Our Board of Directors has approved a dividend policy as an additional means of returning capital to our shareholders. The
payment of a dividend in any particular future period and the actual amount thereof remains at the discretion of the Board of Directors and is restricted by the covenants of certain of our debt agreements. Our last dividend was paid on August 7, 2007 and no assurance can be given that dividends will be paid in the future.
(1) No shares were repurchased other than through our publicly-announced repurchase programs and authorizations during the fourth f
iscal quarter ended May 31, 2016.
The following chart and table compare the cumulative total return of the Company
’s common stock with the cumulative total return of the NYSE Composite Index and a peer group consisting of companies included in the same standard industrial classification (“SIC”) industry group as the Company’s business (SIC industry group 5812, Eating Places). The graph assumes the values of the investment in our common stock and each index was $100 at May 31, 2011 and that all dividends were reinvested.
Item 7. Management's Discussion and Analysis
of Financial Cond
ition and Results of Operations
Introduction
Ruby Tuesday, Inc., including its
wholly-owned subsidiaries (“RTI,” the “Company,” “we” and/or “our”), owns and operates Ruby Tuesday® casual dining restaurants. We also franchise the Ruby Tuesday concept in select domestic and international markets. As of May 31, 2016, we owned and operated 646 Ruby Tuesday restaurants located in 38 states. Our franchisees operated 27 domestic and 51 international Ruby Tuesday restaurants in 12 states, Guam, and 14 foreign countries. The Company-owned and operated restaurants are concentrated primarily in the Southeast, Northeast, Mid-Atlantic, and Midwest regions of the United States. We consider these regions to be our core markets.
On August 11, 2016, following a comprehensive review of the Company
’s property portfolio, we announced a plan to close approximately 95 Company-owned restaurants with perceived limited upside due to market concentration, challenged trade areas, and other factors by September 2016. The plan is designed to streamline the organization through asset rationalization, improve financial profitability, and ultimately create long-term value for shareholders. The approved closures, which include mall, in line, and freestanding sites, encompass restaurants spread throughout all of the geographic regions in which we operate. Of the restaurants expected to close, approximately two-thirds are operated on leased properties and approximately one-third are owned. As discussed further in the Known Events, Uncertainties, and Trends section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), our fiscal year 2017 results of operations are expected to include additional charges for impairment, estimated lease settlement costs, and severance benefits, inventory write-off and other costs related to the 95 restaurants.
Also, as further discussed in Note 3 to the Consolidated Financial Statements, during fiscal year 2016, we entered into an agreement to sell the assets related to eight Company-owned Lime Fresh Mexican Grill® (“Lime Fresh”) restaurants in Florida for $6.0 million and closed the remaining 11 Company-owned Lime Fresh restaurants. Six of the restaurants were closed and transferred to the buyer during the fourth quarter of fiscal year 2016, after which we were paid $5.0 million. One of the remaining two restaurants closed and transferred to the buyer on June 14, 2016. The remaining restaurant is expected to close and transfer to the buyer on or before the end of our second quarter of fiscal year 2017. All of the eight restaurants involved in this transaction will be rebranded by the buyer as a different restaurant concept. Also during the fourth quarter of fiscal year 2016, we sold the Lime Fresh brand's intellectual property and the franchise agreements associated with eight franchised Lime Fresh concept restaurants for $4.6 million. As a result of this transaction, we had no remaining Lime Fresh concept franchisees as of May 31, 2016.
Our same-restaurant sales for Company-owned Ruby
Tuesday restaurants decreased 1.4% in fiscal year 2016 compared to fiscal year 2015, and our diluted loss per share was $0.83 in fiscal year 2016 compared to diluted loss per share of $0.05 in fiscal year 2015. Throughout this MD&A, we discuss our fiscal year 2016 financial results in detail, provide insight for fiscal years 2015 and 2014, as well as discuss known events, uncertainties, and trends. We believe our commentary provides insight as to the factors which impacted our performance. We remind you, that, in order to best obtain an understanding of our financial performance during the last three fiscal years, this MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes appearing in Part II, Item 8 of this Annual Report on Form 10-K.
References to franchise system revenue contained in this section are presented solely for the purposes of enhancing the investor's understanding of the franchise system,
which includes our traditional domestic and international franchisees. Franchise system revenue is not included in, and is not, revenue of Ruby Tuesday, Inc. However, we believe that such information does provide the investor with a basis for a better understanding of our revenue from franchising activities, which includes royalties. Franchise system revenue contained in this section is based upon or derived from information that we obtain from our franchisees in our capacity as franchisor.
Overview and Strategies
The bar and grill segment of the casual dining industry in which we primarily operate is intensely competitive with respect to prices, services, convenience, locations, employees, advertising and promotion, and the types and quality of food. We compete wi
th other food service operations, including locally-owned restaurants, and other national and regional restaurant chains that offer similar types of services and products as we do. We continue to believe there are opportunities to grow same-restaurant sales, strengthen our competitive position, enhance our profitability, and create value through the execution of the following strategies:
Enhancing Our Business Model
Over the past few fiscal years, we have developed strategies to reduce our overall cost structure in the areas of cost of goods sold, payroll and related costs, and selling, general, and administrative expenses.
In April 2014, we implemented a new labor management system to facilitate more efficient staffing that is contributing to lower labor costs. We have also implemented enhanced business processes and capabilities, such as an inventory/food waste management system that should benefit our business model by reducing food waste and manager time on inventory management leading to a better customer experience and improved profitability.
Enhance Sales and Margins Through Repositioning of Our Core Brand
We are in the process of executing a strategic brand transformation of the Ruby Tuesday concept which is designed to make our brand more energetic, affordable, and broadly appealing. We believe the execution of this strategy provides opportunities for increased
same-restaurant customer counts and sales growth, and increased shareholder value. Our brand transformation is supported by enhancements in the following areas: food, service, atmosphere, and communication.
As part of our transformation strategy, we have taken what we believe to be meaningful steps to improve our food, customer experience, organizational capabilities, and business model. We continue to transform our menu to be broadly appealing, approachable, and affordable by offering compelling value throughout the menu at a wide-range of price points. Additionally, we are testing an initiative to enhance our Garden Bar which
we believe is a differentiator for our brand and utilized by approximately half of our guests. Our intent is to incorporate customer feedback to continue to evolve our food offering as well as to promote menu items that customers find highly satisfying.
Enhancing our service is also a critical component of our brand transformation strategy. In January 2015, we rolled-out a new service training platform which encourages our restaurant teams to provide a genuine, customized experience to our customers while also reinforcing techniques to build add-on sales for beverages, appetizers and desserts. We believe that there are additional opportunities to improve the guest experience by simplifying the menu, recipes, and operating processes which could result in a better and more consistent service execution and guest experience.
To further enhance the atmosphere of our restaurants, we are currently developing a remodel plan and began testing prototypes in fiscal year 2016 to determine sales building potential, cost effectiveness, and return on investment. These changes are designed to create an improved dining atmosphere for our customers.
The fourth area of our brand transformation strategy is enhancements to our communication and marketing programs. The program is designed to reshape consumer perceptions of the Ruby Tuesday brand and enhance our Fresh American Grill positioning by showcasing our brand personality in a fresh and energetic way, featuring compelling new food products, highlighting the freshness and variety of our Garden Bar, and effectively communicating value and affordability.
The four key areas of menu, service, atmosphere, and communication will continue to be foundational drivers of our brand transformation and key to building a stronger business model. We
are hopeful that the culmination of the brand transformation strategy in conjunction with engaged restaurant and support teams will ultimately drive customer counts, sales, and average check.
Strengthen our Balance Sheet to Facilitate Growth and Value Creation
Our priority for the use of cash is to drive shareholder value. Our objective is to continue to maintain adequate cash levels to support business needs, while investing in our key brand transformation initiatives. Additionally, we will
consider other options such as reducing outstanding debt levels and share repurchases. Our success in the key strategic initiatives outlined above should enable us to improve both our returns on assets and equity and create additional shareholder value.
Results of
Operations
Ruby Tuesday Restaurants
The table below presents the number of Ruby Tuesday concept restaurants at each fiscal year end from fiscal year 2014 through fiscal year 2016:
|
|
|
International
|
|
Fiscal Year
|
Company-Owned
|
Domestic
Franchise
|
Franchise
|
Total
|
201
6
|
646
|
2
7
|
51
|
72
4
|
2015
|
658
|
29
|
49
|
736
|
2014
|
668
|
31
|
48
|
747
|
Lime Fresh Restaurants
The table below presents the number of other concept restaurants at each fiscal year end from fiscal year 2014 through fiscal year 2016:
|
|
Fiscal Year
|
Company-Owned
|
Franchise
|
Total
|
201
6
|
2
|
–
|
2
|
2015
|
19
|
7
|
26
|
2014
|
20
|
6
|
26
|
During fiscal year 2016:
|
●
|
Same-restaurant sales* at Company-owned Ruby Tuesday restaurants decreased 1.4%, while same-restaurant sales at domestic franchise Ruby Tuesday restaurants increased 3.7%;
|
|
●
|
One Company-owned Ruby Tuesday restaurant was opened and 13 were closed
|
|
●
|
Five franchised Ruby Tuesday restaurants were opened and five were closed;
|
|
●
|
We formulated a plan beginning in the fourth quarter of fiscal year 2016 to restructure our property portfolio, which ultimately included the planned closing of approximately 95 Company-owned restaurants by September 2016, resulting in additional impairment charges of $39.2 million in fiscal year 2016;
|
|
●
|
We entered into an agreement to sell the assets related to eight Company-owned Lime Fresh restaurants in Florid
a for $6.0 million and closed the remaining 11 Company-owned Lime Fresh restaurants. Six of the restaurants were closed and transferred to the buyer during fiscal year 2016, while two remained pending. We also sold the Lime Fresh brand's intellectual property and the franchise agreements associated with eight franchised Lime Fresh concept restaurants for $4.6 million;
|
|
●
|
We prepaid and retired 16 mortgage loan obligations with an aggregate balance of $13.3 million plus prepayment penalties of $1.6 million
and $0.1 million of accrued interest;
|
|
●
|
We repurchased and retired 1.9 million shares of our common stock at an aggregate cost of $10.1 million;
|
|
●
|
We repurchased $2.5 million of the Senior Notes. The repurchases settled for $2.4 million plus accrued interest.
We realized a negligible gain on these transactions;
|
|
●
|
On April 11, 2016, Jill M. Golder voluntarily resigned as the Company
’s Executive Vice President, Chief Financial Officer, and Treasurer. On June 2, 2016, Sue Briley was appointed Interim Chief Financial Officer;
|
|
●
|
On April 7, 2016, Tom Williams, an executive with over 30 years of experience in executing and leading human resources functions, was appointed Chief People Officer;
|
|
●
|
Mike K. Ellis, an executive with more than 30 years of restaurant industry e
xperience and 24 years of restaurant development experience, predominantly in casual dining, was appointed Chief Development Officer on February 29, 2016;
|
|
●
|
On July 25, 2015, Todd A. Burrowes voluntarily resigned as the Company
’s President, Ruby Tuesday Concept and Chief Operations Officer. On July 27, 2015, Brett A. Patterson, an executive with over 25 years of restaurant industry experience who was then our Senior Vice President of Operations, was appointed Ruby Tuesday Concept President; and
|
|
●
|
On July 21, 2
015, David W. Skena, an executive with over 20 years of marketing experience, was appointed Chief Marketing Officer.
|
During fiscal
year 2015:
|
●
|
Same-restaurant sales* at Company-owned Ruby Tuesday restaurants
decreased 0.5%, while same-restaurant sales at domestic franchise Ruby Tuesday restaurants increased 4.7%;
|
|
●
|
One Company-owned Ruby Tuesday restaurant was opened and 11 were closed;
|
|
●
|
Six franchised Ruby Tuesday restaurants were opened and
seven were closed;
|
|
●
|
One Company-owned Lime Fresh restaurant was closed;
|
|
●
|
Two franchised Lime Fresh restaurants were opened and one was closed;
|
|
●
|
We prepaid and retired
ten mortgage loan obligations for $9.0 million plus prepayment penalties of $1.0 million and negligible accrued interest;
|
|
●
|
Rhonda J. Parish was appointed Chief Legal Officer on March 16, 2015
and Secretary on April 8, 2015;
|
* We define same-restaurant sales as a year-over-year comparison of sales volumes for restaurants that, in the current year have been open at least 18 months, in order to remove the impact of new openings in comparing the operations of existing restaurants.
Restaurant
Sales
Restaurant sales in fiscal year 2016 decreased 3.1% from fiscal year 2015 for Company-owned restaurants and decreased 5.0% for domestic and international franchised restaurants as explained below. The tables presented below reflect restaurant sales and other revenue information for the last three fiscal years.
Restaurant
Sales (in millions):
|
|
Ruby Tuesday Concept
|
|
|
Lime Fresh Concept
|
|
Fiscal Year
|
|
Company-Owned
|
|
|
Franchise (a)
|
|
|
Company-Owned
|
|
|
Franchise (a)
|
|
201
6
|
|
$
|
1,070.7
|
|
|
$
|
162.4
|
|
|
$
|
14.4
|
|
|
$
|
15.3
|
|
201
5
|
|
|
1,100.7
|
|
|
|
171.7
|
|
|
|
19.4
|
|
|
|
15.3
|
|
2014
|
|
|
1,141.8
|
|
|
|
162.2
|
|
|
|
20.7
|
|
|
|
14.5
|
|
|
(a)
|
Includes sales of all domestic and international franchised Ruby Tuesday
and Lime Fresh restaurants.
|
Other Revenue Information:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Company restaurant sales (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruby Tuesday concept
|
|
$
|
1,070,679
|
|
|
$
|
1,100,702
|
|
|
$
|
1,141,771
|
|
Lime Fresh concept
|
|
|
14,355
|
|
|
|
19,440
|
|
|
|
20,652
|
|
Total restaurant sales
|
|
$
|
1,085,034
|
|
|
$
|
1,120,142
|
|
|
$
|
1,162,423
|
|
Company restaurant sales growth-percentage
|
|
|
(3.1
|
)%
|
|
|
(3.6
|
)%
|
|
|
(6.6
|
)%
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Franchise revenue (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruby Tuesday concept
|
|
$
|
5,286
|
|
|
$
|
5,602
|
|
|
$
|
5,577
|
|
Lime Fresh concept
|
|
|
908
|
|
|
|
822
|
|
|
|
746
|
|
Total franchise revenue (a)
|
|
$
|
6,194
|
|
|
$
|
6,424
|
|
|
$
|
6,323
|
|
Franchise revenue growth-percentage
|
|
|
(3.6
|
)%
|
|
|
1.6
|
%
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruby Tuesday concept
|
|
$
|
1,075,965
|
|
|
$
|
1,106,304
|
|
|
$
|
1,147,348
|
|
Lime Fresh concept
|
|
|
15,263
|
|
|
|
20,262
|
|
|
|
21,398
|
|
Total revenue
|
|
$
|
1,091,228
|
|
|
$
|
1,126,566
|
|
|
$
|
1,168,746
|
|
Total revenue growth-percentage
|
|
|
(3.1
|
)%
|
|
|
(3.6
|
)%
|
|
|
(6.6
|
)%
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2014
|
|
Ruby Tuesday concept same-restaurant sales growth percentage
|
|
|
(1.4
|
)%
|
|
|
(0.5
|
)%
|
|
|
(5.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company average unit volumes
|
|
$
1.64
million
|
|
|
$1.66 million
|
|
|
$1.67 million
|
|
Company average unit volumes growth percentage
|
|
|
(1.3
|
)%
|
|
|
(0.1
|
)%
|
|
|
(3.8
|
)%
|
|
(a)
|
Franchise revenue includes royalty, license, and development fees, but is exclusive of support service fees of
$0.9 million, $1.3 million, and $1.0 million, in fiscal years 2016, 2015, and 2014, respectively, which are recorded as an offset to selling, general, and administrative expenses.
|
The Ruby Tuesday concept restaurant sales and operating revenue for the fiscal year ended May 31, 2016 decreased
2.7% to $1,070.7 million compared to the prior fiscal year. This decrease is primarily a result of restaurant closings since the prior fiscal year coupled with a 1.4% decrease in same-restaurant sales at Company-owned Ruby Tuesday restaurants. The decrease in Ruby Tuesday concept same-restaurant sales is attributable to a 3.9% decrease in customer traffic offset by a 2.5% increase in net check.
The Lime Fresh concept restaurant sales and operating revenue for the fiscal year ended May 31, 2016 decreased
26.2% to $14.4 million compared to the prior fiscal year. This decrease is primarily due to restaurant closures since fiscal year 2015. As previously discussed within this MD&A, during the current fiscal year we entered into an agreement to sell the assets related to eight Company-owned Lime Fresh restaurants and closed the remaining 11 Company-owned Lime Fresh restaurants.
The Ruby Tuesday concept restaurant sales and operating revenue for the fiscal year ended June 2, 2015 decreased
3.6% to $1,100.7 million compared to fiscal year 2014. This decrease is primarily a result of restaurant closings since fiscal year 2014 coupled with a 0.5% decrease in same-restaurant sales at Company-owned Ruby Tuesday restaurants. The decrease in Ruby Tuesday concept same-restaurant sales is attributable to a 1.4% decrease in customer traffic offset by a 1.0% increase in net check since fiscal year 2014.
The Lime Fresh concept restaurant sales and operating revenue for the fiscal year ended June 2, 2015 decreased 5.9% to $19.4 million compared to fiscal year 2014. This decrease is due
in part to restaurant closures since fiscal year 2014.
Franchise development and license
fees received are recognized when we have substantially performed all material services and the restaurant has opened for business. Franchise royalties (generally 4.0% of monthly sales for franchised Ruby Tuesday concept restaurants and 5.25% of monthly sales for franchised Lime Fresh concept restaurants) are recognized as franchise revenue on the accrual basis. Franchise revenue decreased 3.6% to $6.2 million in fiscal year 2016 and increased 1.6% to $6.4 million in fiscal year 2015. Franchise revenue is predominantly comprised of domestic and international royalties, which totaled $5.9 million and $6.2 million in fiscal years 2016 and 2015, respectively.
Total franchise restaurant sales are shown in the table below.
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Franchise restaurant sales (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruby Tuesday concept
|
|
$
|
162,401
|
|
|
$
|
171,668
|
|
|
$
|
162,233
|
|
Lime Fresh concept
|
|
|
15,310
|
|
|
|
15,338
|
|
|
|
14,493
|
|
Total franchise restaurant sales (a)
|
|
$
|
177,711
|
|
|
$
|
187,006
|
|
|
$
|
176,726
|
|
Franchise restaurant sales growth-percentage
|
|
|
(5.0
|
)%
|
|
|
5.8
|
%
|
|
|
4.0
|
%
|
|
(a)
|
Includes sales of all domestic and international franchised Ruby Tuesday and Lime Fresh restaurants.
|
Segment
Profit
Segment profit/(loss) by reportable segment for fiscal
years 2016, 2015, and 2014 is as follows (in thousands):
|
|
201
6
|
|
|
201
5
|
|
|
20
14
|
|
Segment profit
/(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruby Tuesday concept
|
|
$
|
60,934
|
|
|
$
|
116,408
|
|
|
$
|
69,543
|
|
Lime Fresh concept
|
|
|
(4,642
|
)
|
|
|
(2,630
|
)
|
|
|
(6,070
|
)
|
Total segment profit
|
|
$
|
56,292
|
|
|
$
|
113,778
|
|
|
$
|
63,473
|
|
Segment profit for the year ended May 31, 2016 for the Ruby Tuesday concept decreased $55.5 million to $60.9 million compared to fiscal year 2015 due primarily to a 1.4% decrease in same-restaurant sales at Company-owned Ruby Tuesday restaurants,
increases in closures and impairments expense of $49.3 million primarily as a result of the formulation of a plan in the fourth quarter of fiscal year 2016 to close approximately 95 Company-owned restaurants by September 2016 coupled with higher impairments of poor performing open restaurants throughout the year as compared to the prior fiscal year, and increases in advertising spending of $1.9 million due primarily to higher internet, magazine, direct mail, and other promotional advertising costs offset by decreases in television advertising. These were partially offset by lower cost of goods sold, payroll and related costs, and other restaurant operating costs as further discussed later within this MD&A, and decreases in general and administrative expenses of $4.7 million as a result of lower share-based compensation expense as further discussed later within this MD&A and in Note 10 to the Consolidated Financial Statements, a lower accrual for executive bonus, and decreased management labor from reductions in staffing.
Segment losses for the year ended May 31, 2016 for the Lime Fresh concept increased $2.0 million compared to fiscal year 2015 to $4.6 million due primarily to increases in closures and impairments expense of $3.3 million as the current fisc
al year Lime Fresh segment losses include impairment and other charges for eleven Company-owned Lime Fresh restaurants which closed during fiscal year 2016. This was partially offset by lower cost of goods sold, payroll and related costs, other restaurant operating costs, and selling, general and administrative expenses.
Segment profit for the year ended June 2, 2015 for the Ruby Tuesday concept increased $46.9 million to $116.4 million compared to fiscal year 2014 due primarily to reductions in cost of
goods sold, payroll and related costs, and other restaurant operating costs due to initiatives discussed later within this MD&A, and decreases in closures and impairments expense of $20.7 million and advertising expense of $17.5 million. The reduction in closures and impairments expense compared to the prior fiscal year is primarily attributable to a decrease of impairments in connection with open restaurants with deteriorating operational performance ($8.7 million), early restaurant closures ($5.4 million), and upcoming lease terminations ($1.4 million). The higher closures and impairments in fiscal year 2014 were primarily a result of prior fiscal year same-restaurant sales declines of 5.3% and the closure of 38 Ruby Tuesday restaurants. The reduction in advertising spending relates to reduced cable and television advertising.
Segment losses for the year ended June 2, 2015 for the Lime Fresh concept decreased $3.4 million compared to fiscal year 2014 to $2.6 million due primarily to decreases in closur
es and impairments expense of $2.1 million as fiscal year 2014 Lime Fresh segment losses included lease reserve charges related to four undeveloped sites for which management decided to forego restaurant development and a lease reserve charge on a Lime Fresh restaurant contracted to be sold. This was coupled with reductions in cost of goods sold, payroll and related costs, and other restaurant operating costs due to initiatives discussed later within this MD&A.
The following is a reconciliation of segment profit to loss from continuing operations before taxes for fiscal
years 2016, 2015, and 2014 (in thousands):
|
|
201
6
|
|
|
201
5
|
|
|
201
4
|
|
Segment profit
|
|
$
|
56,292
|
|
|
$
|
113,778
|
|
|
$
|
63,473
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(51,358
|
)
|
|
|
(52,391
|
)
|
|
|
(57,347
|
)
|
Unallocated selling, general and administrative expenses
|
|
|
(39,815
|
)
|
|
|
(42,710
|
)
|
|
|
(47,946
|
)
|
Preopening expenses
|
|
|
(48
|
)
|
|
|
(290
|
)
|
|
|
(395
|
)
|
Trademark impairments
|
|
|
(1,999
|
)
|
|
|
–
|
|
|
|
(855
|
)
|
Gain on sales of Lime Fresh Mexican Grill assets
|
|
|
5,937
|
|
|
|
–
|
|
|
|
–
|
|
Interest expense, net
|
|
|
(21,764
|
)
|
|
|
(22,735
|
)
|
|
|
(24,945
|
)
|
Other expense, net
|
|
|
(107
|
)
|
|
|
(757
|
)
|
|
|
(1,560
|
)
|
Loss from continuing operations before income taxes
|
|
$
|
(52,862
|
)
|
|
$
|
(5,105
|
)
|
|
$
|
(69,575
|
)
|
Operating Profit
The following table sets
forth selected restaurant operating data as a percentage of restaurant sales and operating revenue or total revenue, as appropriate, for the periods indicated. All information is derived from our Consolidated Financial Statements located in Part II, Item 8 of this Annual Report on Form 10-K.
|
|
201
6
|
|
|
201
5
|
|
|
201
4
|
|
Restaurant sales and operating revenue
|
|
|
99.4
|
%
|
|
|
99.4
|
%
|
|
|
99.5
|
%
|
Franchise revenue
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
0.5
|
|
Total revenue
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (1)
|
|
|
27.5
|
|
|
|
27.3
|
|
|
|
27.7
|
|
Payroll and related costs (1)
|
|
|
34.5
|
|
|
|
34.2
|
|
|
|
34.8
|
|
Other restaurant operating costs (1)
|
|
|
21.2
|
|
|
|
21.6
|
|
|
|
22.2
|
|
Depreciation and amortization (1)
|
|
|
4.7
|
|
|
|
4.7
|
|
|
|
4.9
|
|
Selling, general, and administrative, net
|
|
|
10.0
|
|
|
|
10.2
|
|
|
|
11.7
|
|
Closures and impairments, net
|
|
|
5.7
|
|
|
|
0.9
|
|
|
|
2.8
|
|
Trademark impairments
|
|
|
0.2
|
|
|
|
–
|
|
|
|
0.1
|
|
Gain on sale
s of Lime Fresh Mexican Grill assets
|
|
|
(0.5
|
)
|
|
|
–
|
|
|
|
–
|
|
Interest expense, net
|
|
|
2.0
|
|
|
|
2.0
|
|
|
|
2.1
|
|
(Gain)/loss on extinguishment of debt
|
|
|
(0.0
|
)
|
|
|
–
|
|
|
|
0.1
|
|
Total operating costs and expenses
|
|
|
104.8
|
|
|
|
100.5
|
|
|
|
106.0
|
|
Loss from continuing operations before income taxes
|
|
|
(4.8
|
)
|
|
|
(0.5
|
)
|
|
|
(6.0
|
)
|
Benefit for income taxes from continuing operations
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
(0.4
|
)
|
Loss from continuing operations
|
|
|
(4.6
|
)
|
|
|
(0.3
|
)
|
|
|
(5.6
|
)
|
Income from discontinued operations, net of tax
|
|
|
–
|
|
|
|
–
|
|
|
|
0.0
|
|
Net loss
|
|
|
(4.6
|
)%
|
|
|
(0.3
|
)%
|
|
|
(5.5
|
)%
|
(1)
As a percentage of restaurant sales and operating revenue.
Pre-tax
Loss
from Continuing Operations
Pre-tax loss from continuing
operations increased $47.8 million from fiscal year 2015 to $52.9 million for the fiscal year ended May 31, 2016. The increase in pre-tax loss is due primarily to higher closures and impairments expense ($52.1 million), a decrease in same-restaurant sales of 1.4% at Company-owned Ruby Tuesday restaurants, a partial impairment of the Lime Fresh trademark ($2.0 million), and an increase, as a percentage of restaurant sales and operating revenue, of costs of goods sold and payroll and related costs. These were partially offset by gain on sales of Lime Fresh Mexican Grill assets ($5.9 million), a decrease in interest expense, net ($1.0 million) and decreases, as a percentage of restaurant sales and operating revenue or total revenue, as appropriate, of other restaurant operating costs and selling, general and administrative, net.
Pre-tax lo
ss from continuing operations decreased $64.5 million from fiscal year 2014 to $5.1 million for the fiscal year ended June 2, 2015. The lower pre-tax loss is due to reductions in closures and impairments expense ($22.3 million) and interest expense ($2.2 million) and decreases, as a percentage of restaurant sales and operating revenue or total revenue, as appropriate, of cost of goods sold, payroll and related costs, other restaurant operating costs, depreciation, and selling, general, and administrative, net. In addition, fiscal year 2014 included losses on the extinguishment of debt ($1.4 million) and a charge for the partial impairment of the Lime Fresh trademark ($0.9 million).
