Notes to Financial Statements
December 31, 2016 and 2015
(1)
Description of the Plan
The following
description of the Ruby Tuesday, Inc. Salary Deferral Plan (the "Plan") is provided for general information purposes only. Participants should refer to the Plan document for a more complete description of the Plan's provisions.
(a)
General
The Plan is a voluntary, defined contribution plan covering all employees of Ruby Tuesday,
Inc. (the "Company"), other than union employees, leased employees and highly compensated employees. Employees are eligible to participate in the Plan after six months of service and age twenty-one or older. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
The general administration of the Plan is the responsibility of the Plan Committee (the "
Committee") which consists of at least three persons appointed by the Company's Board of Directors.
(b)
Contributions
Participants may
contribute up to 50% of their annual pre-tax compensation as defined in the Plan subject to certain limits. Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans and up to 10% of their annual compensation as after-tax contributions. Participants age 50 and older may contribute catch-up contributions. Participants alternatively can designate all or a portion of their contributions (including catch-up contributions) as Roth 401(k) contributions. Participants direct the investment of their contributions into various investment options offered by the Plan. As of December 31, 2016, the Plan offered a selection of mutual funds and a stable return fund as investment options for participants. The Company will make matching contributions in an amount equal to a discretionary percentage to be determined by the Company. Matching contributions shall not be made with respect to a participant's deferrals that exceed the first four percent of the participant's annual compensation. Matching contributions may vary based on the percentage of a participant's deferral amount. No matching contributions are made on either catch-up contributions or after-tax contributions. Company contributions may be made in cash or in-kind, at the discretion of the Company. The maximum employee contribution to the Plan for the 2016 Plan year was $18,000.
(c)
Participant Accounts
Each participant'
s account is credited with the participant's contributions and allocations of the Company's contribution and a pro rata allocation of the earnings and losses of the investment options, and charged with an allocation of administrative expenses, whether or not pro rata, in accordance with ERISA. The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested account.
(d)
Vesting
Participants are immediately 100% vested in their
own contributions. Effective September 2015, Company contributions are immediately vested plus any earnings thereon. Prior to that time, any Company contributions were vested over a three year period.
RUBY TUESDAY, INC. SALARY DEFERRAL PLAN
Notes to Financial Statements
December 31, 2016 and 2015
(e)
Payment of Benefits
On termination of service, whether due to death, disability, retirement, or otherwise, the participant or the beneficiary of the participant shall
receive a lump-sum payment in cash. A participant invested in the Company stock fund may request a distribution in-kind from that fund. The participant may withdraw at any time all or a portion of rollover amounts and after-tax contributions and related earnings. The participant may request a withdrawal of all or a portion of deferral amounts and catch-up contributions if able to demonstrate hardship.
(f)
Participant Loans
Participants may borrow from their fund accounts a minimum of $500 up t
o a maximum equal to the lesser of $50,000, subject to reduction for certain prior outstanding loan balances, or 50% of their vested account balance at a reasonable rate of interest, currently prime plus one percent. The loans are secured by one-half of the balance in the participant's account. Loans outstanding at December 31, 2016 and 2015 had interest rates ranging from 4.25% to 9.50% with maturities through 2024.
(g)
Forfeited Accounts
At December 31, 2016 and 2015, forfeited nonvested accounts totaled $2,569 and $395 respectively. At December 31, 2016 and 2015, the Plan'
s net assets available for benefits included $61,357 and $65,994 of unclaimed checks that have been distributed to participants or former participants of the Plan. This balance of unclaimed checks is restricted and may not be used to pay certain administrative expenses or to reduce future employer contributions.
(2)
Summary of Significant Accounting Policies
(a)
Basis of Accounting
The accompanying financial statements of the Plan are presented under the accrual basis of accounting in accordance with accounting principles generally accepted in the United
States of America ("GAAP").
(b)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of net assets available for benefits and the reported changes in s
uch net assets available for benefits during the reported period. Accordingly, actual results may differ from those estimates.
(c)
Investment Valuation and Income Recognition
Investments are reported at fair value. Fair value is the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. See note 4 for discussion of fair value measurements.
Net appreciation (depreciation) in the fair value of
investments is reflected in the statement of changes in net assets available for benefits and includes realized gains and losses on investments bought and sold and unrealized gains and losses on investments held at year end. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Acquisitions costs are included in the cost of investments purchased, and sales are recorded net of selling expenses.
