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.
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 June 5, 2012 and that all dividends were reinvested.
Item 7. Management's Discussion and Analysis
of Financial Condition 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 June 6, 2017, we owned and operated
543 Ruby Tuesday restaurants located in 35 states. Our franchisees operated 17 domestic and 45 international Ruby Tuesday restaurants in 11 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 was designed to streamline the organization through asset rationalization, improve financial profitability, and ultimately create long-term value for shareholders. The approved closures, which included mall, in line, and freestanding sites, encompassed restaurants spread throughout all of the geographic regions in which we operate. Of the restaurants closed, approximately two-thirds were operated on leased properties and approximately one-third were 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 included additional charges for impairment, estimated lease settlement costs, severance benefits, inventory write-offs, and other costs related to the 95 restaurant closures.
Our same-restaurant sales for Company-owned Ruby Tuesday restaurants decreased 3.1% in fiscal year 2017 compared to fiscal year 2016, and our diluted loss per share was ($1.7
6) in fiscal year 2017 compared to diluted loss per share of ($0.83) in fiscal year 2016. Throughout this MD&A, we discuss our fiscal year 2017, 2016 and 2015 financial results , 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 with 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:
Review of Strategic Alternatives
On March 13, 2017, we announced that our Board of Directors had authorized an exploration of
strategic alternatives in order to maximize shareholder value. We are considering all strategic alternatives including, but not limited to, a potential sale or merger of the Company, and have retained a financial advisor to assist in the process. The strategic alternatives process is ongoing and entering its final phase.
Fresh Start Initiatives
In August 2016, we announced the launch of our Fresh Start initiatives which are intended to streamline our organization, improve financial profitability and ultimately create long-term value for our shareholders. The Fresh Start initiatives were developed to drive more significant top line growth and profitability over time.
The key components of the Fresh Start initiatives include:
|
●
|
A new menu which is intended to provide culinary innovation and value to our guests while simplifying recipes and procedures for our kitchen. As consumer preference continues to migrate toward healthier food options, we will continue to make meaningful improvements in our core menu that will incorporate hand-crafted American favorites but will contain more lean proteins and fresh vegetables.
|
|
●
|
A new Garden Bar which we restaged and improved to offer over 50 items in order to provide more
desirable offering in a cost effective way. The Garden Bar is a key brand differentiator that we believe sets us apart from our competition and is the most important item on our menu. Approximately half our guests utilize the Garden Bar when they dine with us, either as an add-on or as a main course.
|
|
●
|
A Fresh New Experience which is focused on revitalizing our brand through improving our service and overall guest experience. As part of our work in this area, we completed 13 store remodels in two test markets. Additionally, we are working with our teams at the restaurant level with service initiatives to improve the pace of meals and attentiveness, particularly through menu simplification.
We have placed a hold on further remodels while measuring the combined results from our new menu, new Garden Bar, and Fresh New Experience.
|
|
●
|
The Asset Rationalization Plan
involved a comprehensive restaurant-level review and analysis of the sales, cash flows and other key performance metrics of our corporate-owned restaurant properties, as well as site location, market positioning and lease status. Based upon our findings, we concluded that it was in the Company's and our shareholders' best interest to close 95 underperforming restaurants during the first quarter of fiscal year 2017.
|
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 key components of our Fresh Start initiatives. In fiscal year 2017, as a result of our Asset Rationalization Plan, we experienced
fluctuations in cash balances. We generated cash through the sale of surplus properties while using cash to settle leases for closed restaurants. Additionally, from time to time, we consider other options for cash such as reducing outstanding debt levels and share repurchases within the limitations of our debt covenants. 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.
This “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 continually evaluate the information used to make these estimates as our business and the economic environment changes.
Our fiscal year ends on the first Tuesday following May 30.
Once every five or six years, we have 53 week year. Fiscal 2017 was a 53 week year. All other years discussed throughout this MD&A section contained 52 weeks. In fiscal year 2017, the 53rd week added $15.7 million to restaurant sales and operating revenue and $0.02 to diluted earnings per share in our Consolidated Statement of Operations and Comprehensive Loss. We remind you that, in order to best obtain an understanding of the significant factors that influenced our performance during the last three fiscal years, this MD&A section should be read in conjunction with the Consolidated Financial Statements and related Notes.
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 2015 through fiscal year 2017:
|
|
|
International
|
|
Fiscal Year
|
Company-Owned
|
Domestic
Franchise
|
Franchise
|
Total
|
2017
|
543
|
17
|
45
|
605
|
2016
|
646
|
27
|
51
|
724
|
2015
|
658
|
29
|
49
|
736
|
Lime Fresh Restaurants
The table below presents the number of other concept restaurants at each fiscal year end from fiscal year 2015 through fiscal year 2017:
Fiscal Year
|
Company-Owned
|
Franchise
|
Total
|
2017
|
–
|
–
|
–
|
2016
|
2
|
–
|
2
|
2015
|
19
|
7
|
26
|
During fiscal year 2017:
|
●
|
Same-restaurant sales* at Company-owned Ruby Tuesday restaurants decreased 3.1%, while same-restaurant sales at domestic franchise Ruby Tuesday restaurants decreased 0.6%;
|
|
●
|
Eight Company-owned Ruby Tuesday restaurants were closed as expected at, or near, lease expiration;
|
|
●
|
Two franchised Ruby Tuesday restaurants were opened and 18 were closed;
|
|
●
|
Two Company-owned Lime Fresh restaurants were closed;
|
|
●
|
95 Company-owned Ruby Tuesday restaurants were closed in connection with our Fresh Start initiative
s, which resulted in additional closed restaurant lease reserves, inventory write-offs, severance benefits, and other closing expenses of $31.5 million;
|
|
●
|
Paid $11.1 million of principal payments on long-term debt, including $9.6 million related to two mortgage loan obligations that had balloon payments due during the third quarter of fiscal 2017;
|
|
●
|
On April 4, 2017, James F. Hyatt, II was appointed President and Chief Executive Officer of the Company, replacing F. Lane Cardwell, Jr.
Mr. Hyatt also serves on the Board of Directors; and
|
|
●
|
On September 13, 2016, James J. Buettgen resigned as Chairman of the Board of Directors, President, and Chief Executive Officer of the Company.
On that same date, F. Lane Cardwell, Jr., a member of the Company's Board of Directors since October 2012 and an executive with approximately 38 years of leadership experience in the restaurant industry, was appointed Interim President and Chief Executive Officer. Sue Briley, who had been serving as Interim Chief Financial Officer since June 2016, was appointed Chief Financial Officer on September 13, 2016.
|
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 closing of 95 Company-owned restaurants during first quarter of fiscal year
2017, 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 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 fiscal year 2016, while the remaining two were closed and transferred to the buyer during fiscal year 2017. 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; and
|
|
●
|
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.
|
* 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 2017 decreased 12.6% from fiscal year 2016 for Company-owned restaurants and decreased 42.4% 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)
|
|
2017
|
|
$
|
947.4
|
|
|
$
|
135.6
|
|
|
$
|
1.0
|
|
|
$
|
–
|
|
2016
|
|
|
1,070.7
|
|
|
|
162.4
|
|
|
|
14.4
|
|
|
|
15.3
|
|
2015
|
|
|
1,100.7
|
|
|
|
171.7
|
|
|
|
19.4
|
|
|
|
15.3
|
|
|
(a)
|
Includes sales of all domestic and international franchised Ruby Tuesday and Lime Fresh restaurants.
|
Other Revenue Information:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Company restaurant sales (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruby Tuesday concept
|
|
$
|
947,403
|
|
|
$
|
1,070,679
|
|
|
$
|
1,100,702
|
|
Lime Fresh concept
|
|
|
1,000
|
|
|
|
14,355
|
|
|
|
19,440
|
|
Total restaurant sales
|
|
$
|
948,403
|
|
|
$
|
1,085,034
|
|
|
$
|
1,120,142
|
|
Company restaurant sales growth-percentage
|
|
|
(12.6
|
)%
|
|
|
(3.1
|
)%
|
|
|
(3.6
|
)%
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Franchise revenue (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruby Tuesday concept
|
|
$
|
3,568
|
|
|
$
|
5,286
|
|
|
$
|
5,602
|
|
Lime Fresh concept
|
|
|
–
|
|
|
|
908
|
|
|
|
822
|
|
Total franchise revenue (a)
|
|
$
|
3,568
|
|
|
$
|
6,194
|
|
|
$
|
6,424
|
|
Franchise revenue growth-percentage
|
|
|
(42.4
|
)%
|
|
|
(3.6
|
)%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruby Tuesday concept
|
|
$
|
950,971
|
|
|
$
|
1,075,965
|
|
|
$
|
1,106,304
|
|
Lime Fresh concept
|
|
|
1,000
|
|
|
|
15,263
|
|
|
|
20,262
|
|
Total revenue
|
|
$
|
951,971
|
|
|
$
|
1,091,228
|
|
|
$
|
1,126,566
|
|
Total revenue growth-percentage
|
|
|
(12.8
|
)%
|
|
|
(3.1
|
)%
|
|
|
(3.6
|
)%
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Ruby Tuesday concept same-restaurant sales growth percentage
|
|
|
(3.1
|
)%
|
|
|
(1.4
|
)%
|
|
|
(0.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company average unit volumes (in millions)
|
|
$
|
1.66
|
|
|
$
|
1.64
|
|
|
$
|
1.66
|
|
Company average unit volumes growth percentage
|
|
|
1.2
|
%
|
|
|
(1.3
|
)%
|
|
|
(0.1
|
)%
|
|
(a)
|
Franchise revenue includes royalty, license, and development fees, but is exclusive of support service fees of
$0.9 million and $1.3 million, in fiscal years 2016 and 2015, respectively, which are recorded as an offset to general and administrative expenses. We discontinued franchise support service programs during fiscal year 2016. Therefore, there were no support service fees during fiscal year 2017.
|
Restaurant sales and operating revenue for the fiscal year ended June 6,
2017 decreased 12.6% to $948.4 million compared to the prior fiscal year. This decrease is primarily a result of restaurant closings since the prior fiscal year, 95 of which were closed during first quarter of fiscal year 2017 in connection with our Asset Rationalization Plan as discussed previously in this MD&A, coupled with a 3.1% decrease in same-restaurant sales at Company-owned Ruby Tuesday restaurants. The decrease in Ruby Tuesday concept same-restaurant sales is primarily attributable to a decline in customer traffic offset by a slight increase in net check. The 95 restaurants that closed during the first quarter of fiscal year 2017 generated $22.8 million in revenue for the current fiscal year and $116.5 million in revenues during fiscal year 2016. In fiscal year 2017 the 53
rd
week added $15.7 million in sales and operating revenue in our Consolidated Statement of Operations.
Two Lime Fresh restaurants with $1.0 million of sales were closed and transferred to the buyer
during fiscal year 2017. As previously discussed within this MD&A, during the last 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 May 31, 2016 decreased 2.7% to $1,070.7 million compared to fiscal year 2015. This decrease is primarily a result of restaurant closings since fiscal year 2015 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 since fiscal year 2015.
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 fiscal year
2016 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.
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 are generally 4.0% of monthly sales.
Franchise revenue decreased 42.4% to $3.6 million in fiscal year 2017 and decreased 3.6% to $6.2 million in fiscal year 2016. Franchise revenue is predominantly comprised of domestic and international royalties. The decrease in franchise revenue for fiscal year 2017 was primarily due to franchise restaurant closures.
Total franchise restaurant sales are shown in the table below.
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Franchise restaurant sales (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruby Tuesday concept
|
|
$
|
135,579
|
|
|
$
|
162,401
|
|
|
$
|
171,668
|
|
Lime Fresh concept
|
|
|
–
|
|
|
|
15,310
|
|
|
|
15,338
|
|
Total franchise restaurant sales (a)
|
|
$
|
135,579
|
|
|
$
|
177,711
|
|
|
$
|
187,006
|
|
Franchise restaurant sales growth-percentage
|
|
|
(23.7
|
)%
|
|
|
(5.0
|
)%
|
|
|
5.8
|
%
|
(a)
|
Includes sales of all domestic and international franchised Ruby Tuesday and Lime Fresh restaurants.
|
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.
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Restaurant sales and operating revenue
|
|
|
99.6
|
%
|
|
|
99.4
|
%
|
|
|
99.4
|
%
|
Franchise revenue
|
|
|
0.4
|
|
|
|
0.6
|
|
|
|
0.6
|
|
Total revenue
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (1)
|
|
|
28.3
|
|
|
|
27.5
|
|
|
|
27.3
|
|
Payroll and related costs (1)
|
|
|
35.7
|
|
|
|
34.5
|
|
|
|
34.2
|
|
Other restaurant operating costs (1)
|
|
|
21.0
|
|
|
|
21.2
|
|
|
|
21.6
|
|
Depreciation and amortization (1)
|
|
|
4.4
|
|
|
|
4.7
|
|
|
|
4.7
|
|
General and administrative expenses
|
|
|
7.0
|
|
|
|
5.3
|
|
|
|
5.9
|
|
Marketing expenses, net
|
|
|
5.7
|
|
|
|
4.7
|
|
|
|
4.4
|
|
Closures and impairments, net
|
|
|
7.3
|
|
|
|
5.9
|
|
|
|
0.9
|
|
Gain on sales of Lime Fresh Mexican Grill assets
|
|
|
–
|
|
|
|
(0.5
|
)
|
|
|
–
|
|
Interest expense, net
|
|
|
2.2
|
|
|
|
2.0
|
|
|
|
2.0
|
|
Total operating costs and expenses
|
|
|
111.3
|
|
|
|
104.8
|
|
|
|
100.5
|
|
Loss before income taxes
|
|
|
(11.3
|
)
|
|
|
(4.8
|
)
|
|
|
(0.5
|
)
|
Benefit for income taxes
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
Net loss
|
|
|
(11.1
|
)%
|
|
|
(4.6
|
)%
|
|
|
(0.3
|
)%
|
(1)
As a percentage of restaurant sales and operating revenue.