In the paragraphs that follow, we discuss in more detail the components of the
changes in pre-tax loss from continuing operations for years ended May 31, 2016 and June 2, 2015 as compared to the comparable prior year. Because a significant portion of the costs recorded in the cost of goods sold, payroll and related costs, other restaurant operating costs, and depreciation categories are either variable or highly correlate with the number of restaurants we operate, we evaluate our trends by comparing the costs as a percentage of restaurant sales and operating revenue, as well as the absolute dollar change, to the comparable prior year.
Cost of
Goods Sold
Cost of goods sold decreased $6.8 million (2.2%) from the prior fiscal year to $298.5 million for the year ended May 31, 2016. As a percentage of restaurant sales and operating revenue, cost of goods sold increased from 27.3% to 27.5%.
The absolute dollar decrease in cost of goods sold for the year ended May 31, 2016 was primarily the result of restaurant closures
, a decline in same-restaurant sales, and $1.4 million in settlement proceeds from a class-action lawsuit against a former vendor, which were offset by price increases on certain commodity items since the prior fiscal year coupled with a shift in menu mix associated with menu changes introduced in November 2015.
As a percentage of restaurant sales and operating revenue, the increase in cost of goods sold for the year ended May 31, 2016 is primarily the result of price increases
on certain commodity items and a shift in menu mix since the prior fiscal year as discussed above.
Cost of goods sold decreased $16.2 million (5.0
%) from fiscal year 2014 to $305.3 million for the year ended June 2, 2015. As a percentage of restaurant sales and operating revenue, cost of goods sold decreased from 27.7% to 27.3%.
The absolute dollar decrease for the year ended June 2, 2015 was the result of restaurant closures and cost savings on certain products due to renegotiated contracts with certain vendors since fiscal year 2014. These were partially offset by price increases on beef, seafood, poultry, and certain other products since
fiscal year 2014.
As a percentage of restaurant sales and operating revenue, the decrease in cost of goods sold for the year ended June 2, 2015 is primarily the result of renegotiated contracts with certain vendors since fiscal year 2014.
Payroll and Related Costs
Payroll and related costs decreased $8.7 million (2.3%) from the prior fiscal year to $374.6 million for the year ended May 31, 2016. As a percentage of restaurant sales and operating revenue, payroll and related costs increased from 34.2% to 34.5%.
The absolute dollar decrease in payroll and related costs for the year ended May 31, 2016 was primarily due to restaurant closures, reductions in overtime as a result of scheduling improvements, decreased management labor costs, and lower workers
’ compensation costs due to favorable claims experience since the prior fiscal year. These reductions were partially offset by higher health insurance due to unfavorable claims experience.
As a percentage of restaurant sales and operating revenue, the increase in payroll and related costs for the year ended May 31, 2016 is primarily the result wage inflation and loss of leveraging associated with lower sales volumes.
Payroll and related costs decreased $21.1 million (5.2%) from
fiscal year 2014 to $383.3 million for the year ended June 2, 2015. As a percentage of restaurant sales and operating revenue, payroll and related costs decreased from 34.8% to 34.2%.
The absolute dollar decrease in payroll and related costs for the year ended June 2, 2015 was primarily due to restaurant closures, decreases in hourly labor as a result of scheduling improvements with the rollout of a new labor forecasting system in our restaurants, and lower management labor, which were partially offset by higher health insurance costs as a result of unfavorable claims experience and higher bonus expense as more restaurants achieved the performance goals as compared to
fiscal year 2014.
As
a percentage of restaurant sales and operating revenue, the decrease in payroll and related costs for the year ended June 2, 2015 was primarily the result of decreased hourly and management labor due to reasons discussed above.
Other Restaurant Operating Costs
Other restaurant operating costs decreased $12.6 million (5.2%) from the prior fiscal year to $229.5 million for the year ended May 31, 2016. As a percentage of restaurant sales and operating revenue, other restaurant operating costs decreased from 21.6% to 21.2%.
For the
year ended May 31, 2016, the decrease in other restaurant operating costs related to the following (in thousands):
Repairs
|
|
$
|
3,607
|
|
Utilities
|
|
|
2,401
|
|
Legal
|
|
|
2,209
|
|
Rent and leasing
|
|
|
1,694
|
|
Insurance
|
|
|
1,693
|
|
Supplies
|
|
|
1,473
|
|
Other decreases, net
|
|
|
366
|
|
P
roperty and equipment losses
|
|
|
(852
|
)
|
Net de
crease
|
|
$
|
12,591
|
|
In both absolute dollars and as a percentage of restaurant sales and operating revenue for the year ended May 31, 2016, the decrease was a result of lower
building repairs, utilities, and rent and leasing due in part to restaurant closures since the prior fiscal year, lower legal costs related to pending litigation, and insurance as a result of favorable general liability claims. These were partially offset by higher property and equipment losses due primarily to a Company-owned Ruby Tuesday restaurant that was destroyed by fire during the current fiscal year. In addition, the decrease as a percentage of restaurant sales and operating revenue was partially offset by loss of leveraging associated with lower sales volumes.
Other restaurant operating costs decreased $1
5.8 million (6.1%) from the prior year to $242.1 million for the year ended June 2, 2015. As a percentage of restaurant sales and operating revenue, other restaurant operating costs decreased from 22.2% to 21.6%.
For the
year ended June 2, 2015, the decrease in other restaurant operating costs related to the following (in thousands):
Repairs
|
|
$
|
5,001
|
|
Utilities
|
|
|
3,960
|
|
Rent and leasing
|
|
|
2,053
|
|
Legal
|
|
|
1,698
|
|
Gift card breakage
|
|
|
1,388
|
|
Business interruption recoveries
|
|
|
1,060
|
|
Other decreases, net
|
|
|
1,669
|
|
Insurance
|
|
|
(1,010
|
)
|
Net decrease
|
|
$
|
15,819
|
|
In both absolute dollars and as a percentage of restaurant sales and operating revenue for the year ended June 2, 2015, the decrease in other operating costs was primarily a result of reduced building repairs, utilities, and rent and leasing due primarily to restaurant closures since
fiscal year 2014, lower legal costs related to pending litigation, higher gift card breakage income, and business interruption recoveries related to claims collected for certain of our restaurants in
the Gulf Coast area. These changes were partially offset by higher insurance due in part to unfavorable general liability claims experience in fiscal year 2015.
Depreciation
and Amortization
Depreciation and amortization expense decreased $1.0 million (2.0%) to $51.4 million for the year ended May 31, 2016, compared to the prior fiscal year. As a percentage of restaurant sales and operating revenue, depreciation expense was consistent with the prior fiscal year at 4.7%.
The absolute dollar decrease in depreciation and amortization for the year ended May 31, 2016 is due primarily to assets that became fully depreciated or were impaired since the prior fiscal year coupled with restaurant closures.
Depreciation
and amortization expense decreased $5.0 million (8.6%) to $52.4 million for the year ended June 2, 2015, compared to fiscal year 2014. As a percentage of restaurant sales and operating revenue, depreciation expense decreased from 4.9% to 4.7%.
In
terms of absolute dollars, the decrease for the year ended June 2, 2015 is due primarily to assets that became fully depreciated since fiscal year 2014 coupled with restaurant closures.
Selling, General
,
and Administrative Expenses
, Net
Selling, general, and administrative expenses, net decreased $5.7 million (4.9%) from the prior fiscal year to $109.6 million for the year ended May 31, 2016.
The decrease for the year ended May 31, 2016 is due to lower general and administrative costs ($
7.7 million) offset by higher advertising costs ($2.0 million). The reduction in general and administrative costs is primarily due to lower share-based compensation expense as a result of a forfeiture credit as further discussed in Note 10 to the Consolidated Financial Statements and the substantial completion during fiscal year 2015 of expense recognition related to our Chief Executive Officer’s December 2012 inducement awards, a lower accrual for executive bonus, and decreased management labor from reductions in staffing. These were partially offset by higher employee pension-related costs, fees associated with certain service contracts, travel costs associated with restaurant manager training at our Restaurant Support Services Center, and consulting fees. The increase in advertising is primarily a result of higher internet, magazine, direct mail, and other promotional advertising costs offset by decreases in television advertising.
Selling, general, and administrative expenses, net decreased $
21.8 million (15.9%) from fiscal year 2014 to $115.3 million for the year ended June 2, 2015.
The decrease for the year ended June 2, 2015 is due to lower advertising costs ($
17.7 million) primarily as a result of decreased television advertising, and a reduction in general and administrative costs ($4.1 million) due to lower management labor from reductions in staffing, a decrease in consulting fees, and lower legal fees. The decrease in overall television advertising is attributable to management’s desire to spend marketing dollars more efficiently, with an increased focus on supporting our national cable television advertising with print and electronic promotions. These were partially offset by higher accruals for support center bonus.
Closures and
Impairments
, Net
Closures and impairments, net increased $
52.1 million to $62.7 million for the fiscal year ended May 31, 2016, as compared to the prior fiscal year. The $52.1 million increase is primarily due to higher property impairment charges ($48.3 million), closed restaurant lease reserve expense ($2.6 million), and other closing costs ($0.3 million), coupled with lower gains on the sale of surplus properties ($0.9 million).
The increase
in closures and impairments for the year ended May 31, 2016 is primarily due to higher Ruby Tuesday concept property impairment charges coupled with $6.4 million of impairments, lease reserves, severance, and other charges associated with the closure of 11 Lime Fresh restaurants during the current fiscal year. As further discussed in Notes 7 and 16 to the Consolidated Financial Statements, on August 11, 2016, following a comprehensive review of the Company's property portfolio, we announced a plan to close approximately 95 Company-owned restaurants by September 2016. Given the status of the plan as of May 31, 2016, we concluded that there was an impairment trigger as certain restaurants would be disposed of significantly before the end of their previously estimated useful lives. Accordingly, we recorded impairment charges of $39.2 million during the fourth quarter of fiscal year 2016 related to
these restaurants. Also included within Closures and impairments, net for fiscal year 2016 are impairments of $14.7 million related to open Ruby Tuesday concept restaurants with deteriorating operational performance during the first three quarters of fiscal year 2016 or not included within management
’s developing closure plan during the fourth fiscal quarter, $3.4 million related to Lime Fresh Mexican Grill concept restaurants, and $0.8 million related to surplus properties.
Closures and impairments
, net decreased $22.3 million to $10.5 million for the year ended June 2, 2015, as compared to fiscal year 2014. The decrease is primarily due to lower property impairment charges ($14.5 million), closed restaurant lease reserve expense ($5.8 million), and other closing costs ($1.2 million) coupled with higher gains on the sale of surplus properties ($0.7 million).
The decrease in closures and impairments for the year ended June 2, 2015 is primarily due to lower property impairment charges as the same periods of the prior fiscal year included, a
mong other charges, larger impairments attributable to open Ruby Tuesday concept restaurants experiencing deteriorating operational performance and related to early restaurant closures. Fiscal year 2014 charges were also higher due to a plan to close approximately 30 Ruby Tuesday concept restaurants by the end of that fiscal year.
See Note 7 to the Consolidated Financial Statements for further information on our closures and impairment charges recorded during fiscal years 2016, 2015, and 2014. Further information regarding closures and impairments expense for the Ruby Tuesday and Lime Fresh concepts for all periods presented is contained in Note 11 to the Consolidated Financial Statements.
Trade
mark
Impairment
s
As previously discussed within this MD&A, during fiscal year 2016 we entered into an
agreement to sell eight Company-owned Lime Fresh restaurants in Florida and closed the remaining 11 Company-owned Lime Fresh restaurants. In connection with these events, we concluded that the Lime Fresh trademark was partially impaired. Accordingly, we recorded a non-cash charge of $2.0 million representing a partial impairment of the Lime Fresh trademark.
During fiscal year 2014, we conclude
d that the Lime Fresh trademark was partially impaired by using entity specific projections for undiscounted cash flows that incorporated only those Lime Fresh assets existing as of the measurement date. Accordingly, we recorded a non-cash charge of $0.9 million representing a partial impairment of the Lime Fresh trademark.
As further discussed in Note
3 to the Consolidated Financial Statements, we sold the Lime Fresh brand's intellectual property during the fourth quarter of fiscal year 2016. As a result of this transaction, our Lime Fresh trademark had no net book value remaining at May 31, 2016. See Note 7 to our Consolidated Financial Statements for further information on our trademark impairment charges recorded during fiscal years 2016 and 2014.
Gain
on Sales of Lime Fresh Mexican Grill Assets
As previously discussed within this MD&A
and further discussed in Note 3 to the Consolidated Financial Statements, during fiscal year 2016, we entered into an agreement to sell the assets related to eight Company-owned Lime Fresh restaurants in Florida for $6.0 million and closed the remaining 11 Company-owned Lime Fresh restaurants. Six of the restaurants were closed and transferred to the buyer during the fourth quarter of fiscal year 2016, after which we were paid $5.0 million. One of the remaining two restaurants closed and transferred to the buyer shortly after our fiscal year-end, and the other restaurant is expected to close and transfer to the buyer on or before the end of our second quarter of fiscal year 2017. The remaining $1.0 million of consideration will be received when the remaining restaurant has transferred to the buyer. We recognized during fiscal year 2016 a gain of $3.1 million on this transaction. All of the eight restaurants involved in this transaction will be rebranded by the buyer as a different restaurant concept.
Also during the fourth quarter of fiscal year 2016, we sold the Lime Fresh brand's intellectual property
and the franchise agreements associated with eight franchised Lime Fresh concept restaurants for $4.6 million. We recognized a gain of $2.8 million on this transaction.
Interest Expense, Net
Interest expense, net decreased $1.0 million to $21.8 million for the year ended May 31, 2016, as compared to the prior fiscal year, primarily due to lower interest resulting from the early payoff of certain mortgage loans and repurchases of our Senior Notes since the prior fiscal year. Partially offsetting these decreases were $0.6 million in increased prepayment premiums paid in connection with mortgage obligations that we prepaid and retired in fiscal year 2016 above those paid in the previous fiscal year.
Interest expense, net decreased $2.2 million to $22.7 million for the year ended June 2, 2015, primarily due to lower interest expense on our Senior Notes due to repurchases during
fiscal year 2014 and the early payoff of certain mortgage loans since fiscal year 2014.
(Gain)/
Loss on Extinguishment of Debt
Under the terms of the Senior Credit Facility we are allowed, under certain circumstances, to repurchase up to $20.0 million of the Senior Notes in any fiscal year. During the year ended May 31, 2016, we repurchased $2.5 million of the Senior Notes for $2.4 million plus accrued interest. We realized a negligible gain on these transactions.
Loss on extinguishment of debt was $1.4 million for the year ended June 3, 2014
due to our repurchase of $20.0 million of the Senior Notes for $20.0 million plus $0.2 million of accrued interest. We realized losses of $0.7 million on these transactions. Additionally, we incurred a $0.7 million charge in the second quarter of fiscal year 2014 relating to the write-off of the pro rata portion of unamortized debt issuance costs associated with the previous credit facility.
Benefit
for Income Taxes
from Continuing Operations
We recorded a tax benefit from continuing operations of $2.2 million for the fiscal year ended May 31, 2016, compared to a tax benefit from continuing operations of $1.9 million for the fiscal year ended June 2, 2015. Included in our $1.9 million tax benefit for the fiscal year ended June 2, 2015 was a benefit of $3.2 million recorded during the first quarter of fiscal year 2015, representing an immaterial prior period correction to our deferred tax asset valuation allowance.
We recorded a tax benefit from continuing operations of $1.9 million for the
fiscal year ended June 2, 2015, compared to a tax benefit from continuing operations of $4.7 million for the fiscal year ended June 3, 2014. Included in our $1.9 million tax benefit from continuing operations for the year ended June 2, 2015 was the previously mentioned benefit of $3.2 million, with the remaining $1.3 million in net expense is attributable to decreased pre-tax losses and changes in uncertain tax reserves for fiscal year 2015.
We regularly evaluate the need for a valuation allowance for deferred tax assets by assessing whether it is more likely than not that we will realize the deferred tax assets in the future.
A valuation allowance assessment is performed each reporting period, with any additions or adjustments reflected in earnings in the period of assessment. In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets for each jurisdiction.
Our valuation allowance for deferred tax assets totaled
$89.9 million and $62.8 million as of May 31, 2016 and June 2, 2015, respectively. Included within our income tax benefit from continuing operations is the expense from the additional valuation allowance of $28.2 million, $9.1 million, and $31.2 million for fiscal years 2016, 2015, and 2014, respectively, representing the amount reserved for the increase in net deferred tax assets during the periods (primarily related to general business credit carryforwards and state net operating loss carryforwards). Additionally, a valuation allowance benefit of $0.3 million was included within the income tax benefit from discontinued operations in fiscal year 2014.
Under
ASC 740, we are required to assess whether a valuation allowance should be established against our deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. In making such judgments, significant weight is given to evidence that can be objectively verified. As a result of, among other charges, closures and impairments and trademark impairment charges, we currently reflect a three-year cumulative pre-tax loss. A cumulative pre-tax loss is given more weight than projections of future income, and a recent historical cumulative loss is considered a significant factor that is difficult to overcome. Before consideration of the valuation
allowance expense, we had an income tax benefit of $30.4 million, $11.0 million, and $35.9 million, including the tax credits, in fiscal years 2016, 2015, and 2014, respectively.
Discontinued Operations
In an effort to focus primarily on the sales turnaround of our core Ruby Tuesday concept and secondly, to improve the financial performance of our then Lime Fresh concept, we completed the closure of our Marlin &
Ray’s, Wok Hay, and Truffles restaurants during fiscal year 2013. We have classified the results of operations of our Company-owned Marlin & Ray’s, Wok Hay, and Truffles concepts as discontinued operations for the fiscal years ended June 3, 2014. The results of operations of our discontinued operations are as follows (in thousands):
|
|
June 3, 2014
|
|
Restaurant sales and operating revenue
|
|
$
|
–
|
|
Income before income taxes
|
|
$
|
458
|
|
Benefit for income taxes
|
|
|
(106
|
)
|
Income from discontinued operations
|
|
$
|
564
|
|
Liquidity and Capital Resources
Sources and Uses of Cash
Our primary
source of liquidity is cash provided by operations. The following table presents a summary of our cash flows from operating, investing, and financing activities for the last three fiscal years (in thousands).
|
|
201
6
|
|
|
201
5
|
|
|
201
4
|
|
Net cash provided by operating activities
|
|
$
|
40,117
|
|
|
$
|
54,911
|
|
|
$
|
45,375
|
|
Net cash used by investing activities
|
|
|
(19,755
|
)
|
|
|
(17,497
|
)
|
|
|
(6,203
|
)
|
Net cash used by financing activities
|
|
|
(28,352
|
)
|
|
|
(13,409
|
)
|
|
|
(40,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease)/ increase in cash and cash equivalents
|
|
$
|
(7,990
|
)
|
|
$
|
24,005
|
|
|
$
|
(1,581
|
)
|
Operating Activities
Our cash provided by operations is generally derived from cash receipts generated by our restaurant customers and franchisees.
Substantially all of the $1,085.0 million, $1,120.1 million, and $1,162.4 million of restaurant sales and operating revenue disclosed in our Consolidated Statements of Operations and Comprehensive Loss for fiscal years 2016, 2015, and 2014, respectively, was received in cash either at the point of sale or within two to four days (when our customers paid with debit or credit cards). Our primary uses of cash for operating activities are food and beverage purchases, payroll and benefit costs, restaurant operating costs, general and administrative expenses, and marketing, a significant portion of which are incurred and paid in the same period.
Cash provided by operating activities for fiscal year 2016 decreased $
14.8 million (27.0%) from the prior fiscal year to $40.1 million. The decrease is primarily the result of lower Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”), increases in amounts spent to acquire inventory, decreases in accounts payable, accrued, and other liabilities due to the timing of payments, and an increase in cash paid for taxes ($2.8 million). These were partially offset by lower cash paid for interest ($1.0 million) due to the prepayment of certain of our mortgage obligations and other principal payments on our debt since the prior fiscal year and a decrease in amounts spent on media advertising (approximately $1.7 million).
Cash provided by operating activities for
fiscal year 2015 increased $9.5 million (21.0%) from fiscal year 2014 to $54.9 million. The increase is primarily the result of higher EBITDA due in part to restaurant-level cost improvements and reductions in amounts spent on media advertising. These increases were partially offset by decreases in accounts payable, accrued, and other liabilities due to the timing of payments (approximately $11.4 million) and inventory (approximately $8.9 million) as amounts for fiscal year 2014 related to levels of lobster held in inventory that were significantly lower than those of the preceding year.
Our working capital and current
ratio as of May 31, 2016 were $23.2 million and 1.2:1, respectively. While we typically carry current liabilities in excess of current assets as is common in the restaurant industry, we have reduced our accounts payable and other accrued liabilities since the prior fiscal year.
Investing Activities
We require capital principally for
the maintenance and upkeep of our existing restaurants, limited new restaurant construction, investments in technology, equipment, remodeling of existing restaurants, and on occasion for the acquisition of franchisees or other restaurant concepts. Property and equipment expenditures purchased primarily with cash on hand, internally-generated cash flows, and/or proceeds from sale-leaseback transactions for fiscal years 2016, 2015, and 2014 were $34.4 million, $31.0 million, and $28.3 million, respectively. In addition, proceeds from the disposal of assets produced $11.7 million, $11.3 million, and $15.5 million of cash in fiscal years 2016, 2015, and 2014, respectively, following actions taken to more aggressively market surplus properties in order to pay down debt and, for fiscal year 2016, to substantially exit the Lime Fresh Mexican Grill brand.
During the
fiscal year ended June 3, 2014, we completed sale-leaseback transactions of the land and building for three Company-owned Ruby Tuesday concept restaurants for gross cash proceeds of $5.9 million, exclusive of transaction costs of approximately $0.3 million. Equipment was not included. The net proceeds from the sale-leaseback transactions were used for general corporate purposes, including capital expenditures, debt payments, and, in fiscal years prior to 2014, the repurchase of shares of our common stock. See Note 5 to the Consolidated Financial Statements for further discussion of these transactions.
Capital expenditures for fiscal
year 2017 are estimated to be in the range of between $38.0 million to $42.0 million. We intend to fund our investing activities with cash currently on hand, cash provided by operations, proceeds from the sale of surplus properties, or borrowings on the Senior Credit Facility.
Financing Activities
Historically our primary sources of cash have been operating activities, coupled with sale-leaseback transactions
and sales of surplus properties. When these alone have not provided sufficient funds for both our capital and other needs, we have obtained funds through the issuance of indebtedness or through the issuance of additional shares of common stock.
Our current borrowings and credit facilities include
$212.5 million outstanding principal of 7.625% senior notes due 2020 (the “Senior Notes”), a four year revolving credit agreement (the “Senior Credit Facility”) under which we may borrow up to $50.0 million, and $15.7 million of mortgage loan obligations acquired upon franchise acquisitions. See Note 6 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for key terms and further information on our Senior Notes, Senior Credit Facility, and mortgage loan obligations.
Under the terms of the Senior Credit Facility we are allowed, under certain circumstances, to repurchase up to $20.0 million of the Senior Notes in any fiscal year. During the
year ended May 31, 2016, we repurchased $2.5 million of the Senior Notes for $2.4 million plus accrued interest. We realized a negligible gain on these transactions. We did not repurchase any Senior Notes during the year ended June 2, 2015. During the year ended June 3, 2014, we repurchased $20.0 million of the Senior Notes for $20.0 million plus $0.2 million of accrued interest. We realized losses of $0.7 million on these transactions.
During fiscal year 2016, we prepaid and retired
16 mortgage loan obligations with an aggregate balance of $13.3 million using cash on hand. We paid $1.6 million in prepayment premiums and $0.1 million of accrued interest in connection with the retirement of these obligations. The prepayment of this debt eliminated one mortgage lender and allowed for the release of 44 properties which had served as collateral. Additionally, during fiscal year 2015, we prepaid and retired ten mortgage loan obligations with an aggregate balance of $9.0 million using cash on hand. In connection with the retirement of these obligations, we paid $1.0 million in prepayment premiums and an insignificant amount of accrued interest.
During fiscal
years 2016, 2015, and 2014, we repurchased 1.9 million, an insignificant number, and 0.1 million shares of RTI common stock, respectively, at an aggregate cost of $10.1 million, $0.1 million, and $0.6 million, respectively. As of May 31, 2016, the total number of shares authorized to be repurchased was 9.9 million. Additionally, there were no dividends paid during fiscal years 2016, 2015, or 2014.
Significant
Contractual Obligations and Commercial Commitments
Long-term financial obligations were as follows as of May 31, 2016 (in thousands):
|
|
Payments Due By Period
|
|
|
|
|
|
|
|
Less than
|
|
|
|
1-3
|
|
|
|
3-5
|
|
|
More than 5
|
|
|
|
Total
|
|
|
1 year
|
|
|
years
|
|
|
years
|
|
|
years
|
|
Notes payable and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
long-term debt, including
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
current maturities (a)
|
|
$
|
15,956
|
|
|
$
|
10,971
|
|
|
$
|
3,044
|
|
|
$
|
1,599
|
|
|
$
|
342
|
|
Senior
unsecured notes (a)
|
|
|
212,546
|
|
|
|
–
|
|
|
|
–
|
|
|
|
212,546
|
|
|
|
–
|
|
Interest (b)
|
|
|
68,175
|
|
|
|
17,229
|
|
|
|
33,089
|
|
|
|
16,451
|
|
|
|
1,406
|
|
Operating leases (c)
|
|
|
613,184
|
|
|
|
45,507
|
|
|
|
84,249
|
|
|
|
72,792
|
|
|
|
410,636
|
|
Purchase obligations (d)
|
|
|
58,338
|
|
|
|
40,552
|
|
|
|
14,594
|
|
|
|
2,680
|
|
|
|
512
|
|
Pension obligations (e)
|
|
|
39,320
|
|
|
|
2,809
|
|
|
|
4,007
|
|
|
|
7,234
|
|
|
|
25,270
|
|
Total (f)
|
|
$
|
1,007,519
|
|
|
$
|
117,068
|
|
|
$
|
138,983
|
|
|
$
|
313,302
|
|
|
$
|
438,166
|
|
(a)
|
See
Note 6 to the Consolidated Financial Statements for more information on our debt.
|
(b)
|
Amounts represent contractual interest payments on ou
r fixed-rate debt instruments. Additionally, the amounts shown above include interest payments on the Senior Notes at the current interest rate of 7.625%.
|
(c)
|
This amount includes
lease payments for certain optional renewal periods for which exercise is considered reasonably assured as well as operating leases totaling $4.3 million for which sublease income from franchisees or others is expected. Certain of these leases obligate us to pay maintenance costs, utilities, real estate taxes, and insurance, which are excluded from the amounts shown above. See Note 5 to the Consolidated Financial Statements for more information.
|
(d)
|
The amounts for purchase obligations include
cash commitments under contract for food items and supplies, advertising, utility contracts, and other miscellaneous commitments.
|
(e)
|
See Note
8 to the Consolidated Financial Statements for more information.
|
(f)
|
This amount excludes $
4.5 million of unrecognized tax benefits due to the uncertainty regarding the timing of future cash outflows associated with such obligations.
|
C
ommercial commitments were as follows as of May 31, 2016 (in thousands):
|
|
Payments Due By Period
|
|
|
|
|
|
|
|
Less than
|
|
|
1-3
|
|
|
3-5
|
|
|
More than 5
|
|
|
|
Total
|
|
|
1 year
|
|
|
years
|
|
|
years
|
|
|
years
|
|
Letters of credit
|
|
$
|
11,591
|
|
|
$
|
4,491
|
|
|
$
|
7,100
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Divestiture guarantees
|
|
|
6,901
|
|
|
|
613
|
|
|
|
1,062
|
|
|
|
1,072
|
|
|
|
4,154
|
|
Lease guarantee
|
|
|
17,743
|
|
|
|
1,252
|
|
|
|
2,555
|
|
|
|
2,244
|
|
|
|
11,692
|
|
Total
|
|
$
|
36,235
|
|
|
$
|
6,356
|
|
|
$
|
10,717
|
|
|
$
|
3,316
|
|
|
$
|
15,846
|
|
At
May 31, 2016, we had divestiture guarantees, which arose in fiscal 1996, when our shareholders approved the distribution of our family dining restaurant business (Morrison Fresh Cooking, Inc., “MFC”) and our health care food and nutrition services business (Morrison Health Care, Inc., “MHC”). Subsequent to that date Piccadilly Cafeterias, Inc. (“Piccadilly”) acquired MFC and Compass Group (“Compass”) acquired MHC. As agreed upon at the time of the distribution, we have been contingently liable for payments to MFC and MHC employees retiring under MFC’s and MHC’s versions of the Management Retirement Plan and the Executive Supplemental Pension Plan (the two non-qualified defined benefit plans) for the accrued benefits earned by those participants as of March 1996.