RUBY TUESDAY, INC. SALARY DEFERRAL PLAN
Notes to Financial Statements
December 31, 2016 and 2015
(d)
Participant loans
Participant loans are valued at amortized cost. Amortized cost represents unpaid loan principal plus accrued interest at year end.
(e)
Risks and Uncertainties
The Plan invests in various investment securities
. Investment securities are exposed to various risks, such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants' account balances and the amounts reported in the statements of net assets available for benefits.
(f)
Plan Expenses
Administrative expenses of the Plan are paid by the Company to the extent not paid with Plan assets.
(g)
Payment of Benefits
Benefits are recorded when paid.
(h)
Recent Accounting Pronouncements
In May 2015,
the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-07, Fair Value Measurement (Topic 820) - Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent) ("ASU 2015-07"). The amendments in this ASU remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. This guidance also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. The amendments in this ASU are effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Plan should apply the amendments retrospectively to all periods presented. Earlier application is permitted. Plan management implemented ASU 2015-07 during the year ended December 31, 2016.
In July 2015, the FASB issued AS
U No. 2015-12, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient (ASU 2015-12). ASU 2015-12 Part I designates contract value as the only required measure for fully benefit-responsive investment contracts. ASU 2015-12 Part II simplifies the investment disclosure requirements under existing GAAP, including eliminating the disclosure of (1) individual investments that represent five percent or more of net assets available for benefits and (2) the net appreciation or depreciation for investments by general type. ASU 2015-12 Part III does not apply to the Plan. The amendments in ASU 2015-12 applicable to the Plan are effective retrospectively for the year ended December 31, 2016 with early adoption permitted. Plan management implemented ASU 2015-12 during the year ended December 31, 2016.
(i)
Subsequent Events
The Plan has evaluated subsequent events and determined that no disclosure is necessary.
RUBY TUESDAY, INC. SALARY DEFERRAL PLAN
Notes to Financial Statements
December 31, 2016 and 2015
(3)
Fair Value Measurements
FASB Accounting Standards Codification (ASC) 820,
Fair Value Measurement,
establishes a framework for measuring fair value, which provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:
Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in
active markets that the Plan has the ability to access.
Level 2
Inputs to the valuation methodology include:
● Quoted prices for similar assets or liabilities in active markets;
●
Quoted prices for identical or similar assets or liabilities in inactive markets;
●
Inputs other than quoted prices that are observable for the asset or liability; and
●
Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the as
set or liability.
Level 3
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The asset'
s or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used fo
r assets measured at fair value. There have been no changes in the methodologies used at December 31, 2016 and 2015.
Company stock fund
: Ruby Tuesday, Inc. common stock is valued on a unitized basis using the closing price reported on the active market.
Mutual funds:
Stated at fair value based on quoted market prices on the last business day of the plan year.
Common/collective trust:
Stated at fair value based on the net asset value of the underlying assets owned by the fund. The trust consists of a stable return fund that is composed primarily of fully benefit-responsive investment contracts. Net asset values are reported by the fund and are supported by the unit prices of actual purchases and sales transactions occurring as of or close to the financial statement date. Net asset value is a readily determinable fair value and is the basis for current transactions. The statements of net assets available for benefits present the fair value of the investment contracts.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while
the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies
RUBY TUESDAY, INC. SALARY DEFERRAL PLAN
Notes to Financial Statements
December 31, 2016 and 2015
or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following table sets forth by level, within the fair value hierarchy, the Plan's
assets at fair value as of December 31, 2016 and 2015:
|
|
Fair Value Measurements at December 31, 2016
|
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
Investments:
|
|
|
|
|
|
Stable value fund
|
$
–
|
$
3,383,440
|
$
–
|
$
3,383,440
|
|
Ruby Tuesday, Inc. common stock
|
606,837
|
–
|
–
|
606,837
|
|
Mutual funds
|
27,519,111
|
–
|
–
|
27,519,111
|
|
Total investments
|
$
28,125,948
|
$
3,383,440
|
$
–
|
$
31,509,388
|
|
|
Fair Value Measurements at December 31, 2015
|
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
Investments:
|
|
|
|
|
|
Stable value fund
|
$
–
|
$
3,279,937
|
$
–
|
$
3,279,937
|
|
Ruby Tuesday, Inc. common stock
|
1,154,549
|
–
|
–
|
1,154,549
|
|
Mutual funds
|
27,841,814
|
–
|
–
|
27,841,814
|
|
Total investments
|
$
28,996,363
|
$
3,279,937
|
$
–
|
$
32,276,300
|
The Plan has $3,383,440 and $3,279,937 of investments in an alternative investment fund as of December 31, 2016 and 2015, respectively, which are reported at fair value. The Plan has concluded that the net asset value reported by the underlying fund appro
ximates the fair value of the investment. The investment has no unfunded commitments and is redeemable with a 12-month notification period at net asset value under the original terms of the partnership agreements and operations of the underlying fund. However, it is possible that these redemption rights may be restricted or eliminated by the fund in the future in accordance with the underlying fund agreement. Due to the nature of the investments held by the fund, changes in market conditions and the economic environment may significantly impact the net asset value of the fund and, consequently, the fair value of the Plan's interests in the fund. Furthermore, changes to the liquidity provisions of the fund may significantly impact the fair value of the Plan's interest in the fund.