Pre-tax Loss
Pre-tax loss increased $
55.0 million from fiscal year 2016 to $107.9 million for the fiscal year ended June 6, 2017. The increase in pre-tax loss is due primarily to higher closures and impairments expense ($5.1 million), a decrease in same-restaurant sales of 3.1% at Company-owned Ruby Tuesday restaurants, and an increase, as a percentage of restaurant sales and operating revenue or total revenue, as appropriate, of costs of goods sold, payroll and related costs, general and administrative expenses, and marketing expenses, net. These were partially offset by a decrease in interest expense, net ($0.9 million) and decreases, as a percentage of restaurant sales and operating revenue or total revenue, as appropriate, of other restaurant operating costs and depreciation and amortization.
Pre-tax loss 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.
In the paragraphs that follow, we discuss in more detail the components of the changes in pre-tax loss for fiscal years ended June 6, 2017 and May 31, 2016
as compared to the comparable prior fiscal 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 fiscal year.
Cost of Goods Sold
Cost of goods sold decreased $29.9 million (10.0%) from the prior fiscal year to $268.6 million for the fiscal year ended June 6, 2017. As a percentage of restaurant sales and operating revenue, cost of goods sold increased from 27.5% to 28.3%. Excluding the $26.9 million decrease from the elimination of the 95 restaurants closed during the first quarter of fiscal year 2017, cost of goods sold decreased $3.0 million.
The absolute dollar decrease in cost of goods sold for the fiscal year ended June 6, 2017 not attributable to the closing of 95 restaurants was primarily the result of other restaurant closures, a decline in same-restaurant sales, and commodities deflation since the prior fiscal year.
As a percentage of restaurant sales and operating revenue, the increase
in cost of goods sold for the fiscal year ended June 6, 2017 is primarily the result of a shift in menu mix driven by changes to our core menu and promotional activity.
Cost of goods sold decreased $6.8 million (2.2%) from fiscal year 2015 to $298.5 million for the fiscal 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 fiscal 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 fiscal year 2015 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 fiscal year ended May 31, 2016 is primarily the result of price increases on certain commodity items and a shift in menu mix since fiscal year 2015 as discussed above.
Payroll and Related Costs
Payroll and related costs decreased $35.6 million (9.5%) from the prior fiscal year to $338.9 million for the fiscal year ended June 6, 2017. As a percentage of restaurant sales and operating revenue, payroll and related costs increased from 34.5% to 35.7%. Excluding the $38.4 million decrease from the elimination of the 95 restaurants closed during the first quarter of fiscal year 2017, payroll and related costs increased $2.8 million.
The absolute dollar increase in payroll and related costs for the fiscal year ended June 6, 2017 not attributable to the closing of 95 restaurants was primarily due to wage inflation, which was partially offset by lower health insurance due to favorable claims experience.
As a percentage of restaurant sales and operating revenue, the increase in payroll and related costs for the fiscal year ended June 6, 2017 is primarily the result wage inflation and
loss of leveraging associated with lower sales volumes.
Payroll and related costs decreased $8.7 million (2.3%) from fiscal year 2015 to $374.6 million for the fiscal 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 fiscal 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 fiscal year 2015. 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 fiscal year ended May 31, 2016 is primarily the result of wage inflation and
loss of leveraging associated with lower sales volumes.
Other Restaurant Operating Costs
Other restaurant operating costs decreased $30.8 million (13.4%) from the prior fiscal year to $198.7 million for the fiscal year ended June 6, 2017. As a percentage of restaurant sales and operating revenue, other restaurant operating costs decreased from 21.2% to 21.0%. Excluding the $26.0 million decrease from the elimination of the 95 restaurants closed during the first quarter of fiscal year 2017, other restaurant operating costs decreased $4.8 million.
For the
fiscal year ended June 6, 2017, the decrease in other restaurant operating costs not attributable to the 95 restaurant closings related to the following (in thousands):
Rent and leasing
|
|
$
|
4,748
|
|
Repairs
|
|
|
866
|
|
Utilities
|
|
|
391
|
|
Other decreases, net
|
|
|
331
|
|
Supplies
|
|
|
(1,543
|
)
|
Net decrease
|
|
$
|
4,793
|
|
In both absolute dollars and as a percentage of restaurant sales and operating revenue for the fiscal year ended June 6, 2017, the decrease was a result of lower rent and leasing, building repairs, and utilities
due primarily to restaurant closures other than the 95 that closed as part of our Asset Rationalization Plan since the prior fiscal year. These were partially offset by higher supplies expense related to our new Garden Bar rollout. 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 $12.6 million (5.2%) from the prior fiscal year to $229.5 million for the fiscal 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 fiscal
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
|
|
Loss on sale of p
roperty and equipment
|
|
|
(852
|
)
|
Net decrease
|
|
$
|
12,591
|
|
In both absolute dollars and as a percentage of restaurant sales and operating revenue for the fiscal 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 fiscal year 2016. 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.
Depreciation and Amortization
Depreciation and amortization expense decreased $9.6 million (18.7%) to $41.8 million for the fiscal year ended June 6, 2017, compared to the prior fiscal year. As a percentage of restaurant sales and operating revenue, depreciation expense decreased from 4.7% to 4.4%. Excluding the $4.7 million dollar decrease attributable to the 95 restaurants closed during the first quarter of fiscal year 2017, depreciation and amortization decreased $4.9 million.
The absolute dollar decrease in depreciation and amortization for the fiscal year ended June 6, 2017 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 $1.0 million (2.0%) to $51.4 million for the fiscal year ended May 31, 2016, compared to fiscal year 2015. 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 fiscal 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.
General
and Administrative Expenses
General and administrative expenses increased $8.8 million (15.2%) from the prior fiscal year to $67.0 million for the fiscal year ended June 6, 2017.
The increase for the fiscal year ended June 6, 2017 is primarily due to higher executive severance and share-based compensation expense as a result of the accelerated vesting of share-based awards in connection with departure of our former Chief Executive officer and Ruby Tuesday Concept President, coupled with a forfeiture credit in the prior fiscal year, and a higher accrual for executive bonus.
Additionally, costs associated with strategic alternatives ($3.3 million) and higher legal fees contributed to the increase in general and administrative expense as compared to the prior fiscal year. These were partially offset by lower management labor and employee pension-related costs.
General
and administrative expenses decreased $7.7 million (11.7%) from fiscal year 2015 to $58.2 million for the fiscal year ended May 31, 2016.
The decrease for the fiscal year ended May 31, 2016 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 former 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.
Marketing Expenses, Net
Marketing expenses, net increased $2.7 million (5.3%) from the prior fiscal year to $54.1 million for the fiscal year ended June 6, 2017.
The increase in marketing expenses, net for
the fiscal year ended June 6, 2017 is primarily a result of higher television advertising due to advertising associated with our new Garden Bar, higher direct mail and other promotional advertising costs, which were partially offset by decreases in newspaper, magazine, and internet advertising costs since the prior fiscal year.
Marketing expenses, net increased $2.0 million (4.1%) from fiscal year 2015 to $51.4 million for the fiscal year ended May 31, 2016.
The increase for fiscal year ended May 31, 2016 is primarily a result of higher internet, magazine, direct mail, and other promotional advertising costs
offset by decreases in television advertising.
Closures and Impairments, Net
Closures and impairments, net increased $5.1 million to $69.8 million for the fiscal year ended June
6, 2017, as compared to the prior fiscal year. The $5.1 million increase is primarily due to higher closed restaurant lease reserve expense ($13.9 million), and other closing costs ($9.0 million), which were partially offset by lower property impairment changes ($12.2 million) and higher gains on the sale of surplus properties ($3.6 million).
As discussed in Note 7 to the Consolidated Financial Statements, during fiscal year 2017, we closed
103 Company-owned Ruby Tuesday restaurants, 95 of which were closed in connection with an Asset Rationalization Plan announced on August 11, 2016. The plan was formulated in response to a comprehensive review of our property portfolio which included the planned closure of restaurants with perceived limited upside due to market concentration, challenged trade areas, or other factors. Included within Closures and impairments, net for the fiscal year ended June 6, 2017 are closed restaurant lease reserves, inventory write-off, severance benefits, and other closing expense of $31.5 million related to these closures in connection with the Asset Rationalization Plan.
Closures and impairments, net increased $52.1 million to $6
4.7 million for the fiscal year ended May 31, 2016, as compared to fiscal year 2015. 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 fiscal 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 Note 7 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.
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.
See Note 7 to the Consolidated Financial Statements for further information on our closures and impairment charges recorded during fiscal years 2017, 2016, and 2015.
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 closed and transferred to the buyer later in fiscal year 2017. The remaining $1.0 million of consideration was received when the remaining restaurant was 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 were 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 $0.9 million to $20.9 million for the fiscal year ended June 6, 2017, as compared to the prior fiscal year, primarily due to lower interest resulting from the maturities of certain mortgage loans since the prior fiscal year.
Interest expense, net decreased $1.0 million to $21.8 million for the fiscal year ended May 31, 2016, primarily due to lower interest expense resulting from early payoff of certain mortgage loans and repurchases of our Senior Notes since
fiscal year 2015. 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 fiscal year 2015.
Benefit for Income Taxes
We recorded a tax benefit of $1.7 million for the fiscal year ended June 6, 2017, compared to a tax benefit of $2.2 million for the fiscal year ended May 31, 2016. Included in our $2.2 million tax benefit for the fiscal year ended May 31, 2016 was a current benefit of $0.4 million for a net operating loss carryback and $1.5 million deferred benefit to reduce our net deferred tax liability to zero. Our $1.7 million tax benefit for fiscal year ended June 6, 2017 is primarily a result of the remaining net operating loss carryback to fiscal 2015.
We recorded a tax benefit of $2.2 million for the fiscal year ended May 31, 2016, compared to a tax benefit 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 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 $
135.9 million and $89.9 million as of June 6, 2017 and May 31, 2016, respectively. Included within our income tax benefit is the expense from the additional valuation allowance of $49.2 million, $28.2 million, and $9.1 million for fiscal years 2017, 2016, and 2015, respectively, representing the amount reserved for the increase in net deferred tax assets during the periods (primarily related to general business credit carryforwards and federal and state net operating loss carryforwards).
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 $50.9 million, $30.4 million, and $11.0 million, including the tax credits, in fiscal years 2017, 2016, and 2015, respectively.
Liquidity and Capital Resources
Sources and Uses of Cash
The following table presents a summary of our cash flows from operating, investing, and financing activities for the last three fiscal years (in thousands).
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net cash (used
in)/provided by operating activities
|
|
$
|
(18,934
|
)
|
|
$
|
39,780
|
|
|
$
|
55,054
|
|
Net cash provided by/(used
in) by investing activities
|
|
|
6,687
|
|
|
|
(19,755
|
)
|
|
|
(17,497
|
)
|
Net cash used
in financing activities
|
|
|
(13,003
|
)
|
|
|
(28,352
|
)
|
|
|
(13,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents
|
|
$
|
(25,250
|
)
|
|
$
|
(8,327
|
)
|
|
$
|
24,148
|
|
Operating Activities
Our cash
(used in) or provided by operations is generally derived from cash receipts generated by our restaurant customers and franchisees. Substantially all of the $948.4 million, $1,085.0 million, and $1,120.1 million of restaurant sales and operating revenue disclosed in our Consolidated Statements of Operations and Comprehensive Loss for fiscal years 2017, 2016, and 2015, respectively, were 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 used
in
operating activities for fiscal year 2017 was $
18.9 million as compared to cash provided of $39.8 million for fiscal 2016. The decrease is primarily the result of lower Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) for reasons discussed in MD&A and decreases in accounts payable, accrued, and other liabilities due to the timing of payments, partially offset by lower cash paid for taxes ($4.2 million), decreases in amounts spent to acquire inventory (approximately $3.1 million), and lower cash paid for interest ($2.5 million) due to the prepayment of certain of our mortgage obligations and other principal payments on our debt since the prior fiscal year.
Cash provided by operating activities for fiscal year 2016 decreased $15.3
million (27.7%) from fiscal year 2015 to $39.8 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).
Our working capital and current ratio as of June 6, 2017 was negligible and 1.0:1, respectively.
Investing Activities
We require capital principally for the maintenance, upkeep, and remodeling of our existing restaurants, limited new restaurant construction, investments in technology, equipment, and on occasion for the acquisition of franchisees or other restaurant concepts. Property and equipment expenditures purchased primarily with cash on hand, and/or
internally-generated cash flows for fiscal years 2017, 2016, and 2015 were $33.5 million, $34.4 million, and $31.0 million, respectively. In addition, proceeds from the disposal of assets produced $34.8 million, $11.7 million, and $11.3 million of cash in fiscal years 2017, 2016, and 2015, respectively, following actions taken to more aggressively market surplus properties in order to pay down debt and, for fiscal years 2017 and 2016 to substantially exit the Lime Fresh Mexican Grill brand.
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
under the Senior Credit Facility.
Financing Activities
Historically our primary sources of cash have been operating activities, coupled with sales of surplus properties and
sale-leaseback transactions. 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 364-day
senior secured revolving credit agreement (the “Senior Credit Facility”) under which we may borrow up to $20.0 million, and $4.6 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. We did not repurchase any Senior Notes during the fiscal year ended June 6, 2017.
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. We did not repurchase any Senior Notes during the fiscal year ended June 2, 2015.
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 2017 and 2015, we repurchased a minimal number of shares of RTI common stock at an aggregate cost of a negligible amount and $0.1 million, respectively. During fiscal year
2016, we repurchased 1.9 million shares of RTI common stock at an aggregate cost of $10.1 million. As of June 6, 2017, the total number of shares authorized to be repurchased was 9.9 million. Additionally, there were no dividends paid during fiscal years 2017, 2016, or 2015.