We estimated our
divestiture guarantees at May 31, 2016 to be $6.8 million for employee benefit plans (all of which resides with MHC following Piccadilly’s bankruptcy in fiscal 2004). We believe the likelihood of being required to make payments for MHC’s portion to be remote due to the size and financial strength of MHC and Compass.
As of
May 31, 2016, we are the guarantor of nine third-party leases associated with closed concept restaurants. Lease guarantee amounts in the table above represent lease payments for which we are contingently liable. While we believe that the likelihood of being required to make these lease payments is remote, we recorded a guarantee liability of $0.5 million and $0.1 million in our Consolidated Balance Sheets at May 31, 2016 and June 2, 2015, respectively.
Off-
Balance Sheet Arrangements
See Note
5 to the Consolidated Financial Statements for information regarding our operating leases.
Recently Issued Accounting Pronouncements
Information regarding accounting
pronouncements not yet adopted is incorporated by reference from Note 1 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
C
ritical Accounting Policies
Our MD&A is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make subjective or complex judgments that may affect the reported financial condition and results of operations. We base our estimates on historical experience and other assumptions that we believe to be reasonable in the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We
periodically evaluate the information used to make these estimates as our business and the economic environment changes.
We believe that of our significant accounting policies, the following may involve a higher degree of judgment and complexity.
Our significant accounting policies are more fully described in Note 1 to the Consolidated Financial Statements.
Impairment of Long-Lived Assets
We evaluate the carrying value of any individual restaurant when the cash flows of such restaurant have deteriorated and we believe the probability of continued operating and cash flow losses indicate that the net book value of the restaurant may not be recoverable.
In performing the review for recoverability, we consider the forecasted future cash flows expected to result from the use of the restaurant and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying value of the restaurant, an impairment loss is recognized for the amount by which the net book value of the assets exceeds their fair value. Otherwise, an impairment loss is not recognized. Fair value is market participant-based upon broker estimates of the value of land, building, leasehold improvements, and other residual assets, or estimated discounted future cash flows expected to be generated from continuing use through the expected disposal date and the expected salvage value.
Under our policies, recurring or projected annual negative cash flow signals a potential impairment.
If a restaurant that has been open for at least six full quarters shows negative cash flow results, we evaluate the plan to reverse the negative performance. Both qualitative and quantitative information are considered when evaluating for potential impairments. We also perform tests for impairment of intangible assets when other events or circumstances indicate it might be impaired.
As discussed in Notes 7 and 16 to the Consolidated Financial Statements, in response to
a comprehensive review by management of our property portfolio, during the fourth quarter of fiscal year 2016, we tested a significant number of open Ruby Tuesday concept restaurants for impairment as we concluded it was more likely than not they would close significantly before the end of their previously estimated useful life. We evaluated recoverability based on the restaurants forecasted undiscounted cash flows for 107 restaurants, which incorporated probability weighted scenarios of either remaining open or closing in the near term. Sensitivity analyses were performed on the probability weighted scenarios changing by 10% and the results were not materially different. For restaurant assets that are deemed to not be recoverable, we wrote those assets down to estimated fair value. As a result of this analysis, the Company incurred $39.2 million of impairment charges during fiscal year 2016. We also tested the Lime Fresh trademark for impairment during fiscal years 2016 and 2014 as factors were present which indicated the trademark may be impaired. We determined that the Lime Fresh trademark was partially impaired and recorded charges of $2.0 million and $0.9 million during fiscal years 2016 and 2014, respectively.
At May 31, 2016,
we had 75 restaurants that had been open for more than six full quarters with rolling 12-month negative cash flows of which 67 are expected to close by September 2016 either as part of the asset rationalization plan as previously discussed or as leases expire. Of the eight restaurants which remained, we recorded impairments for five properties based on their estimated values and we reviewed the plans to improve cash flows at the remaining
three properties and determined that no impairments were necessary. The remaining net book value of the eight
restaurants was $2.2 million at May 31, 2016.
Should cash flows at these cash flow negative restaurants not improve within a reasonable period of time, further impairment charges may occur. Considerable management judgment is necessary to estimate future cash flows, including cash flows from continuing use, terminal value, closure costs, salvage value, and sublease income. Accordingly, actual results could vary significantly from quarter to quarter and from our estimates.
Income Tax Valuation Allowances and Tax Accruals
We record deferred tax assets for various items and a valuation allowance against those deferred tax assets when current available information raises doubt as to their ultimate realization.
Despite the existence of long carryforward periods for some of our largest deferred tax assets, such as unused employment tax credits and federal and/or state net operating losses, and a history of realizing our deferred tax assets by utilizing those credits and losses in subsequent or carryback years, a three-year cumulative pre-tax loss is an example of negative evidence that raises doubt as to the realization of the deferred tax assets. To determine the appropriate amount of the valuation allowance, we schedule a year-by-year estimation of the reversal of existing taxable temporary differences in order to determine the availability of future taxable income which would allow for the realization of our existing deferred tax assets. While we are able to incorporate tax planning strategies into our analysis, we do not factor projected future income until such time that the positive evidence supporting realization outweighs the negative evidence (most significantly, the three-year cumulative pre-tax loss).
We recorded a valuation allowance for deferred tax assets of
$89.9 million and $62.8 million as of May 31, 2016 and June 2, 2015, respectively. Included within our income tax benefit from continuing operations is the expense from the additional valuation allowance of $28.2 million, $9.1 million, and $31.2 million for fiscal years 2016, 2015, and 2014, respectively. Additionally, a valuation allowance benefit of $0.3 million was included in income tax benefit from discontinued operations in fiscal year 2014. Given that we last recorded pre-tax income in fiscal 2011, we will likely not be able to reverse the significant valuation allowance recorded in the near future. Our recorded valuation allowance may be subject to material changes in the future, as our ability to utilize deferred tax assets can significantly change based on future events, including our determinations as to the feasibility of certain tax planning strategies. Upon such time that we are able to reverse the deferred tax asset valuation allowance, income tax expense will be reduced, and net income will correspondingly be increased, by the amount we are able to reverse.
Lease Obligation
s
We lease a significant number of our restaurant properties. At the inception of the lease, each property is evaluated to determine whether the lease will be accounted for as an operating or capital lease. The term used for this evaluation includes renewal option periods only in instances in which the exercise of the renewal option can be reasonably assured and failure to exercise such option would result in an economic penalty.
The primary penalty to which we are subject is the economic detriment associated with our investment into leasehold improvements which might become impaired should we choose not to continue the use of the leased property.
Our
operating lease term used for straight-line rent expense is calculated from the date we take possession of the leased premises through the end of the lease term. There is potential for variability in our “rent holiday” period which begins on the possession date and ends on the earlier of the restaurant open date or the commencement of rent payments. Factors that may affect the length of the rent holiday period generally relate to construction-related delays. Extension of the rent holiday period due to delays in restaurant opening will result in greater preopening rent expense recognized during the rent holiday period.
For
operating leases that contain predetermined fixed rent escalations, we record the total rent payable during the lease term, as determined above, on the straight-line basis over the term of the lease (including the “rent holiday” period beginning upon possession of the premises), and we record the difference between the minimum rents paid and the straight-line rent as deferred escalating minimum rent.
Certain leases contain provisions that require additional rental payments, called "contingent rents," when the associated restaurants' sales volumes exceed agreed-upon levels. We recognize contingent rental expense (in annual as well as interim periods) prior to the achievement of the specified target that triggers the contingent rental expense, provided that achievement of that target is considered probable.
The judgment regarding the probable term for each restaurant property lease impacts the classification and accounting for a lease as capital or operating, the rent holiday
and/or escalation in payments that are taken into consideration when calculating straight-line rent and the term over which leasehold improvements for each restaurant amortized. The material factor we consider when making this judgment is the total amount invested in the restaurant at the inception of the lease and whether management believes that renewal appears reasonably assured. While a different term may produce materially different amounts of depreciation, amortization, and rent expense than reported, our historical lease renewal rates support the judgments made. We have not made any changes to the nature of the assumptions used to account for leases in any of the fiscal years presented in our Consolidated Financial Statements.
We record the estimated future lease obligations on leased restaurants
upon closure for which we have not sublet or settled the lease with the respective landlord as of a quarter end date. Inherent in these estimates is an assumption on the time period we anticipate it will take to reach a settlement with our landlord or to execute on a sublease agreement. We calculate the lease obligation as the present value of future minimum net lease or settlement payments using a discount rate that takes into account the remaining time period prior to the estimated date of resolution. As further discussed in Note 7 to the Consolidated Financial Statements, our estimated lease obligations for closed restaurants as of May 31, 2016 and June 2, 2015 were $6.3 million and $7.1 million, respectively.
Estimated Liability for Self-Insurance
We self-insure a portion of our
expected losses under our employee health care benefits, workers’ compensation, general liability, and property insurance programs. Specifically with our workers’ compensation and general liability coverages, we have stop loss insurance for individual claims in excess of stated loss amounts. Insurance liabilities are recorded based on third-party actuarial estimates of the ultimate incurred losses, net of payments made. The estimates themselves are based on standard actuarial techniques that incorporate both the historical loss experience of the Company and supplemental information as appropriate.
The analysis performed in calculating the estimated liability is subject to various assumptions including, but not limited to, (a) the quality of historical loss and exposure information, (b) the reliability of historical loss experience to serve as a predictor of future experience, (c) the reasonableness of insurance trend factors and governmental indices as applied to the Company, and (d) projected payrolls and revenue. As claims develop, the actual ultimate losses may differ from actuarial estimates. Therefore, an analysis is performed quarterly to determine if modifications to the accrual are required.
Known Events, Uncertainties
,
and Trends
Upcoming Restaurant Closures
As discussed previously within this MD&A and discussed further in Notes 7 and 16 to the Consolidated Financial Statements, on August 11, 2016, following
a comprehensive review of our Company's property portfolio, we announced a plan to close approximately 95 Company-owned restaurants by September 2016. The approved closures, which include mall, in line, and freestanding sites, encompass restaurants spread throughout all of the geographies in which the Company operates. Of the restaurants expected to close, approximately two-thirds are operated on leased properties and approximately one-third are owned.
We incurred $39.2 million of impairment charges in the fourth quarter of our fiscal year 2016 following an impairment analysis performed for the restaurants deemed, as of May 31, 2016, to be more than likely to be closed significantly prior to the end of their previously estimated useful lives based on the then status of management
’s developing plan. In addition to the impairment charges recorded during fiscal year 2016, further impairment charges will be incurred based on changes ultimately made to the plan after May 31, 2016 and as the restaurants actually close. Accordingly, the first quarter of our fiscal year 2017 closures and impairments are expected to include additional impairment charges of approximately $3.0 million to $5.0 million for restaurants added to management’s plan subsequent to May 31, 2016, approximately $19.0 million to $21.0 million associated with estimated lease settlement costs and approximately $11.0 million to $16.0 million in severance benefits, inventory write-off and other costs. The actual amount of any cash payments made by the Company for lease contract termination costs will be dependent upon ongoing negotiations with the landlords of the leased restaurant properties and could be higher or lower than the amounts currently estimated.
Financial Strategy
and Stock Repurchase Plan
Cash and cash equivalents as of Ma
y 31, 2016 were $67.3 million. Our overall goal is to invest in our brand and to strengthen our balance sheet to improve credit metrics. As such, our first priority is to ensure that we have adequate cash levels to run the business and internally fund our capital expenditures. Our second priority is to reduce our outstanding debt to help improve our credit metrics with the goal of improved flexibility and access to capital at reasonable rates. Lastly, we would consider share repurchases within the limitations of our debt covenants to return capital to shareholders. During the fiscal year ended May 31, 2016, we repurchased 1.9 million shares of our common stock at an aggregate cost of $10.1 million. As of May 31, 2016, the total number of remaining shares authorized to be repurchased was 9.9 million. Any of these actions, in any particular period and the actual amount thereof, remain at the discretion of the Board of Directors, and no assurance can be given that any such actions will be taken in the future.
Repurchases of Senior Notes
We are allowed under the terms of the Senior Credit Facility to repurchase, in any fiscal year, up to $20.0 million of indebtedness to various holders of the Senior Notes.
During the fiscal year ended May 31, 2016, we repurchased $2.5 million of the Senior Notes for $2.4 million plus accrued interest. We realized a negligible gain on these transactions. As of the date of this filing, we may repurchase $20.0 million of the Senior Notes during the remainder of fiscal year 2017. Future repurchases of the Senior Notes, if any, will be funded with available cash on hand.
Dividends
During fiscal 1997, our Board of Directors approved a dividend policy as an additional means of returning capital to our shareholders. No dividends were declared or paid during the
three year period ended May 31, 2016. The
payment of a dividend in any particular period and the actual amount thereof remain at the discretion of the Board of Directors, and no assurance can be given that dividends will be paid in the future.
Fiscal Year
Our
fiscal year 2017 will contain 53 weeks and end on June 6, 2017.
Impact of Inflation
The impact of inflation on the cost of food, labor, supplies, utilities, real estate, and construction costs could adversely impact our operating results. Historically, we have been able to recover certain inflationary cost increases through increased menu prices coupled with more efficient purchasing practices and productivity improvements. Competitive pressures may limit our ability to completely recover such cost increases. Historically, the effect of inflation has not significantly impacted our net income.
Item 8. Financial Statements and Supplementary Da
ta
Ruby Tuesday, Inc. and Subsidiaries
Index to Consolidated Financial Statements
Consolidated Statements of
Operations and Comprehensive Loss for the Fiscal Years Ended May 31, 2016, June 2, 2015, and June 3, 2014
|
4
4
|
|
|
Consolidated Balance Sheets as of
May 31, 2016 and June 2, 2015
|
4
5
|
|
|
Consolidated Statements of Shareholders' Equit
y for the Fiscal Years Ended May 31, 2016, June 2, 2015, and June 3, 2014
|
46
|
|
|
Consolidated Statements of Cash Flows for the Fiscal Years Ended
May 31, 2016, June 2, 2015, and June 3, 2014
|
47
|
|
|
Notes to Consolidated Financial Statements
|
48-88
|
|
|
Reports of Independent Registered Public Accounting Firm
|
89-90
|
Ruby Tuesday, Inc. and Subsidiaries
Consolidated Financial Statements
Consolidated Statements of
Operations
and
Comprehensive
Loss
(In thousands, except per-share data)
|
|
For the Fiscal Year Ended
|
|
|
|
May 31
,
201
6
|
|
|
June
2,
201
5
|
|
|
June 3,
201
4
|
|
|
|
|
|
|
|
(as adjusted)
|
|
|
(as adjusted)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant sales and operating revenue
|
|
$
|
1,085,034
|
|
|
$
|
1,120,142
|
|
|
$
|
1,162,423
|
|
Franchise revenue
|
|
|
6,194
|
|
|
|
6,424
|
|
|
|
6,323
|
|
Total revenue
|
|
|
1,091,228
|
|
|
|
1,126,566
|
|
|
|
1,168,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (excluding depreciation
and
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization shown below)
|
|
|
298,529
|
|
|
|
305,306
|
|
|
|
321,521
|
|
Payroll and related costs
|
|
|
374,561
|
|
|
|
383,261
|
|
|
|
404,379
|
|
Other restaurant operating costs
|
|
|
229,518
|
|
|
|
242,109
|
|
|
|
257,928
|
|
Depreciation and amortization
|
|
|
51,358
|
|
|
|
52,391
|
|
|
|
57,347
|
|
Selling, general, and administrative, net
|
|
|
109,627
|
|
|
|
115,327
|
|
|
|
137,151
|
|
Closures and impairments, net
|
|
|
62,681
|
|
|
|
10,542
|
|
|
|
32,831
|
|
Trademark impairments
|
|
|
1,999
|
|
|
|
–
|
|
|
|
855
|
|
Gain on sales
of Lime Fresh Mexican Grill assets
|
|
|
(5,937
|
)
|
|
|
–
|
|
|
|
–
|
|
Interest expense, net
|
|
|
21,764
|
|
|
|
22,735
|
|
|
|
24,945
|
|
(Gain)/loss on extinguishment of debt
|
|
|
(10
|
)
|
|
|
–
|
|
|
|
1,364
|
|
Total operating costs and expenses
|
|
|
1,144,090
|
|
|
|
1,131,671
|
|
|
|
1,238,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(52,862
|
)
|
|
|
(5,105
|
)
|
|
|
(69,575
|
)
|
Benefit for income taxes from continuing operations
|
|
|
(2,180
|
)
|
|
|
(1,911
|
)
|
|
|
(4,665
|
)
|
Loss from continuing operations
|
|
|
(50,682
|
)
|
|
|
(3,194
|
)
|
|
|
(64,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax
|
|
|
–
|
|
|
|
–
|
|
|
|
564
|
|
Net loss
|
|
$
|
(50,682
|
)
|
|
$
|
(3,194
|
)
|
|
$
|
(64,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income/(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension liability reclassification
|
|
|
831
|
|
|
|
(40
|
)
|
|
|
45
|
|
Total comprehensive loss
|
|
$
|
(49,851
|
)
|
|
$
|
(3,234
|
)
|
|
$
|
(64,301
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(0.83
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(1.08
|
)
|
Income from discontinued operations
|
|
|
–
|
|
|
|
–
|
|
|
|
0.01
|
|
Net loss per share
|
|
$
|
(0.83
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(1.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(0.83
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(1.08
|
)
|
Income from discontinued operations
|
|
|
–
|
|
|
|
–
|
|
|
|
0.01
|
|
Net loss per share
|
|
$
|
(0.83
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(1.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
60,871
|
|
|
|
60,580
|
|
|
|
60,231
|
|
Diluted
|
|
|
60,871
|
|
|
|
60,580
|
|
|
|
60,231
|
|
The accompanying notes are an integral part of the consolidated financial statements.
|
Ruby Tuesday, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except per-share data)
|
|
May 31
,
20
1
6
|
|
|
June
2,
201
5
|
|
|
|
|
|
|
|
(as adjusted)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
67,341
|
|
|
$
|
75,331
|
|
Accounts
and other receivables
|
|
|
12,827
|
|
|
|
5,287
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Merchandise
|
|
|
13,799
|
|
|
|
12,861
|
|
China, silver and supplies
|
|
|
7,796
|
|
|
|
7,550
|
|
Income tax receivable
|
|
|
3,003
|
|
|
|
–
|
|
Prepaid rent and other expenses
|
|
|
11,508
|
|
|
|
12,398
|
|
Assets held for sale
|
|
|
4,642
|
|
|
|
5,453
|
|
Total current assets
|
|
|
120,916
|
|
|
|
118,880
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
671,250
|
|
|
|
752,174
|
|
Other assets
|
|
|
45,751
|
|
|
|
54,398
|
|
Total assets
|
|
$
|
837,917
|
|
|
$
|
925,452
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity:
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
22,141
|
|
|
$
|
23,005
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Taxes, other than income and payroll
|
|
|
10,769
|
|
|
|
11,067
|
|
Payroll and related costs
|
|
|
14,561
|
|
|
|
20,351
|
|
Insurance
|
|
|
5,109
|
|
|
|
7,633
|
|
Deferred revenue – gift cards
|
|
|
16,354
|
|
|
|
16,636
|
|
Rent and other
|
|
|
18,838
|
|
|
|
20,535
|
|
Current maturities of long-term debt, including capital leases
|
|
|
9,934
|
|
|
|
10,078
|
|
Income tax payable
|
|
|
–
|
|
|
|
1,069
|
|
Deferred income taxes, net
|
|
|
–
|
|
|
|
7
|
|
Total current liabilities
|
|
|
97,706
|
|
|
|
110,381
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital leases, less current maturities
|
|
|
213,803
|
|
|
|
231,017
|
|
Deferred income taxes, net
|
|
|
–
|
|
|
|
1,442
|
|
Deferred escalating minimum rent
|
|
|
51,535
|
|
|
|
50,768
|
|
Other deferred liabilities
|
|
|
67,093
|
|
|
|
66,261
|
|
Total liabilities
|
|
|
430,137
|
|
|
|
459,869
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders
’ equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; (authorized: 100,000 shares;
|
|
|
|
|
|
|
|
|
issued:
2016 – 60,137 shares, 2015 – 62,098 shares)
|
|
|
601
|
|
|
|
621
|
|
Capital in excess of par value
|
|
|
75,938
|
|
|
|
83,870
|
|
Retained earnings
|
|
|
341,350
|
|
|
|
392,032
|
|
Deferred compensation liability payable in Company stock
|
|
|
521
|
|
|
|
681
|
|
Company stock held by Deferred Compensation Plan
|
|
|
(521
|
)
|
|
|
(681
|
)
|
Accumulated other comprehensive loss
|
|
|
(10,109
|
)
|
|
|
(10,940
|
)
|
Total shareholders' equity
|
|
|
407,780
|
|
|
|
465,583
|
|
Total liabilities and shareholders' equity
|
|
$
|
837,917
|
|
|
$
|
925,452
|
|
The accompanying notes are an integral part of the consolidated financial statements.
Ruby Tuesday, Inc. and Subsidiaries
Consolidated Statements of Shareholders
’ Equity
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held by the
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Capital In
|
|
|
|
|
|
|
Deferred
|
|
|
Deferred
|
|
|
Other
|
|
|
Total
|
|
|
|
Issued
|
|
|
Excess of
|
|
|
Retained
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Comprehensive
|
|
|
Shareholders
’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Par Value
|
|
|
Earnings
|
|
|
Liability
|
|
|
Plan
|
|
|
Loss
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 4, 2013
|
|
|
61,248
|
|
|
$
|
612
|
|
|
$
|
67,596
|
|
|
$
|
459,572
|
|
|
$
|
1,094
|
|
|
$
|
(1,094
|
)
|
|
$
|
(10,945
|
)
|
|
$
|
516,835
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64,346
|
)
|
Pension and post-retirement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit plans, net of taxes of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
45
|
|
Shares issued pursuant to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cancellations
|
|
|
258
|
|
|
|
3
|
|
|
|
1,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,576
|
|
Share-based compensation,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
including taxes of
$(99)
|
|
|
|
|
|
|
|
|
|
|
7,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,678
|
|
Stock repurchases
|
|
|
(64
|
)
|
|
|
(1
|
)
|
|
|
(578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(579
|
)
|
Changes in Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(472
|
)
|
|
|
472
|
|
|
|
|
|
|
|
–
|
|
Balance, June 3, 2014
|
|
|
61,442
|
|
|
|
614
|
|
|
|
76,269
|
|
|
|
395,226
|
|
|
|
622
|
|
|
|
(622
|
)
|
|
|
(10,900
|
)
|
|
|
461,209
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,194
|
)
|
Pension and post-retirement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit plans, net of taxes of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
(40
|
)
|
Shares issued pursuant to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation plans, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cancellations
|
|
|
665
|
|
|
|
7
|
|
|
|
549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
556
|
|
Share-based compensation,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
including taxes of $(13)
|
|
|
|
|
|
|
|
|
|
|
7,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,125
|
|
Stock repurchases
|
|
|
(9
|
)
|
|
|
|
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(73
|
)
|
Changes in Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
–
|
|
Balance, June 2, 2015
|
|
|
62,098
|
|
|
|
621
|
|
|
|
83,870
|
|
|
|
392,032
|
|
|
|
681
|
|
|
|
(681
|
)
|
|
|
(10,940
|
)
|
|
|
465,583
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,682
|
)
|
Pension and post-retirement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit plans, net of taxes of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
831
|
|
|
|
831
|
|
Shares issued pursuant to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation plans, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cancellations
|
|
|
(88
|
)
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
Share-based compensation,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
including taxes of $
(31)
|
|
|
|
|
|
|
|
|
|
|
2,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,125
|
|
Stock repurchases
|
|
|
(1,873
|
)
|
|
|
(19
|
)
|
|
|
(10,058
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,077
|
)
|
Changes in Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(160
|
)
|
|
|
160
|
|
|
|
|
|
|
|
–
|
|
Balance, May 31, 2016
|
|
|
60,137
|
|
|
$
|
601
|
|
|
$
|
75,938
|
|
|
$
|
341,350
|
|
|
$
|
521
|
|
|
$
|
(521
|
)
|
|
$
|
(10,109
|
)
|
|
$
|
407,780
|
|
The accompanying notes are an integral part of the consolidated financial statements.
