RUBY TUESDAY INC - FORM 10-Q

Attached files

file	filename
EX-10.1 - FIRST AMENDMENT TO EXEC COMP PLAN - RUBY TUESDAY INC	ex_10-1.htm
EX-31.2 - 302 CFO CERTIFICATION - RUBY TUESDAY INC	ex_31-2.htm
EX-32.2 - 906 CFO CERTIFICATION - RUBY TUESDAY INC	ex_32-2.htm
EX-12.1 - COMPUTATION RATIO TO FC - RUBY TUESDAY INC	ex_12-1.htm
EX-18.1 - PREFERABILITY LETTER - RUBY TUESDAY INC	ex_18-1.htm
EX-32.1 - 906 CEO CERTIFICATION - RUBY TUESDAY INC	ex_32-1.htm
EX-31.1 - 302 CEO CERTIFICATION - RUBY TUESDAY INC	ex_31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: September 1, 2015

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from __________ to _________

Commission file number 1-12454

______________

RUBY TUESDAY, INC.

(Exact name of registrant as specified in its charter)

GEORGIA		63-0475239
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

150 West Church Avenue, Maryville, Tennessee 37801

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (865) 379-5700

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer x

Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

	61,951,255
(Number of shares of common stock, $0.01 par value, outstanding as of October 6, 2015)

RUBY TUESDAY, INC.

INDEX

	Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
SEPTEMBER 1, 2015 AND JUNE 2, 2015	4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE (LOSS)/INCOME FOR THE THIRTEEN WEEKS
ENDED SEPTEMBER 1, 2015 AND SEPTEMBER 2, 2014	5
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS FOR THE THIRTEEN WEEKS ENDED
SEPTEMBER 1, 2015 AND SEPTEMBER 2, 2014	6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS	7-27
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS	28-39
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK	39
ITEM 4. CONTROLS AND PROCEDURES	40
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	40
ITEM 1A. RISK FACTORS	40
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	41
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	41
ITEM 4. MINE SAFETY DISCLOSURES	41
ITEM 5. OTHER INFORMATION	41
ITEM 6. EXHIBITS	42
SIGNATURES	43

Special Note Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements represent our expectations or beliefs concerning future events, including one or more of the following: future financial performance (including our estimates of growth in same-restaurant sales, average unit volumes, operating margins, expenses, and other items), future capital expenditures, the effect of strategic initiatives (including statements relating to cost savings initiatives and the benefits of our marketing), the opening or closing of restaurants by us or our franchisees, sales of our real estate or purchases of new real estate, future borrowings and repayments of debt, availability of financing on terms attractive to the Company, compliance with financial covenants in our debt instruments, payment of dividends, stock and bond repurchases, restaurant acquisitions, and changes in senior management and in the Board of Directors. We caution the reader that a number of important factors and uncertainties could, individually or in the aggregate, cause our actual results to differ materially from those included in the forward-looking statements, including, without limitation, the risks and uncertainties described in the Risk Factors included in Part I, Item A of our Annual Report on Form 10-K for the year ended June 2, 2015 and in Part II, Item 1A of this Quarterly Report on Form 10-Q for the 13 weeks ended September 1, 2015.

PART I — FINANCIAL INFORMATION

ITEM 1.

RUBY TUESDAY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS EXCEPT PER-SHARE DATA)

(UNAUDITED)

	SEPTEMBER 1,			JUNE 2,
	2015			2015
				(as adjusted)

Assets	(NOTE 1)
Current assets:
Cash and cash equivalents	$	56,938		$	75,331
Accounts receivable		6,001			5,287
Inventories:
Merchandise		14,758			12,861
China, silver and supplies		8,025			7,550
Income tax receivable		432			–
Prepaid rent and other expenses		13,816			12,398
Assets held for sale		3,574			5,453
Total current assets		103,544			118,880

Property and equipment, net		746,667			752,174
Deferred income taxes, net		1,794			–
Other assets		51,876			54,398
Total assets	$	903,881		$	925,452

Liabilities & Shareholders’ Equity
Current liabilities:
Accounts payable	$	17,650		$	23,005
Accrued liabilities:
Taxes, other than income and payroll		11,435			11,067
Payroll and related costs		13,919			20,351
Insurance		7,342			7,633
Deferred revenue – gift cards		15,082			16,636
Rent and other		25,128			20,535
Current portion of long-term debt, including capital leases		1,828			10,078
Income tax payable		–			1,069
Deferred income taxes, net		1,982			7
Total current liabilities		94,366			110,381