Significant Contractual Obligations and Commercial Commitments
Long-term financial obligations were as follows as of June 6, 2017 (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)
|
|
$
|
4,868
|
|
|
$
|
1,535
|
|
|
$
|
2,528
|
|
|
$
|
587
|
|
|
$
|
218
|
|
Senior unsecured notes (a)
|
|
|
212,546
|
|
|
|
–
|
|
|
|
212,546
|
|
|
|
–
|
|
|
|
–
|
|
Interest (b)
|
|
|
50,912
|
|
|
|
16,600
|
|
|
|
32,825
|
|
|
|
133
|
|
|
|
1,354
|
|
Operating leases (c)
|
|
|
506,415
|
|
|
|
41,397
|
|
|
|
73,606
|
|
|
|
64,104
|
|
|
|
327,308
|
|
Purchase obligations (d)
|
|
|
42,762
|
|
|
|
27,431
|
|
|
|
11,586
|
|
|
|
3,745
|
|
|
|
–
|
|
Pension obligations (e)
|
|
|
34,026
|
|
|
|
3,839
|
|
|
|
4,698
|
|
|
|
13,548
|
|
|
|
11,941
|
|
Total (f)
|
|
$
|
851,529
|
|
|
$
|
90,802
|
|
|
$
|
337,789
|
|
|
$
|
82,117
|
|
|
$
|
340,821
|
|
|
(a)
|
See Note 6 to the Consolidated Financial Statements for more information on our debt.
|
|
(b)
|
Amounts represent contractual interest payments on our 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 $2.6 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 $3.9 million of unrecognized tax benefits due to the uncertainty regarding the timing of future cash outflows associated with such obligations.
|
Commercial commitments were as follows as of June 6, 2017 (in thousands):
|
|
Payments Due By Period
|
|
|
|
|
|
|
|
Less than
|
|
|
1-3
|
|
|
3-5
|
|
|
More than 5
|
|
|
|
Total
|
|
|
1 year
|
|
|
years
|
|
|
years
|
|
|
years
|
|
Letters of credit
|
|
$
|
14,795
|
|
|
$
|
14,795
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Divestiture guarantees
|
|
|
6,279
|
|
|
|
528
|
|
|
|
1,070
|
|
|
|
1,072
|
|
|
|
3,609
|
|
Lease guarantee
|
|
|
16,386
|
|
|
|
1,274
|
|
|
|
2,485
|
|
|
|
1,911
|
|
|
|
10,716
|
|
Total
|
|
$
|
37,460
|
|
|
$
|
16,597
|
|
|
$
|
3,555
|
|
|
$
|
2,983
|
|
|
$
|
14,325
|
|
At June 6, 2017, 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 June 6, 2017 to be $6.3 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 June 6, 2017, 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 $0.4 million and $0.5 million in our Consolidated Balance Sheets at June 6, 2017 and May 31, 2016, 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.
Critical 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
undiscounted future cash flows is less than the carrying value of the restaurant, an impairment loss is measured based on the difference between the estimated fair value of the restaurant and its carrying value. We estimate the fair value of our restaurants based on the highest and best use from the perspective of a market participant. Estimating the fair value of a restaurant requires judgment and includes consideration of discounted future cash flows, third party appraised value, broker opinions of value, and estimates of salvage value.
Based on our experience, restaurants with marginal, sharply declining or negative trailing twelve month cash flows are key indicators of potential impairment. If a restaurant that has been open for at least six full quarters, that has not previously been impaired to salvage value, demonstrates any of the previously mentioned scenarios under which a potential impairment may exist, we evaluate the plan to reverse declining performance. Both qualitative and quantitative information are considered when evaluating for potential impairments. Reacquired franchise rights and favorable leases (amortizable intangible assets), are included in the net book values of our restaurants that are evaluated for potential triggering events, and evaluated for impairment as facts and circumstances dictate.
We recorded impairments to property and equipment of $46.0 million, $58.2 million, and
$9.8 million for fiscal years 2017, 2016, and 2015, respectively. Considerable management judgment is necessary to estimate future cash flows and the fair value of our properties. Accordingly, actual results could vary significantly from quarter to quarter and from our estimates and further impairment charges may occur.
As of June 6, 2017, the Company has 3 restaurants with net book value of $3.0 million, excluding land, that have generated negative trailing twelve month cash flows where no impairment has been recorded due to the fact that the Company expects recovery of
the net book value based on estimates of future cash flow from restaurant operations.
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 $
135.9 million and $89.9 million as of June 6, 2017 and May 31, 2016, respectively. Included within our income tax benefit is the expense from the additional valuation allowance of $49.2 million, $28.2 million, and $9.1 million for fiscal years 2017, 2016, and 2015, respectively. 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 Obligations
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. 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 June 6, 2017 and May 31, 2016 were $16.2
million and $6.3 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
Review of Strategic Alternatives
On March 13, 2017, we announced that our Board of Directors had authorized an exploration of
strategic alternatives in order to maximize shareholder value. We are considering all strategic alternatives including, but not limited to, a potential sale or merger of the Company, and have retained a financial advisor to assist in the process. The strategic alternatives process is ongoing and entering its final phase.
There can be no assurances that the strategic alternatives process will result in the announcement or consummation of any strategic transaction, or that any resulting plans or transactions will yield additional value for shareholders.
Any potential transaction would be dependent on a number of factors that may be beyond our control, including, among other things, market conditions, industry trends, the interest of third parties in a potential transaction with the Company and the availability of financing to potential buyers on reasonable terms.
The process of exploring strategic alternatives could adversely impact our business, financial condition and results of operations.
We have incurred costs related to the strategic alternatives process of $3.3 million during fiscal year 2017 and have spent an additional $0.4 million during the first two months of fiscal year 2018. We could continue to incur substantial expenses associated with identifying and evaluating potential strategic alternatives, including those related to employee retention payments, equity compensation, severance pay and legal, accounting and financial advisory fees. In addition, the process may be time consuming and disruptive to our business operations, could divert the attention of management and the Board of Directors from our business, could negatively impact the Company’s ability to attract, retain and motivate key employees, and could expose us to potential litigation in connection with this process or any resulting transaction. The public announcement of a strategic alternative may also yield a negative impact on operating results if prospective or existing service providers are reluctant to commit to new or renewal contracts or if existing customers decide to shift their business to a competitor.
Further, we do not intend to disclose detailed developments or provide regular updates on the progress or status of the strategic alternatives process until our Board of Directors deems further disclosure is appropriate or required.
Accordingly, speculation regarding any developments related to the review of strategic alternatives and perceived uncertainties related to the future of our Company could cause our stock price to fluctuate significantly.
Impact on Cash from Sale of Surplus Properties and Lease Settlements
As further discussed in note 5 to the Consolidated Financial Statements, as of June 6, 2017, we had surplus properties classified as assets held for sale of $12.8
million and surplus properties of $17.1 million not classified as held for sale as we had yet to conclude for accounting purposes that we can sell these assets within 12 months of the balance sheet date. Additionally, as discussed in Note 7 to the Consolidated Financial Statements, as of June 6, 2017, we had a liability for future lease obligations of $16.2 million. While we settled three of these leases for $0.2 million since June 6, 2017, the amounts of future settlements could be higher or lower than the amounts recorded, and 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 properties. During fiscal year 2018, we expect to generate cash through the sale of surplus properties while using cash to settle closed restaurant lease obligations.
Financial Strategy and Stock Repurchase Plan
Cash and cash equivalents as of June 6, 2017 were $41.7 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 June 6, 2017, our share repurchases were minimal.
As of June 6, 2017, 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 June 6, 2017, we had no
repurchases. As of the date of this filing, we may repurchase $20.0 million of the Senior Notes during the remainder of fiscal year 2018. 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 June 6, 2017. 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 2018 will contain 52 weeks and end on June 5, 2018.
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 results of operations.
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 June 6, 2017, May 31, 2016, and June 2, 2015
|
43
|
|
|
Consolidated Balance Sheets as of June 6, 2017 and May 31, 2016
|
44
|
|
|
Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended
June 6, 2017, May 31, 2016, and June 2, 2015
|
45
|
|
|
Consolidated Statements of Cash Flows for the Fiscal Years Ended
June 6, 2017, May 31, 2016, and June 2, 2015
|
46
|
|
|
Notes to Consolidated Financial Statements
|
47-8
6
|
|
|
Reports of Independent Registered Public Accounting Firm
|
8
7-88
|
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
|
|
|
|
June 6,
2017
|
|
|
May 31,
2016
|
|
|
June 2,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant sales and operating revenue
|
|
$
|
948,403
|
|
|
$
|
1,085,034
|
|
|
$
|
1,120,142
|
|
Franchise revenue
|
|
|
3,568
|
|
|
|
6,194
|
|
|
|
6,424
|
|
Total revenue
|
|
|
951,971
|
|
|
|
1,091,228
|
|
|
|
1,126,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (excluding depreciation and
amortization shown below)
|
|
|
268,622
|
|
|
|
298,529
|
|
|
|
305,306
|
|
Payroll and related costs
|
|
|
338,918
|
|
|
|
374,561
|
|
|
|
383,261
|
|
Other restaurant operating costs
|
|
|
198,696
|
|
|
|
229,518
|
|
|
|
242,109
|
|
Depreciation and amortization
|
|
|
41,779
|
|
|
|
51,358
|
|
|
|
52,391
|
|
General
and administrative
|
|
|
67,009
|
|
|
|
58,191
|
|
|
|
65,907
|
|
Marketing expenses, net
|
|
|
54,140
|
|
|
|
51,436
|
|
|
|
49,420
|
|
Closures and impairments, net
|
|
|
69,808
|
|
|
|
64,680
|
|
|
|
10,542
|
|
Gain on sales of Lime Fresh Mexican Grill assets
|
|
|
–
|
|
|
|
(5,937
|
)
|
|
|
–
|
|
Interest expense, net
|
|
|
20,855
|
|
|
|
21,754
|
|
|
|
22,735
|
|
Total operating costs and expenses
|
|
|
1,059,827
|
|
|
|
1,144,090
|
|
|
|
1,131,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(107,856
|
)
|
|
|
(52,862
|
)
|
|
|
(5,105
|
)
|
Benefit for income taxes
|
|
|
(1,716
|
)
|
|
|
(2,180
|
)
|
|
|
(1,911
|
)
|
Net Loss
|
|
|
(106,140
|
)
|
|
|
(50,682
|
)
|
|
|
(3,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income/(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension liability reclassification
|
|
|
2,127
|
|
|
|
831
|
|
|
|
(40
|
)
|
Total comprehensive loss
|
|
$
|
(104,013
|
)
|
|
$
|
(49,851
|
)
|
|
$
|
(3,234
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.76
|
)
|
|
$
|
(0.83
|
)
|
|
$
|
(0.05
|
)
|
Diluted
|
|
$
|
(1.76
|
)
|
|
$
|
(0.83
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
60,139
|
|
|
|
60,871
|
|
|
|
60,580
|
|
Diluted
|
|
|
60,139
|
|
|
|
60,871
|
|
|
|
60,580
|
|
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)
|
|
June 6,
2017
|
|
|
May 31,
2016
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
41,714
|
|
|
$
|
66,964
|
|
Restricted cash
|
|
|
6,445
|
|
|
|
377
|
|
Accounts and other receivables
|
|
|
7,315
|
|
|
|
12,827
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Merchandise
|
|
|
10,701
|
|
|
|
13,799
|
|
China, silver and supplies
|
|
|
6,477
|
|
|
|
7,796
|
|
Income tax receivable
|
|
|
3,061
|
|
|
|
3,003
|
|
Prepaid rent and other expenses
|
|
|
10,499
|
|
|
|
11,508
|
|
Assets held for sale
|
|
|
12,825
|
|
|
|
4,642
|
|
Total current assets
|
|
|
99,037
|
|
|
|
120,916
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
583,097
|
|
|
|
671,250
|
|
Other assets
|
|
|
41,508
|
|
|
|
45,751
|
|
Total assets
|
|
$
|
723,642
|
|
|
$
|
837,917
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity:
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
17,570
|
|
|
$
|
22,141
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Taxes, other than income and payroll
|
|
|
11,028
|
|
|
|
10,769
|
|
Payroll and related costs
|
|
|
15,505
|
|
|
|
14,561
|
|
Insurance
|
|
|
5,740
|
|
|
|
5,109
|
|
Deferred revenue
– gift cards
|
|
|
15,051
|
|
|
|
16,354
|
|
Rent and other
|
|
|
33,812
|
|
|
|
18,838
|
|
Current maturities of long-term debt, including capital leases
|
|
|
368
|
|
|
|
9,934
|
|
Total current liabilities
|
|
|
99,074
|
|
|
|
97,706
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital leases, less current maturities
|
|
|
213,341
|
|
|
|
213,803
|
|
Deferred escalating minimum rent
|
|
|
43,464
|
|
|
|
51,535
|
|
Other deferred liabilities
|
|
|
60,397
|
|
|
|
67,093
|
|
Total liabilities
|
|
|
416,276
|
|
|
|
430,137
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders
’ equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; (authorized: 100,000 shares; issued: 2017
– 60,755 shares, 2016 – 60,137 shares)
|
|
|
607
|
|
|
|
601
|
|
Capital in excess of par value
|
|
|
79,531
|
|
|
|
75,938
|
|
Retained earnings
|
|
|
235,210
|
|
|
|
341,350
|
|
Deferred compensation liability payable in Company stock
|
|
|
303
|
|
|
|
521
|
|
Company stock held by Deferred Compensation Plan
|
|
|
(303
|
)
|
|
|
(521
|
)
|
Accumulated other comprehensive loss
|
|
|
(7,982
|
)
|
|
|
(10,109
|
)
|
Total shareholders' equity
|
|
|
307,366
|
|
|
|
407,780
|
|
Total liabilities and shareholders' equity
|
|
$
|
723,642
|
|
|
$
|
837,917
|
|
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 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
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(106,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(106,140
|
)
|
Pension and post-retirement
benefit plans, net of taxes of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,127
|
|
|
|
2,127
|
|
Shares issued pursuant to
compensation plans, net of
cancellations
|
|
|
625
|
|
|
|
6
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
Share-based compensation, including taxes of $0
|
|
|
|
|
|
|
|
|
|
|
3,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,625
|
|
Stock repurchases
|
|
|
(7
|
)
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26
|