Ruby Tuesday,
Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
|
|
For the Fiscal Year Ended
|
|
|
|
May 31, 2016
|
|
|
June 2, 2015
|
|
|
June 3, 2014
|
|
|
|
|
|
|
|
(as adjusted)
|
|
|
(as adjusted)
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(50,682
|
)
|
|
$
|
(3,194
|
)
|
|
$
|
(64,346
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
51,358
|
|
|
|
52,391
|
|
|
|
57,347
|
|
Deferred income taxes
|
|
|
(1,449
|
)
|
|
|
(3,695
|
)
|
|
|
1,646
|
|
Loss on impairments, including disposition of assets
|
|
|
58,647
|
|
|
|
10,896
|
|
|
|
24,132
|
|
Trademark impairments
|
|
|
1,999
|
|
|
|
–
|
|
|
|
855
|
|
Gain on sales of Lime Fresh Mexican Grill assets
|
|
|
(5,937
|
)
|
|
|
–
|
|
|
|
–
|
|
(Gain)/loss on extinguishment of debt
|
|
|
(10
|
)
|
|
|
–
|
|
|
|
1,364
|
|
Share-based compensation expense
|
|
|
2,094
|
|
|
|
7,112
|
|
|
|
7,579
|
|
Excess tax benefits from share-based compensation
|
|
|
–
|
|
|
|
(39
|
)
|
|
|
(284
|
)
|
Lease reserve adjustments
|
|
|
4,090
|
|
|
|
1,460
|
|
|
|
6,815
|
|
Deferred escalating minimum rent
|
|
|
2,075
|
|
|
|
2,342
|
|
|
|
2,733
|
|
Other, net
|
|
|
3,620
|
|
|
|
2,728
|
|
|
|
5,032
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(2,334
|
)
|
|
|
(440
|
)
|
|
|
(204
|
)
|
Inventories
|
|
|
(1,184
|
)
|
|
|
763
|
|
|
|
9,698
|
|
Income taxes
|
|
|
(4,072
|
)
|
|
|
3,202
|
|
|
|
(233
|
)
|
Prepaid and other assets
|
|
|
(610
|
)
|
|
|
(1,875
|
)
|
|
|
(1,392
|
)
|
Accounts payable, accrued and other liabilities
|
|
|
(17,488
|
)
|
|
|
(16,740
|
)
|
|
|
(5,367
|
)
|
Net cash provided by operating activities
|
|
|
40,117
|
|
|
|
54,911
|
|
|
|
45,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(34,427
|
)
|
|
|
(31,010
|
)
|
|
|
(28,339
|
)
|
Proceeds from sale-leaseback transactions, net
|
|
|
–
|
|
|
|
–
|
|
|
|
5,637
|
|
Proceeds from disposal of assets
|
|
|
11,701
|
|
|
|
11,260
|
|
|
|
15,526
|
|
Insurance proceeds from property claims
|
|
|
350
|
|
|
|
145
|
|
|
|
218
|
|
Reductions in Deferred Compensation Plan assets
|
|
|
1,049
|
|
|
|
1,318
|
|
|
|
901
|
|
Other, net
|
|
|
1,572
|
|
|
|
790
|
|
|
|
(146
|
)
|
Net cash used by investing activities
|
|
|
(19,755
|
)
|
|
|
(17,497
|
)
|
|
|
(6,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt
|
|
|
(18,243
|
)
|
|
|
(13,638
|
)
|
|
|
(40,232
|
)
|
Stock repurchases
|
|
|
(10,077
|
)
|
|
|
(73
|
)
|
|
|
(579
|
)
|
Payments for debt issuance costs
|
|
|
(32
|
)
|
|
|
(293
|
)
|
|
|
(1,802
|
)
|
Proceeds from exercise of stock options
|
|
|
–
|
|
|
|
556
|
|
|
|
1,576
|
|
Excess tax benefits from share-based compensation
|
|
|
–
|
|
|
|
39
|
|
|
|
284
|
|
Net cash used by financing activities
|
|
|
(28,352
|
)
|
|
|
(13,409
|
)
|
|
|
(40,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)/increase in cash and cash equivalents
|
|
|
(7,990
|
)
|
|
|
24,005
|
|
|
|
(1,581
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of fiscal year
|
|
|
75,331
|
|
|
|
51,326
|
|
|
|
52,907
|
|
End of fiscal year
|
|
$
|
67,341
|
|
|
$
|
75,331
|
|
|
$
|
51,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of amount capitalized
|
|
$
|
19,790
|
|
|
$
|
20,804
|
|
|
$
|
22,638
|
|
Income taxes, net
|
|
$
|
3,368
|
|
|
$
|
543
|
|
|
$
|
727
|
|
Significant non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement of fully depreciated assets
|
|
$
|
30,576
|
|
|
$
|
23,842
|
|
|
$
|
44,775
|
|
Reclassification of properties to assets held for sale
|
|
$
|
6,817
|
|
|
$
|
7,218
|
|
|
$
|
9,982
|
|
Monetization of, and subsequent reinvestment into, life insurance policies
|
|
$
|
5,642
|
|
|
$
|
6,851
|
|
|
$
|
7,972
|
|
Sale of Lime Fresh Mexican Grill assets
|
|
$
|
5,289
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Changes in property and equipment included in accounts payable
|
|
$
|
539
|
|
|
$
|
–
|
|
|
$
|
1,443
|
|
The accompanying notes are an integral part of the consolidated financial statements.
|
|
|
|
|
Ruby Tuesday, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Description of Business and Principles of Consolidation
Ruby Tuesday, Inc. including its wholly-owned subsidiaries (“RTI,” the “Company,” “we” and/or “our”) develops, operates and franchises casual dining restaurants in the United States, Guam, and 14 foreign countries under the Ruby Tuesday® brand. At May 31, 2016, we owned and operated 646 Ruby Tuesday restaurants concentrated primarily in the Southeast, Northeast, Mid-Atlantic, and Midwest of the United States, which we consider to be our core markets. As of our fiscal year end, there were 78 domestic and international franchise Ruby Tuesday restaurants located in 12 states primarily outside of our existing core markets (primarily the Western United States and portions of the Midwest) and in the Asia Pacific Region, Middle East, Canada, Iceland, Eastern Europe, and Central and South America.
As discussed further in Notes 7 and 16 to the Consolidated Financial Statements, on August 11, 2016, the Company
’s Board of Directors approved a management plan to close 95 Company-owned restaurants by September 2016.
We also own
ed and operated two Lime Fresh Mexican Grill® (“Lime Fresh”) fast casual restaurants as of May 31, 2016. As further discussed in Note 3 to the Consolidated Financial Statements, we entered into an agreement during fiscal year 2016 to sell the assets related to eight Company-owned Lime Fresh restaurants. Of the two remaining Company-owned Lime Fresh restaurants not closed and transferred to the buyer as of May 31, 2016, one closed on June 14, 2016 and was transferred to the third party buyer while the other is expected to be closed and transferred prior to the end of our second quarter of fiscal year 2017.
RTI consolidates its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Fiscal Year
Our fiscal year ends on the first Tuesday following May 30 and, as a result, a 53
rd
week is added every five or six years. The fiscal years ended May 31, 2016, June 2, 2015, and June 3, 2014 each contained 52 weeks.
Cash and Cash Equivalents
Our cash management program provides for the investment of excess cash balances in short-term money market instruments. These money market instruments are stated at cost, which approximates market value. We consider amounts receivable from credit card companies and marketable securities with a maturity of three months or less when purchased to be cash equivalents. Book overdrafts are recorded in accounts payable and are included within operating cash flows.
Inventories
During the first quarter of fiscal year 2016, we completed the implementation of a new inventory management system in our company-owned restaurants. In connection with this implementation, we changed our method of accounting for inventory from the lower of cost (first-in, first-out) or market method utilized by our legacy system to the lower of cost or market method using a weighted-average cost method. We believe this change in accounting principle is preferable because we believe it will result in greater precision in the costing of inventories. In addition, the weighted-average cost method better aligns with the functionality of the new inventory management system. We determined that the effects of adopting the average cost method were not material to our Consolidated Financial Statements. Prior to the conversion to the new inventory management system, we were not able to determine the impact of the change to the weighted-average cost method. Therefore, we did not retroactively apply the change to periods prior to fiscal year 2016.
Property and
Equipment and Depreciation
Property and equipment, net, is reported at cost less accumulated depreciation. Expenditures for major renewals and betterments are capitalized while expenditures for repairs and maintenance are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives of depreciable assets generally range from three to 35 years for buildings and improvements and from three to 15 years for restaurant and other equipment. See Note 5 to the Consolidated Financial Statements for further discussion regarding our property and equipment.
Impairment or Disposal of Long-Lived Assets
We review our long-lived assets related to each restaurant to be held and used in the business, including any allocated intangible assets subject to amortization whenever events or changes in circumstances indicate that the carrying amount of a restaurant may not be recoverable. We evaluate restaurants based upon cash flows as our primary indicator of impairment. Assets are reviewed at the lowest level for which cash flows can be identified, which, for property and equipment, net, is the individual restaurant level. If the carrying amount of the restaurant is not recoverable, we record an impairment loss for the excess of the carrying amount over the fair value.
When we d
ecide to close a restaurant it is reviewed for impairment and depreciable lives are considered for adjustment. The impairment evaluation is based on the estimated cash flows from continuing use through the expected disposal date and the expected terminal value. Any gain or loss recognized upon disposal of the assets associated with a closed restaurant is recorded as a component of Closures and impairments, net in our Consolidated Statements of Operations and Comprehensive Loss.
See Note
s 7 and 16 to the Consolidated Financial Statements for a further discussion regarding our closures and impairments, including the impairments of our Lime Fresh trademark.
Other
Intangible Assets
Other intangible assets which
are included in Other assets, net in the Consolidated Balance Sheets consist of the following (in thousands):
|
|
20
1
6
|
|
|
201
5
|
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reacquired franchise rights
|
|
$
|
14,096
|
|
|
$
|
10,903
|
|
|
$
|
14,417
|
|
|
$
|
9,871
|
|
Favorable leases *
|
|
|
1,408
|
|
|
|
336
|
|
|
|
2,059
|
|
|
|
403
|
|
Trade
marks
|
|
|
237
|
|
|
|
158
|
|
|
|
4,208
|
|
|
|
862
|
|
Acquired franchise agreements
|
|
|
–
|
|
|
|
–
|
|
|
|
1,500
|
|
|
|
677
|
|
|
|
$
|
15,741
|
|
|
$
|
11,397
|
|
|
$
|
22,184
|
|
|
$
|
11,813
|
|
* As of
May 31, 2016 and June 2, 2015, we also had $0.6 million and $0.8 million, respectively, of unfavorable lease liabilities which resulted from the terms of acquired franchise operating lease contracts being unfavorable relative to market terms of comparable leases on the acquisition date. The majority of these liabilities are included within Other deferred liabilities in our Consolidated Balance Sheets.
The reacquired franchise rights
reflected in the table above were acquired as part of certain franchise acquisitions. Prior to its sale on May 31, 2016, trademarks consisted primarily of the Lime Fresh trademark that was acquired as part of the Lime Fresh acquisition in fiscal 2012. The favorable leases resulted from the terms of acquired franchise operating lease contracts being favorable relative to market terms of comparable leases on the acquisition date.
Amortization expense of other intangible assets for fiscal
years 2016, 2015, and 2014 totaled $1.8 million, $2.2 million, and $2.5 million, respectively. We amortize reacquired franchise rights on a straight-line basis over the remaining term of the franchise operating agreements. The weighted average amortization period of reacquired franchise rights is 8.4 years. We amortize favorable leases as a component of rent expense on a straight-line basis over the remaining lives of the leases. The weighted average amortization period of the favorable leases is 26.1 years. We amortize trademarks on a straight-line basis over the life of the trademarks, typically 10 years. Amortization expense for intangible assets for each of the next five years is expected to be $0.9 million in fiscal year 2017, $0.7 million in
fiscal year 2018, $0.6 million in fiscal year 2019, $0.6 million in fiscal year 2020, and $0.3 million in fiscal year 2021. Rent expense resulting from amortization of favorable leases, net of the amortization of unfavorable leases, is expected to be insignificant for each of the next five years.
We evaluate reacquired
franchise rights and favorable leases for impairment as part of our evaluation of restaurant-level impairments.
Debt Acquisition Costs
We defer debt
acquisition costs and amortize them over the terms of the related agreements using a method that approximates the effective interest method. As of May 31, 2016 and June 2, 2015, unamortized debt issuance costs associated with our undrawn Credit Facility of $0.7 million as of both dates were included within Prepaid rent and other expenses, and $0.4 million and $1.1 million, respectively, were included within Other assets in our Consolidated Balance Sheets.
As further reflected in Note 6 to the Consolidated Financial Statements, we adopted A
ccounting Standards Update (“ASU”) 2015-03,
Interest-Imputation of Interest
(
Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
(“ASU 2015-03”) during the first quarter of fiscal year 2016. As a result of the adoption of this guidance, unamortized debt acquisition costs associated with our Senior Notes and mortgage loan obligations of $0.7 million and $0.8 million were included within Current maturities of long-term debt, including capital leases and $2.4 million and $3.2 million were included within Long-term debt and capital leases, less current maturities as of May 31, 2016 and June 2, 2015, respectively.
As shown in the table below, pursuant to the guidance in ASU 2015-03 we have reclassified unamortized debt issu
ance costs associated with our Senior Notes and mortgage loan obligations in our previously reported Consolidated Balance Sheet as of June 2, 2015 as follows (in thousands):
|
|
As presented
June 2, 2015
|
|
|
Reclassifications
|
|
|
As adjusted
June 2, 2015
|
|
Prepaid rent and other expenses
|
|
$
|
13,181
|
|
|
$
|
(783
|
)
|
|
$
|
12,398
|
|
Other assets
|
|
|
57,554
|
|
|
|
(3,156
|
)
|
|
|
54,398
|
|
Current maturities of long-term debt,
|
|
|
|
|
|
|
|
|
|
|
|
|
including capital leases
|
|
|
10,861
|
|
|
|
(783
|
)
|
|
|
10,078
|
|
Long-term debt and capital leases
|
|
|
|
|
|
|
|
|
|
|
|
|
less current maturities
|
|
|
234,173
|
|
|
|
(3,156
|
)
|
|
|
231,017
|
|
Lease
Obligations
Approximately
53% of our 646 Company-owned Ruby Tuesday concept restaurants are located on leased properties. Of these, approximately 73% are land leases only; the other 27% are for both land and building. The initial terms of these leases expire at various dates over the next 20 years. At the inception of the lease, each property is evaluated to determine whether the lease will be accounted for as an operating or capital lease. The term used for this evaluation includes renewal option periods only in instances in which the exercise of the renewal option can be reasonably assured and failure to exercise such option would result in an economic penalty. The primary penalty to which we are subject is the economic detriment associated with our investment into leasehold improvements which might become impaired should we choose not to continue the use of the leased property.
These leases may also contain required increases in minimum rent at varying times during the lease term and have options to extend the terms of the leases at a rate that is included in the original lease agreement.
Some of our leases require the payment of additional (contingent) rent that is based upon a percentage of restaurant sales above agreed upon sales levels for the year. These sales levels vary for each restaurant and are established in the lease agreements. We recognize contingent rental expense (in annual as well as interim periods) prior to the achievement of the specified target that triggers the contingent rental expense, provided that achievement of that target is considered probable.
Certain of our operating leases contain predetermined fixed escalations of the minimum rentals during the term of the lease, which includes option periods where failure to exercise such options would result in an economic penalty. For these leases, we recognize the related rental expense on a straight-line basis over the
term of the lease, beginning with the point at which we obtain control and possession of the leased properties, and record the difference between the
amounts charged to operations and amounts paid as deferred escalating minimum rent. Any lease incentives received are deferred and subsequently amortized on a straight-line basis over the term of the lease as a reduction to rent expense.
Estimated Liability for Self-Insurance
We self-insure a portion of our expected losses under our employee health care benefits, workers
’ compensation, general liability, and property insurance programs. Specifically with our workers’ compensation and general liability coverages, we have stop loss insurance for individual claims in excess of stated loss amounts. Insurance liabilities are recorded based on third-party actuarial estimates of the ultimate incurred losses, net of payments made. The estimates themselves are based on standard actuarial techniques that incorporate both the historical loss experience of the Company and supplemental information as appropriate.
Pensions and Post-Retirement Medical Benefits
We measure and recognize the funded status of our defined benefit and postretirement plans in our Consolidated Balance Sheets as of May 31. The funded status represents the difference
between the projected benefit obligation and the fair value of plan assets. The projected benefit obligation is the present value of benefits earned to date by plan participants, including the effect of future salary increases and years of service, as applicable. The difference between the projected benefit obligation and the fair value of assets that has not previously been recognized as expense is recorded as a component of other comprehensive loss. We record a curtailment when an event occurs that significantly reduces the accrual of defined benefits.
Revenue Recognition
Revenue from restaurant sales is recognized when food and beverage products are sold. We present sales net of coupons, discounts, sales tax, and other sales-related taxes. Deferred revenue-gift cards primarily represents our liability for gift cards that have been sold, but not yet redeemed, and is recorded at the expected redemption value. When the gift cards are redeemed, we recognize restaurant sales and reduce the deferred revenue. Gift cards sold at a discount are recorded as revenue upon redemption of the associated gift cards at an amount net of the related discount.
Breakage income represents
the value associated with the portion of gift cards sold that will most likely never be redeemed. Using gift card redemption history, we have determined that substantially all of our customers utilize their gift cards within two years from the date of purchase. Accordingly, we recognize gift card breakage income for non-escheatable amounts beginning 24 months after the date of activation.
We recogni
zed gift card breakage income of $2.1 million, $2.0 million, and $0.6 million during fiscal years 2016, 2015, and 2014, respectively. This income is included as an offset to Other Restaurant Operating Costs in the Consolidated Statements of Operations and Comprehensive Loss.
Franchise development and license fees received are recognized when substantially
all of our material obligations under the franchise agreements have been performed and the restaurant has opened for business. Franchise royalties are recognized as franchise revenue on the accrual basis. Advertising amounts received from domestic franchisees are considered by us to be reimbursements, recorded on an accrual basis when earned, and have been netted against selling, general, and administrative expenses in the Consolidated Statements of Operations and Comprehensive Loss.
We charge our franchise
es various monthly fees that are calculated as a percentage of the respective franchise’s monthly sales. Our Ruby Tuesday concept franchise agreements allow us to charge up to a 4.0% royalty fee, a 1.5% marketing and purchasing fee, and an advertising fee of up to 3.0%. We defer recognition of franchise fee revenue for any amounts greater than 60 days past due.
A further description of our franchise programs is provided in Note 2 to the Consolidated Financial Statements.
Pre-Opening Expenses
Salaries, personnel training costs, pre-opening rent, and other expenses of opening new facilities are charged to expense as incurred.
Share-Based Employee Compensation Plans
We measure and recognize share-based payment transactions, including grants of employee stock options, restricted stock, and restricted stock units as compensation expense based on the fair value of the equity award on the grant date. We estimate the fair value of service-based stock option awards using the Black-Scholes option pricing model. The fair values of restricted stock and restricted stock unit awards are based on the closing prices of our common stock on the dates prior to the grant date. We estimate the grant date fair value of market-based awards using the Monte-Carlo simulation model. This compensation expense is recognized over the service period on a straight-line basis for all awards except those awarded to retirement-eligible
individuals, which are recognized on the grant date at estimated fair value. We classify share-based compensation expense consistent with all other compensation expenses in Selling, general, and administrative, net in our Consolidated Statements of Operations and Comprehensive Loss. See Note 10 to the Consolidated Financial Statements for further discussion regarding our share-based employee compensation plans.
Marketing Costs
Except for television and radio advertising production costs which we expense when the advertisement is first shown, we expense marketing costs as incurred. Marketing expenses, net of franchise reimbursements, which are included in Selling, general, and administrative expense in the Consolidated Statements of Operations and Comprehensive Loss, totaled $51.4 million, $49.4 million, and $67.2 million for fiscal years 2016, 2015, and 2014, respectively.
Income Taxes
In November 2015, the FASB issued ASU 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
(“ASU 2015-17”). The guidance requires noncurrent presentation of all deferred income tax assets and liabilities. We early adopted ASU 2015-17 on a prospective basis during the fourth quarter of fiscal year 2016. Prior periods were not retroactively adjusted. Based on the adoption of this guidance, all deferred taxes are classified as noncurrent in our Consolidated Balance Sheet as of May 31, 2016.
Our
deferred income taxes are determined utilizing the asset and liability approach. This method gives consideration to the future tax consequences associated with differences between financial accounting and tax bases of assets and liabilities and operating loss and tax credit carry forwards. Temporary differences represent the cumulative taxable or deductible amounts recorded in the consolidated financial statements in different years than recognized in the tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. If, after consideration of all available positive and negative evidence, current available information raises doubt as to the realization of the deferred tax assets, the need for a valuation allowance is addressed. A valuation allowance for deferred tax assets may be required if the amount of taxes recoverable through loss carry-back declines, if we project lower levels of future taxable income, or if we have recently experienced pretax losses. Such a valuation allowance is established through a charge to income tax expense which adversely affects our reported operating results. The judgments and estimates utilized when establishing, and subsequently adjusting, a deferred tax asset valuation allowance are reviewed on a periodic basis as regulatory and business factors change.
The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We recognize interest and penalties accrued related to unrecognized tax benefits as components of our income tax
expense in the Consolidated Statements of Operations and Comprehensive Loss.
We recognize in
our consolidated financial statements the benefit of a position taken or expected to be taken in a tax return when it is more likely than not (i.e. a likelihood of more than 50%) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. Changes in judgment that result in subsequent recognition, derecognition or change in a measurement of a tax position taken in a prior annual period (including any related interest and penalties) are recognized as a discrete item in the interim period in which the change occurs.
See Note
9 to the Consolidated Financial Statements for a further discussion of our income taxes.
Los
s
Per
Share
Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during each period presented. Diluted earnings per share gives effect to stock options and restricted stock outstanding during the applicable periods, except during loss periods as the effect would be anti-dilutive. The following table reflects the calculation of weighted average common and dilutive potential common shares outstanding as presented in the accompanying Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per-share data):
|
|
201
6
|
|
|
201
5
|
|
|
201
4
|
|
Loss from continuing operations
|
|
$
|
(50,682
|
)
|
|
$
|
(3,194
|
)
|
|
$
|
(64,910
|
)
|
Income from discontinued operations
|
|
|
–
|
|
|
|
–
|
|
|
|
564
|
|
Net loss
|
|
$
|
(50,682
|
)
|
|
$
|
(3,194
|
)
|
|
$
|
(64,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
60,871
|
|
|
|
60,580
|
|
|
|
60,231
|
|
Dilutive effect of stock options and restricted stock
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Weighted average common and dilutive potential common shares outstanding
|
|
|
60,871
|
|
|
|
60,580
|
|
|
|
60,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
– Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(0.83
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(1.08
|
)
|
Income from discontinued operations
|
|
|
–
|
|
|
|
–
|
|
|
|
0.01
|
|
Net loss per share
|
|
$
|
(0.83
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(1.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
– Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(0.83
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(1.08
|
)
|
Income from discontinued operations
|
|
|
–
|
|
|
|
–
|
|
|
|
0.01
|
|
Net loss per share
|
|
$
|
(0.83
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(1.07
|
)
|
Stock options with an exercise price greater than the average
market price of our common stock and certain options, restricted stock, and restricted stock units with unrecognized compensation expense do not impact the computation of diluted loss per share because the effect would be anti-dilutive. The following table summarizes on a weighted-average basis stock options, restricted stock, and restricted stock units that were excluded from the computation of diluted loss per share because their inclusion would have had an anti-dilutive effect (in thousands):
|
|
201
6
|
|
|
201
5
|
|
|
201
4
|
|
Stock options
|
|
|
2,407
|
|
|
|
3,057
|
|
|
|
2,833
|
|
Restricted s
tock / Restricted stock units
|
|
|
826
|
|
|
|
1,352
|
|
|
|
1,121
|
|
Total
|
|
|
3,233
|
|
|
|
4,409
|
|
|
|
3,954
|
|
Comprehensive
Loss
Comprehensive loss includes net loss adjusted for certain revenue, expenses, gains and losses that are excluded from net loss in accordance with U.S. GAAP, such as pension and other postretirement medical plan adjustments. Comprehensive loss is shown as a separate component in the Consolidated Statements of Operations and Comprehensive Loss.
Fair Value of Financial Instruments
F
air value is the price that we would receive to sell an asset or pay to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. For assets and liabilities we record or disclose at fair value, we determine the fair value based upon the quoted market price, if available. If a quoted market price is not available, we determine the fair value based upon the quoted market price of similar assets or the present value of expected future cash flows using discount rates appropriate for the duration.
The fair values are assigned a level within the
following fair value hierarchy to prioritize the inputs used to measure the fair value of assets or liabilities:
|
●
|
Level 1
– Observable inputs based on quoted prices in active markets for identical assets or liabilities;
|
|
●
|
Level 2
– Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
|
|
●
|
Level 3
– Unobservable inputs in which little or no market data exists which require the reporting entity to develop its own assumptions.
|
See Note
s 8 and 13 to the Consolidated Financial Statements for a further discussion of our fair value measurements.
Segment Reporting
Operating segments are components of an entity that engage in business activities with discrete financial information available that is regularly reviewed by the chief operating decision maker (“CODM”) in order to assess performance and allocate resources. Our CODM is the Company’s President and Chief Executive Officer. For the periods covered in Part II, Item 8 of this Annual Report on Form 10-K, we have considered our Ruby Tuesday and Lime Fresh concepts to be our reportable operating segments. However, as discussed further in Note 3 to the Consolidated Financial Statements, we substantially exited our Lime Fresh concept during the fourth quarter of fiscal year 2016 with the sale of the assets related to our Company-owned Lime Fresh restaurants and the sale of the Lime Fresh brand's intellectual property and the franchise agreements associated with eight Lime Fresh concept restaurants.
Reclassifications
As shown in the
table below, we reclassified amortization of intangible assets from Other restaurant operating costs to Depreciation and amortization in the Consolidated Statements of Operations and Comprehensive Loss for the prior fiscal years to be comparable with the classification for the fiscal year-ended May 31, 2016. We made this reclassification to more accurately reflect the nature of the expenses in our Consolidated Statements of Operations and Comprehensive Loss. Amounts presented are in thousands.
|
|
As presented
–
Fiscal year ended
June 2, 2015
|
|
|
Reclassifications
|
|
|
As adjusted
–
Fiscal year ended
June 2, 2015
|
|
Other restaurant operating costs
|
|
$
|
244,352
|
|
|
$
|
(2,243
|
)
|
|
$
|
242,109
|
|
Depreciation and amortization
|
|
|
50,148
|
|
|
|
2,243
|
|
|
|
52,391
|
|
|
|
As presented
–
Fiscal year ended
June 3, 2014
|
|
|
Reclassifications
|
|
|
As adjusted
–
Fiscal year ended
June 3, 2014
|
|
Other restaurant operating costs
|
|
$
|
260,447
|
|
|
$
|
(2,519
|
)
|
|
$
|
257,928
|
|
Depreciation and amortization
|
|
|
54,828
|
|
|
|
2,519
|
|
|
|
57,347
|
|
Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
(“ASU 2016-02”), which requires lessees to recognize on the balance sheet a right-of-use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and interim periods therein (our fiscal year 2020). Early application is permitted. We are currently evaluating the impact of this guidance on our Consolidated Financial Statements.
In August 2014, the FASB issued ASU 2014-15,
Presentation of Finan
cial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
(“ASU 2014-15”)
.
The guidance requires an entity to evaluate whether there are conditions or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued and to provide related footnote disclosures in certain circumstances. The guidance is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter (our
fiscal year 2017). Early application is permitted. We do not believe the adoption of this guidance will have an impact on our Consolidated Financial Statements.
In May 2014, the FASB and International Accounting Standards Board jointly issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
(“ASU 2014-09”)
.
ASU 2014-09 will replace almost all existing revenue recognition guidance, including industry specific guidance, upon its effective date. The standard’s core principle is for a company to recognize revenue when it transfers goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled. A company may also need to use more judgment and make more estimates when recognizing revenue, which could result in additional disclosures. ASU 2014-09 also provides guidance for transactions that were not addressed comprehensively in previous guidance, such as the recognition of breakage income from the sale of gift cards. The standard permits the use of either the retrospective or cumulative effect transition method. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 (the first quarter of our fiscal year 2019). Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We do not expect the adoption of this guidance to impact our recognition of Company-owned restaurants sales and operating revenue or our recognition of continuing fees from franchisees, which are based on a percentage of franchise sales. We have not yet selected a transition method and are continuing to evaluate the impact of this guidance on our less significant revenue transactions, such as initial franchise license fees.