Long-term debt and capital leases, less current maturities		230,557			231,017
Deferred income taxes, net		–			1,442
Deferred escalating minimum rent		51,713			50,768
Other deferred liabilities		66,185			66,261
Total liabilities		442,821			459,869

Commitments and contingencies (Note 12)

Shareholders’ equity:
Common stock, $0.01 par value; (authorized: 100,000 shares;
Issued and outstanding: 61,951 shares at 9/01/15; 62,098 shares at 6/02/15)		620			621
Capital in excess of par value		83,586			83,870
Retained earnings		387,838			392,032
Deferred compensation liability payable in
Company stock		670			681
Company stock held by Deferred Compensation Plan		(670	)		(681	)
Accumulated other comprehensive loss		(10,984	)		(10,940	)
Total shareholders’ equity		461,060			465,583

Total liabilities & shareholders’ equity	$	903,881		$	925,452

The accompanying notes are an integral part of the condensed consolidated financial statements.

RUBY TUESDAY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE (LOSS)/INCOME

(IN THOUSANDS EXCEPT PER-SHARE DATA)

(UNAUDITED)

	THIRTEEN WEEKS ENDED
	SEPTEMBER 1, 2015			SEPTEMBER 2, 2014
				(as adjusted)

	(NOTE 1)

Revenue:
Restaurant sales and operating revenue	$	277,907		$	279,457
Franchise revenue		1,573			1,725
		279,480			281,182
Operating costs and expenses:
Cost of goods sold (excluding depreciation and
amortization shown below)		76,241			75,147
Payroll and related costs		95,335			95,842
Other restaurant operating costs		62,207			59,218
Depreciation and amortization		12,806			13,239
Selling, general and administrative, net		29,396			30,901
Closures and impairments		2,712			1,482
Interest expense, net		6,000			5,422
		284,697			281,251

Loss before income taxes		(5,217	)		(69	)
Benefit for income taxes		(1,023	)		(2,634	)

Net (loss)/income	$	(4,194	)	$	2,565

Other comprehensive (loss)/income:
Changes in pension and postretirement benefits		(44	)		463
Total comprehensive (loss)/income	$	(4,238	)	$	3,028

(Loss)/earnings per share:
Basic	$	(0.07	)	$	0.04
Diluted	$	(0.07	)	$	0.04

Weighted average shares:
Basic		61,344			60,419
Diluted		61,344			61,053

The accompanying notes are an integral part of the condensed consolidated financial statements.

RUBY TUESDAY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

	THIRTEEN WEEKS ENDED
	SEPTEMBER 1, 2015			SEPTEMBER 2, 2014
				(as adjusted)

	(NOTE 1)
Operating activities:
Net (loss)/income	$	(4,194	)	$	2,565
Adjustments to reconcile net (loss)/income to net cash
provided by operating activities:
Depreciation and amortization		12,806			13,239
Deferred income taxes		(1,345	)		(2,840	)
Loss on impairments, including disposition of assets		2,278			1,462
Share-based compensation expense		(279	)		1,749
Lease reserve adjustments		604			466
Deferred escalating minimum rent		557			617
Other, net		1,258			(225	)
Changes in operating assets and liabilities:
Receivables		74			227
Inventories		(2,372	)		1,180
Income taxes		(1,501	)		402
Prepaid and other assets		(966	)		(978	)
Accounts payable, accrued and other liabilities		(9,391	)		(4,782	)
Net cash (used)/provided by operating activities		(2,471	)		13,082

Investing activities:
Purchases of property and equipment		(9,942	)		(6,977	)
Proceeds from disposal of assets		2,746			273
Insurance proceeds from property claims		–			135
Reductions in Deferred Compensation Plan assets		209			370
Net cash used by investing activities		(6,987	)		(6,199	)

Financing activities:
Principal payments on long-term debt and capital leases		(8,901	)		(1,205	)
Stock repurchases		(9	)		(55	)
Payments for debt issuance costs		(25	)		(60	)
Net cash used by financing activities		(8,935	)		(1,320	)

(Decrease)/increase in cash and cash equivalents		(18,393	)		5,563
Cash and cash equivalents:
Beginning of year		75,331			51,326
End of quarter	$	56,938		$	56,889