)
|
Changes in Deferred
Compensation Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(218
|
)
|
|
|
218
|
|
|
|
|
|
|
|
–
|
|
Balance, June 6, 2017
|
|
|
60,755
|
|
|
$
|
607
|
|
|
$
|
79,531
|
|
|
$
|
235,210
|
|
|
$
|
303
|
|
|
$
|
(303
|
)
|
|
$
|
(7,982
|
)
|
|
$
|
307,366
|
|
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
|
|
|
|
June 6, 2017
|
|
|
May 31, 2016
|
|
|
June 2, 2015
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(106,140
|
)
|
|
$
|
(50,682
|
)
|
|
$
|
(3,194
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
41,779
|
|
|
|
51,358
|
|
|
|
52,391
|
|
Deferred income taxes
|
|
|
–
|
|
|
|
(1,449
|
)
|
|
|
(3,695
|
)
|
Loss on impairments, including disposition of assets
|
|
|
41,657
|
|
|
|
60,646
|
|
|
|
10,896
|
|
Inventory write-off
|
|
|
2,754
|
|
|
|
–
|
|
|
|
–
|
|
Gain on sales of Lime Fresh Mexican Grill assets
|
|
|
|
|
|
|
(5,937
|
)
|
|
|
–
|
|
Share-based compensation expense
|
|
|
3,625
|
|
|
|
2,094
|
|
|
|
7,112
|
|
Excess tax benefits from share-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
(39
|
)
|
Lease reserve adjustments
|
|
|
18,035
|
|
|
|
4,090
|
|
|
|
1,460
|
|
Deferred escalating minimum rent
|
|
|
868
|
|
|
|
2,075
|
|
|
|
2,342
|
|
Other, net
|
|
|
2,549
|
|
|
|
3,610
|
|
|
|
2,728
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
(6,068
|
)
|
|
|
(337
|
)
|
|
|
143
|
|
Receivables
|
|
|
386
|
|
|
|
(2,334
|
)
|
|
|
(440
|
)
|
Inventories
|
|
|
1,883
|
|
|
|
(1,184
|
)
|
|
|
763
|
|
Income taxes
|
|
|
(58
|
)
|
|
|
(4,072
|
)
|
|
|
3,202
|
|
Prepaid and other assets
|
|
|
1,404
|
|
|
|
(610
|
)
|
|
|
(1,875
|
)
|
Accounts payable, accrued and other liabilities
|
|
|
(21,608
|
)
|
|
|
(17,488
|
)
|
|
|
(16,740
|
)
|
Net cash (used in) provided
by operating activities
|
|
|
(18,934
|
)
|
|
|
39,780
|
|
|
|
55,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(33,509
|
)
|
|
|
(34,427
|
)
|
|
|
(31,010
|
)
|
Proceeds from disposal of assets
|
|
|
34,800
|
|
|
|
11,701
|
|
|
|
11,260
|
|
Insurance proceeds from property claims
|
|
|
664
|
|
|
|
350
|
|
|
|
145
|
|
Reductions in Deferred Compensation Plan assets
|
|
|
1,890
|
|
|
|
1,049
|
|
|
|
1,318
|
|
Other, net
|
|
|
2,842
|
|
|
|
1,572
|
|
|
|
790
|
|
Net cash provided
by (used in) investing activities
|
|
|
6,687
|
|
|
|
(19,755
|
)
|
|
|
(17,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt
|
|
|
(11,086
|
)
|
|
|
(18,243
|
)
|
|
|
(13,638
|
)
|
Stock repurchases
|
|
|
(26
|
)
|
|
|
(10,077
|
)
|
|
|
(73
|
)
|
Payments for debt issuance costs
|
|
|
(1,891
|
)
|
|
|
(32
|
)
|
|
|
(293
|
)
|
Proceeds from exercise of stock options
|
|
|
–
|
|
|
|
–
|
|
|
|
556
|
|
Excess tax benefits from share-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
39
|
|
Net cash used
in financing activities
|
|
|
(13,003
|
)
|
|
|
(28,352
|
)
|
|
|
(13,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)/increase in cash and cash equivalents
|
|
|
(25,250
|
)
|
|
|
(8,327
|
)
|
|
|
24,148
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of fiscal year
|
|
|
66,964
|
|
|
|
75,291
|
|
|
|
51,143
|
|
End of fiscal year
|
|
$
|
41,714
|
|
|
$
|
66,964
|
|
|
$
|
75,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid (received) for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of amount capitalized
|
|
$
|
17,257
|
|
|
$
|
19,790
|
|
|
$
|
20,804
|
|
Income taxes, net
|
|
$
|
(831
|
)
|
|
$
|
3,368
|
|
|
$
|
543
|
|
Significant non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement of fully depreciated assets
|
|
$
|
27,989
|
|
|
$
|
30,576
|
|
|
$
|
23,842
|
|
Reclassification of properties to assets held for sale
|
|
$
|
26,499
|
|
|
$
|
6,817
|
|
|
$
|
7,218
|
|
Monetization of, and subsequent reinvestment into, life insurance policies
|
|
$
|
–
|
|
|
$
|
5,642
|
|
|
$
|
6,851
|
|
Sale of Lime Fresh Mexican Grill assets
|
|
$
|
–
|
|
|
$
|
5,289
|
|
|
$
|
–
|
|
Changes in property and equipment included in accounts payable
|
|
$
|
–
|
|
|
$
|
539
|
|
|
$
|
–
|
|
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 June 6, 2017, we owned and operated 543 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 62 domestic and international franchise Ruby Tuesday restaurants located in 11 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 Note 7 to the Consolidated Financial Statements, during fiscal year 2017 we closed
103 Company-owned restaurants, 95 of which were closed following a comprehensive review of the Company’s property portfolio resulting from perceived limited upside due to market concentration, challenged trade areas, and other factors.
We also owned 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, both closed and were transferred to the third party buyer during 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. Fiscal year 2017 contained 53 weeks. The first three quarters of fiscal 2017 each contained 13 weeks and the fourth quarter contained 14 weeks. In fiscal 2017, the 53
rd
week added $15.7 million to restaurant sales and operating revenue and $0.02 to diluted earnings per share in our Consolidated Statement of Operations. The fiscal years ended May 31, 2016 and June 2, 2015 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
Our inventories principally consist of food and beverages and are stated using the weighted average cost method.
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 estimated fair value.
When we decide 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
7 to the Consolidated Financial Statements for a further discussion regarding our closures and impairments, including the impairment 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):
|
|
2017
|
|
|
2016
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reacquired franchise rights
|
|
$
|
12,744
|
|
|
$
|
10,582
|
|
|
$
|
14,096
|
|
|
$
|
10,903
|
|
Favorable leases *
|
|
|
1,029
|
|
|
|
246
|
|
|
|
1,408
|
|
|
|
336
|
|
Trademarks
|
|
|
231
|
|
|
|
162
|
|
|
|
237
|
|
|
|
158
|
|
|
|
$
|
14,004
|
|
|
$
|
10,990
|
|
|
$
|
15,741
|
|
|
$
|
11,397
|
|
* As of June 6, 2017 and May 31, 2016, we also had $0.2 million and $0.6 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.
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 dates.
Amortization expense of other intangible assets for fiscal years 2017, 2016, and 2015 totaled $0.9 million, $1.8 million, and $2.2 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 8.5 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 28.6 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 $0.6 million in fiscal year 2018, $0.6 million in
fiscal year 2019, $0.5 million in fiscal year 2020, $0.3 million in fiscal year 2021, and $0.1 million in fiscal year 2022. 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 June 6, 2017 and May 31, 2016, unamortized debt issuance costs
associated with our Senior Credit Facility of $2.1 million and $0.7 million, respectively, were included within Prepaid rent and other expenses, and as of May 31, 2016, $0.4 million was included within Other assets in our Consolidated Balance Sheets.
Unamortized debt acquisition costs associated with our Senior Notes and mortgage loan obligations of $0.7 million as of both June 6, 2017 and May 31, 2016, were included within Current maturities of long-term debt, including capital leases and $1.6 million and $2.4 million were included within Long-term debt and capital leases, less current maturities as of June 6, 2017 and May 31, 2016, respectively
.
Lease Obligations
274
of our 543 Company-owned Ruby Tuesday concept restaurants are located on leased properties. Of these, approximately 205 are land leases only; 69 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 our fiscal year end. 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 Accumulated 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 recognized gift card breakage income of $2.4
million, $2.1 million, and $2.0 million during fiscal years 2017, 2016, and 2015, 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 generally 4.0% of monthly sales.
Advertising amounts received from domestic franchisees are considered by us to be reimbursements, recorded when earned, and have been netted against marketing expenses in the Consolidated Statements of Operations and Comprehensive Loss.
We charge our franchisees 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. 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 General and administrative 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, radio, internet, and social media advertising production costs which we expense when the advertisement is first shown, we expense marketing costs as incurred. Marketing expenses, net of franchise reimbursements, totaled $54.1 million, $51.4 million, and $49.4 million for fiscal years 2017, 2016, and 2015, respectively.
Income Taxes
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.
Loss 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):
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net loss
|
|
$
|
(106,140
|
)
|
|
$
|
(50,682
|
)
|
|
$
|
(3,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
60,139
|
|
|
|
60,871
|
|
|
|
60,580
|
|
Dilutive effect of stock options and restricted stock
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Weighted average common and dilutive potential
common shares outstanding
|
|
|
60,139
|
|
|
|
60,871
|
|
|
|
60,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
loss per share
|
|
$
|
(1.76
|
)
|
|
$
|
(0.83
|
)
|
|
$
|
(0.05
|
)
|
Diluted loss per share
|
|
$
|
(1.76
|
)
|
|
$
|
(0.83
|
)
|
|
$
|
(0.05
|
)
|
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):
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Stock options
|
|
|
2,242
|
|
|
|
2,407
|
|
|
|
3,057
|
|
Restricted stock / Restricted stock units
|
|
|
640
|
|
|
|
826
|
|
|
|
1,352
|
|
Total
|
|
|
2,882
|
|
|
|
3,233
|
|
|
|
4,409
|
|
Comprehensive Loss
Comprehensive loss includes net loss adjusted for certain income, 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
Fair 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 Notes 8 and 12
to the Consolidated Financial Statements for a further discussion of our fair value measurements.
Reclassifications
As shown in the table below, we split our previously reported expenses within Selling, general and administrative, net into separately reported General and administrative expenses and Marketing expenses, net 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 June 6, 2017.
Additionally, we reclassified an impairment of the Lime Fresh trademark to Closures and impairments, net. Amounts presented are in thousands.
|
|
As presented
–
Fiscal year ended
May 31, 2016
|
|
|
Reclassifications
|
|
|
As adjusted
–
Fiscal year ended
May 31, 2016
|
|
Selling, general, and administrative, net
|
|
$
|
109,627
|
|
|
$
|
(109,627
|
)
|
|
$
|
–
|
|
General and administrative expenses
|
|
|
–
|
|
|
|
58,191
|
|
|
|
58,191
|
|
Marketing expenses, net
|
|
|
–
|
|
|
|
51,436
|
|
|
|
51,436
|
|
Closures and impairments, net
|
|
|
62,681
|
|
|
|
1,999
|
|
|
|
64,680
|
|
Trademark impairment
|
|
|
1,999
|
|
|
|
(1,999
|
)
|
|
|
–
|
|
|
|
As presented
–
Fiscal year ended
June 2, 2015
|
|
|
Reclassifications
|
|
|
As adjusted
–
Fiscal year ended
June 2, 2015
|
|
Selling, general, and administrative, net
|
|
$
|
115,327
|
|
|
$
|
(115,327
|
)
|
|
$
|
–
|
|
General and administrative expenses
|
|
|
–
|
|
|
|
65,907
|
|
|
|
65,907
|
|
Marketing expenses, net
|
|
|
–
|
|
|
|
49,420
|
|
|
|
49,420
|
|
As shown in the table below, we split our previously reported Cash and cash equivalents into separately reported Cash and cash equivalents and Restricted cash
in the Consolidated Balance Sheets for the prior fiscal year to be comparable with the classification for the fiscal year-ended June 6, 2017. Amounts presented are in thousands.
|
|
As presented
–
Fiscal year ended
May 31, 2016
|
|
|
Reclassifications
|
|
|
As adjusted
–
Fiscal year ended
May 31, 2016
|
|
Cash and cash equivalents
|
|
$
|
67,341
|
|
|
$
|
(377
|
)
|
|
$
|
66,964
|
|
Restricted cash
|
|
|
|
|
|
|
377
|
|
|
|
377
|
|
Accounting Pronouncements Not Yet Adopted
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Payments
(“ASU 2016-15”), which provides clarification regarding how certain cash receipts and cash payments should be presented and classified in the statement of cash flows. The guidance addresses eight specific cash flow issues with the objective to reduce diversity in practice of how certain transactions are classified within the statement of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, and interim periods therein (our fiscal year 2019). Early application is permitted. We do not believe the adoption of this guidance will have a material impact on our Consolidated Financial Statements.
In March
2016, the FASB issued ASU 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
(“ASU 2016-09”), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods therein (our fiscal year 2018). Early application is permitted. We are currently evaluating the impact of this guidance on our Consolidated Financial Statements.
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 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 (our fiscal year 2019), with early application permitted in the first quarter of 2017. 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.
Additionally, in March and April 2016, the FASB issued the following amendments to ASU 2014-09 to clarify the implementation guidance: ASU 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
and ASU 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
. Under the new guidance, expected gift card breakage income will be required to be recognized proportionately as redemption occurs. Our current accounting policy of recognizing gift card breakage income applying the remote method will no longer be allowed. The timing of transition of this guidance is consistent with the new revenue recognition standard as discussed above. We expect to implement the provisions of ASU 2014-09 and the related amendments in the same period.
2.
Franchise Programs
As of June 6, 2017, our franchise programs included arrangements with 22 domestic and international Ruby Tuesday concept franchisees. At the end of fiscal year
2017, our franchisees collectively operated 62 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 June 6, 2017, seven of our 22 Ruby Tuesday concept franchisees had agreements to develop new franchised Ruby Tuesday restaurants. During fiscal years 2017, 2016, and 2015, our Ruby Tuesday franchisees opened one, five, and six restaurants, respectively, pursuant to development agreements, as follows:
|
|
Ruby Tuesday
|
|
Fiscal Year
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
2017
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
2016
|
|
|
–
|
|
|
|
5
|
|
|
|
5
|
|
2015
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
During fiscal years
2016 and 2015, our then Lime Fresh franchisees opened one 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
an insignificant amount in fiscal year 2017 and $0.2 million in each of fiscal years 2016 and 2015.