2
. Franchise
Programs
As of
May 31, 2016, our franchise programs included arrangements with 27 domestic and international Ruby Tuesday concept franchisees. At the end of fiscal year 2016, our franchisees collectively operated 78 Ruby Tuesday restaurants. We do not own any equity interest in our existing franchisees.
We enter into development agreements with our franchisees that require them to open varying numbers of Ruby Tuesday
restaurants. As of May 31, 2016, six of our 27 Ruby Tuesday concept franchisees had agreements to develop new franchised Ruby Tuesday restaurants. During fiscal years 2016, 2015, and 2014, our Ruby Tuesday franchisees opened five, six, and seven restaurants, respectively, pursuant to development agreements, as follows:
|
|
Ruby Tuesday
|
|
Fiscal Year
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
2016
|
|
|
–
|
|
|
|
5
|
|
|
|
5
|
|
2015
|
|
|
–
|
|
|
|
6
|
|
|
|
6
|
|
2014
|
|
|
1
|
|
|
|
6
|
|
|
|
7
|
|
During fiscal years 2016, 2015, and 2014, our then Lime Fresh franchisees opened one, two, and two restaurants, respectively, pursuant to development agreements. However, as discussed further in Note
3 to the Consolidated Financial Statements, during the fourth quarter of fiscal year 2016, we sold the Lime Fresh brand's intellectual property and the franchise agreements associated with eight Lime Fresh concept restaurants for $4.6 million. As a result of this transaction, we had no remaining Lime Fresh concept franchisees as of May 31, 2016.
In
conjunction with these openings, we recognized development and licensing fee income totaling $0.2 million in each of fiscal year 2016, 2015, and 2014.
Deferred
development and licensing fees associated with all franchisees, which are reported as a component of Other deferred liabilities in our Consolidated Balance Sheets, totaled $0.4 million and $0.6 million as of May 31, 2016 and June 2, 2015, respectively. We will recognize these fees as income when we have substantially performed all material services and the restaurant has opened for business.
As discussed further in Note 16 to the Consolidated Financial Statements, our Illinois franchisee closed all ten of its Ruby Tuesday concept locations on July 26, 2016.
3
.
Lime Fresh
Mexican Grill
and Other
Former Concepts
Fiscal 201
6
On May 31, 2016, we entered into agreements with two separate buyers to sell various Lime Fresh Mexican Grill assets.
Pursuant to the terms of an asset purchase agreement with another restaurant company, we agreed to sell our eight remaining Lime Fresh Mexican Grill Company-owned restaurants for $6.0 million. Given that closing requirements were satisfied for only six of the eight restaurants, an amendment was agreed upon which allowed for the payment of $5.0 million upon the transfer of the six restaurants and the holdback of $1.0 million until such time that both of the remaining two restaurants had closed and transferred to the buyer. The six restaurants closed and were transferred on May 31, 2016. Both of the remaining two Lime Fresh restaurants remained open and operated by Ruby Tuesday as of our May 31 fiscal year-end. While we were able to close one of the two restaurants and transfer it to the buyer on June 14, 2016, the final restaurant is expected to remain open and be operated by Ruby Tuesday until a date in our second quarter of fiscal year 2017.
Because we did not collect the $5.0 million on the
sale of the six Lime Fresh restaurants until the first day of our fiscal year 2017, the gain of $3.1 million included in our fiscal year 2016 Consolidated Statements of Operations and Comprehensive Loss is non-cash. Further, given that the closing requirements were not satisfied on the two remaining restaurants as of the close of our fiscal year, we did not reflect those restaurants as having been sold in fiscal year 2016, nor we did accrue as a receivable the $1.0 million holdback.
Also on May 31, 2016, we sold the
Lime Fresh Mexican Grill brand, including the intellectual property and franchising rights for all eight Lime Fresh franchised restaurants to a third party buyer for $4.6 million, substantially all of which was received in cash on that date. We recognized a gain of $2.8 million on the transaction.
See Note 11 to the Consolidated Financial Statements for additional information regarding financial results of the Lime Fresh segment during fiscal
years 2016, 2015, and 2014.
Fiscal 201
4
In an effort to focus primarily on the sales turnaround of our core Ruby Tuesday concept, we c
ompleted the closure of our Marlin & Ray’s, Wok Hay, and Truffles restaurants during fiscal year 2013. We have classified the results of operations of these three concepts as discontinued operations for the fiscal year ended June 3, 2014. The results of operations of our discontinued operations are as follows (in thousands):
|
|
June 3, 2014
|
|
|
|
|
|
|
Restaurant sales and operating revenue
|
|
$
|
–
|
|
Income before income taxes
|
|
$
|
458
|
|
Benefit for income taxes
|
|
|
(106
|
)
|
Income from discontinued operations
|
|
$
|
564
|
|
4
.
Accounts
and Other
Receivable
s
Accounts
and other receivables consist of the following (in thousands):
|
|
201
6
|
|
|
201
5
|
|
|
|
|
|
|
|
|
|
|
Rebates receivable
|
|
$
|
1,001
|
|
|
$
|
943
|
|
Amounts due from franchisees
|
|
|
3,013
|
|
|
|
1,995
|
|
Third-party gift card sales
|
|
|
1,272
|
|
|
|
1,330
|
|
Receivables from sales
of Lime Fresh Mexican Grill assets
|
|
|
5,289
|
|
|
|
–
|
|
Other receivables
|
|
|
2,252
|
|
|
|
1,019
|
|
|
|
$
|
12,827
|
|
|
$
|
5,287
|
|
We negotiate purchase arrangements, including price terms, with designated and approved suppliers on behalf of us and our franchise system. We receive various volume discounts and rebates based on purchases for our Company-owned restaurants from numerous suppliers.
Amounts due from
franchisees consist of royalties, license and other miscellaneous fees, a portion of which represents current and recently-invoiced billings.
On May 31, 2016,
we entered into agreements with two separate buyers to sell various Lime Fresh assets. The $5.3 million of receivables from sales of Lime Fresh assets in the table above consists of $5.0 million due from the buyer of our Lime Fresh restaurants, which was collected on the first day of fiscal year 2017, and $0.3 million due from the buyer of the Lime Fresh brand. See Note 3 to the Consolidated Financial Statements for further information on these transactions.
As of May 31, 2016 and June 2, 2015, other receivables consisted primarily of amounts due from our distributor
, receiavbles from online ordering, sales and other miscellaneous tax refunds, and other receivables.
5
. Property
, Equipment,
Assets Held for Sale,
Operating Leases
, and Sale-Leaseback Transactions
Property and equipment, net, is comprised of the following (in thousands):
|
|
201
6
|
|
|
201
5
|
|
Land
|
|
$
|
209,930
|
|
|
$
|
212,073
|
|
Buildings
|
|
|
398,984
|
|
|
|
426,813
|
|
Improvements
|
|
|
303,032
|
|
|
|
358,549
|
|
Restaurant equipment
|
|
|
222,646
|
|
|
|
247,775
|
|
Other equipment
|
|
|
82,204
|
|
|
|
87,782
|
|
Surplus properties*
|
|
|
4,354
|
|
|
|
10,504
|
|
Construction in progress and other
|
|
|
3,325
|
|
|
|
4,316
|
|
|
|
|
1,224,475
|
|
|
|
1,347,812
|
|
Less accumulated depreciation
|
|
|
553,225
|
|
|
|
595,638
|
|
Property and equipment, net
|
|
$
|
671,250
|
|
|
$
|
752,174
|
|
* Surplus properties represent assets held for sale that are not classified
as such in the Consolidated Balance Sheets as we do not expect to sell these assets within the next 12 months. These assets primarily consist of parcels of land upon which we have no intention to build restaurants, closed properties which include a building, and liquor licenses not needed for operations.
I
ncluded within the current assets section of our Consolidated Balance Sheets at May 31, 2016 and June 2, 2015 are amounts classified as assets held for sale totaling $4.6 million and $5.5 million, respectively. Assets held for sale primarily consist of parcels of land upon which we have no intention to build restaurants, land and buildings of closed restaurants, and various liquor licenses. In addition to operating restaurants sold and leased back as discussed below and Lime Fresh restaurants sold as discussed in Note 3 to the Consolidated Financial Statements, during fiscal years
2016, 2015, and 2014 we sold surplus properties with carrying values of $6.7 million, $9.5 million, and $14.0 million, respectively, at net gains of $0.9 million, $1.7 million, and $1.5 million, respectively. Cash proceeds, net of broker fees, from these sales totaled $7.6 million, $11.2 million, and $15.4 million, respectively.
During the
fiscal year ended June 3, 2014, we completed sale-leaseback transactions of the land and building for three Company-owned Ruby Tuesday concept restaurants for gross cash proceeds of $5.9 million, exclusive of transaction costs of approximately $0.3 million. Equipment was not included. The carrying value of the properties sold was $4.8 million. The leases have been classified as operating leases and have initial terms of 15 years, with renewal options of up to 20 years. Net proceeds from the sale-leaseback transactions to date were used for general corporate purposes, including capital expenditures, debt payments, and the repurchase of shares of our common stock.
We realized gain
s during fiscal year 2014 on the sale-leaseback transactions of $0.8 million, which have been deferred and are being recognized on a straight-line basis over the initial terms of the leases. The current portion of the deferred gains on all sale-leaseback transactions to date was $1.1 million as of both May 31, 2016 and June 2, 2015, and is included in Accrued liabilities – Rent and other in our Consolidated Balance Sheets. The long-term portion of the deferred gains on all sale-leaseback transactions to date was $10.9 million and $11.9 million as of May 31, 2016 and June 2, 2015, respectively, and is included in Other deferred liabilities in our Consolidated Balance Sheets. Amortization of the deferred gains of $1.1 million in each of fiscal year May 31, 2016, June 2, 2015, and June 3, 2014 is included within Other restaurant operating costs in our Consolidated Statements of Operations and Comprehensive Loss.
The following is a schedule by year of future minimum lease payments under operating leases that have initial lease terms in excess of one year as of
May 31, 2016 (in thousands):
201
7
|
|
$
|
45,507
|
|
201
8
|
|
|
43,492
|
|
201
9
|
|
|
40,757
|
|
20
20
|
|
|
37,533
|
|
20
21
|
|
|
35,259
|
|
Subsequent years
|
|
|
410,636
|
|
Total minimum lease payments
|
|
$
|
613,184
|
|
The amounts included in the table above
include lease payments for certain optional renewal periods for which exercise is considered reasonably assured as well as operating leases totaling $4.3 million as discussed below for which sublease income from franchisees or others is contractually required.
The following schedule shows the future minimum sub-lease payments contractually due from franchisees and others for the next five years and thereafter under noncancelable sub-lease agreements (in thousands):
|
|
Franchisee
s
|
|
|
Others
|
|
|
Total
|
|
201
7
|
|
$
|
247
|
|
|
$
|
568
|
|
|
$
|
815
|
|
2018
|
|
|
247
|
|
|
|
490
|
|
|
|
737
|
|
2019
|
|
|
208
|
|
|
|
393
|
|
|
|
601
|
|
2020
|
|
|
27
|
|
|
|
396
|
|
|
|
423
|
|
2021
|
|
|
–
|
|
|
|
411
|
|
|
|
411
|
|
Subsequent years
|
|
|
–
|
|
|
|
1,324
|
|
|
|
1,324
|
|
Total minimum sub-lease payments
|
|
$
|
729
|
|
|
$
|
3,582
|
|
|
$
|
4,311
|
|
The amounts due from franchisees in the table above are contractually due from one of our domestic franchisees, which defaulted on certain lease payments related to these subleases
during the current fiscal year. As further discussed in Notes 7 and 16 to the Consolidated Financial Statements, this franchisee closed all ten of its restaurants on July 26, 2016 and ceased operations. We recorded a liability of $0.9 million as of May 31, 2016, which represented our obligation for both the future rent and other lease-related charges through the end of the term of these leases.
The following
table summarizes our minimum and contingent rent expense and our sublease rental income under our operating leases (in thousands):
|
|
20
1
6
|
|
|
20
15
|
|
|
20
14
|
|
Included within continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rent
|
|
$
|
49,699
|
|
|
$
|
50,489
|
|
|
$
|
52,774
|
|
Contingent rent
|
|
|
662
|
|
|
|
745
|
|
|
|
430
|
|
|
|
|
50,361
|
|
|
|
51,234
|
|
|
|
53,204
|
|
Sublease rental income
|
|
|
(940
|
)
|
|
|
(504
|
)
|
|
|
(409
|
)
|
|
|
$
|
49,421
|
|
|
$
|
50,730
|
|
|
$
|
52,795
|
|
The amounts shown for fiscal
years 2016, 2015, and 2014 above exclude rent expense of $3.6 million, $1.2 million, and $5.7 million, respectively, relating to lease reserves established for closed restaurants or dead sites, which is included within Closures and impairments expense in our Consolidated Statements of Operations and Comprehensive Loss.
6
. Long-Term Debt and Capital Leases
Long-term debt and capital lease obligations consist of the following (in thousands):
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
(as adjusted)
|
|
Senior unsecured notes
|
|
$
|
212,546
|
|
|
$
|
215,000
|
|
Unamortized discount
|
|
|
(1,771
|
)
|
|
|
(2,162
|
)
|
Unamortized debt issuance costs
|
|
|
(2,995
|
)
|
|
|
(3,656
|
)
|
Senior unsecured notes less unamortized discount and
|
|
|
|
|
|
|
|
|
debt issuance costs
|
|
|
207,780
|
|
|
|
209,182
|
|
Revolving credit facility
|
|
|
–
|
|
|
|
–
|
|
Mortgage loan obligations
|
|
|
15,745
|
|
|
|
31,607
|
|
Unamortized premium - mortgage loan obligations
|
|
|
75
|
|
|
|
383
|
|
Unamortized debt issuance costs - mortgage loan obligations
|
|
|
(74
|
)
|
|
|
(283
|
)
|
Capital lease obligations
|
|
|
211
|
|
|
|
206
|
|
Total long-term debt and capital leases
|
|
|
223,737
|
|
|
|
241,095
|
|
Less current maturities
|
|
|
9,934
|
|
|
|
10,078
|
|
Long-term debt and capital leases, less current maturities
|
|
$
|
213,803
|
|
|
$
|
231,017
|
|
Estimated annual maturities of long-term debt and capital lease obligations at
May 31, 2016 are as follows (in thousands):
201
7
|
|
$
|
10,971
|
|
201
8
|
|
|
1,525
|
|
201
9
|
|
|
1,519
|
|
20
20
|
|
|
213,642
|
|
20
21
|
|
|
503
|
|
Subsequent years
|
|
|
342
|
|
|
|
$
|
228,502
|
|
On May 14, 2012, we entered into an indenture (the “Indenture”) among Ruby Tuesday, Inc., certain subsidiaries of the Company as guarantors and Wells Fargo Bank, National Association as trustee, governing the Company
’s $250.0 million aggregate principal amount of 7.625% senior notes due 2020 (the “Senior Notes”). The Senior Notes were issued at a discount of $3.7 million, which is being amortized using the effective interest method over the eight-year term of the notes.
The Senior Notes are guaranteed on a senior unsecured basis by our existing and future domestic restricted subsidiaries, subject to certain exceptions. They rank equal in right of payment with our existing and future senior indebtedness and senior in right of payment to any of our future subordinated indebtedness. The Senior Notes are
effectively subordinated to all of our secured debt, including borrowings outstanding under our revolving credit facility, to the extent of the value of the assets securing such debt and structurally subordinated to all of the liabilities of our existing and future subsidiaries that do not guarantee the Senior Notes.
Interest on the Senior Notes is calculated at 7.625% per annum, payable semiannually on each May 15 and November 15 to holders of record on the May 1 or November 1 immediately preceding the interest payment date. Accrued interest on the Senior Notes and our other long-term debt and capital lease
obligations was $1.0 million and $1.1 million as of May 31, 2016 and June 2, 2015, respectively, and is included in Accrued liabilities – Rent and other in our Consolidated Balance Sheets.
W
e may redeem the Senior Notes, in whole or in part, at the redemption prices specified in the Indenture plus accrued and unpaid interest. There is no sinking fund for the Senior Notes, which mature on May 15, 2020.
The Indenture contains covenants that limit, among other things, our ability and the ability of certain of our subsidiaries to (i) incur or guarantee additional indebtedness; (ii) declare or pay dividends, redeem stock or make other distributions to stockholders; (iii) make certain investments; (iv) create liens or use assets as security in other transactions; (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all of their assets; (vi) enter into transactions with affiliates; (vii) sell or transfer certain assets
; and (viii) repurchase outstanding common stock. These covenants are subject to a number of important exceptions and qualifications, as described in the Indenture, and certain covenants will not apply at any time when the Senior Notes are rated investment grade by the Rating Agencies, as defined in the Indenture. The Indenture also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Senior Notes to be due and payable immediately.
On December 3, 2013, we entered into a four-year revolving credit agreement (the “Senior Credit Facility”) under which we may borrow up to $50.0 million with the option, subject to certain conditions, to increase the facility by up to $35.0 million. The terms of the Senior Credit Facility provide for a $25.0 million sublimit for the issuance of standby letters of credit.
Under the terms of the Senior Credit Facility, interest rates charged on borrowings can vary depending on the interest rate option we choose to utilize. Our options for the rate are a Base Rate or LIBOR plus an applicable margin, provided that the rate shall not be less than zero. The Base Rate is defined as the highest of the issuing bank
’s prime rate, the Federal Funds rate plus 0.50%, or the Adjusted LIBO rate (as defined in the Senior Credit Facility) plus 1.0%. The applicable margin for the LIBOR rate-based option is a percentage ranging from 2.50% to 3.50% and for the Base Rate option is a percentage ranging from 1.50% to 2.50%. We pay commitment fees quarterly ranging from 0.40% to 0.75% on the unused portion of the Senior Credit Facility.
As security for the Senior Credit Facility, we granted the lenders liens and security interests in substantially all of the shares of capital stock of the Company and each of our present and future subsidiaries, substantially all of the personal property of the Company and each of our present and future subsidiaries, and the real property, improvements, and
fixtures of 49 Ruby Tuesday restaurants. The real property, improvements, and fixtures of the 49 restaurants pledged as collateral appraised at $101.4 million at the time of the transaction and have a May 31, 2016 net book value of $78.2 million.
We
had no borrowings outstanding under the Senior Credit Facility at May 31, 2016. After consideration of letters of credit outstanding, we had $38.4 million available under the Senior Credit Facility as of May 31, 2016.
The Senior Credit Facility contains a number of customary affirmative and negative covenants that, among other things, limit or restrict our ability to incur liens, engage in mergers or other fundamental changes, make acquisitions, investments, loans and advances, pay dividends or other distributions, sell or otherwise dispose of certain assets, engage in certain transactions with affiliates, enter into burdensome agreements or certain hedging agreements, amend organizational documents, change accounting practices, incur additional indebtedness and prepay other indebtedness.
Under the terms of the Senior Credit Facility we are allowed, under certain circumstances, to repurchase up to $20.0 million of the Senior Notes in any fiscal year. During the
year ended May 31, 2016, we repurchased $2.5 million of the Senior Notes for $2.4 million plus accrued interest. We realized a negligible gain on these transactions. We did
not repurchase any Senior Notes during the year ended June 2, 2015. During the year ended June 3, 2014, we repurchased $20.0 million of the Senior Notes for $20.0 million plus $0.2 million of accrued interest. We realized losses of $0.7 million on these transactions. The balance of the Senior Notes was $212.5 million at May 31, 2016.
Under the Senior Credit Facility, we are required to comply with financial covenants relating to the maintenance of a maximum leverage ratio and a minimum fixed charge coverage ratio. The terms of the Senior Credit Facility require us to maintain a maximum leverage ratio of no more than 4.
40 to 1.0 and a minimum fixed charge coverage ratio of 1.60 to 1.0 for the quarter ended May 31, 2016. The minimum required ratios fluctuate thereafter as provided in the Senior Credit Facility.
The Senior Credit Facility terminates no later than December 3, 2017.
Upon the occurrence of an event of default, the lenders may terminate the loan commitments, accelerate all loans and exercise any of their rights under the Senior Credit Facility and any ancillary loan documents.
On December 3, 2013, in connection with our entry into the Senior Credit Facility, the Company and certain of its subsidiaries entered into loan modification agreements (the “Loan Modification Agreements”) with certain mortgage lenders to, among other things, provide waivers and consents under certain of our mortgage loan obligations to enter into the Senior Credit Facility. The Loan Modification Agreements also amended certain financial reporting requirements under the specified loans and modif
ied and/or provided for certain financial covenants for the specified loans, including the maximum leverage ratio and the minimum fixed charge coverage ratio.
We were in compliance with our maximum leverage ratio and our minimum fixed
charge coverage ratio as of May 31, 2016.
Our $
15.7 million in mortgage loan obligations as of May 31, 2016 consists of various loans acquired upon franchise acquisitions. These loans, which mature between January 2017 and October 2021, have balances which range from $0.6 million to $6.9 million and interest rates of 7.60% to 10.17%. Included in our current maturities of long-term debt as of May 31, 2016 is $9.6 million related to two mortgage loan obligations that have balloon payments due during the third quarter of fiscal year 2017. Many of the properties acquired from franchisees collateralize the loans outstanding.
During
fiscal year 2016, we prepaid and retired 16 mortgage loan obligations with an aggregate balance of $13.3 million using cash on hand. Included within Interest expense, net in our Consolidated Statement of Operations for the year ended May 31, 2016 were $1.6 million in prepayment premiums and $0.1 million of accrued interest paid in connection with the retirement of these obligations. The prepayment of this debt eliminated one mortgage lender and allowed for the release of 44 properties which had served as collateral. Additionally, during fiscal year 2015, we prepaid and retired ten mortgage loan obligations with an aggregate balance of $9.0 million using cash on hand. In connection with the retirement of these obligations, we paid $1.0 million in prepayment premiums and an insignificant amount of accrued interest.
7
.
Closures and Impairments Expense, Including
Trade
mark
Impairments
Closures and impairment
s, net include the following (in thousands):
|
|
20
16
|
|
|
201
5
|
|
|
201
4
|
|
Closures and impairments from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property impairments
|
|
$
|
58,153
|
|
|
$
|
9,822
|
|
|
$
|
24,335
|
|
Closed restaurant lease reserves
|
|
|
4,090
|
|
|
|
1,461
|
|
|
|
7,302
|
|
Other closing expense
|
|
|
1,260
|
|
|
|
966
|
|
|
|
2,181
|
|
Gain on sale of surplus properties
|
|
|
(822
|
)
|
|
|
(1,707
|
)
|
|
|
(987
|
)
|
Closures and impairments, net
|
|
$
|
62,681
|
|
|
$
|
10,542
|
|
|
$
|
32,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closures and impairments from discontinued operations
|
|
|
|
|
|
|
|
|
|
$
|
(468
|
)
|
As discussed further in Note
16 to the Consolidated Financial Statements, during the fourth quarter of fiscal year 2016, the Company’s management began to formulate a plan in response to a comprehensive review of our property portfolio through the planned closure of restaurants with perceived limited upside due to market concentration, challenged trade areas, or other factors. Given the status of management’s proposed plan as of May 31, 2016, the Company determined that there was an impairment trigger as certain restaurants would be disposed of significantly before the end of their previously estimated useful lives. Accordingly, we recorded impairment charges of $39.2 million during the fourth quarter of fiscal year 2016 related to these restaurants. On August 11, 2016, we announced a plan to close approximately 95 Company-owned restaurants by September 2016. Also included within Closures and impairments, net for fiscal year 2016 are impairments of $14.7 million related to open Ruby Tuesday concept restaurants with deteriorating operational performance during the first three quarters of fiscal year 2016 or not included within management’s developing closure plan during the fourth fiscal quarter and $0.8 million related to surplus properties.
As previously discussed in Note
3 to the Consolidated Financial Statements, during fiscal year 2016, we entered into an agreement to sell eight Company-owned Lime Fresh restaurants in Florida for $6.0 million and closed the remaining 11 Company-owned Lime Fresh restaurants. Included within closures and impairments, net for the fiscal year ended May 31, 2016 are $6.4 million of impairments, lease reserves, and other charges relating to the closed Lime Fresh restaurants. Further information regarding closures and impairments expense for the Lime Fresh concept for all periods presented is contained in Note 11 to the Consolidated Financial Statements.
Included
within Closures and impairments, net for fiscal year 2015 are impairments of $7.7 million related to restaurants with deteriorating operational performance, $1.8 million related to surplus properties, and $0.3 million associated with lease expirations and restaurant closures.
During fiscal year 2014, we closed 33 Ruby Tuesday concept restaurants in connection with a plan approved by the Board of Directors of Ruby Tuesday, Inc. Of these closures, 11 of the restaurants closed upon expiration of their lease.
Included within Closures and impairments, net for fiscal year 2014 are impairment charges of $4.8 million in connection with early restaurant closures.
In addition to impairment charges recorded in connection with the
closed Lime Fresh restaurants as discussed above, during the second quarter of fiscal year 2016, we recorded a $2.0 million trademark impairment charge representing a partial impairment of the Lime Fresh trademark. The Lime Fresh trademark had been partially impaired by $0.9 million in fiscal year 2014. As previously discussed in Note 3 to the Consolidated Financial Statements, we sold the Lime Fresh brand's intellectual property, including the Lime Fresh trademark, during the fourth quarter of fiscal year 2016.
A
rollforward of our future lease obligations associated with closed restaurants is as follows (in thousands):
|
|
Reserve for
Lease Obligations
|
|
Balance at June 3, 2014
|
|
$
|
10,873
|
|
Closing expense including rent and other lease charges
|
|
|
1,461
|
|
Payments
|
|
|
(4,807
|
)
|
Other adjustments
|
|
|
(476
|
)
|
Balance at June 2, 2015
|
|
|
7,051
|
|
Closing expense including rent and other lease charges
|
|
|
4,090
|
|
Payments
|
|
|
(5,737
|
)
|
Other adjustments
|
|
|
866
|
|
Balance at
May 31, 2016
|
|
$
|
6,270
|
|
As discussed in Note 5 to the Consolidated Financial Statements,
we currently sublease three restaurant properties to a domestic franchisee for which we are the primary lessee. During fiscal year 2016, this franchisee defaulted on certain payments related to each of the leases. Accordingly, included in the above balance of future lease obligations as of May 31, 2016 was a liability of $0.9 million, which represented our obligation for future rent and other lease-related charges through the end of these leases. As discussed in Note 16 to the Consolidated Financial Statements, this franchisee closed all ten of its locations on July 26, 2016 and ceased operations.
The amounts comprising future lease obligations in the table above
are estimated using certain assumptions, including the period of time it will take to settle the lease with the landlord or find a suitable sublease tenant, and the amount of actual future cash payments could differ from our recorded lease obligations. Of the total future lease obligations included in the table above, $6.2 million and $7.0 million are included within the Accrued liabilities – Rent and other caption in our Consolidated Balance Sheets as of May 31, 2016 and June 2, 2015, respectively. For fiscal year 2017 and beyond, our focus will be on obtaining settlements, or subleases as necessary, on as many of these leases as possible and these settlements could be higher or lower than the amounts recorded. The actual amount of any cash payments made by the Company for lease contract termination costs will be dependent upon ongoing negotiations with the landlords of the leased restaurant properties.
8
.
