, and
certain covenants regarding funded debt and fixed charge coverage requirements.
At December 4, 2001, the Company was in compliance with all such covenants.
At December 4, 2001, the Company had committed lines of credit (including the
Swing Line) amounting to $15.0 million with several banks at various interest
rates approximating 3.00%. All of these lines are subject to periodic review by
each bank and may be canceled by the Company at any time. The Company utilizes
its lines of credit to meet operational cash needs during the year. There were
no borrowings on these lines of credit at December 4, 2001.
Since Fiscal 1998, the Company has entered into master synthetic lease
agreements totaling $235.0 million for the purpose of leasing new free-standing
units and the Maryville, Tennessee Restaurant Support Services Center. Under the
terms of master synthetic lease agreements, an operating lease agreement is
entered into for each facility providing for an initial lease term of five years
from the applicable agreement date with two five-year renewal options. The
leases also provide for substantial residual value guarantees and include
purchase options at the lessor's original cost of the properties. As of December
4, 2001, the Company has entered into leases for 115 units (82 of which were
open at December 4, 2001) and the Maryville, Tennessee Restaurant Support
Services Center at an aggregated original funded cost to the lessor of
approximately $192.2 million.
The Company has entered into five interest rate swap agreements with notional
amounts aggregating $125.0 million. These swap agreements fix the interest rate
on an equivalent amount of the Company's floating-rate lease obligations to
rates ranging from 5.99% to 6.63% (including interest rate spreads) for periods
up through December 7, 2003.
During the remainder of Fiscal 2002, the Company expects to fund operations,
capital expansion, any repurchase of common stock, and the payment of dividends
from operating cash flows, proceeds from sales of units to franchisees, bank
lines of credit, the five-year revolving line of credit, and through operating
leases. See "Special Note Regarding Forward-Looking Information." Total
long-term debt including current maturities increased a net $8.7 million during
Fiscal 2002 due to utilization of the revolving credit facility while short-term
borrowings under bank lines of credit decreased $14.7 million.
The Company anticipates further reduction in debt during the remainder of Fiscal
2002. A smaller decrease in debt could result if actual cash flows from
operations are lower than currently anticipated or if capital expenditures
exceed budgeted amounts. See "Special Note Regarding Forward-Looking
Information."
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS Nos. 137
and 138, establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and to measure those instruments at fair value. This statement was
adopted by the Company during the first quarter of Fiscal 2002 (see Note D to
the condensed consolidated financial statements). Adoption of this new
accounting standard did not have a significant impact on net income during the
thirteen and twenty-six weeks ended December 4, 2001 and is not expected to
significantly impact net income in the future.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets," which requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually. This statement was adopted by
the Company during the first quarter of Fiscal 2002 (see Note C to the condensed
consolidated financial statements). Adoption of this new accounting standard did
not have a significant impact on net income during the thirteen and twenty-six
weeks ended December 4, 2001 and is not expected to significantly impact net
income in the future.
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 bond
rating. The strategy provides for opportunistic repurchases of Company stock at
times when cash flow exceeds funding requirements. Pursuant to this strategy,
the Company has repurchased 0.3 million shares during the twenty-six weeks ended
December 4, 2001. The total number of remaining shares authorized to be
repurchased as of December 4, 2001 is 7.1 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 2.25(cents) 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. See "Special Note
Regarding Forward-Looking Information." Dividends totaling approximately $1.4
million were paid to shareholders during the first quarter of Fiscal 2002. On
January 10, 2002, the Board of Directors declared a semi-annual dividend of
2.25(cents) per share, payable on February 8, 2002, to shareholders of record at
the close of business on January 25, 2002.
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 prototypes; 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 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 3, 2001, the shareholders
of the Company elected Class III Directors to serve a three year term on the
Board. The results of the votes were as follows:
Authority
Director Nominees For Withheld
--------------------- ---------------- ---------
John B. McKinnon 52,287,757 583,107
Dolph W. von Arx 52,663,365 207,499
Elizabeth L. Nichols 52,670,672 200,192
At the Annual Meeting of Shareholders held on October 3, 2001, the shareholders
of the Company elected one new Class I Director to serve a one year term on the
Board. The results of the votes were as follows:
Authority
Director Nominees For Withheld
--------------------- ---------------- ---------
Bernard Lanigan, Jr. 52,659,751 211,113
The Directors continuing in office are: Claire L. Arnold, Samuel E. Beall, III,
James A. Haslam, III, Dr. Benjamin F. Payton, Dr. Donald Ratajczak.
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
None
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 / 18 / 2002 By: /s/ MARGUERITE N. DUFFY
----------------- -------------------------
DATE Marguerite N. Duffy
Senior Vice President and
Chief Financial Officer