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 $0.3 million and $0.4 million as of June 6, 2017 and May 31, 2016, respectively. We will recognize these fees as income when we have substantially performed all material services and the restaurant has opened for business.
3.
Lime Fresh Mexican Grill
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 and were subsequently closed during 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 2016, 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.
4.
Accounts and Other Receivables
Accounts and other receivables consist of the following (in thousands):
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Rebates receivable
|
|
$
|
1,031
|
|
|
$
|
1,001
|
|
Amounts due from franchisees
|
|
|
4,014
|
|
|
|
3,013
|
|
Third-party gift card sales
|
|
|
1,147
|
|
|
|
1,272
|
|
Receivables from sales of Lime Fresh Mexican Grill assets
|
|
|
–
|
|
|
|
5,289
|
|
Other receivables
|
|
|
1,123
|
|
|
|
2,252
|
|
|
|
$
|
7,315
|
|
|
$
|
12,827
|
|
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 June 6, 2017 and May 31, 2016, other receivables consisted primarily of amounts due from our distributor, receivables 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):
|
|
2017
|
|
|
2016
|
|
Land
|
|
$
|
180,520
|
|
|
$
|
209,930
|
|
Buildings
|
|
|
366,566
|
|
|
|
398,984
|
|
Improvements
|
|
|
227,056
|
|
|
|
303,032
|
|
Restaurant equipment
|
|
|
192,217
|
|
|
|
222,646
|
|
Other equipment
|
|
|
71,851
|
|
|
|
82,204
|
|
Surplus properties*
|
|
|
17,139
|
|
|
|
4,354
|
|
Construction in progress and other
|
|
|
1,172
|
|
|
|
3,325
|
|
|
|
|
1,056,521
|
|
|
|
1,224,475
|
|
Less accumulated depreciation
|
|
|
473,424
|
|
|
|
553,225
|
|
Property and equipment, net
|
|
$
|
583,097
|
|
|
$
|
671,250
|
|
* 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.
Included within the current assets section of our Consolidated Balance Sheets at June 6, 2017 and May 31, 2016 are amounts classified as assets held for sale totaling $12.8 million and $4.6 million, respectively. Assets held for sale primarily consist of
land and buildings of closed restaurants, parcels of land upon which we have no intention to build restaurants, and liquor licenses. In addition to Lime Fresh restaurants sold as discussed in Note 3 to the Consolidated Financial Statements, during fiscal years
2017, 2016, and 2015 we sold surplus properties with carrying values of $24.3 million, $6.7 million, and $9.5 million, respectively, at net gains of $4.4 million, $0.9 million, and $1.7 million, respectively. Cash proceeds, net of broker fees, from these sales totaled $28.7 million, $7.6 million, and $11.2 million, respectively.
We realized gains 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 June 6, 2017 and May 31, 2016, 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 $9.7 million and $10.9 million as of June 6, 2017 and May 31, 2016, 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 June 6, 2017 and May 31, 2016, and June 2, 2015 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 June 6, 2017 (in thousands):
2018
|
|
$
|
41,397
|
|
2019
|
|
|
38,117
|
|
2020
|
|
|
35,489
|
|
2021
|
|
|
33,153
|
|
2022
|
|
|
30,951
|
|
Subsequent years
|
|
|
327,308
|
|
Total minimum lease payments
|
|
$
|
506,415
|
|
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 $2.6 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 for the next five years and thereafter under noncancellable sub-lease agreements as of June 6, 2017 (in thousands):
2018
|
|
$
|
382
|
|
2019
|
|
|
285
|
|
2020
|
|
|
285
|
|
2021
|
|
|
291
|
|
2022
|
|
|
300
|
|
Subsequent years
|
|
|
1,019
|
|
Total minimum sub-lease payments
|
|
$
|
2,562
|
|
The following table summarizes our minimum and contingent rent expense and our sublease rental income under our operating leases (in thousands):
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Minimum rent
|
|
$
|
38,922
|
|
|
$
|
49,699
|
|
|
$
|
50,489
|
|
Contingent rent
|
|
|
558
|
|
|
|
662
|
|
|
|
745
|
|
|
|
|
39,480
|
|
|
|
50,361
|
|
|
|
51,234
|
|
Sublease rental income
|
|
|
(572
|
)
|
|
|
(940
|
)
|
|
|
(504
|
)
|
|
|
$
|
38,908
|
|
|
$
|
49,421
|
|
|
$
|
50,730
|
|
The amounts shown for fiscal years 2017, 2016, and 2015 above exclude rent expense of $14.
2 million, $3.6 million, and $1.2 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):
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured notes
|
|
$
|
212,546
|
|
|
$
|
212,546
|
|
Unamortized discount
|
|
|
(1,366
|
)
|
|
|
(1,771
|
)
|
Unamortized debt issuance costs
|
|
|
(2,311
|
)
|
|
|
(2,995
|
)
|
Senior unsecured notes less unamortized discount and
debt issuance costs
|
|
|
208,869
|
|
|
|
207,780
|
|
Revolving credit facility
|
|
|
–
|
|
|
|
–
|
|
Mortgage loan obligations
|
|
|
4,650
|
|
|
|
15,745
|
|
Unamortized (
discount) premium - mortgage loan obligations
|
|
|
(1
|
)
|
|
|
75
|
|
Unamortized debt issuance costs - mortgage loan obligations
|
|
|
(27
|
)
|
|
|
(74
|
)
|
Capital lease obligations
|
|
|
218
|
|
|
|
211
|
|
Total long-term debt and capital leases
|
|
|
213,709
|
|
|
|
223,737
|
|
Less current maturities
|
|
|
368
|
|
|
|
9,934
|
|
Long-term debt and capital leases, less current maturities
|
|
$
|
213,341
|
|
|
$
|
213,803
|
|
Estimated annual maturities of long-term debt and capital lease obligations at June 6, 2017 are as follows (in thousands):
2018
|
|
$
|
1,535
|
|
2019
|
|
|
1,483
|
|
2020
|
|
|
213,591
|
|
2021
|
|
|
488
|
|
2022
|
|
|
99
|
|
Subsequent years
|
|
|
218
|
|
Total estimated annual maturities of long-term debt and capital lease obligations
|
|
$
|
217,414
|
|
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 $1.2 million and $1.0 million as of June 6, 2017 and May 31, 2016, respectively, and is included in Accrued liabilities
– Rent and other in our Consolidated Balance Sheets.
We 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 May 26, 2017, we entered into a 364-day
senior secured revolving credit agreement (the “Senior Credit Facility”) with UBS AG, Stamford Branch, under which we may borrow up to $20.0 million. We entered into the Senior Credit Facility to replace our previous $30 million revolving credit facility (the "Prior Credit Facility") which was paid in full on May 26, 2017. The terms of the Senior Credit Facility provide for a $15.0 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
, in each case, 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 LIBO rate-based option is 4.00% and for the Base Rate option is 3.00%. We pay commitment fees of 0.50% on the unused portion of the Senior Credit Facility.
As security for the Senior Credit Facility, we
have granted the lenders security interests in and liens on substantially all of the Company’s personal property, including equity interest in certain of its subsidiaries, and the real property, improvements, and fixtures of 22 Ruby Tuesday restaurants. The real property, improvements, and fixtures of the 22 restaurants pledged as collateral appraised at an approximate value of $31.3 million as of February 2017 and have a June 6, 2017 net book value of $34.8 million.
We had no borrowings outstanding under the Senior Credit Facility at June 6, 2017. After consideration of letters of credit outstanding, we had $5.2
million available under the Senior Credit Facility as of June 6, 2017.
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 fiscal year ended June 6, 2017, we did not repurchase any 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.
Under the Senior Credit Facility, we are required to comply with financial covenants relating to the maintenance of a minimum appraised value of eligible restaurants and a maximum leverage ratio. The terms of the Senior Credit Facility require us to maintain a minimum appraised value of eligible restaurants of no less than $30
.0 million and maximum leverage ratio of no more than 5.00 to 1.0 starting with the fiscal quarter ending on or around September 5, 2017.
The Senior Credit Facility terminates no later than May 25,
2018. 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 May 25, 2017, 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 modified and/or provided for certain financial covenants for the specified loans, including the maximum leverage ratio.
Our $4.6 million in mortgage loan obligations as of June 6, 2017 consist of various loans a
ssumed upon franchise acquisitions. These loans, which mature between February 2019 and October 2021, have balances that range from $0.5 million to $0.9 million and interest rates of 7.78% to 10.17%. 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 fiscal 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.
7. Closures and Impairments Expense, Including Trademark Impairments
Closures and impairments, net include the following (in thousands):
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Closures and impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property impairments
|
|
$
|
45,974
|
|
|
$
|
58,153
|
|
|
$
|
9,822
|
|
Closed restaurant lease reserves
|
|
|
18,035
|
|
|
|
4,090
|
|
|
|
1,461
|
|
Other closing expense
|
|
|
10,213
|
|
|
|
1,260
|
|
|
|
966
|
|
Gain on sale of surplus properties
|
|
|
(4,414
|
)
|
|
|
(822
|
)
|
|
|
(1,707
|
)
|
Lime Fresh trademark impairment
|
|
|
–
|
|
|
|
1,999
|
|
|
|
–
|
|
Closures and impairments, net
|
|
$
|
69,808
|
|
|
$
|
64,680
|
|
|
$
|
10,542
|
|
Included within Closures and impairments, net for fiscal year 2017 are impairments of $43.1 million related to open restaurants with deteriorating operational performance, $0.6 million related to surplus properties, and $2.3 million associated with lease expirations and restaurant closures.
Also included within Closures and impairments, net for fiscal 2017 are $31.5 million in closing expenses related to the 95 Asset Rationalization Plan closures.
During the fourth quarter of fiscal year 2016, the Company
’s management began to formulate a plan in response to a comprehensive review of its 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.
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.
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.
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 2, 2015
|
|
$
|
7,051
|
|
Closing expense including rent and other lease charges
|
|
|
4,090
|
|
Payments
|
|
|
(5,737
|
)
|
Adjustments to deferred escalating minimum rent and other
|
|
|
866
|
|
Balance at May 31, 2016
|
|
|
6,270
|
|
Closing expense including rent and other lease charges
|
|
|
18,035
|
|
Payments
|
|
|
(17,205
|
)
|
Adjustments to deferred escalating minimum rent and other
|
|
|
9,130
|
|
Balance at June 6, 2017
|
|
$
|
16,230
|
|
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, $15.3
million and $6.2 million are included within the Accrued liabilities – Rent and other caption in our Consolidated Balance Sheets as of June 6, 2017 and May 31, 2016, respectively. For fiscal year 2018 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 not be required to make contributions to the Retirement Plan in fiscal year 2018.
The Retirement Plan
’s assets are held in a trust and were allocated as follows on the measurement dates:
|
|
2017
|
|
|
2016
|
|
|
|
Target
Allocation
|
|
|
Actual
Allocation
|
|
|
Target
Allocation
|
|
|
Actual
Allocation
|
|
Equity securities
|
|
|
41
|
-
|
71%
|
|
|
|
63
|
%
|
|
|
41
|
-
|
71%
|
|
|
|
61
|
%
|
Fixed income securities
|
|
|
13
|
-
|
43%
|
|
|
|
25
|
%
|
|
|
13
|
-
|
43%
|
|
|
|
20
|
%
|
Public real estate investment trusts
|
|
|
0
|
-
|
10%
|
|
|
|
0
|
%
|
|
|
0
|
-
|
10%
|
|
|
|
5
|
%
|
Cash and cash equivalents
|
|
|
0
|
-
|
20%
|
|
|
|
1
|
%
|
|
|
0
|
-
|
20%
|
|
|
|
4
|
%
|
Other
|
|
|
0
|
-
|
21%
|
|
|
|
11
|
%
|
|
|
0
|
-
|
21%
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. 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 16% 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):
|
|
2017
|
|
|
2016
|
|
Level 2:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
80
|
|
|
$
|
249
|
|
Level 1:
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
U.S.-based companies
|
|
|
2,677
|
|
|
|
2,561
|
|
International-based companies
|
|
|
1,175
|
|
|
|
1,222
|
|
Fixed income securities
|
|
|
1,504
|
|
|
|
1,259
|
|
Public real estate investment trusts
|
|
|
–
|
|
|
|
315
|
|
Other
|
|
|
690
|
|
|
|
603
|
|
Total assets reported as of fiscal year end
|
|
$
|
6,126
|
|
|
$
|
6,209
|
|
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. The Executive Supplemental Pension Plan and the Management Retirement Plan have been amended so that no additional benefits will accrue and no new participants may enter the plan.
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 $3.0 million in fiscal year 2018.