Employee Post-Employment
Benefits
Pension and Postretirement Medical and Life Benefits
We sponsor three defined benefit pension plans for active employees and offer certain postretirement benefits for retirees. A summary of each of these is presented below.
Retirement Plan
RTI sponsors the Morrison Restaurants Inc. Retirement Plan (the "Retirement Plan"). Effective December 31, 1987, the Retirement Plan was amended so that no additional benefits would accrue and no new participants could enter the Retirement Plan after that date. Participants receive benefits based upon salary and length of service.
Minimum funding for the Retirement Plan is determined in accordance with the guidelines set forth in employee benefit and tax laws. From time
to time we may contribute additional amounts as we deem appropriate. We estimate that we will be required to make contributions totaling $0.2 million to the Retirement Plan in fiscal year 2017.
The
Retirement Plan’s assets are held in a trust and were allocated as follows on the measurement dates:
|
|
201
6
|
|
|
201
5
|
|
|
|
Target
Allocation
|
|
|
Actual Allocation
|
|
|
Target
Allocation
|
|
|
Actual
Allocation
|
|
Equity securities
|
|
|
41-71
|
%
|
|
|
61
|
%
|
|
|
39-69
|
%
|
|
|
58
|
%
|
Fixed income securities
|
|
|
13-43
|
%
|
|
|
20
|
%
|
|
|
12-42
|
%
|
|
|
23
|
%
|
Public real estate investment trusts
|
|
|
0-10
|
%
|
|
|
5
|
%
|
|
|
0-10
|
%
|
|
|
5
|
%
|
Cash and cash equivalents
|
|
|
0-20
|
%
|
|
|
4
|
%
|
|
|
0-20
|
%
|
|
|
1
|
%
|
Other
|
|
|
0-21
|
%
|
|
|
10
|
%
|
|
|
0-24
|
%
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100
|
%
|
|
|
|
|
|
|
100
|
%
|
The
Retirement Plan fiduciaries set investment policies and strategies for the Retirement Plan’s trust. The overall investment objective is to invest the Retirement Plan’s assets in a structure designed to produce returns, over a long-term horizon (greater than 10 years), that meets the actuarially assumed rate of return. The Retirement Plan’s fiduciaries oversee the investment allocation process, which includes selecting investment managers, commissioning periodic asset-liability studies, setting long-term strategic targets, and monitoring asset allocations. Target allocation ranges are guidelines, not limitations, and occasionally the Retirement Plan’s fiduciaries will approve allocations above or below a target range. In fiscal year 2015, we changed our target allocation to reduce the Retirement Plan’s exposure to equity securities risk. The target allocation percentages presented above reflect an objective focused on capital appreciation with a secondary focus on current income through a higher allocation to equities than fixed income, and where appropriate, other asset classes.
Under the terms of the investment policy statement,
plan assets are comprised of two major classes: equity and fixed income securities. The goal of the equity portfolio is to produce a total return that will provide a hedge against inflation. Equity securities can include both domestic and international securities with a long-term strategic target to maintain an equity allocation of approximately 56% of the total market value of plan assets.
The goal of the fixed income portfolio is to
reduce the overall volatility of the Retirement Plan, provide a stable stream of income, and provide a hedge against deflation without exposure to excessive interest rate or credit rate risk. Fixed income securities should be primarily U.S. Treasury or Government Agency securities and investment-grade corporate bonds at the time of purchase with a long-term strategic target to maintain a fixed income allocation of approximately 28% of the total market value of plan assets.
Aside from equity and fixed income securities, the trust may also invest in alternative investments, such as public real estate investment trusts and mutual funds investing in hedge funds and commodities, with a long-term strategic target to maintain an allocation of approximately 1
6% of the total market value of plan assets.
The fair
values of assets held by the Retirement Plan by asset category are as follows (in thousands):
|
|
201
6
|
|
|
201
5
|
|
Level
2:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
249
|
|
|
$
|
78
|
|
Level 1:
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
U.S.-based companies
|
|
|
2,561
|
|
|
|
2,701
|
|
International-based companies
|
|
|
1,222
|
|
|
|
1,277
|
|
Fixed income securities
|
|
|
1,259
|
|
|
|
1,584
|
|
Public real estate investment trusts
|
|
|
315
|
|
|
|
328
|
|
Other
|
|
|
603
|
|
|
|
883
|
|
Fair value of plan assets as of measurement date
|
|
$
|
6,209
|
|
|
$
|
6,851
|
|
Benefit payments after measurement date
|
|
|
–
|
|
|
|
(65
|
)
|
Total assets reported as of fiscal year end
|
|
$
|
6,209
|
|
|
$
|
6,786
|
|
Executive Supplemental Pension Plan and Management Retirement Plan
Under these unfunded defined benefit pension plans, eligible employees earn supplemental retirement income based upon salary and length of service, reduced by social security benefits and amounts otherwise receivable under other specified Company retirement plans. Effective June 1, 2001, the Management Retirement Plan was amended so that no additional benefits would accrue and no new participants could enter the plan after that date. In December 2015, the Executive Supplemental Pension Plan was similarly amended effective as of January 1, 2016 for current participants, and as of January 1, 2018 for two specified potential participants, who are currently not named executive officers. The amendment and related plan remeasurement did not have a material impact on our Consolidated Financial Statements.
Although considered to be unfunded, we own whole-life insurance contracts in order to provide a source of funding for benefits due under the terms of the Executive Supplemental Pension Plan and the Management Retirement Plan. Benefits payable under these two plans are paid from a rabbi trust which holds the insurance contracts. We will on occasion contribute additional amounts into the rabbi trust in the event of a liquidity shortfall. We currently project that benefit payments from the rabbi trust for these two plans will approximate $
2.5 million in fiscal year 2017.
Postretirement Medical and Life Benefits
Our Postretirement Medical and Life Benefits plans provide medical benefits to substantially all retired employees and life insurance benefits to certain retirees. The medical plan requires retiree cost sharing provisions that are more substantial for employees who retire after January 1, 1990.
The following
tables detail the components of net periodic benefit cost for the Retirement Plan, Management Retirement Plan, and the Executive Supplemental Pension Plan (collectively, the "Pension Plans") and the Postretirement Medical and Life Benefits plans, which is recorded as a component of Selling, general, and administrative expense, net in our Consolidated Statements of Operations and Comprehensive Loss (in thousands):
|
|
Pension
Plans
|
|
|
|
20
1
6
|
|
|
20
15
|
|
|
20
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
312
|
|
|
$
|
301
|
|
|
$
|
356
|
|
Interest cost
|
|
|
1,999
|
|
|
|
1,773
|
|
|
|
1,737
|
|
Expected return on plan assets
|
|
|
(411
|
)
|
|
|
(498
|
)
|
|
|
(444
|
)
|
Amortization of prior service cost (a)
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Recognized actuarial loss
|
|
|
2,218
|
|
|
|
1,718
|
|
|
|
1,711
|
|
Curtailment expense
|
|
|
1
|
|
|
|
–
|
|
|
|
–
|
|
Net periodic benefit cost
|
|
$
|
4,120
|
|
|
$
|
3,295
|
|
|
$
|
3,361
|
|
|
|
Postretirement Medical and Life Benefits
|
|
|
|
201
6
|
|
|
201
5
|
|
|
201
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
13
|
|
Interest cost
|
|
|
47
|
|
|
|
46
|
|
|
|
67
|
|
Amortization of prior service cost (a)
|
|
|
–
|
|
|
|
–
|
|
|
|
(46
|
)
|
Recognized actuarial loss
|
|
|
130
|
|
|
|
134
|
|
|
|
244
|
|
Net periodic benefit cost
|
|
$
|
181
|
|
|
$
|
184
|
|
|
$
|
278
|
|
(a) Prior service costs are amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits.
The following table
details changes in the amounts recognized in accumulated other comprehensive loss in our 2016 and 2015 Consolidated Financial Statements for the Pension Plans and the Postretirement Medical and Life Benefits plans (in thousands):
|
|
Pension
Plans
|
|
|
|
Postretirement Medical
and Life Benefits
|
|
|
|
20
1
6
|
|
|
20
15
|
|
|
20
1
6
|
|
|
20
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
$
|
(17,149
|
)
|
|
$
|
(17,086
|
)
|
|
$
|
(994
|
)
|
|
$
|
(1,017
|
)
|
Net actuarial
(loss)/gain
|
|
|
(1,891
|
)
|
|
|
(1,782
|
)
|
|
|
373
|
|
|
|
(111
|
)
|
Amortization of prior service
credit
|
|
|
1
|
|
|
|
1
|
|
|
|
–
|
|
|
|
–
|
|
Amortization of actuarial
loss
|
|
|
2,218
|
|
|
|
1,718
|
|
|
|
130
|
|
|
|
134
|
|
End of year
|
|
$
|
(16,821
|
)
|
|
$
|
(17,149
|
)
|
|
$
|
(491
|
)
|
|
$
|
(994
|
)
|
The change in benefit obligation and plan assets and reconciliation of funded status is as follows (in thousands
):
|
|
Pension
Plans
|
|
|
Postretirement Medical
and Life Benefits
|
|
|
|
20
1
6
|
|
|
20
15
|
|
|
20
1
6
|
|
|
20
15
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning projected benefit obligation
|
|
$
|
43,843
|
|
|
$
|
42,774
|
|
|
$
|
1,404
|
|
|
$
|
1,376
|
|
Service cost
|
|
|
312
|
|
|
|
301
|
|
|
|
4
|
|
|
|
4
|
|
Interest cost
|
|
|
1,999
|
|
|
|
1,773
|
|
|
|
47
|
|
|
|
46
|
|
Plan participant contributions
|
|
|
–
|
|
|
|
–
|
|
|
|
73
|
|
|
|
78
|
|
Actuarial loss
/(gain)
|
|
|
1,411
|
|
|
|
1,620
|
|
|
|
(373
|
)
|
|
|
111
|
|
Benefits paid
|
|
|
(2,888
|
)
|
|
|
(2,625
|
)
|
|
|
(55
|
)
|
|
|
(211
|
)
|
Curtailment gain
|
|
|
(248
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Benefit obligation at end of year
|
|
$
|
44,429
|
|
|
$
|
43,843
|
|
|
$
|
1,100
|
|
|
$
|
1,404
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning fair value of plan assets
|
|
$
|
6,786
|
|
|
$
|
7,020
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Actual return on plan assets
|
|
|
(318
|
)
|
|
|
336
|
|
|
–
|
|
|
|
–
|
|
Employer contributions
|
|
|
2,629
|
|
|
|
2,055
|
|
|
|
(18
|
)
|
|
|
133
|
|
Plan participant contributions
|
|
|
–
|
|
|
|
–
|
|
|
|
73
|
|
|
|
78
|
|
Benefits paid
|
|
|
(2,888
|
)
|
|
|
(2,625
|
)
|
|
|
(55
|
)
|
|
|
(211
|
)
|
Fair value of plan assets at
end of year
|
|
$
|
6,209
|
|
|
$
|
6,786
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(38,220
|
)
*
|
|
$
|
(37,057
|
)*
|
|
$
|
(1,100
|
)
|
|
$
|
(1,404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
– payroll and related
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
|
|
$
|
(2,527
|
)
|
|
$
|
(3,185
|
)
|
|
$
|
(113
|
)
|
|
$
|
(137
|
)
|
Other deferred liabilities
|
|
|
(35,693
|
)
|
|
|
(33,872
|
)
|
|
|
(987
|
)
|
|
|
(1,267
|
)
|
Net amount recognized at year-end
|
|
$
|
(38,220
|
)
|
|
$
|
(37,057
|
)
|
|
$
|
(1,100
|
)
|
|
$
|
(1,404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
$
|
–
|
|
|
$
|
(1
|
)
|
|
$
|
–
|
|
|
$
|
–
|
|
Net actuarial loss
|
|
|
(16,821
|
)
|
|
|
(17,148
|
)
|
|
|
(491
|
)
|
|
|
(994
|
)
|
Total amount recognized
|
|
$
|
(16,821
|
)
|
|
$
|
(17,149
|
)
|
|
$
|
(491
|
)
|
|
$
|
(994
|
)
|
*
|
The funded status reflected above includes the liabilities attributable to all of the Pension Plans but only the assets of the Retirement Plan as the other plans are not considered funded for Employee Retirement Income Security Act purposes. To provide a
source for the payment of benefits under the Executive Supplemental Pension Plan and the Management Retirement Plan, we own life insurance contracts on some of the participants. The cash value of these policies (Level 2), which are included within the Other Assets caption in our Consolidated Balance Sheets, was $27.9 million and $29.5 million at May 31, 2016 and June 2, 2015, respectively. In addition, we held in trust $0.4 million and a negligible amount of cash and cash equivalents as of May 31, 2016 and June 2, 2015, respectively, relating to these policies. We maintain a rabbi trust to hold the policies and death benefits as they are received.
|
During
fiscal years 2016, 2015, and 2014, we reclassified the following items out of accumulated other comprehensive loss and into Pension and Postretirement Medical and Life Benefits expense, which is included in Selling, general and administrative, net within our Consolidated Statements of Operations and Comprehensive Loss, as follows (in thousands):
|
|
201
6
|
|
|
201
5
|
|
|
201
4
|
|
Recognized actuarial loss
|
|
$
|
2,348
|
|
|
$
|
1,852
|
|
|
$
|
1,955
|
|
Amortization of prior service cost/(credit)
|
|
|
1
|
|
|
|
1
|
|
|
|
(46
|
)
|
Curtailment expense
|
|
|
1
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
2,350
|
|
|
|
1,853
|
|
|
|
1,909
|
|
Income taxes
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Pension reclassification, net of tax
|
|
$
|
2,350
|
|
|
$
|
1,853
|
|
|
$
|
1,909
|
|
The estimated net loss for the Pension and the Postretirement Medical and Life Benefits
plans that will be amortized from accumulated other comprehensive loss into net periodic pension cost in fiscal year 2017 is $1.7 million.
Additional
measurement date information for the Pension and Postretirement Medical and Life Benefits plans which have benefit obligations in excess of plan assets (in thousands):
|
|
Pension
Plans
|
|
|
Postretirement Medical
and Life Benefits
|
|
|
|
May 31, 2016
|
|
|
June 2, 2015
|
|
|
May 31, 2016
|
|
|
June 2, 2015
|
|
Projected benefit obligation
|
|
$
|
44,429
|
|
|
$
|
43,843
|
|
|
$
|
1,100
|
|
|
$
|
1,404
|
|
Accumulated benefit obligation
|
|
|
44,428
|
|
|
|
43,518
|
|
|
|
1,100
|
|
|
|
1,404
|
|
Fair value of plan assets
|
|
|
6,209
|
|
|
|
6,786
|
|
|
|
–
|
|
|
|
–
|
|
The weighted
average assumptions used to determine the net periodic benefit cost for fiscal years are set forth below:
|
|
Pension
Plans
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Discount rate
|
|
|
4.2
|
%
|
|
|
4.4
|
%
|
|
|
4.5
|
%
|
Expected return on plan assets
|
|
|
6.3
|
%
|
|
|
7.0
|
%
|
|
|
7.0
|
%
|
Rate of compensation increase
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
|
|
Postretirement Medical and Life Benefits
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Discount rate
|
|
|
3.6
|
%
|
|
|
3.5
|
%
|
|
|
3.7
|
%
|
Rate of compensation increase
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
Our estimated long-term rate of return on plan assets represents the weighted average of expected future returns on the asset categories included in our target investment allocation based primarily on the historical returns for each asset category, adjusted for an assessment of current market conditions.
The
weighted average assumptions used to determine benefit obligations at the measurement dates are set forth below:
|
|
Pension
Plans
|
|
|
|
201
6
|
|
|
201
5
|
|
Discount rate
|
|
|
4.0
|
%
|
|
|
4.2
|
%
|
Rate of compensation increase
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
|
|
Postretirement Medical and Life Benefits
|
|
|
|
201
6
|
|
|
201
5
|
|
Discount rate
|
|
|
3.5
|
%
|
|
|
3.6
|
%
|
Rate of compensation increase
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
We currently are assuming a gross medical
trend rate of 7.6% for fiscal 2017. We expect this rate to decrease at varying amounts per year with an ultimate trend rate of 5.0% in fiscal 2026. A change in this rate of 1.0% would have no significant impact on our net periodic postretirement benefit expense or our accrued postretirement benefits liability.
The
benefits expected to be paid in each of the next five years and in the aggregate for the five years thereafter are set forth below (in thousands):
|
|
Pension
Plans
|
|
|
Postretirement Medical
and Life Benefits
|
|
201
7
|
|
$
|
3,311
|
|
|
$
|
113
|
|
201
8
|
|
|
2,411
|
|
|
|
122
|
|
201
9
|
|
|
2,352
|
|
|
|
108
|
|
20
20
|
|
|
2,751
|
|
|
|
100
|
|
20
21
|
|
|
5,236
|
|
|
|
102
|
|
2022-2026
|
|
|
17,785
|
|
|
|
401
|
|
Expected benefit payments are estimated based on the same assumptions used to measure our benefit obligation on our measurement date of
May 31, 2016 and, where applicable, include benefits attributable to estimated further employee service.
Defined Contribution Plans
We sponsor two defined contribution plans for active employees, as summarized below.
Salary
Deferral Plan
RTI offers certain employees a 401(k) plan called the Ruby Tuesday, Inc. Salary Deferral Plan (“401(k) Plan”). We make matching contributions to the 401(k) Plan based on each eligible employee's pre-tax contribution and years of service. We match in cash each fiscal quarter 25% of the participating employee's first 4% of contributions. Company matches vest immediately. Fiscal year 2016 401(k) Plan expenses for the Company match were $0.3 million. During fiscal years 2015 and 2014, we matched participating employee’s contributions based on a same-restaurant sales performance factor. Given that the Company did not achieve the fiscal year 2015 or 2014 same-restaurant sales performance factor in order for there to be an employer match, we had no expense related to the 401(k) Plan for fiscal years 2015 or 2014.
Deferred Compensation Plan
On January 5, 2005, our Board of Directors approved the adoption of the Ruby Tuesday, Inc. 2005 Deferred Compensation Plan (the “Deferred Compensation Plan”), effective as of January 1, 2005, and froze the existing deferred compensation plan, the Ruby Tuesday, Inc. Restated Deferred Compensation Plan (the “Predecessor Plan”), effective as of December 31, 2004, in order to satisfy the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, enacted as part of the American Jobs Creation Act of 2004.
Like the Predecessor Plan, the Deferred Compensation Plan is an unfunded, non-qualified deferred compensation plan for eligible employees. The
Company matching provisions of the Deferred Compensation Plan are similar to those of the 401(k) Plan. Fiscal year 2016 Deferred Compensation Plan expenses were negligible. For similar reasons as discussed above for the 401(k) Plan, we had no expenses for Company match under the Deferred Compensation Plan for fiscal years 2015 and 2014. Assets earmarked to pay benefits under the Deferred Compensation Plan are held by a
rabbi trust. Assets and liabilities of a rabbi trust must be accounted for as if they are Company assets or liabilities and are therefore reported on our Consolidated Balance Sheets. Furthermore, all Deferred Compensation Plan earnings and expenses are recorded in our Consolidated Statements of Operations and Comprehensive Loss. The Deferred Compensation Plan’s assets and liabilities approximated $6.7 million and $8.0 million as of May 31, 2016 and June 2, 2015, respectively. Of these amounts as of May 31, 2016 and June 2, 2015, $0.7 million was included in Prepaid and other expenses and Accrued liabilities – Payroll and related costs for both periods, and $6.0 million and $7.3 million, respectively, was included in Other assets, net and Other deferred liabilities in the Consolidated Balance Sheets. The investment in RTI common stock and the related liability payable in RTI common stock, which totaled $0.5 million and $0.7 million as of May 31, 2016 and June 2, 2015, respectively, is reflected in Shareholders’ Equity in the Consolidated Balance Sheets.
Executive Separations and Corporate Support Services Restructuring
Fiscal 2016
Our former
President-Ruby Tuesday Concept and Chief Operations Officer and Executive Vice President, Chief Financial Officer resigned from the Company on July 25, 2015 and April 11, 2016, respectively. As further discussed in Note 10 to the Consolidated Financial Statements, we recorded $1.6 million of forfeiture credits during fiscal year 2016 in connection with these resignations.
Fiscal 2015
On June 26, 2014, our then Executive Vice President, Chief Financial Officer stepped down as Chief Financial Officer and subsequently retired from the Company on August 4, 2014. Additionally,
three Senior Vice Presidents, our Chief Development Officer, Chief Legal Officer and Secretary, and Chief Marketing Officer left the Company on July 24, 2014, December 12, 2014, and April 27, 2015, respectively. During the year ended June 2, 2015, we recorded severance expense and made severance payments of $0.3 million in connection with the separation agreements for certain of these former executives.
Fiscal 2014
On June 7, 2013, our then
President, Ruby Tuesday Concept, Chief Operations Officer left the Company. During fiscal 2014, we recorded severance expense of $0.9 million in connection with the separation agreement for the former executive, which represents obligations pursuant to the Ruby Tuesday, Inc. Severance Pay Plan (the “Severance Plan”) of two times base salary. The Severance Plan was subsequently terminated on October 7, 2013.
On October 30, 2013, our then Senior Vice President, Chief People Officer
left the Company. During the second quarter of fiscal 2014, we recorded severance expense of $0.4 million in connection with his separation agreement, an amount representing one year of his annual base salary plus his remaining vacation for fiscal 2014.
Between
November 20, 2013 and June 3, 2014, we eliminated approximately 82 management and staff personnel, respectively, at our Restaurant Support Services Center in Maryville, Tennessee. These reductions occurred in connection with an ongoing comprehensive review of our cost structure. These executive and other employee separations resulted in transition-related costs during the year ended June 3, 2014 of $4.3 million for employee severance and unused vacation.
As of
both May 31, 2016 and June 2, 2015, liabilities of $0.3 million, representing unpaid obligations in connection with the separations and restructurings, were included within Accrued liabilities: Payroll and related costs in our Consolidated Balance Sheet. Costs reflected in the table below related to employee severance and unused vacation accruals are included within Selling, general, and administrative, net in our Consolidated Statements of Operations and Comprehensive Loss. A roll forward of our obligations in connection with employee separations is as follows (in thousands):
Balance at June 3, 2014
|
|
$
|
1,055
|
|
Employee severance and unused vacation accruals
|
|
|
1,211
|
|
Cash payments
|
|
|
(1,953
|
)
|
Balance at June 2, 2015
|
|
$
|
313
|
|
Employee severance and unused vacation accruals
|
|
|
1,006
|
|
Cash payments
|
|
|
(1,002
|
)
|
Balance at
May 31, 2016
|
|
$
|
317
|
|
9
.
Income Taxes
Income tax benefit for fiscal
years 2016, 2015, and 2014 was allocated as follows (in thousands):
|
|
201
6
|
|
|
20
15
|
|
|
20
14
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(1,138
|
)
|
|
$
|
1,714
|
|
|
$
|
(5,047
|
)
|
State
|
|
|
289
|
|
|
|
(48
|
)
|
|
|
(1,586
|
)
|
Foreign
|
|
|
118
|
|
|
|
118
|
|
|
|
322
|
|
|
|
|
(731
|
)
|
|
|
1,784
|
|
|
|
(6,311
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,449
|
)
|
|
|
(3,254
|
)
|
|
|
2,346
|
|
State
|
|
|
–
|
|
|
|
(441
|
)
|
|
|
(700
|
)
|
|
|
|
(1,449
|
)
|
|
|
(3,695
|
)
|
|
|
1,646
|
|
Benefit for income taxes from
|
|
|
|
|
|
|
|
|
|
|
|
|
continuing operations
|
|
|
(2,180
|
)
|
|
|
(1,911
|
)
|
|
|
(4,665
|
)
|
Benefit for income taxes from
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued operations
|
|
|
–
|
|
|
|
–
|
|
|
|
(106
|
)
|
Total benefit for income taxes
|
|
$
|
(2,180
|
)
|
|
$
|
(1,911
|
)
|
|
$
|
(4,771
|
)
|
As previously mentioned in Note 1 to the Consolidated Financial Statements, w
e early adopted ASU 2015-17 on a prospective basis during the fourth quarter of fiscal year 2016. Prior periods were not retroactively adjusted. Based on the adoption of this guidance, all deferred taxes are classified as noncurrent in our Consolidated Balance Sheet as of May 31, 2016. Deferred tax assets and liabilities are comprised of the following (in thousands):
|
|
20
1
6
|
|
|
201
5
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
General business credits carryforward
|
|
$
|
70,424
|
|
|
$
|
53,955
|
|
Employee benefits
|
|
|
22,420
|
|
|
|
25,343
|
|
Deferred escalating minimum rents
|
|
|
20,803
|
|
|
|
20,536
|
|
State net operating losses
|
|
|
9,807
|
|
|
|
7,821
|
|
Insurance reserves
|
|
|
5,896
|
|
|
|
6,062
|
|
Goodwill
|
|
|
5,033
|
|
|
|
10,813
|
|
Deferred gain on sale-leaseback transactions
|
|
|
4,728
|
|
|
|
5,148
|
|
Closed restaurant lease reserves
|
|
|
2,520
|
|
|
|
2,798
|
|
Other
|
|
|
7,761
|
|
|
|
7,656
|
|
Gross deferred tax assets
|
|
|
149,392
|
|
|
|
140,132
|
|
Deferred tax asset valuation allowances
|
|
|
(89,933
|
)
|
|
|
(62,799
|
)
|
Net deferred tax assets
|
|
|
59,459
|
|
|
|
77,333
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciable property and equipment
|
|
|
(48,367
|
)
|
|
|
(64,204
|
)
|
Other
|
|
|
(11,092
|
)
|
|
|
(14,578
|
)
|
Total deferred tax liabilities
|
|
|
(59,459
|
)
|
|
|
(78,782
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
–
|
|
|
$
|
(1,449
|
)
|
|
|
|
|
|
|
|
|
|
Reported in Consolidated Balance Sheets as:
|
|
|
|
|
|
|
|
|
Deferred income taxes
– current liability
|
|
$
|
–
|
|
|
$
|
(7
|
)
|
Deferred income taxes
– noncurrent liability
|
|
|
–
|
|
|
|
(1,442
|
)
|
|
|
$
|
–
|
|
|
$
|
(1,449
|
)
|
The above deferred tax assets and liabilities include the income tax effect of temporary differences between financial reporting and tax reporting.
Temporary differences represent the cumulative taxable or deductible amounts recorded in the consolidated financial statements in different years than recognized in the tax returns. General business credits carryforward and state net operating losses may be used to offset future taxable income, and their benefit is reflected in the deferred tax assets. Other deferred tax assets, such as employee benefits, escalating minimum rents, and certain others listed, become deductible in the tax return upon payment or funding in qualified trusts. The depreciable property and equipment temporary difference represents generally tax depreciation in excess of financial statement depreciation.
We regularly evaluate the need for a valuation allowance for deferred tax assets by assessing whether it is more likely than not that we will realize the deferred tax assets in the future.
A valuation allowance assessment is performed each reporting period, with any additions or adjustments reflected in earnings in the period of assessment. In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets for each jurisdiction. As of May 31, 2016, we have rolling three-year historical operating losses and have concluded that the negative evidence outweighs the positive evidence.
In accordance with the applicable accounting standards, we are unable to use future income projections to support the realization of our deferred tax assets as a consequence of the above conclusion.