Supplemental disclosure of cash flow information:
Cash paid for:
Interest, net of amount capitalized	$	1,478		$	919
Income taxes, net	$	1,759		$	25
Significant non-cash investing and financing activities:
Retirement of fully depreciated assets	$	5,956		$	5,115
Reclassification of properties to assets held for sale	$	325		$	2,967

The accompanying notes are an integral part of the condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

Ruby Tuesday, Inc., including its wholly-owned subsidiaries (“RTI,” the “Company,” “we,” and/or “our”), owns and operates Ruby Tuesday® casual dining and Lime Fresh Mexican Grill® (“Lime Fresh”) fast casual restaurants. We also franchise the Ruby Tuesday concept in selected domestic and international markets and the Lime Fresh concept in selected domestic markets. The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring entries) considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the 13-week period ended September 1, 2015 are not necessarily indicative of results that may be expected for the 52-week year ending May 31, 2016.

The Condensed Consolidated Balance Sheet at June 2, 2015 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. As discussed below, we have made certain reclassifications to prior year amounts in our Condensed Consolidated Financial Statements to conform to the current period.

For further information, refer to the consolidated financial statements and footnotes thereto included in RTI’s Annual Report on Form 10-K for the fiscal year ended June 2, 2015.

Reclassifications

As further reflected in Note 6 to the Condensed Consolidated Financial Statements, we adopted Accounting Standards Update (“ASU”) 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”) during the quarter ended September 1, 2015. As shown in the table below, pursuant to the guidance in ASU 2015-03 we have reclassified unamortized debt issuance costs associated with our senior notes and mortgage loan obligations in our previously reported Consolidated Balance Sheet as of June 2, 2015 as follows (in thousands):

	As presented June 2, 2015		Reclassifications			As adjusted June 2, 2015
Prepaid rent and other expenses	$	13,181	$	(783	)	$	12,398
Other assets		57,554		(3,156	)		54,398
Current maturities of long-term debt,
including capital leases		10,861		(783	)		10,078
Long-term debt and capital leases,
less current maturities		234,173		(3,156	)		231,017

As shown in the table below, we have also reclassified amortization of intangible assets from Other restaurant operating costs to Depreciation and amortization in the Condensed Consolidated Statements of Operations and Comprehensive (Loss)/Income for the prior period to be comparable with the classification for the 13 weeks ended September 1, 2015. We made this reclassification to more accurately reflect the nature of the expenses in our Condensed Consolidated Statements of Operations and Comprehensive (Loss)/Income. Amounts presented are in thousands.

	As presented Thirteen weeks ended September 2, 2014		Reclassifications			As adjusted Thirteen weeks ended September 2, 2014
Other restaurant operating costs	$	59,799	$	(581	)	$	59,218
Depreciation and amortization		12,658		581			13,239

Change in Accounting Principle

During the 13 weeks ended September 1, 2015, we completed the implementation of a new inventory management system in our company-owned restaurants. In connection with this implementation, we changed our method of accounting for inventory from the lower of cost (first-in, first-out) or market method utilized by our legacy system to the lower of cost or market method using a weighted-average cost method. We believe this change in accounting principle is preferable because we believe it will result in greater precision in the costing of inventories. In addition, the weighted-average cost method better aligns with the functionality of the new inventory management system. We determined that the effects of adopting the average cost method as of September 1, 2015 were not material to our Condensed Consolidated Financial Statements. Prior to the conversion to the new inventory management system, we were not able to determine the impact of the change to the weighted-average cost method. Therefore, we did not retroactively apply the change to periods prior to fiscal year 2016.

NOTE 2 – (LOSS)/EARNINGS PER SHARE

Basic (loss)/earnings per share is computed by dividing net (loss)/income by the weighted average number of common shares outstanding during each period presented. Diluted (loss)/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 Condensed Consolidated Statements of Operations and Comprehensive (Loss)/Income (in thousands, except per share data):

	Thirteen weeks ended
	September 1, 2015			September 2, 2014
Net (loss)/income	$	(4,194	)	$	2,565

Weighted average common shares outstanding		61,344			60,419
Dilutive effect of stock options and restricted stock		–			634
Weighted average common and dilutive potential
common shares outstanding		61,344			61,053