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
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
26
|
|
|
$
|
312
|
|
|
$
|
301
|
|
Interest cost
|
|
|
1,711
|
|
|
|
1,999
|
|
|
|
1,773
|
|
Expected return on plan assets
|
|
|
(370
|
)
|
|
|
(411
|
)
|
|
|
(498
|
)
|
Amortization of prior service cost (a)
|
|
|
–
|
|
|
|
1
|
|
|
|
1
|
|
Recognized actuarial loss
|
|
|
1,542
|
|
|
|
2,218
|
|
|
|
1,718
|
|
Curtailment expense
|
|
|
–
|
|
|
|
1
|
|
|
|
–
|
|
Net periodic benefit cost
|
|
$
|
2,909
|
|
|
$
|
4,120
|
|
|
$
|
3,295
|
|
|
|
Postretirement Medical and Life Benefits
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
1
|
|
|
$
|
4
|
|
|
$
|
4
|
|
Interest cost
|
|
|
36
|
|
|
|
47
|
|
|
|
46
|
|
Recognized actuarial loss
|
|
|
71
|
|
|
|
130
|
|
|
|
134
|
|
Net periodic benefit cost
|
|
$
|
108
|
|
|
$
|
181
|
|
|
$
|
184
|
|
(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 2017 and 2016 Consolidated Financial Statements for the Pension Plans and the Postretirement Medical and Life Benefits plans (in thousands):
|
|
Pension Plans
|
|
|
Postretirement Medical
and Life Benefits
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
$
|
(16,821
|
)
|
|
$
|
(17,149
|
)
|
|
$
|
(491
|
)
|
|
$
|
(994
|
)
|
Net actuarial (loss)/gain
|
|
|
367
|
|
|
|
(1,891
|
)
|
|
|
147
|
|
|
|
373
|
|
Amortization of prior service credit
|
|
|
–
|
|
|
|
1
|
|
|
|
–
|
|
|
|
–
|
|
Amortization of actuarial loss
|
|
|
1,542
|
|
|
|
2,218
|
|
|
|
71
|
|
|
|
130
|
|
End of year
|
|
$
|
(14,912
|
)
|
|
$
|
(16,821
|
)
|
|
$
|
(273
|
)
|
|
$
|
(491
|
)
|
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
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning projected benefit obligation
|
|
$
|
44,429
|
|
|
$
|
43,843
|
|
|
$
|
1,100
|
|
|
$
|
1,404
|
|
Service cost
|
|
|
26
|
|
|
|
312
|
|
|
|
1
|
|
|
|
4
|
|
Interest cost
|
|
|
1,711
|
|
|
|
1,999
|
|
|
|
36
|
|
|
|
47
|
|
Plan participant contributions
|
|
|
–
|
|
|
|
–
|
|
|
|
84
|
|
|
|
73
|
|
Actuarial loss/(gain)
|
|
|
(183
|
)
|
|
|
1,411
|
|
|
|
(147
|
)
|
|
|
(373
|
)
|
Benefits paid
|
|
|
(3,403
|
)
|
|
|
(2,888
|
)
|
|
|
(85
|
)
|
|
|
(55
|
)
|
Curtailment gain
|
|
|
–
|
|
|
|
(248
|
)
|
|
|
–
|
|
|
|
–
|
|
Benefit obligation at end of year
|
|
$
|
42,580
|
|
|
$
|
44,429
|
|
|
$
|
989
|
|
|
$
|
1,100
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning fair value of plan assets
|
|
$
|
6,209
|
|
|
$
|
6,786
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Actual return on plan assets
|
|
|
554
|
|
|
|
(318
|
)
|
|
|
–
|
|
|
|
–
|
|
Employer contributions
|
|
|
2,766
|
|
|
|
2,629
|
|
|
|
1
|
|
|
|
(18
|
)
|
Plan participant contributions
|
|
|
–
|
|
|
|
–
|
|
|
|
84
|
|
|
|
73
|
|
Benefits paid
|
|
|
(3,403
|
)
|
|
|
(2,888
|
)
|
|
|
(85
|
)
|
|
|
(55
|
)
|
Fair value of plan assets at end of year
|
|
$
|
6,126
|
|
|
$
|
6,209
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(36,454
|
)
*
|
|
$
|
(38,220
|
)*
|
|
$
|
(989
|
)
|
|
$
|
(1,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the
Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
– payroll and related
costs
|
|
$
|
(2,953
|
)
|
|
$
|
(2,527
|
)
|
|
$
|
(123
|
)
|
|
$
|
(113
|
)
|
Other deferred liabilities
|
|
|
(33,501
|
)
|
|
|
(35,693
|
)
|
|
|
(866
|
)
|
|
|
(987
|
)
|
Net amount recognized at year-end
|
|
$
|
(36,454
|
)
|
|
$
|
(38,220
|
)
|
|
$
|
(989
|
)
|
|
$
|
(1,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated
other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
|
(14,912
|
)
|
|
|
(16,821
|
)
|
|
|
(273
|
)
|
|
|
(491
|
)
|
Total amount recognized
|
|
$
|
(14,912
|
)
|
|
$
|
(16,821
|
)
|
|
$
|
(273
|
)
|
|
$
|
(491
|
)
|
*
|
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 $25.4 million and $27.9 million at June 6, 2017 and May 31, 2016,
respectively. In addition, we reclassified as Restricted cash in our Consolidated Balance Sheets as of June 6, 2017 and May 31, 2016 $1.4 million and $0.4 million, respectively, of cash held in trust that is restricted for benefit payments under these plans. We maintain a rabbi trust to hold the policies and death benefits as they are received.
|
During fiscal years 2017, 2016, and
2015, 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):
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Recognized actuarial loss
|
|
$
|
1,613
|
|
|
$
|
2,348
|
|
|
$
|
1,852
|
|
Amortization of prior service cost/(credit)
|
|
|
–
|
|
|
|
1
|
|
|
|
1
|
|
Curtailment expense
|
|
|
–
|
|
|
|
1
|
|
|
|
–
|
|
Pension reclassification
|
|
$
|
1,613
|
|
|
$
|
2,350
|
|
|
$
|
1,853
|
|
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 2018 is $0.7 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
|
|
|
|
June 6, 2017
|
|
|
May 31,
2016
|
|
|
June 6, 2017
|
|
|
May 31,
2016
|
|
Projected benefit obligation
|
|
$
|
42,580
|
|
|
$
|
44,429
|
|
|
$
|
989
|
|
|
$
|
1,100
|
|
Accumulated benefit obligation
|
|
|
42,580
|
|
|
|
44,428
|
|
|
|
989
|
|
|
|
1,100
|
|
Fair value of plan assets
|
|
|
6,126
|
|
|
|
6,209
|
|
|
|
–
|
|
|
|
–
|
|
The weighted average assumptions used to determine the net periodic benefit cost for fiscal years are set forth below:
|
|
Pension Plans
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Discount rate
|
|
|
4.0
|
%
|
|
|
4.2
|
%
|
|
|
4.4
|
%
|
Expected return on plan assets
|
|
|
6.3
|
%
|
|
|
6.3
|
%
|
|
|
7.0
|
%
|
Rate of compensation increase
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
|
|
Postretirement Medical and Life Benefits
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Discount rate
|
|
|
3.5
|
%
|
|
|
3.6
|
%
|
|
|
3.5
|
%
|
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
|
|
|
|
2017
|
|
|
2016
|
|
Discount rate
|
|
|
3.9
|
%
|
|
|
4.0
|
%
|
Rate of compensation increase
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
|
|
Postretirement Medical and Life Benefits
|
|
|
|
2017
|
|
|
2016
|
|
Discount rate
|
|
|
3.5
|
%
|
|
|
3.5
|
%
|
Rate of compensation increase
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
We currently are assuming a gross medical trend rate of 7.1% for fiscal 2018. 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
|
|
2018
|
|
$
|
3,716
|
|
|
$
|
123
|
|
2019
|
|
|
2,274
|
|
|
|
109
|
|
2020
|
|
|
2,214
|
|
|
|
101
|
|
2021
|
|
|
5,212
|
|
|
|
103
|
|
2022
|
|
|
8,138
|
|
|
|
95
|
|
2023-2027
|
|
|
11,585
|
|
|
|
356
|
|
Expected benefit payments are estimated based on the same assumptions used to measure our benefit obligation on our measurement date of June 6, 2017 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. We match in cash each fiscal quarter 25% of the participating employee's first 4% of contributions. Company matches vest immediately. Fiscal years 2017 and 2016 had 401(k) Plan expenses for the Company match of $0.3 million for both periods. During fiscal year 2015, 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 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 year 2015.
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 years 2017 and 2016 Deferred Compensation Plan expenses were negligible for both periods. 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 year 2015. 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 $5.6 million and $6.7 million as of June 6, 2017 and May 31, 2016, respectively. Of these amounts as of June 6, 2017 and May 31, 2016, $0.6 million and $0.7 million, respectively, was included in Prepaid and other expenses and Accrued liabilities – Payroll and related costs for both periods, and $5.0 million and $6.0 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 $0.3 million and $0.5 million as of June 6, 2017 and May 31, 2016, respectively, is reflected in Shareholders’ Equity in the Consolidated Balance Sheets.
Executive Separations and Corporate Support Services Restructuring
Fiscal 2017
On September 13, 2016, James J. Buettgen resigned as Chairman of the Board of Directors, President, and Chief Executive Officer of the Company.
In connection with Mr. Buettgen's resignation, $3.0 million in severance accruals and other benefits were paid during fiscal 2017. We also recorded a charge of approximately $0.9 million in connection with the accelerated vesting of Mr. Buettgen's share-based compensation awards. The Ruby Tuesday Concept President and a Divisional Vice President departed the Company April 24, 2017 and June 2, 2017, respectively. During the fiscal year ended June 6, 2017, we recorded severance expense of $0.8 million and made severance payments of $0.1 million in connection with these two departures coupled with recording a charge of $0.2 million related to their accelerated vesting of share-based compensation awards.
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 fiscal 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.
As of both June 6, 2017
and May 31, 2016, liabilities of $0.9 million and $0.3 million, respectively, 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 of $4.2 million and $1.6 million are reflected in the table below related to employee severance and unused vacation accruals are included within General and administrative expenses, and Closures and impairments, net, respectively, 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 2, 2015
|
|
$
|
313
|
|
Employee severance and unused vacation accruals
|
|
|
1,006
|
|
Cash payments
|
|
|
(1,002
|
)
|
Balance at May 31, 2016
|
|
$
|
317
|
|
Employee severance and unused vacation accruals
|
|
|
5,807
|
|
Cash payments
|
|
|
(5,270
|
)
|
Balance at June 6, 2017
|
|
$
|
854
|
|
9. Income Taxes
Income tax benefit for fiscal years
2017, 2016, and 2015 was allocated as follows (in thousands):
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(1,912
|
)
|
|
$
|
(1,138
|
)
|
|
$
|
1,714
|
|
State
|
|
|
154
|
|
|
|
289
|
|
|
|
(48
|
)
|
Foreign
|
|
|
42
|
|
|
|
118
|
|
|
|
118
|
|
|
|
|
(1,716
|
)
|
|
|
(731
|
)
|
|
|
1,784
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
–
|
|
|
|
(1,449
|
)
|
|
|
(3,254
|
)
|
State
|
|
|
–
|
|
|
|
–
|
|
|
|
(441
|
)
|
|
|
|
–
|
|
|
|
(1,449
|
)
|
|
|
(3,695
|
)
|
Total benefit for income taxes
|
|
$
|
(1,716
|
)
|
|
$
|
(2,180
|
)
|
|
$
|
(1,911
|
)
|
Deferred tax assets and liabilities are comprised of the following (in thousands):
|
|
2017
|
|
|
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
General business credits carryforward
|
|
$
|
88,087
|
|
|
$
|
70,424
|
|
Employee benefits
|
|
|
21,227
|
|
|
|
22,420
|
|
Deferred escalating minimum rents
|
|
|
17,500
|
|
|
|
20,803
|
|
Federal net operating loss
|
|
|
19,664
|
|
|
|
–
|
|
State net operating losses
|
|
|
13,318
|
|
|
|
9,807
|
|
Insurance reserves
|
|
|
5,253
|
|
|
|
5,896
|
|
Goodwill
|
|
|
4,448
|
|
|
|
5,033
|
|
Deferred gain on sale-leaseback transactions
|
|
|
4,284
|
|
|
|
4,728
|
|
Closed restaurant lease reserves
|
|
|
6,265
|
|
|
|
2,520
|
|
Other
|
|
|
7,423
|
|
|
|
7,761
|
|
Gross deferred tax assets
|
|
|
187,469
|
|
|
|
149,392
|
|
Deferred tax asset valuation allowances
|
|
|
(135,894
|
)
|
|
|
(89,933
|
)
|
Net deferred tax assets
|
|
|
51,575
|
|
|
|
59,459
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciable property and equipment
|
|
|
(43,665
|
)
|
|
|
(48,367
|
)
|
Other
|
|
|
(7,910
|
)
|
|
|
(11,092
|
)
|
Total deferred tax liabilities
|
|
|
(51,575
|
)
|
|
|
(59,459
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
–
|
|
|
$
|
–
|
|
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 federal 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 June 6, 2017, 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):
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of fiscal year
|
|
$
|
(89,933
|
)
|
|
$
|
(62,799
|
)
|
|
$
|
(54,582
|
)
|
Changes in estimated realization of deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(49,219
|
)
|
|
|
(28,192
|
)
|
|
|
(9,138
|
)
|
Other reductions
|
|
|
3,258
|
|
|
|
1,058
|
|
|
|
921
|
|
End of fiscal year
|
|
$
|
(135,894
|
)
|
|
$
|
(89,933
|
)
|
|
$
|
(62,799
|
)
|
As of June 6, 2017, we had state net operating loss carryforwards of approximately $
343.3 million which expire at varying times between fiscal years 2018 and 2037. Our federal net operating loss will expire, if unused, by fiscal year 2037. The above accounting has no effect on our ability to use our federal or state operating loss carryforwards or general business carryforward credits, which begin to expire in fiscal year 2031, in the future to reduce cash tax payments.
A reconciliation from the statutory federal income tax benefit to the reported income tax (benefit)/expense is as follows (in thousands):
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory federal income taxes
|
|
$
|
(37,750
|
)
|
|
$
|
(18,502
|
)
|
|
$
|
(1,787
|
)
|
State income taxes, net of federal income tax benefit
|
|
|
(4,795
|
)
|
|
|
(2,926
|
)
|
|
|
(711
|
)
|
FICA tip credit
|
|
|
(6,070
|
)
|
|
|
(7,071
|
)
|
|
|
(7,280
|
)
|
Work opportunity tax credit
|
|
|
(1,833
|
)
|
|
|
(1,389
|
)
|
|
|
(1,899
|
)
|
Increase in valuation allowance
|
|
|
49,219
|
|
|
|
28,192
|
|
|
|
9,138
|
|
Permanent differences
|
|
|
(1,123
|
)
|
|
|
319
|
|
|
|
528
|
|
Other, net
|
|
|
636
|
|
|
|
(803
|
)
|
|
|
100
|
|
Total benefit for income taxes
|
|
$
|
(1,716
|
)
|
|
$
|
(2,180
|
)
|
|
$
|
(1,911
|
)
|
We had a gross liability for unrecognized tax benefits, exclusive of accrued interest and penalties, of $3.9 million and $4.5 million, respectively, as of June 6, 2017 and May 31, 2016, of which $3.4 million and $3.7 million, respectively, was reclassified against our deferred tax assets.