Instead, in determining the appropriate amount of the valuation allowance, we considered the timing of future reversal of our taxable temporary differences and available tax strategies that, if implemented, would result in the realization of deferred tax assets.
A rollforward of our valuation allowance is as follows (in thousands):
|
|
201
6
|
|
|
201
5
|
|
|
201
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of fiscal year
|
|
$
|
(62,799
|
)
|
|
$
|
(54,582
|
)
|
|
$
|
(24,566
|
)
|
Changes in estimated realization of deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(28,192
|
)
|
|
|
(9,138
|
)
|
|
|
(31,187
|
)
|
Discontinued operations
|
|
|
–
|
|
|
|
–
|
|
|
|
288
|
|
Other reductions
|
|
|
1,058
|
|
|
|
921
|
|
|
|
883
|
|
End of fiscal year
|
|
$
|
(89,933
|
)
|
|
$
|
(62,799
|
)
|
|
$
|
(54,582
|
)
|
As of
May 31, 2016, we had state net operating loss carryforwards of approximately $255.5 million which expire at varying times between fiscal years 2017 and 2036. The above accounting has no effect on our ability to use our state operating loss carryforwards or general business carryforward credits, which begin to expire in fiscal year 2032, in the future to reduce cash tax payments.
A
reconciliation from the statutory federal income tax benefit to the reported income tax (benefit)/expense from continuing operations is as follows (in thousands):
|
|
201
6
|
|
|
201
5
|
|
|
201
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory federal income taxes
|
|
$
|
(18,502
|
)
|
|
$
|
(1,787
|
)
|
|
$
|
(24,351
|
)
|
State income taxes, net of federal income tax benefit
|
|
|
(2,926
|
)
|
|
|
(711
|
)
|
|
|
(3,564
|
)
|
FICA tip credit
|
|
|
(7,071
|
)
|
|
|
(7,280
|
)
|
|
|
(7,533
|
)
|
Work opportunity tax credit
|
|
|
(1,389
|
)
|
|
|
(1,899
|
)
|
|
|
(1,233
|
)
|
Increase in valuation allowance
|
|
|
28,192
|
|
|
|
9,138
|
|
|
|
31,187
|
|
Permanent differences
|
|
|
319
|
|
|
|
528
|
|
|
|
2,243
|
|
Other, net
|
|
|
(803
|
)
|
|
|
100
|
|
|
|
(1,414
|
)
|
Total benefit for income taxes
|
|
$
|
(2,180
|
)
|
|
$
|
(1,911
|
)
|
|
$
|
(4,665
|
)
|
We had a gross liability for unrecognized tax benefits, exclusive of accrued interest and penalties, of $
4.5 million and $3.9 million, respectively, as of May 31, 2016 and June 2, 2015, of which $3.7 million and $3.3 million, respectively, was reclassified against our deferred tax assets. As of May 31, 2016 and June 2, 2015, the total amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate was $2.3 million and $2.4 million, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits for fiscal years 2016 and 2015 follows (in thousands):
|
|
20
1
6
|
|
|
20
15
|
|
Beginning of fiscal year
|
|
$
|
3,870
|
|
|
$
|
6,965
|
|
Additions for tax positions related to the current year
|
|
|
725
|
|
|
|
428
|
|
Reductions for tax positions related to the current year
|
|
|
(113
|
)
|
|
|
–
|
|
Additions for tax positions of prior years
|
|
|
868
|
|
|
|
114
|
|
Reductions for tax positions of prior years
|
|
|
(150
|
)
|
|
|
(2,690
|
)
|
Reductions for settlements with taxing authorities
|
|
|
–
|
|
|
|
(295
|
)
|
Reductions due to statute settlements
|
|
|
(652
|
)
|
|
|
(652
|
)
|
End of fiscal year
|
|
$
|
4,548
|
|
|
$
|
3,870
|
|
The liability for unrecognized tax benefits
as of May 31, 2016 includes $0.4 million related to tax positions for
which it is reasonably possible that the total amounts could change within the next twelve months based on the outcome of examinations and negotiations with tax authorities.
As discussed in Note 1 to the Consolidated Financial Statements,
our policy is to accrue interest related to potential underpayment of income taxes within the provision for income taxes. Interest is computed on the difference between our uncertain tax benefit positions and the amount deducted or expected to be deducted in our tax returns. At both May 31, 2016 and June 2, 2015, we had $0.4 million of accrued interest and penalties related to unrecognized tax benefits.
During
fiscal year 2016, accrued interest and penalties decreased by an insignificant amount. If we were to prevail on all uncertain tax positions, the reversal of this accrual would also be a benefit to our effective tax rate. At May 31, 2016 and June 2, 2015, total liabilities of $1.3 million and $1.0 million, respectively, including the above-mentioned amounts for the payment of accrued interest and penalties, are included in Accrued liabilities – Rent and other and Other deferred liabilities as reported on the Consolidated Balance Sheets.
At
May 31, 2016, we are no longer subject to U.S. federal income tax examinations by tax authorities for fiscal years prior to 2012, and with few exceptions, we are no longer subject to state and local examinations by tax authorities prior to fiscal year 2013.
1
0
.
Share-Based Employee
Compensation
Preferred Stock
RTI is authorized, under its Certificate of Incorporation, to issue up to 250,000 shares of preferred stock with a par value of $0.01. These shares may be issued from time to time in one or more series. Each series will have dividend rates, rights of conversion and redemption, liquidation prices, and other terms or conditions as determined by the Board of Directors. No preferred shares have been issued as of
May 31, 2016 and June 2, 2015.
The Ruby Tuesday, Inc. Stock Incentive Plan and the Ruby Tuesday, Inc. 1996 Stock Incentive Plan
A committee, appointed by the Board of Directors, administers the Ruby Tuesday, Inc. Stock Incentive Plan (“SIP”) and the Ruby Tuesday, Inc. 1996 Stock Incentive Plan (“1996 SIP”), and has full authority in its discretion to determine the key employees, officers, and non-employee directors to whom share-based incentives are granted and the terms and provisions of share-based incentives.
Stock option grants under the SIP and 1996 SIP can have varying vesting provisions and exercise periods as determined by such committee. A majority of currently outstanding stock options granted under the SIP and 1996 SIP vest within three years following the date of grant and expire seven years after the date of grant. The SIP and 1996 SIP permit the committee to make awards of shares of common stock, awards of stock options or other derivative securities related to the value of the common stock, and certain cash awards to eligible persons. These discretionary awards may be made on an individual basis or for the benefit of a group of eligible persons. All stock options awarded under the SIP and 1996 SIP have been awarded with an exercise price equal to the fair market value at the time of grant.
At Ma
y 31, 2016, we had reserved a total of 6,997,000 shares of common stock for the SIP and 1996 SIP. Of the reserved shares at May 31, 2016, 1,563,000 were subject to stock options outstanding. Stock option exercises are settled with the issuance of new shares. Net shares of common stock available for issuance at May 31, 2016 were 5,434,000.
Stock Options
The following table summarizes
our stock option activity under these stock option plans for the fiscal year ended May 31, 2016 (Stock Options and Aggregate Intrinsic Value are in thousands):
|
|
Stock
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted Average
Remaining Contractual
Term (years)
|
|
|
Aggregate
Intrinsic Value
|
|
Service-based vesting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
2,441
|
|
|
$
|
7.78
|
|
|
|
|
|
|
|
|
|
Cancellations and forfeitures
|
|
|
(270
|
)
|
|
|
6.51
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(105
|
)
|
|
|
8.83
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
2,066
|
|
|
$
|
7.89
|
|
|
|
3.04
|
|
|
$
|
–
|
|
Exercisable
at end of year
|
|
|
1,671
|
|
|
$
|
8.20
|
|
|
|
2.60
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
-based vesting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
515
|
|
|
$
|
8.60
|
|
|
|
|
|
|
|
|
|
Cancellations and forfeitures
|
|
|
(515
|
)
|
|
|
8.60
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value represents the closing stock price as of
May 31, 2016 less the strike price, multiplied by the number of stock options that have a strike price that is less than that closing stock price. There were no stock options exercised during fiscal year 2016. The total intrinsic value of stock options exercised during fiscal years 2015 and 2014 was $0.1 million and $0.7 million, respectively.
At
May 31, 2016, there was approximately $0.2 million of unrecognized pre-tax compensation expense related to non-vested stock options. This cost is expected to be recognized over a weighted average period of 0.9 years. The total fair value at grant date of awards vested during fiscal years 2016, 2015, and 2014 totaled $1.7 million, $1.9 million, and $1.0 million, respectively.
The market-based stock options
reflected in the table above would have vested if a share of our common stock appreciated to $14 per share or more for a period of 20 consecutive trading days on or before December 3, 2015. During the year ended May 31, 2016, all remaining market-based stock options were cancelled due to the market condition not being satisfied.
The weighted average
Black-Scholes grant date fair value for stock options awarded during fiscal years 2015 and 2014 was $2.27 and $4.43 per share, respectively. The grant date fair values of unvested stock options are amortized over the respective vesting period of the awards unless a recipient becomes retirement eligible during the vesting period. For retirement eligible individuals, the grant date fair value of the award is amortized from the period of the date of grant through the date upon which the individual becomes retirement eligible. The weighted average assumptions used in our Black-Scholes option-pricing model are as follows:
|
|
2015
|
|
|
2014
|
|
Risk-free interest rate
|
|
|
1.48
|
%
|
|
|
1.17
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected stock price volatility
|
|
|
44.27
|
%
|
|
|
58.03
|
%
|
Expected life (in years)
|
|
|
4.50
|
|
|
|
4.50
|
|
W
e awarded market-based stock options to certain employees during fiscal 2014. We estimated the grant date fair value of these awards at $2.42, using the Monte-Carlo simulation model. The primary assumptions used in our Monte-Carlo simulation model are as follows:
|
|
2014
|
|
Risk-free interest rate
|
|
|
0.45
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
Expected stock price volatility
|
|
|
42.86
|
%
|
Expected life (in years)
|
|
|
2.40
|
|
Restricted Stock
and Restricted Stock Units
(“RSU”)
The following table summarizes our restricted stock
and RSU activity for the fiscal year ended May 31, 2016 (in thousands, except per-share data):
|
|
2016
|
|
|
|
Shares
|
|
|
Weighted
Average
Fair Value
|
|
Service-Based Vesting:
|
|
|
|
|
|
|
|
|
Unvested at beginning of year
|
|
|
803
|
|
|
$
|
6.98
|
|
Granted
|
|
|
344
|
|
|
|
6.45
|
|
Vested
|
|
|
(346
|
)
|
|
|
7.44
|
|
Cancellations and forfeitures
|
|
|
(237
|
)
|
|
|
7.19
|
|
Unvested at end of year
|
|
|
564
|
|
|
$
|
6.29
|
|
|
|
|
|
|
|
|
|
|
Performance-Based Vesting:
|
|
|
|
|
|
|
|
|
Unvested at beginning of year
|
|
|
–
|
|
|
$
|
–
|
|
Granted
|
|
|
262
|
|
|
|
6.51
|
|
Cancellations and forfeitures
|
|
|
(37
|
)
|
|
|
6.51
|
|
Unvested at end of year
|
|
|
225
|
|
|
$
|
6.51
|
|
The
fair value of restricted stock and RSU awards is based on the closing price of our common stock on the date prior to the grant date. The total intrinsic value of restricted stock and RSU grants vesting during fiscal years 2016, 2015, and 2014 was $2.1 million, $5.4 million, and $3.4 million, respectively. At May 31, 2016, unrecognized compensation expense related to restricted stock and RSU grants expected to vest totaled $2.1 million and will be recognized over a weighted average vesting period of 1.4 years.
During fiscal year 2016, we granted 244,000 service-based and 262,000 performance-based RSUs with a market condition to certain employees under the terms of the SIP and 1996 SIP. The service-based RSUs will vest in three equal installments over a three-year period following the date of grant. The performance-based RSUs will cliff vest at the end of a three-year period following the date of grant. Vesting of the performance-based RSUs is further contingent upon the Company
’s achievement of a total shareholder return market condition over a three year period, which will be measured in the first quarter of fiscal 2019.
During fiscal
years 2016, 2015, and 2014, we granted 100,000, 109,000, and 60,000 restricted shares, respectively, to non-employee directors. The shares cliff vest over a one year period following the grant of the award.
Included within Selling,
general, and administrative, net in our Consolidated Statements of Operations and Comprehensive Loss is share-based compensation expense of $2.1 million, $7.1 million, and $7.6 million for the fiscal years ended May 31, 2016, June 2, 2015, and June 3, 2014, respectively.
Netted
within share-based compensation expense for fiscal year 2016 are forfeiture credits of $1.6 million in connection with the forfeiture of unvested stock options, restricted stock, and restricted stock units related to the departure of our then President Ruby Tuesday Concept and Chief Operations Officer during the first quarter of
fiscal year 2016 and the departure of our then Executive Vice President, Chief Financial Officer during the fourth quarter of fiscal year 2016. Included within share-based compensation expense for fiscal years 2015 and 2014 were charges of $0.2 million and $0.3 million, respectively, representing the incremental costs resulting from accelerated vesting, net of forfeitures, primarily related to departure of certain employees.
As discussed further in Note 8 to the Consolidated Financial Statements, various management personnel left the Company during fiscal years
2016, 2015, and 2014. Several of these individuals held share-based compensation awards at the times of their separations, and these awards were either vested or forfeited in accordance with the terms of the original awards.
1
1
.
Segment Reporting
As
further discussed in Note 3 to the Consolidated Financial Statements, during fiscal year 2016 we entered into agreements with two separate buyers to sell various Lime Fresh Mexican Grill assets. In addition, we also closed 11 Company-owned Lime Fresh restaurants during fiscal year 2016. As a result of these transactions, only two Company-owned Lime Fresh restaurants remained as of May 31, 2016, both of which were in transition. Financial results by reportable segment for fiscal years 2016, 2015, and 2014 are as follows (in thousands):
|
|
201
6
|
|
|
201
5
|
|
|
201
4
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruby Tuesday concept
|
|
$
|
1,075,965
|
|
|
$
|
1,106,304
|
|
|
$
|
1,147,348
|
|
Lime Fresh concept
|
|
|
15,263
|
|
|
|
20,262
|
|
|
|
21,398
|
|
Total revenues
|
|
$
|
1,091,228
|
|
|
$
|
1,126,566
|
|
|
$
|
1,168,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit/(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruby Tuesday concept
|
|
$
|
60,934
|
|
|
$
|
116,408
|
|
|
$
|
69,543
|
|
Lime Fresh concept
|
|
|
(4,642
|
)
|
|
|
(2,630
|
)
|
|
|
(6,070
|
)
|
Total segment profit
|
|
$
|
56,292
|
|
|
$
|
113,778
|
|
|
$
|
63,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruby Tuesday concept
|
|
$
|
48,441
|
|
|
$
|
48,552
|
|
|
$
|
52,990
|
|
Lime Fresh concept
|
|
|
885
|
|
|
|
1,687
|
|
|
|
2,007
|
|
Support center and other
|
|
|
2,032
|
|
|
|
2,152
|
|
|
|
2,350
|
|
Total depreciation and amortization
|
|
$
|
51,358
|
|
|
$
|
52,391
|
|
|
$
|
57,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closures and impairments, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruby Tuesday concept
|
|
$
|
56,270
|
|
|
$
|
6,940
|
|
|
$
|
27,617
|
|
Lime Fresh concept
|
|
|
6,411
|
|
|
|
3,078
|
|
|
|
5,214
|
|
Support center and other
|
|
|
–
|
|
|
|
524
|
|
|
|
–
|
|
Total closures and impairments, net
|
|
$
|
62,681
|
|
|
$
|
10,542
|
|
|
$
|
32,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruby Tuesday concept
|
|
$
|
33,088
|
|
|
$
|
29,509
|
|
|
$
|
24,553
|
|
Lime Fresh concept
|
|
|
236
|
|
|
|
1,293
|
|
|
|
2,742
|
|
Support center and other
|
|
|
1,103
|
|
|
|
208
|
|
|
|
1,044
|
|
Total capital expenditures
|
|
$
|
34,427
|
|
|
$
|
31,010
|
|
|
$
|
28,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruby Tuesday concept
|
|
$
|
713,083
|
|
|
$
|
786,931
|
|
|
$
|
823,797
|
|
Lime Fresh concept
|
|
|
6,272
|
|
|
|
10,839
|
|
|
|
15,203
|
|
Support center and other
|
|
|
118,562
|
|
|
|
127,682
|
|
|
|
112,697
|
|
Total assets
|
|
$
|
837,917
|
|
|
$
|
925,452
|
|
|
$
|
951,697
|
|
The following is a
reconciliation of segment profit to loss from continuing operations before taxes for fiscal years 2016, 2015, and 2014 (in thousands):
|
|
201
6
|
|
|
201
5
|
|
|
201
4
|
|
Segment profit
|
|
$
|
56,292
|
|
|
$
|
113,778
|
|
|
$
|
63,473
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(51,358
|
)
|
|
|
(52,391
|
)
|
|
|
(57,347
|
)
|
Unallocated general and administrative expenses
|
|
|
(39,815
|
)
|
|
|
(42,710
|
)
|
|
|
(47,946
|
)
|
Preopening expenses
|
|
|
(48
|
)
|
|
|
(290
|
)
|
|
|
(395
|
)
|
Trademark impairments
|
|
|
(1,999
|
)
|
|
|
–
|
|
|
|
(855
|
)
|
Gain on sales of Lime Fresh Mexican Grill assets
|
|
|
5,937
|
|
|
|
–
|
|
|
|
–
|
|
Interest expense, net
|
|
|
(21,764
|
)
|
|
|
(22,735
|
)
|
|
|
(24,945
|
)
|
Other expense, net
|
|
|
(107
|
)
|
|
|
(757
|
)
|
|
|
(1,560
|
)
|
Loss from continuing operations before income taxes
|
|
$
|
(52,862
|
)
|
|
$
|
(5,105
|
)
|
|
$
|
(69,575
|
)
|
1
2
.
Commitments and Contingencies
Litigation
We are presently, and from time to time, subject to pending claims and lawsuits arising in the ordinary course of business. We provide reserves for such claims when payment is probable and estimable in accordance with GAAP. At this time, in the opinion of management, the ultimate resolution of pending legal proceedings, including the matter referred to below, will not have a material adverse effect on our operations, financial position, or cash flows.
Insurance Programs
We are currently self-insured for a portion of our expected workers’ compensation, employment practices liability, general liability, and automobile liability losses (collectively, “casualty losses”) as well as property losses and certain other insurable risks. To mitigate the cost of our exposures for certain property and casualty losses, we make annual decisions to either retain the risks of loss up to a certain maximum per occurrence, aggregate loss limits negotiated with our insurance carriers, or fully insure those risks. We are also self-insured for healthcare claims for eligible participating employees subject to certain deductibles and limitations. We have accounted for our retained liabilities for casualty losses and healthcare claims, including reported and incurred but not reported claims, based on information provided by third-party actuaries. At May 31, 2016, we were committed under letters of credit totaling $11.6 million issued primarily in connection with our workers’ compensation and casualty insurance programs.
Purchase Commitments
We have minimum purchase commitments with various vendors.
Outstanding commitments as of May 31, 2016 were approximately $58.3 million. These obligations consist of supplies, advertising, utility contracts, and various types of meat, beverages, and other food products, which are an integral part of our business operations.
1
3
. Fair Value Measurements
The following table presents the fair values of our financial assets and liabilities measured at fair value on a recurring basis
and the level within the fair value hierarchy in which the measurements fall (in thousands):
|
|
Level
|
|
|
May 31, 2016
|
|
|
June 2, 2015
|
|
Deferred compensation plan
– Assets
|
|
|
1
|
|
|
$
|
6,660
|
|
|
$
|
8,017
|
|
Deferred compensation plan
– Liabilities
|
|
|
1
|
|
|
|
(6,660
|
)
|
|
|
(8,017
|
)
|
There were no transfers among levels within the fair value hierarchy during fiscal years
2016 or 2015.
The Deferred Compensation Plan and the Ruby Tuesday, Inc. Restated Deferred Compensation Plan (the “Predecessor Plan”) are unfunded, non-qualified deferred compensation plans for eligible employees. Assets ear
marked to pay benefits under the Deferred Compensation Plan and Predecessor Plan are held by a rabbi trust. We report the accounts of the rabbi trust in our Consolidated Financial Statements. The investments held by these plans are considered trading securities and are reported at fair value based on third-party broker statements. The realized and unrealized holding gains and losses related to these other investments, as well as the offsetting compensation expense, is recorded in Selling, general, and administrative expense, net in the Consolidated Financial Statements.
The investment in RTI common stock and related liability payable in RTI common stock, which are reflected in Shareholders
’ Equity in the Consolidated Balance Sheets, are excluded from the fair value table above as these are considered treasury shares and reported at cost.
The following table presents the fair values
on our Consolidated Balance Sheets as of May 31, 2016 and June 2, 2015 for those assets and liabilities measured on a non-recurring basis (in thousands):
|
|
Fair Value Measurements
|
|
|
|
Level
|
|
|
May 31, 2016
|
|
|
June 2, 2015
|
|
Long-lived assets held for sale
|
|
|
2
|
|
|
$
|
2,123
|
|
|
$
|
3,708
|
|
Long-lived assets held for use
|
|
|
2
|
|
|
|
56,101
|
|
|
|
3,283
|
|
Long-lived assets held for use
|
|
|
3
|
|
|
|
553
|
|
|
|
–
|
|
Total
|
|
|
|
|
|
$
|
58,777
|
|
|
$
|
6,991
|
|
The following table presents the losses recognized during the fiscal years ended
May 31, 2016, June 2, 2015, and June 3, 2014 resulting from fair value measurements of assets and liabilities measured on a non-recurring basis. The losses associated with continuing operations are included in Closures and impairments, net and Trademark impairments, and the losses associated with discontinued operations are included in Loss from discontinued operations in our Consolidated Statements of Operations and Comprehensive Loss (in thousands):
|
|
201
6
|
|
|
201
5
|
|
|
201
4
|
|
Included within continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets held for sale
|
|
$
|
447
|
|
|
$
|
1,830
|
|
|
$
|
872
|
|
Long-lived assets held for use
|
|
|
57,706
|
|
|
|
7,992
|
|
|
|
23,464
|
|
Lime Fresh trademark
|
|
|
1,999
|
|
|
|
–
|
|
|
|
855
|
|
|
|
$
|
60,152
|
|
|
$
|
9,822
|
|
|
$
|
25,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included within discontinued operations
|
|
|
|
|
|
|
|
|
|
$
|
177
|
|
Long-lived assets held for sale are valued using Level 2 inputs, primarily
from information obtained through broker listings or sales agreements. Costs to market and/or sell are factored into the estimates of fair value for those properties included in Assets held for sale on our Consolidated Balance Sheets.
We review our long-lived assets (primarily property, equipment, and, as appropriate, reacquired franchise rights and favorable leases) related to each restaurant to be held and used in the business, whenever events or changes in circumstances indicate that the carrying amount of a restaurant may not be recoverable.
Long-lived assets held for use presented in the table above includes restaurants or groups of restaurants that we have impaired. From time to time, the table will also include closed restaurants or surplus sites not meeting held for sale criteria that have been offered for sale at a price less than their carrying value.
The fair
values of our long-lived assets held for use are primarily based on broker estimates of the value of the land, building, leasehold improvements, and other residual assets (Level 2) or discounted cash flow estimates using unobservable inputs (Level 3).
Our financial
instruments at May 31, 2016 and June 2, 2015 consisted of cash and cash equivalents, accounts receivable and payable, and long-term debt. The fair values of cash and cash equivalents and accounts receivable and payable approximated their carrying values because of the short-term nature of these instruments. The carrying amounts and fair values of our long-term debt, which are not measured on a recurring basis using fair value, are as follows (in thousands):
|
|
May 31, 2016
|
|
|
June
2, 2015
|
|
|
|
|
|
|
|
|
|
|
|
(as adjusted)
|
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
Long-term debt (Level 2)
|
|
$
|
223,526
|
|
|
$
|
223,212
|
|
|
$
|
240,889
|
|
|
$
|
255,194
|
|
We estimated the fair value of debt using
market quotes and calculations based on market rates.
1
4
.
Supplemental Condensed Consolidating Financial Statements
As discussed in
Note 6 to the Consolidated Financial Statements, the Senior Notes are a liability of Ruby Tuesday, Inc. (the “Parent”) and are guaranteed on a senior unsecured basis by our existing and future domestic restricted subsidiaries, subject to certain exceptions (the “Guarantors”). Each of the Guarantors is wholly-owned by Ruby Tuesday, Inc. None of the few remaining subsidiaries of Ruby Tuesday, Inc., which were primarily created to hold liquor license assets, guarantee the Senior Notes (the “Non-Guarantors”). Our Non-Guarantor subsidiaries are immaterial and are aggregated within the Parent information disclosed below.
The following condensed consolidating financial
information, which has been prepared in accordance with the requirements for presentation of Rule 3-10(f) of Regulation S-X promulgated by the Securities and Exchange Commission, presents the condensed consolidating financial information separately for the Parent, the Guarantors, and elimination entries necessary to consolidate the Parent and Guarantors. Investments in wholly-owned subsidiaries are accounted for using the equity method for purposes of the consolidated presentation. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions.