Although a secondary market exists for the investment, it is not active and individual transactions are typically not observable. When transactions occur in this limited secondary market, they may occur at discounts to
the reported net asset value. Therefore, if the redemption rights in the fund were restricted or eliminated and the Plan were to sell the investment in the secondary market, it is reasonably possible that a buyer in the secondary market may require a discount to the reported net asset value, and the discount could be significant.
There were no transfers within the fair value hierarchy in 2016 or 2015.
(4)
Plan Termination
Although it has not expressed any intent to do so, the Plan may be terminated at any time by the Company's Board of Directors. Upon termination, all assets are to be distributed to Plan participants or their beneficiaries in due course.
RUBY TUESDAY, INC. SALARY DEFERRAL PLAN
Notes to Financial Statements
December 31, 2016 and 2015
(5)
Income Tax Status
The Internal Revenue Service has determined and informed the Company by letters dated February 18, 2016, February 26, 2013, and March 13, 2002, that the Plan and related trust are designed in accordance with applicable sections of th
e Internal Revenue Code.
GAAP requires plan management to evaluate tax positions taken by the Plan. The financial statement effects are recognized when the Plan has taken an uncertain position that more likely than not would be sustained upon examinatio
n by the Internal Revenue Service. The Committee has analyzed the tax positions taken by the Plan and has concluded that as of December 31, 2016, there are no uncertain tax positions taken or expected to be taken. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Committee believes the Plan is no longer subject to income tax examinations for years prior to 2012.
(6)
Transactions with Parties In Interest
The
Company stock fund invests in Company stock. At December 31, 2016 and 2015, this fund held 178,152 and 202,149 shares of Company stock, respectively, with market values of $593,316 or $3.33 per share and $1,122,512 or $5.55 per share, respectively. The Company stock fund also held $12,175 and $32,037 in the Wells Fargo Advantage Money Market Fund as of December 31, 2016 and 2015, respectively. On September 01, 2016, the Board of Directors of Ruby Tuesday, Inc. amended the Plan to freeze new investments into the Company stock fund and authorized liquidation of the Company stock fund on or about November 30, 2017.
Certain Plan investments are shares of mutual funds, a common/collective trust, and a money market fund managed by Wells Fargo Bank, N.A. Wells Fa
rgo Bank, N.A. is the trustee as defined by the Plan, and therefore, transactions involving these investments qualify as party-in-interest transactions. Fees paid by the Plan for investment management services amounted to $131,066 for the year ended December 31, 2016.
(7)
Reconciliation of Financial Statements to Form 5500
The following is a reconciliation of net assets available for benefits per the accompanying financial statements to Form 5500 as of December 31, 2016 and 201
5:
|
|
2016
|
|
2015
|
|
Net assets available for benefits per the accompanying financial statements
|
$
32,747,169
|
|
$
33,606,072
|
|
Adjustment from fair value to contract value for common
|
|
|
|
|
collective trusts
|
–
|
|
16,400
|
|
Net assets
available for benefits per Form 5500
|
$
32,747,169
|
|
$
33,622,472
|
|
|
|
|
|
The following is a reconciliation of investment income per the accompanying 2016 financial statements to Form 5500:
|
Total investment income
per the accompanying financial statements
|
$
|
2,369,892
|
|
Adjustment from fair value to contract value for common
|
|
|
|
collective trust
|
|
(16,400)
|
|
Total investment income per Form 5500
|
$
|
2,353,492
|
|
|
|
|