As of June 6, 2017 and May 31, 2016, the total amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate was $2.5 million and $2.3 million, respectively. If these benefits were recognized as of June 6, 2017 and May 31, 2016, this would result in adjustments to other tax accounts, primarily deferred taxes and valuation allowance from net operating loss tax benefits of $2.2 million and $2.1 million, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits for fiscal years 2017 and 2016 follows (in thousands):
|
|
2017
|
|
|
2016
|
|
Beginning of fiscal year
|
|
$
|
4,548
|
|
|
$
|
3,870
|
|
Additions for tax positions related to the current year
|
|
|
532
|
|
|
|
725
|
|
Reductions for tax positions related to the current year
|
|
|
(127
|
)
|
|
|
(113
|
)
|
Additions for tax positions of prior years
|
|
|
164
|
|
|
|
868
|
|
Reductions for tax positions of prior years
|
|
|
(228
|
)
|
|
|
(150
|
)
|
Reductions for settlements with taxing authorities
|
|
|
(779
|
)
|
|
|
–
|
|
Reductions due to statute settlements
|
|
|
(220
|
)
|
|
|
(652
|
)
|
End of fiscal year
|
|
$
|
3,890
|
|
|
$
|
4,548
|
|
The liability for unrecognized tax benefits as of June 6, 2017 includes an insignificant amount
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 June 6, 2017 and May 31, 2016, we had $0.4 million of accrued interest and penalties related to unrecognized tax benefits.
During fiscal year 2017, 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 June 6, 2017 and May 31, 2016, total liabilities of $0.9 million and $1.3 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 June 6, 2017, 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 2014.
10. 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 June 6, 2017 and May 31, 2016.
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 June 6, 2017, we had reserved a total of 6,420,000 shares of common stock for the SIP and 1996 SIP. Of the reserved shares at June 6, 2017, 1,694,000 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 June 6, 2017 were 4,726,000.
Stock Options
The following table summarizes our stock option activity under these stock option plans for the fiscal year ended June 6, 2017 (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
|
|
|
2,066
|
|
|
$
|
7.89
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,126
|
|
|
|
3.46
|
|
|
|
|
|
|
|
|
|
Cancellations and forfeitures
|
|
|
(50
|
)
|
|
|
4.49
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(1,448
|
)
|
|
|
6.66
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
1,694
|
|
|
$
|
6.09
|
|
|
|
2.93
|
|
|
$
|
–
|
|
Exercisable at end of year
|
|
|
1,224
|
|
|
$
|
7.00
|
|
|
|
1.72
|
|
|
$
|
–
|
|
The aggregate intrinsic value represents the closing stock price as of June 6, 2017 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 years 2017 and 2016.
The total intrinsic value of stock options exercised during fiscal year 2015 was $0.1 million.
At June 6, 2017, there was approximately $0.3 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 1.6 years. The total fair value at grant date of awards vested during fiscal years 2017, 2016, and 2015 totaled $1.8 million, $1.7 million, and $1.9 million, respectively.
During fiscal year 2017, we granted 879,000 service-based stock options to certain employees under the terms of the SIP.
The stock options awarded vest in equal annual installments over a three-year period following grant of the award, and have a maximum life of seven years.
Also during fiscal 2017, we granted 247,000 service-based stock options to our then Interim Chief Executive Officer under the terms of the SIP.
The stock options awarded cliff vested at the end of fiscal year 2017 and have a maximum life of seven years.
The weighted average Black-Scholes grant date fair value for stock options awarded during fiscal years 2017 and 2015 was $1.21 and $2.27 per share, respectively. No stock options were awarded during fiscal year 2016. 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:
|
|
2017
|
|
|
2015
|
|
Risk-free interest rate
|
|
|
1.08
|
%
|
|
|
1.48
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected stock price volatility
|
|
|
41.19
|
%
|
|
|
44.27
|
%
|
Expected life (in years)
|
|
|
4.34
|
|
|
|
4.50
|
|
Restricted Stock and Restricted Stock Units (“RSU”)
The following table summarizes our restricted stock and RSU activity for the fiscal year ended June 6, 2017 (in thousands, except per-share data):
|
|
2017
|
|
|
|
Shares
|
|
|
Weighted
Average
Fair Value
|
|
Service-Based Vesting:
|
|
|
|
|
|
|
|
|
Unvested at beginning of year
|
|
|
564
|
|
|
$
|
6.29
|
|
Granted
|
|
|
680
|
|
|
|
3.10
|
|
Vested
|
|
|
(618
|
)
|
|
|
5.70
|
|
Cancellations and forfeitures
|
|
|
(45
|
)
|
|
|
5.61
|
|
Unvested at end of year
|
|
|
581
|
|
|
$
|
3.24
|
|
|
|
|
|
|
|
|
|
|
Performance-Based Vesting:
|
|
|
|
|
|
|
|
|
Unvested at beginning of year
|
|
|
225
|
|
|
$
|
6.51
|
|
Cancellations and forfeitures
|
|
|
(108
|
)
|
|
|
6.51
|
|
Unvested at end of year
|
|
|
117
|
|
|
$
|
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 2017, 2016, and 2015 was $1.8 million, $2.1 million, and $5.4 million, respectively. At June 6, 2017, unrecognized compensation expense related to restricted stock and RSU grants expected to vest totaled $1.0 million and will be recognized over a weighted average vesting period of 1.3 years.
During fiscal year 2017, we granted 219,000 restricted shares to non-employee directors under the terms of the SIP. These shares cliff vest over a one year period following the grant date of the award.
During fiscal year 2017, we granted 319,000 RSUs and 142,000 restricted shares to certain employees under the terms of the SIP and 1996 SIP.
The awards will vest in three equal installments over a three-year period following the date of grant.
Phantom
Stock Units
We began granting phantom stock units during fiscal year 2017.
Each phantom stock unit entitles the recipient to receive a cash payment equal to the value of a single share of our common stock upon vesting. The following table summarizes our phantom stock unit activity for the fiscal year ended June 6, 2017 (in thousands):
|
|
Phantom
Stock Units
|
|
Service-Based Vesting:
|
|
|
|
|
Unvested at beginning of year
|
|
|
–
|
|
Granted
|
|
|
652
|
|
Vested
|
|
|
(76
|
)
|
Unvested at end of year
|
|
|
576
|
|
|
|
|
|
|
Performance-Based Vesting:
|
|
|
|
|
Unvested at beginning of year
|
|
|
–
|
|
Granted
|
|
|
598
|
|
Cancellations and forfeitures
|
|
|
(300
|
)
|
Unvested at end of year
|
|
|
298
|
|
During fiscal year 2017, we granted 81,000 service-based phantom stock units to our then Interim Chief Executive Officer.
The phantom stock units cliff vested at the end of the fiscal year 2017. Also during the fiscal year 2017, we granted 571,000 service-based phantom stock units to our senior executive team. The phantom stock units will cliff vest two years following the grant date of the award. During the fourth quarter of fiscal year 2017, 76,000 of these units vested in connection with the departure of our former Ruby Tuesday Concept President.
During the fiscal year 2017, we granted 598,000 performance-based phantom stock units that will vest approximately three years after the grant date.
Vesting of the performance-based phantom stock units is contingent upon the Company's achievement of a same-restaurant sales performance condition related to the next three fiscal years. Of these performance-based phantom stock units, 300,000 were forfeited during fiscal year 2017 primarily in connection with the departure of our former President and Chief Executive Officer and the Ruby Tuesday Concept President.
Included in our Consolidated Balance Sheets are amounts within Accrued liabilities: Payroll and related costs of $0.4 million as of June 6, 2017 and amounts within Other deferred liabilities of $0.5 million and $0.2 million as of June 6, 2017 and May 31, 2016, respectively, relating to all of our long-term incentive awards that will settle in cash.
Included within General
and administrative expenses in our Consolidated Statements of Operations and Comprehensive Loss is share-based compensation expense of $3.6 million, $2.1 million, and $7.1 million for the fiscal years ended June 6, 2017, May 31, 2016, and June 2, 2015, respectively.
As discussed further in Note 8 to the Consolidated Financial Statements, various management personnel left the Company during fiscal years 2017, 2016, and 2015. 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.
11. 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.
In May 2014, a securities class action case styled Dennis Krystek v. Ruby Tuesday, Inc. et al, was filed in the U.S. District Court for the Middle District of Tennessee, Nashville Division.
The case alleged that the Company and some of its former executives made false and misleading statements about the Company's financial performance and the financial performance of the Lime Fresh concept. On March 29, 2017, the Company agreed to settle the case for $5.0 million. We maintain insurance to cover these types of claims with our primary insurance carrier, subject to a self-insured retention which has been met. Our insurance policies cover amounts in excess of our self-insured retention. The parties agreed to resolve the matter and the settlement was funded by the insurance carrier as of June 6, 2017. Final court approval of the settlement agreement was obtained on August 7, 2017. In accordance with ASC Subtopic 405-20-40,
Extinguishment of Liabilities
, and ASC Subtopic 210-20,
Balance Sheet Offsetting
, we have recorded both an accrued liability (included within Accrued liabilities: Rent and other) and Restricted cash, in the amount of $5.0 million, in our Consolidated Balance Sheet as of June 6, 2017.
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 June 6, 2017, we were committed under letters of credit totaling $14.8 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 June 6, 2017 were approximately $42.8 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.
12. 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
|
|
|
June 6, 2017
|
|
|
May 31, 2016
|
|
Deferred compensation plan
– Assets
|
|
|
1
|
|
|
$
|
5,631
|
|
|
$
|
6,660
|
|
Deferred compensation plan
– Liabilities
|
|
|
1
|
|
|
|
(5,631
|
)
|
|
|
(6,660
|
)
|
There were no transfers among levels within the fair value hierarchy during fiscal years 2017 or 2016.
The Deferred Compensation Plan and the Predecessor Plan are unfunded, non-qualified deferred compensation plans for eligible employees. Assets earmarked 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 June 6, 2017 and May 31, 2016 for those assets and liabilities measured on a non-recurring basis (in thousands):
|
|
Fair Value Measurements
|
|
|
|
Level
|
|
|
June 6, 2017
|
|
|
May 31, 2016
|
|
Long-lived assets held for sale
|
|
|
2
|
|
|
$
|
3,499
|
|
|
$
|
2,123
|
|
Long-lived assets held for use
|
|
|
2
|
|
|
|
13,480
|
|
|
|
56,101
|
|
Long-lived assets held for use
|
|
|
3
|
|
|
|
–
|
|
|
|
553
|
|
Total
|
|
|
|
|
|
$
|
16,979
|
|
|
$
|
58,777
|
|
The following table presents the losses recognized during the fiscal years ended June 6, 2017, May 31, 2016, and June 2, 2015 resulting from fair value measurements of assets and liabilities measured on a non-recurring basis. The losses are included in Closures and impairments, net in our Consolidated Statements of Operations and Comprehensive Loss (in thousands):
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Included within
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets held for sale
|
|
$
|
2,862
|
|
|
$
|
447
|
|
|
$
|
1,830
|
|
Long-lived assets held for use
|
|
|
43,112
|
|
|
|
57,706
|
|
|
|
7,992
|
|
Lime Fresh trademark
|
|
|
–
|
|
|
|
1,999
|
|
|
|
–
|
|
|
|
$
|
45,974
|
|
|
$
|
60,152
|
|
|
$
|
9,822
|
|
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 June 6, 2017 and May 31, 2016 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):
|
|
June 6, 2017
|
|
|
May 31, 2016
|
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
Long-term debt (Level 2)
|
|
$
|
213,491
|
|
|
$
|
209,524
|
|
|
$
|
223,526
|
|
|
$
|
223,212
|
|
We estimated the fair value of debt using market quotes and calculations based on market rates.