Condensed Consolidating Balance Sheet
As of May 31, 2016
(In thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
67,208
|
|
|
$
|
133
|
|
|
$
|
–
|
|
|
$
|
67,341
|
|
Accounts and other receivables
|
|
|
8,102
|
|
|
|
4,725
|
|
|
|
–
|
|
|
|
12,827
|
|
Inventories
|
|
|
15,401
|
|
|
|
6,194
|
|
|
|
–
|
|
|
|
21,595
|
|
Income tax receivable
|
|
|
167,065
|
|
|
|
–
|
|
|
|
(164,062
|
)
|
|
|
3,003
|
|
Other current assets
|
|
|
11,282
|
|
|
|
4,868
|
|
|
|
–
|
|
|
|
16,150
|
|
Total current assets
|
|
|
269,058
|
|
|
|
15,920
|
|
|
|
(164,062
|
)
|
|
|
120,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
501,482
|
|
|
|
169,768
|
|
|
|
–
|
|
|
|
671,250
|
|
Investment in subsidiaries
|
|
|
98,929
|
|
|
|
–
|
|
|
|
(98,929
|
)
|
|
|
–
|
|
Due from/(to) subsidiaries
|
|
|
76,208
|
|
|
|
213,816
|
|
|
|
(290,024
|
)
|
|
|
–
|
|
Other assets
|
|
|
40,626
|
|
|
|
5,125
|
|
|
|
–
|
|
|
|
45,751
|
|
Total assets
|
|
$
|
986,303
|
|
|
$
|
404,629
|
|
|
$
|
(553,015
|
)
|
|
$
|
837,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities & Shareholders
’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
17,405
|
|
|
$
|
4,736
|
|
|
$
|
–
|
|
|
$
|
22,141
|
|
Accrued and other current liabilities
|
|
|
35,674
|
|
|
|
29,957
|
|
|
|
–
|
|
|
|
65,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
including capital leases
|
|
|
(1,067
|
)
|
|
|
11,001
|
|
|
|
–
|
|
|
|
9,934
|
|
Income tax payable
|
|
|
–
|
|
|
|
164,062
|
|
|
|
(164,062
|
)
|
|
|
–
|
|
Total current liabilities
|
|
|
52,012
|
|
|
|
209,756
|
|
|
|
(164,062
|
)
|
|
|
97,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital leases,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
less current maturities
|
|
|
209,058
|
|
|
|
4,745
|
|
|
|
–
|
|
|
|
213,803
|
|
Due to/(from) subsidiaries
|
|
|
213,816
|
|
|
|
76,208
|
|
|
|
(290,024
|
)
|
|
|
–
|
|
Other deferred liabilities
|
|
|
103,637
|
|
|
|
14,991
|
|
|
|
–
|
|
|
|
118,628
|
|
Total liabilities
|
|
|
578,523
|
|
|
|
305,700
|
|
|
|
(454,086
|
)
|
|
|
430,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders
’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
601
|
|
|
|
–
|
|
|
|
–
|
|
|
|
601
|
|
Capital in excess of par value
|
|
|
75,938
|
|
|
|
–
|
|
|
|
–
|
|
|
|
75,938
|
|
Retained earnings
|
|
|
341,350
|
|
|
|
98,929
|
|
|
|
(98,929
|
)
|
|
|
341,350
|
|
Accumulated other comprehensive loss
|
|
|
(10,109
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(10,109
|
)
|
Total shareholders
’ equity
|
|
|
407,780
|
|
|
|
98,929
|
|
|
|
(98,929
|
)
|
|
|
407,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities & shareholders
’ equity
|
|
$
|
986,303
|
|
|
$
|
404,629
|
|
|
$
|
(553,015
|
)
|
|
$
|
837,917
|
|
Condensed Consolidating Balance Sheet
As of June 2, 2015 (as adjusted)
(In thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
75,034
|
|
|
$
|
297
|
|
|
$
|
–
|
|
|
$
|
75,331
|
|
Accounts and other receivables
|
|
|
1,557
|
|
|
|
3,730
|
|
|
|
–
|
|
|
|
5,287
|
|
Inventories
|
|
|
14,581
|
|
|
|
5,830
|
|
|
|
–
|
|
|
|
20,411
|
|
Income tax receivable
|
|
|
153,146
|
|
|
|
–
|
|
|
|
(153,146
|
)
|
|
|
–
|
|
Other current assets
|
|
|
15,543
|
|
|
|
2,308
|
|
|
|
–
|
|
|
|
17,851
|
|
Total current assets
|
|
|
259,861
|
|
|
|
12,165
|
|
|
|
(153,146
|
)
|
|
|
118,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
554,089
|
|
|
|
198,085
|
|
|
|
–
|
|
|
|
752,174
|
|
Investment in subsidiaries
|
|
|
128,824
|
|
|
|
–
|
|
|
|
(128,824
|
)
|
|
|
–
|
|
Due from/(to) subsidiaries
|
|
|
66,019
|
|
|
|
215,373
|
|
|
|
(281,392
|
)
|
|
|
–
|
|
Other assets
|
|
|
44,118
|
|
|
|
10,280
|
|
|
|
–
|
|
|
|
54,398
|
|
Total assets
|
|
$
|
1,052,911
|
|
|
$
|
435,903
|
|
|
$
|
(563,362
|
)
|
|
$
|
925,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities & Shareholders
’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
18,533
|
|
|
$
|
4,472
|
|
|
$
|
–
|
|
|
$
|
23,005
|
|
Accrued and other current liabilities
|
|
|
42,458
|
|
|
|
33,764
|
|
|
|
–
|
|
|
|
76,222
|
|
Current maturities of long-term debt,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
including capital leases
|
|
|
(994
|
)
|
|
|
11,072
|
|
|
|
–
|
|
|
|
10,078
|
|
Income tax payable
|
|
|
–
|
|
|
|
154,215
|
|
|
|
(153,146
|
)
|
|
|
1,069
|
|
Deferred income taxes, net
|
|
|
2,839
|
|
|
|
(2,832
|
)
|
|
|
–
|
|
|
|
7
|
|
Total current liabilities
|
|
|
62,836
|
|
|
|
200,691
|
|
|
|
(153,146
|
)
|
|
|
110,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital leases,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
less current maturities
|
|
|
210,382
|
|
|
|
20,635
|
|
|
|
–
|
|
|
|
231,017
|
|
Deferred income taxes, net
|
|
|
(3,865
|
)
|
|
|
5,307
|
|
|
|
–
|
|
|
|
1,442
|
|
Due to/(from) subsidiaries
|
|
|
215,373
|
|
|
|
66,019
|
|
|
|
(281,392
|
)
|
|
|
–
|
|
Other deferred liabilities
|
|
|
102,602
|
|
|
|
14,427
|
|
|
|
–
|
|
|
|
117,029
|
|
Total liabilities
|
|
|
587,328
|
|
|
|
307,079
|
|
|
|
(434,538
|
)
|
|
|
459,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders
’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
621
|
|
|
|
–
|
|
|
|
–
|
|
|
|
621
|
|
Capital in excess of par value
|
|
|
83,870
|
|
|
|
–
|
|
|
|
–
|
|
|
|
83,870
|
|
Retained earnings
|
|
|
392,032
|
|
|
|
128,824
|
|
|
|
(128,824
|
)
|
|
|
392,032
|
|
Accumulated other comprehensive loss
|
|
|
(10,940
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(10,940
|
)
|
Total shareholders
’ equity
|
|
|
465,583
|
|
|
|
128,824
|
|
|
|
(128,824
|
)
|
|
|
465,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities & shareholders
’ equity
|
|
$
|
1,052,911
|
|
|
$
|
435,903
|
|
|
$
|
(563,362
|
)
|
|
$
|
925,452
|
|
Condensed Consolidating Statement of Operations and
Comprehensive (Loss)/Income
For the Fiscal Year Ended May 31, 2016
(In thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant sales and operating revenue
|
|
$
|
785,147
|
|
|
$
|
299,887
|
|
|
$
|
–
|
|
|
$
|
1,085,034
|
|
Franchise revenue
|
|
|
245
|
|
|
|
5,949
|
|
|
|
–
|
|
|
|
6,194
|
|
Total revenue
|
|
|
785,392
|
|
|
|
305,836
|
|
|
|
–
|
|
|
|
1,091,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
216,121
|
|
|
|
82,408
|
|
|
|
–
|
|
|
|
298,529
|
|
Payroll and related costs
|
|
|
263,499
|
|
|
|
111,062
|
|
|
|
–
|
|
|
|
374,561
|
|
Other restaurant operating costs
|
|
|
167,051
|
|
|
|
62,467
|
|
|
|
–
|
|
|
|
229,518
|
|
Depreciation and amortization
|
|
|
36,387
|
|
|
|
14,971
|
|
|
|
–
|
|
|
|
51,358
|
|
Selling, general, and administrative
|
|
|
70,012
|
|
|
|
39,615
|
|
|
|
–
|
|
|
|
109,627
|
|
Intercompany selling, general, and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative allocations
|
|
|
42,870
|
|
|
|
(42,870
|
)
|
|
|
–
|
|
|
|
–
|
|
Closures and impairments, net
|
|
|
40,683
|
|
|
|
21,998
|
|
|
|
–
|
|
|
|
62,681
|
|
Trademark impairment
|
|
|
–
|
|
|
|
1,999
|
|
|
|
–
|
|
|
|
1,999
|
|
Equity in earnings of subsidiaries
|
|
|
(15,212
|
)
|
|
|
–
|
|
|
|
15,212
|
|
|
|
–
|
|
Gain on sale
s of Lime Fresh Mexican Grill assets
|
|
|
(5,937
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(5,937
|
)
|
Interest expense, net
|
|
|
18,339
|
|
|
|
3,425
|
|
|
|
–
|
|
|
|
21,764
|
|
Intercompany interest expense/(income)
|
|
|
12,143
|
|
|
|
(12,143
|
)
|
|
|
–
|
|
|
|
–
|
|
Gain on extinguishment of debt
|
|
|
(10
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(10
|
)
|
Total operating costs and expenses
|
|
|
845,946
|
|
|
|
282,932
|
|
|
|
15,212
|
|
|
|
1,144,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/income before income taxes
|
|
|
(60,554
|
)
|
|
|
22,904
|
|
|
|
(15,212
|
)
|
|
|
(52,862
|
)
|
(Benefit)/provision for income taxes
|
|
|
(9,872
|
)
|
|
|
7,692
|
|
|
|
–
|
|
|
|
(2,180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income
|
|
$
|
(50,682
|
)
|
|
$
|
15,212
|
|
|
$
|
(15,212
|
)
|
|
$
|
(50,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension liability reclassification
|
|
|
831
|
|
|
|
–
|
|
|
|
–
|
|
|
|
831
|
|
Total comprehensive (loss)/income
|
|
$
|
(49,851
|
)
|
|
$
|
15,212
|
|
|
$
|
(15,212
|
)
|
|
$
|
(49,851
|
)
|
Condensed Consolidating Statement of Operations and
Comprehensive (Loss)/Income
For the Fiscal Year Ended June
2
, 201
5
(as adjusted)
(In thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant sales and operating revenue
|
|
$
|
809,171
|
|
|
$
|
310,971
|
|
|
$
|
–
|
|
|
$
|
1,120,142
|
|
Franchise revenue
|
|
|
238
|
|
|
|
6,186
|
|
|
|
–
|
|
|
|
6,424
|
|
Total revenue
|
|
|
809,409
|
|
|
|
317,157
|
|
|
|
–
|
|
|
|
1,126,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
220,537
|
|
|
|
84,769
|
|
|
|
–
|
|
|
|
305,306
|
|
Payroll and related costs
|
|
|
270,535
|
|
|
|
112,726
|
|
|
|
–
|
|
|
|
383,261
|
|
Other restaurant operating costs
|
|
|
175,819
|
|
|
|
66,290
|
|
|
|
–
|
|
|
|
242,109
|
|
Depreciation
and amortization
|
|
|
37,466
|
|
|
|
14,925
|
|
|
|
–
|
|
|
|
52,391
|
|
Selling, general, and administrative
|
|
|
75,418
|
|
|
|
39,909
|
|
|
|
–
|
|
|
|
115,327
|
|
Intercompany selling, general, and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative allocations
|
|
|
44,768
|
|
|
|
(44,768
|
)
|
|
|
–
|
|
|
|
–
|
|
Closures and impairments
, net
|
|
|
7,914
|
|
|
|
2,628
|
|
|
|
–
|
|
|
|
10,542
|
|
Equity in earnings of subsidiaries
|
|
|
(28,148
|
)
|
|
|
–
|
|
|
|
28,148
|
|
|
|
–
|
|
Interest expense, net
|
|
|
18,489
|
|
|
|
4,246
|
|
|
|
–
|
|
|
|
22,735
|
|
Intercompany interest expense/(income)
|
|
|
12,009
|
|
|
|
(12,009
|
)
|
|
|
–
|
|
|
|
–
|
|
Total operating costs and expenses
|
|
|
834,807
|
|
|
|
268,716
|
|
|
|
28,148
|
|
|
|
1,131,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/income before income taxes
|
|
|
(25,398
|
)
|
|
|
48,441
|
|
|
|
(28,148
|
)
|
|
|
(5,105
|
)
|
(Benefit)/provision for income taxes
|
|
|
(22,204
|
)
|
|
|
20,293
|
|
|
|
–
|
|
|
|
(1,911
|
)
|
Net (loss)/income
|
|
$
|
(3,194
|
)
|
|
$
|
28,148
|
|
|
$
|
(28,148
|
)
|
|
$
|
(3,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension liability reclassification, net of tax
|
|
|
(40
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(40
|
)
|
Total comprehensive (loss)/income
|
|
$
|
(3,234
|
)
|
|
$
|
28,148
|
|
|
$
|
(28,148
|
)
|
|
$
|
(3,234
|
)
|
Condensed Consolidating Statement of Operations and
Comprehensive (Loss)/Income
For the Fiscal Year Ended June 3, 2014
(as adjusted)
(In thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant sales and operating revenue
|
|
$
|
842,842
|
|
|
$
|
319,581
|
|
|
$
|
–
|
|
|
$
|
1,162,423
|
|
Franchise revenue
|
|
|
223
|
|
|
|
6,100
|
|
|
|
–
|
|
|
|
6,323
|
|
Total revenue
|
|
|
843,065
|
|
|
|
325,681
|
|
|
|
–
|
|
|
|
1,168,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
goods sold
|
|
|
233,562
|
|
|
|
87,959
|
|
|
|
–
|
|
|
|
321,521
|
|
Payroll and related costs
|
|
|
287,358
|
|
|
|
117,021
|
|
|
|
–
|
|
|
|
404,379
|
|
Other restaurant operating costs
|
|
|
186,737
|
|
|
|
71,191
|
|
|
|
–
|
|
|
|
257,928
|
|
Depreciation
and amortization
|
|
|
40,506
|
|
|
|
16,841
|
|
|
|
–
|
|
|
|
57,347
|
|
Selling, general, and administrative
|
|
|
87,248
|
|
|
|
49,903
|
|
|
|
–
|
|
|
|
137,151
|
|
Intercompany selling, general, and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative allocations
|
|
|
59,257
|
|
|
|
(59,257
|
)
|
|
|
–
|
|
|
|
–
|
|
Closures and impairments
, net
|
|
|
18,904
|
|
|
|
13,927
|
|
|
|
–
|
|
|
|
32,831
|
|
Trademark impairment
|
|
|
–
|
|
|
|
855
|
|
|
|
–
|
|
|
|
855
|
|
Equity in earnings of subsidiaries
|
|
|
(21,005
|
)
|
|
|
–
|
|
|
|
21,005
|
|
|
|
–
|
|
Interest expense, net
|
|
|
19,978
|
|
|
|
4,967
|
|
|
|
–
|
|
|
|
24,945
|
|
Intercompany interest expense/(income)
|
|
|
13,081
|
|
|
|
(13,081
|
)
|
|
|
–
|
|
|
|
–
|
|
Loss on extinguishment of debt
|
|
|
1,364
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,364
|
|
Total operating costs and expenses
|
|
|
926,990
|
|
|
|
290,326
|
|
|
|
21,005
|
|
|
|
1,238,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/income from continuing operations before income taxes
|
|
|
(83,925
|
)
|
|
|
35,355
|
|
|
|
(21,005
|
)
|
|
|
(69,575
|
)
|
(Benefit)/p
rovision for income taxes from
continuing operations
|
|
|
(19,015
|
)
|
|
|
14,350
|
|
|
|
–
|
|
|
|
(4,665
|
)
|
(Loss)/income from continuing operations
|
|
|
(64,910
|
)
|
|
|
21,005
|
|
|
|
(21,005
|
)
|
|
|
(64,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax
|
|
|
564
|
|
|
|
–
|
|
|
|
–
|
|
|
|
564
|
|
Net (loss)/income
|
|
$
|
(64,346
|
)
|
|
$
|
21,005
|
|
|
$
|
(21,005
|
)
|
|
$
|
(64,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension liability reclassification, net of tax
|
|
|
45
|
|
|
|
–
|
|
|
|
–
|
|
|
|
45
|
|
Total comprehensive (loss)/income
|
|
$
|
(64,301
|
)
|
|
$
|
21,005
|
|
|
$
|
(21,005
|
)
|
|
$
|
(64,301
|
)
|
Condensed Consolidating Statement of Cash Flows
For the Fiscal Year Ended May 31, 2016
(In thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
15,721
|
|
|
$
|
71,061
|
|
|
$
|
(46,665
|
)
|
|
$
|
40,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(24,174
|
)
|
|
|
(10,253
|
)
|
|
|
–
|
|
|
|
(34,427
|
)
|
Proceeds from disposal of assets
|
|
|
11,701
|
|
|
|
–
|
|
|
|
–
|
|
|
|
11,701
|
|
Other, net
|
|
|
2,971
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2,971
|
|
Net cash used by investing activities
|
|
|
(9,502
|
)
|
|
|
(10,253
|
)
|
|
|
–
|
|
|
|
(19,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt
|
|
|
(2,379
|
)
|
|
|
(15,864
|
)
|
|
|
–
|
|
|
|
(18,243
|
)
|
Stock repurchases
|
|
|
(10,077
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(10,077
|
)
|
Payments for debt issuance costs
|
|
|
(32
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(32
|
)
|
Intercompany transactions
|
|
|
(1,557
|
)
|
|
|
(45,108
|
)
|
|
|
46,665
|
|
|
|
–
|
|
Net cash used by financing activities
|
|
|
(14,045
|
)
|
|
|
(60,972
|
)
|
|
|
46,665
|
|
|
|
(28,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(7,826
|
)
|
|
|
(164
|
)
|
|
|
–
|
|
|
|
(7,990
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of fiscal year
|
|
|
75,034
|
|
|
|
297
|
|
|
|
–
|
|
|
|
75,331
|
|
End of fiscal year
|
|
$
|
67,208
|
|
|
$
|
133
|
|
|
$
|
–
|
|
|
$
|
67,341
|
|
Condensed Consolidating Statement of Cash Flows
For the Fiscal Year Ended June 2, 2015
(In thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
63,076
|
|
|
$
|
77,717
|
|
|
$
|
(85,882
|
)
|
|
$
|
54,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(23,326
|
)
|
|
|
(7,684
|
)
|
|
|
–
|
|
|
|
(31,010
|
)
|
Proceeds from disposal of assets
|
|
|
10,213
|
|
|
|
1,047
|
|
|
|
–
|
|
|
|
11,260
|
|
Other, net
|
|
|
2,118
|
|
|
|
135
|
|
|
|
–
|
|
|
|
2,253
|
|
Net cash used by investing activities
|
|
|
(10,995
|
)
|
|
|
(6,502
|
)
|
|
|
–
|
|
|
|
(17,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt
|
|
|
4
|
|
|
|
(13,642
|
)
|
|
|
–
|
|
|
|
(13,638
|
)
|
Stock repurchases
|
|
|
(73
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(73
|
)
|
Payments for debt issuance costs
|
|
|
(293
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(293
|
)
|
Proceeds from exercise of stock options
|
|
|
556
|
|
|
|
–
|
|
|
|
–
|
|
|
|
556
|
|
Excess tax benefits from share-based
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation
|
|
|
39
|
|
|
|
–
|
|
|
|
–
|
|
|
|
39
|
|
Intercompany transactions
|
|
|
(28,292
|
)
|
|
|
(57,590
|
)
|
|
|
85,882
|
|
|
|
–
|
|
Net cash used by financing activities
|
|
|
(28,059
|
)
|
|
|
(71,232
|
)
|
|
|
85,882
|
|
|
|
(13,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease) in cash and cash equivalents
|
|
|
24,022
|
|
|
|
(17
|
)
|
|
|
–
|
|
|
|
24,005
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
fiscal year
|
|
|
51,012
|
|
|
|
314
|
|
|
|
–
|
|
|
|
51,326
|
|
End of
fiscal year
|
|
$
|
75,034
|
|
|
$
|
297
|
|
|
$
|
–
|
|
|
$
|
75,331
|
|
Condensed Consolidating Statement of Cash Flows
For the Fiscal Year Ended June 3, 2014
(In thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
5,854
|
|
|
$
|
57,064
|
|
|
$
|
(17,543
|
)
|
|
$
|
45,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(21,132
|
)
|
|
|
(7,207
|
)
|
|
|
–
|
|
|
|
(28,339
|
)
|
Proceeds from sale-leaseback transactions, net
|
|
|
5,637
|
|
|
|
–
|
|
|
|
–
|
|
|
|
5,637
|
|
Proceeds from disposal of assets
|
|
|
14,503
|
|
|
|
1,023
|
|
|
|
–
|
|
|
|
15,526
|
|
Other, net
|
|
|
973
|
|
|
|
–
|
|
|
|
–
|
|
|
|
973
|
|
Net cash used by investing activities
|
|
|
(19
|
)
|
|
|
(6,184
|
)
|
|
|
–
|
|
|
|
(6,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt
|
|
|
(20,019
|
)
|
|
|
(20,213
|
)
|
|
|
–
|
|
|
|
(40,232
|
)
|
Stock repurchases
|
|
|
(579
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(579
|
)
|
Payments for debt issuance costs
|
|
|
(1,802
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(1,802
|
)
|
Proceeds from exercise of stock options
|
|
|
1,576
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,576
|
|
Excess tax benefits from share-based
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation
|
|
|
284
|
|
|
|
–
|
|
|
|
–
|
|
|
|
284
|
|
Intercompany transactions
|
|
|
13,082
|
|
|
|
(30,625
|
)
|
|
|
17,543
|
|
|
|
–
|
|
Net cash used by financing activities
|
|
|
(7,458
|
)
|
|
|
(50,838
|
)
|
|
|
17,543
|
|
|
|
(40,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)/increase in cash and cash equivalents
|
|
|
(1,623
|
)
|
|
|
42
|
|
|
|
–
|
|
|
|
(1,581
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
fiscal year
|
|
|
52,635
|
|
|
|
272
|
|
|
|
–
|
|
|
|
52,907
|
|
End of
fiscal year
|
|
$
|
51,012
|
|
|
$
|
314
|
|
|
$
|
–
|
|
|
$
|
51,326
|
|
1
5
. Supplemental
Quarterly Financial Data (Unaudited)
Quarterly financial re
sults for the years ended May 31, 2016 and June 2, 2015, are summarized below.
(In thousands, except per-share data)
|
|
For the Year Ended
May 31, 2016
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
279,480
|
|
|
$
|
260,956
|
|
|
$
|
271,470
|
|
|
$
|
279,322
|
|
|
$
|
1,091,228
|
|
Gross profit*
|
|
$
|
45,697
|
|
|
$
|
41,982
|
|
|
$
|
47,659
|
|
|
$
|
53,282
|
|
|
$
|
188,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(5,217
|
)
|
|
$
|
(15,979
|
)
|
|
$
|
(3,569
|
)
|
|
$
|
(28,097
|
)
|
|
$
|
(52,862
|
)
|
Benefit for income taxes
|
|
|
(1,023
|
)
|
|
|
(180
|
)
|
|
|
(483
|
)
|
|
|
(494
|
)
|
|
|
(2,180
|
)
|
Net loss
|
|
$
|
(4,194
|
)
|
|
$
|
(15,799
|
)
|
|
$
|
(3,086
|
)
|
|
$
|
(27,603
|
)
|
|
$
|
(50,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
**
|
|
$
|
(0.07
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
(0.83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
**
|
|
$
|
(0.07
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
(0.83
|
)
|
|
|
For the Year Ended June 2, 2015
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
281,182
|
|
|
$
|
262,659
|
|
|
$
|
285,913
|
|
|
$
|
296,812
|
|
|
$
|
1,126,566
|
|
Gross profit (as adjusted)*
|
|
$
|
50,975
|
|
|
$
|
37,533
|
|
|
$
|
50,465
|
|
|
$
|
56,917
|
|
|
$
|
195,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/income before income taxes
|
|
$
|
(69
|
)
|
|
$
|
(9,868
|
)
|
|
$
|
(881
|
)
|
|
$
|
5,713
|
|
|
$
|
(5,105
|
)
|
(Benefit)/provision for income taxes
|
|
|
(2,634
|
)
|
|
|
(595
|
)
|
|
|
(112
|
)
|
|
|
1,430
|
|
|
|
(1,911
|
)
|
Net income/(loss)
|
|
$
|
2,565
|
|
|
$
|
(9,273
|
)
|
|
$
|
(769
|
)
|
|
$
|
4,283
|
|
|
$
|
(3,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) per share
|
|
$
|
0.04
|
|
|
$
|
(0.15
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.07
|
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) per share
|
|
$
|
0.04
|
|
|
$
|
(0.15
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.07
|
|
|
$
|
(0.05
|
)
|
*
We define gross profit as revenue less cost of goods sold, payroll and related costs, and other restaurant operating costs. As previously discussed in Note 1 to the Consolidated Financial Statements, we reclassified amortization of intangible assets from other restaurant operating costs to depreciation and amortization in the Consolidated Statements of Operations and Comprehensive Loss for the prior fiscal year to be comparable with the classification for the fiscal year ended May 31, 2016.
** The sum of the quarterly
(loss)/income per share does not equal the reported annual amount as each is computed independently based upon the weighted average number of shares outstanding for the period.
1
6
. Subsequent Events
On August 11, 2016, in response to a comprehensive review of the Company’s property portfolio, we announced a plan to close approximately 95 Company-owned restaurants by September 2016. The approved closures, which include mall, in line, and freestanding sites, encompass restaurants spread throughout all of the geographies in which the Company operates. Of the restaurants expected to close, approximately two-thirds are operated on leased properties and approximately one-third are owned. As discussed in Note 7 to the Consolidated Financial Statements, given the status of the proposed plan as of May 31, 2016, the Company determined that there was in impairment trigger as certain restaurants would be disposed of significantly before the end of their previously estimated useful lives. Accordingly, the Company incurred $39.2 million of impairment charges during fiscal year 2016 primarily related to these restaurants. As of May 31, 2016, the remaining net book value of the restaurants expected to close approximates $40.5 million, of which $26.6 million represents land or other assets which will become available for sale.
The remaining contractual rent and other lease-related
obligations of the leased restaurants expected to close approximated $46.0 million as of August 11, 2016.
As discussed in Notes 5 and 7 to the Consolidated Financial Statements, one of our domestic franchisees defaulted on certain lease payments related to three restaurant properties we subleased to the franchisee for which we are the primary lessee. Accordingly, we had a
May 31, 2016 liability of $0.9 million representing our obligation for future rent and other lease-related charges through the end of these leases. On July 26, 2016, this franchisee closed all ten of its restaurants and ceased operations.
On July
19, 2016
, the Executive Compensation Committee of the Board of Directors approved the grant of approximately 284,000 service-based restricted stock units and 803,000 stock options under the terms of the SIP and the 1996 SIP. Both the restricted stock units and the stock options vest in three annual installments following the date of grant.
Report of Independent Registered Public Accounting Firm
The Board of Directors and S
tockholders
Ruby Tuesday, Inc.:
We have audited the accompanying consolidated balance sheets of Ruby Tuesday, Inc. and
subsidiaries (the Company) as of May 31, 2016 and June 2, 2015, and the related consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for each of the years in the three-year period ended May 31, 2016. In connection with our audits of the consolidated financial statements, we also have audited the accompanying financial statement schedule. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ruby Tuesday, Inc. and subsidiaries as of
May 31, 2016 and June 2, 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended May 31, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Ruby Tuesday, Inc.
’s internal control over financial reporting as of May 31, 2016, based on criteria established in
Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated August 15, 2016 expressed an unqualified opinion on the effectiveness of Ruby Tuesday Inc.’s internal control over financial reporting.
/s/ KPMG LLP
Knoxville, Tennessee
August 15, 2016
Report of Independent Re
gistered Public Accounting Firm
The Board of Directors and S
tockholders
Ruby Tuesday, Inc.:
We have audited Ruby Tuesday, Inc.
’s (the Company) internal control over financial reporting as of May 31, 2016, based on criteria established in
Internal Control – Integrated Framework
(2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, “Management’s Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company
’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
May 31, 2016, based on criteria established in
Internal Control – Integrated Framework (2013)
issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Ruby Tuesday, Inc. and subsidiaries as of
May 31, 2016 and June 2, 2015, and the related consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for each of the years in the three-year period ended May 31, 2016, and our report dated August 15, 2016 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Knoxville, Tennessee
August 15, 2016