13. 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 June 6, 2017
(In thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
41,584
|
|
|
$
|
130
|
|
|
$
|
–
|
|
|
$
|
41,714
|
|
Restricted cash
|
|
|
6,445
|
|
|
|
–
|
|
|
|
–
|
|
|
|
6,445
|
|
Accounts and other receivables
|
|
|
1,913
|
|
|
|
5,402
|
|
|
|
–
|
|
|
|
7,315
|
|
Inventories
|
|
|
12,447
|
|
|
|
4,731
|
|
|
|
–
|
|
|
|
17,178
|
|
Income tax receivable
|
|
|
175,535
|
|
|
|
–
|
|
|
|
(172,474
|
)
|
|
|
3,061
|
|
Other current assets
|
|
|
15,969
|
|
|
|
7,355
|
|
|
|
–
|
|
|
|
23,324
|
|
Total current assets
|
|
|
253,893
|
|
|
|
17,618
|
|
|
|
(172,474
|
)
|
|
|
99,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
446,211
|
|
|
|
136,886
|
|
|
|
–
|
|
|
|
583,097
|
|
Investment in subsidiaries
|
|
|
51,214
|
|
|
|
–
|
|
|
|
(51,214
|
)
|
|
|
–
|
|
Due from/(to) subsidiaries
|
|
|
94,281
|
|
|
|
213,066
|
|
|
|
(307,347
|
)
|
|
|
–
|
|
Other assets
|
|
|
37,454
|
|
|
|
4,054
|
|
|
|
–
|
|
|
|
41,508
|
|
Total assets
|
|
$
|
883,053
|
|
|
$
|
371,624
|
|
|
$
|
(531,035
|
)
|
|
$
|
723,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities & Shareholders
’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
14,333
|
|
|
$
|
3,237
|
|
|
$
|
–
|
|
|
$
|
17,570
|
|
Accrued and other current liabilities
|
|
|
47,796
|
|
|
|
33,340
|
|
|
|
–
|
|
|
|
81,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt,
including capital leases
|
|
|
(1,157
|
)
|
|
|
1,525
|
|
|
|
–
|
|
|
|
368
|
|
Income tax payable
|
|
|
–
|
|
|
|
172,474
|
|
|
|
(172,474
|
)
|
|
|
–
|
|
Total current liabilities
|
|
|
60,972
|
|
|
|
210,576
|
|
|
|
(172,474
|
)
|
|
|
99,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital leases,
less current maturities
|
|
|
210,243
|
|
|
|
3,098
|
|
|
|
–
|
|
|
|
213,341
|
|
Due to/(from) subsidiaries
|
|
|
213,066
|
|
|
|
94,281
|
|
|
|
(307,347
|
)
|
|
|
–
|
|
Other deferred liabilities
|
|
|
91,406
|
|
|
|
12,455
|
|
|
|
–
|
|
|
|
103,861
|
|
Total liabilities
|
|
|
575,687
|
|
|
|
320,410
|
|
|
|
(479,821
|
)
|
|
|
416,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders
’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
607
|
|
|
|
–
|
|
|
|
–
|
|
|
|
607
|
|
Capital in excess of par value
|
|
|
79,531
|
|
|
|
–
|
|
|
|
–
|
|
|
|
79,531
|
|
Retained earnings
|
|
|
235,210
|
|
|
|
51,214
|
|
|
|
(51,214
|
)
|
|
|
235,210
|
|
Accumulated other comprehensive loss
|
|
|
(7,982
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(7,982
|
)
|
Total shareholders
’ equity
|
|
|
307,366
|
|
|
|
51,214
|
|
|
|
(51,214
|
)
|
|
|
307,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities & shareholders
’ equity
|
|
$
|
883,053
|
|
|
$
|
371,624
|
|
|
$
|
(531,035
|
)
|
|
$
|
723,642
|
|
Condensed Consolidating Balance Sheet
As of May 31, 2016
(In thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
66,831
|
|
|
$
|
133
|
|
|
$
|
–
|
|
|
$
|
66,964
|
|
Restricted cash
|
|
|
377
|
|
|
|
–
|
|
|
|
–
|
|
|
|
377
|
|
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 Statement of Operations and
Comprehensive (Loss)/Income
For the Fiscal Year Ended June 6, 2017
(In thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant sales and operating revenue
|
|
$
|
694,398
|
|
|
$
|
254,005
|
|
|
$
|
–
|
|
|
$
|
948,403
|
|
Franchise revenue
|
|
|
10
|
|
|
|
3,558
|
|
|
|
–
|
|
|
|
3,568
|
|
Total revenue
|
|
|
694,408
|
|
|
|
257,563
|
|
|
|
–
|
|
|
|
951,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
196,515
|
|
|
|
72,107
|
|
|
|
–
|
|
|
|
268,622
|
|
Payroll and related costs
|
|
|
242,041
|
|
|
|
96,877
|
|
|
|
–
|
|
|
|
338,918
|
|
Other restaurant operating costs
|
|
|
146,391
|
|
|
|
52,305
|
|
|
|
–
|
|
|
|
198,696
|
|
Depreciation and amortization
|
|
|
30,673
|
|
|
|
11,106
|
|
|
|
–
|
|
|
|
41,779
|
|
General and administrative expenses
|
|
|
37,929
|
|
|
|
29,080
|
|
|
|
–
|
|
|
|
67,009
|
|
Marketing expenses, net
|
|
|
40,264
|
|
|
|
13,876
|
|
|
|
–
|
|
|
|
54,140
|
|
Intercompany general
and
administrative allocations
|
|
|
38,558
|
|
|
|
(38,558
|
)
|
|
|
–
|
|
|
|
–
|
|
Closures and impairments, net
|
|
|
47,191
|
|
|
|
22,617
|
|
|
|
–
|
|
|
|
69,808
|
|
Equity in earnings of subsidiaries
|
|
|
(628
|
)
|
|
|
–
|
|
|
|
628
|
|
|
|
–
|
|
Interest expense, net
|
|
|
19,973
|
|
|
|
882
|
|
|
|
–
|
|
|
|
20,855
|
|
Intercompany interest expense/(income)
|
|
|
12,050
|
|
|
|
(12,050
|
)
|
|
|
–
|
|
|
|
–
|
|
Total operating costs and expenses
|
|
|
810,957
|
|
|
|
248,242
|
|
|
|
628
|
|
|
|
1,059,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/income before income taxes
|
|
|
(116,549
|
)
|
|
|
9,321
|
|
|
|
(628
|
)
|
|
|
(107,856
|
)
|
(Benefit)/provision for income taxes
|
|
|
(10,409
|
)
|
|
|
8,693
|
|
|
|
–
|
|
|
|
(1,716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income
|
|
$
|
(106,140
|
)
|
|
$
|
628
|
|
|
$
|
(628
|
)
|
|
$
|
(106,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension liability reclassification
|
|
|
2,127
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2,127
|
|
Total comprehensive (loss)/income
|
|
$
|
(104,013
|
)
|
|
$
|
628
|
|
|
$
|
(628
|
)
|
|
$
|
(104,013
|
)
|
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
|
|
General
and administrative expenses
|
|
|
32,264
|
|
|
|
25,927
|
|
|
|
–
|
|
|
|
58,191
|
|
Marketing expenses, net
|
|
|
37,748
|
|
|
|
13,688
|
|
|
|
–
|
|
|
|
51,436
|
|
Intercompany general
and
administrative allocations
|
|
|
42,870
|
|
|
|
(42,870
|
)
|
|
|
–
|
|
|
|
–
|
|
Closures and impairments, net
|
|
|
40,683
|
|
|
|
23,997
|
|
|
|
–
|
|
|
|
64,680
|
|
Equity in earnings of subsidiaries
|
|
|
(15,212
|
)
|
|
|
–
|
|
|
|
15,212
|
|
|
|
–
|
|
Gain on sales of Lime Fresh Mexican Grill assets
|
|
|
(5,937
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(5,937
|
)
|
Interest expense, net
|
|
|
18,329
|
|
|
|
3,425
|
|
|
|
–
|
|
|
|
21,754
|
|
Intercompany interest expense/(income)
|
|
|
12,143
|
|
|
|
(12,143
|
)
|
|
|
–
|
|
|
|
–
|
|
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, 2015
(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
|
|
General
and administrative expenses
|
|
|
39,261
|
|
|
|
26,646
|
|
|
|
–
|
|
|
|
65,907
|
|
Marketing expenses, net
|
|
|
36,157
|
|
|
|
13,263
|
|
|
|
–
|
|
|
|
49,420
|
|
Intercompany 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 Cash Flows
For the Fiscal Year Ended June 6, 2017
(In thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
(used in) provided by operating activities
|
|
$
|
(18,767
|
)
|
|
$
|
48,926
|
|
|
$
|
(49,093
|
)
|
|
$
|
(18,934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(26,065
|
)
|
|
|
(7,444
|
)
|
|
|
–
|
|
|
|
(33,509
|
)
|
Proceeds from disposal of assets
|
|
|
17,051
|
|
|
|
17,749
|
|
|
|
–
|
|
|
|
34,800
|
|
Insurance proceeds from property claims
|
|
|
462
|
|
|
|
202
|
|
|
|
–
|
|
|
|
664
|
|
Reductions in deferred compensation plan assets
|
|
|
1,890
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,890
|
|
Other, net
|
|
|
2,842
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2,842
|
|
Net cash
(used in) provided by investing activities
|
|
|
(3,820
|
)
|
|
|
10,507
|
|
|
|
–
|
|
|
|
6,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt
|
|
|
7
|
|
|
|
(11,093
|
)
|
|
|
–
|
|
|
|
(11,086
|
)
|
Stock repurchases
|
|
|
(26
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(26
|
)
|
Payments for debt issuance costs
|
|
|
(1,891
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(1,891
|
)
|
Dividends paid
|
|
|
–
|
|
|
|
(48,343
|
)
|
|
|
48,343
|
|
|
|
–
|
|
Net transactions with related entities
|
|
|
(750
|
)
|
|
|
–
|
|
|
|
750
|
|
|
|
–
|
|
Net cash used
in financing activities
|
|
|
(2,660
|
)
|
|
|
(59,436
|
)
|
|
|
49,093
|
|
|
|
(13,003
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(25,247
|
)
|
|
|
(3
|
)
|
|
|
–
|
|
|
|
(25,250
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of fiscal year
|
|
|
66,831
|
|
|
|
133
|
|
|
|
–
|
|
|
|
66,964
|
|
End of fiscal year
|
|
$
|
41,584
|
|
|
$
|
130
|
|
|
$
|
–
|
|
|
$
|
41,714
|
|
Condensed Consolidating Statement of Cash Flows
For the Fiscal Year Ended May 31, 2016
(In thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
(used in) provided by operating activities
|
|
$
|
15,384
|
|
|
$
|
71,061
|
|
|
$
|
(46,665
|
)
|
|
$
|
39,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(24,174
|
)
|
|
|
(10,253
|
)
|
|
|
–
|
|
|
|
(34,427
|
)
|
Proceeds from disposal of assets
|
|
|
11,701
|
|
|
|
–
|
|
|
|
–
|
|
|
|
11,701
|
|
Insurance proceeds from property claims
|
|
|
350
|
|
|
|
–
|
|
|
|
–
|
|
|
|
350
|
|
Reductions in deferred compensation plan assets
|
|
|
1,049
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,049
|
|
Other, net
|
|
|
1,572
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,572
|
|
Net cash used
in 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
|
)
|
Dividends paid
|
|
|
–
|
|
|
|
(45,108
|
)
|
|
|
45,108
|
|
|
|
–
|
|
Net transactions with related entities
|
|
|
(1,557
|
)
|
|
|
–
|
|
|
|
1,557
|
|
|
|
–
|
|
Net cash
(used in) provided by financing activities
|
|
|
(14,045
|
)
|
|
|
(60,972
|
)
|
|
|
46,665
|
|
|
|
(28,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(8,163
|
)
|
|
|
(164
|
)
|
|
|
–
|
|
|
|
(8,327
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of fiscal year
|
|
|
74,994
|
|
|
|
297
|
|
|
|
–
|
|
|
|
75,291
|
|
End of fiscal year
|
|
$
|
66,831
|
|
|
$
|
133
|
|
|
$
|
–
|
|
|
$
|
66,964
|
|
Condensed Consolidating Statement of Cash Flows
For the Fiscal Year Ended June 2, 2015
(In thousands)
|
|
Parent
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by
(used in) operating activities
|
|
$
|
63,219
|
|
|
$
|
77,717
|
|
|
$
|
(85,882
|
)
|
|
$
|
55,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(23,326
|
)
|
|
|
(7,684
|
)
|
|
|
–
|
|
|
|
(31,010
|
)
|
Proceeds from disposal of assets
|
|
|
10,213
|
|
|
|
1,047
|
|
|
|
–
|
|
|
|
11,260
|
|
Insurance proceeds from property claims
|
|
|
10
|
|
|
|
135
|
|
|
|
–
|
|
|
|
145
|
|
Reductions in deferred compensation plan assets
|
|
|
1,318
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,318
|
|
Other, net
|
|
|
790
|
|
|
|
–
|
|
|
|
–
|
|
|
|
790
|
|
Net cash used
in 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
|
|
Dividends paid
|
|
|
–
|
|
|
|
(57,590
|
)
|
|
|
57,590
|
|
|
|
–
|
|
Net
transactions with related entities
|
|
|
(28,292
|
)
|
|
|
–
|
|
|
|
28,292
|
|
|
|
–
|
|
Net cash
(used in) provided by financing activities
|
|
|
(28,059
|
)
|
|
|
(71,232
|
)
|
|
|
85,882
|
|
|
|
(13,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease) in cash and cash equivalents
|
|
|
24,165
|
|
|
|
(17
|
)
|
|
|
–
|
|
|
|
24,148
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of fiscal year
|
|
|
50,829
|
|
|
|
314
|
|
|
|
–
|
|
|
|
51,143
|
|
End of fiscal year
|
|
$
|
74,994
|
|
|
$
|
297
|
|
|
$
|
–
|
|
|
$
|
75,291
|
|
14. Supplemental Quarterly Financial Data (Unaudited)
Quarterly financial results for the fiscal years ended June 6, 2017 and May 31, 2016, are summarized below.
(In thousands, except per-share data)
|
|
For the Fiscal Year Ended June 6, 2017
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
256,657
|
|
|
$
|
214,719
|
|
|
$
|
225,732
|
|
|
$
|
254,863
|
|
|
$
|
951,971
|
|
Gross profit*
|
|
$
|
36,497
|
|
|
$
|
25,539
|
|
|
$
|
36,226
|
|
|
$
|
47,473
|
|
|
$
|
145,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(41,386
|
)
|
|
$
|
(37,920
|
)
|
|
$
|
(19,889
|
)
|
|
$
|
(8,661
|
)
|
|
$
|
(107,856
|
)
|
(
Benefit) provision for income taxes
|
|
|
(1,694
|
)
|
|
|
36
|
|
|
|
(84
|
)
|
|
|
26
|
|
|
|
(1,716
|
)
|
Net loss
|
|
$
|
(39,692
|
)
|
|
$
|
(37,956
|
)
|
|
$
|
(19,805
|
)
|
|
$
|
(8,687
|
)
|
|
$
|
(106,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share **
|
|
$
|
(0.66
|
)
|
|
$
|
(0.63
|
)
|
|
$
|
(0.33
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(1.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share **
|
|
$
|
(0.66
|
)
|
|
$
|
(0.63
|
)
|
|
$
|
(0.33
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(1.76
|
)
|
|
|
For the Fiscal 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
|
)
|
* 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 June 6, 2017.
** The sum of the quarterly
loss 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.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Ruby Tuesday, Inc.:
We have audited the accompanying consolidated balance sheets of Ruby Tuesday, Inc. and
subsidiaries (the Company) as of June 6, 2017 and May 31, 2016, 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 June 6, 2017. 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 June 6, 2017 and May 31, 2016, and the resu
lts of their operations and their cash flows for each of the years in the three-year period ended June 6, 2017, 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 Bo
ard (United States), Ruby Tuesday, Inc.’s internal control over financial reporting as of June 6, 2017, 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 21, 2017 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Knoxville, Tennessee
August 21, 2017
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Ruby Tuesday, Inc.:
We have audited Ruby Tuesday, Inc.
’s (the Company) internal control over financial reporting as of June 6, 2017, 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 subje
ct 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 cont
rol over financial reporting as of June 6, 2017, 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 June 6, 2017 and May 31, 2016, 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 June 6, 2017, and our report dated August 21, 2017 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Knoxville, Tennessee
August 21, 2017