Basic (loss)/earnings per share	$	(0.07	)	$	0.04
Diluted (loss)/earnings per share	$	(0.07	)	$	0.04

Stock options with an exercise price greater than the average market price of our common stock and certain options, restricted stock, and restricted share 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 stock options, restricted shares, and restricted share units that were excluded from the computation of diluted loss per share because their inclusion would have had an anti-dilutive effect (in thousands):

	Thirteen weeks ended
	September 1, 2015	September 2, 2014
Stock options	2,813	2,826
Restricted shares / Restricted share units	749	8
Total	3,562	2,834

NOTE 3 – FRANCHISE PROGRAMS

As of September 1, 2015, our domestic and international franchisees collectively operated 78 domestic and international Ruby Tuesday restaurants and eight domestic Lime Fresh restaurants. We do not own any equity interest in our existing franchisees.

Under the terms of the franchise operating agreements, we charge a royalty fee (generally 4.0% of monthly gross sales for our Ruby Tuesday concept franchisees and 5.25% of monthly gross sales for our Lime Fresh concept franchisees) and require all domestic franchisees to contribute a percentage, 1.5% as of September 1, 2015, of monthly gross sales to a national advertising fund formed to cover their pro rata portion of the production and airing costs associated with our national advertising campaign. Under the terms of those agreements, we can charge up to 3.0% of monthly gross sales for this national advertising fund.

Advertising amounts received from domestic franchisees are considered by RTI to be reimbursements, recorded on an accrual basis as earned, and have been netted against Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive (Loss)/Income.

In addition to the advertising fee discussed above, our Ruby Tuesday concept franchise agreements allow us to charge up to a 2.0% support service fee and a 1.5% marketing and purchasing fee. Our last support services contract expired on June 30, 2015. For the 13 weeks ended September 1, 2015 and September 2, 2014, we recorded $0.2 million and $0.5 million, respectively, in support service and marketing and purchasing fees, which were an offset to Selling, general and administrative, net in our Condensed Consolidated Statements of Operations and Comprehensive (Loss)/Income.

NOTE 4 – ACCOUNTS RECEIVABLE

Accounts receivable consist of the following (in thousands):

	September 1, 2015		June 2, 2015

Rebates receivable	$	816	$	943
Amounts due from franchisees		2,117		1,995
Third-party gift card sales		952		1,330
Other receivables		2,116		1,019
	$	6,001	$	5,287

We negotiate purchase arrangements, including price terms, with designated and approved suppliers on behalf of us and our franchise system. We receive various volume discounts and rebates based on purchases for our Company-owned restaurants from numerous suppliers.

Amounts due from franchisees consist of royalties, license and other miscellaneous fees, a substantial portion of which represents current and recently-invoiced billings.

NOTE 5 – PROPERTY, EQUIPMENT, ASSETS HELD FOR SALE, AND OPERATING LEASES

Property and equipment, net, is comprised of the following (in thousands):

	September 1, 2015		June 2, 2015

Land	$	212,068	$	212,073
Buildings		427,786		426,813
Improvements		355,915		358,549
Restaurant equipment		248,469		247,775
Other equipment		88,954		87,782
Surplus properties*		10,145		10,504
Construction in progress and other		3,814		4,316
		1,347,151		1,347,812
Less accumulated depreciation		600,484		595,638
	$	746,667	$	752,174

* Surplus properties represent assets held for sale that are not classified as such in the Condensed 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 Condensed Consolidated Balance Sheets at September 1, 2015 and June 2, 2015 are amounts classified as held for sale totaling $3.6 million and $5.5 million, respectively. Assets held for sale primarily consist of parcels of land upon which we have no intention to build restaurants, land and buildings of closed restaurants, and various liquor licenses. During the 13 weeks ended September 1, 2015, we sold surplus properties with carrying values of $2.1 million at net gains of $0.6 million. During the 13 weeks ended September 2, 2014, we sold liquor licenses with no carrying value at a gain of $0.3 million. Cash proceeds, net of broker fees, from these sales totaled $2.7 million and $0.3 million for the 13 weeks ended September 1, 2015 and September 2, 2014, respectively.

NOTE 6 – LONG-TERM DEBT AND CAPITAL LEASES

Long-term debt and capital lease obligations consist of the following (in thousands):

	September 1, 2015			June 2, 2015
				(as adjusted)
Senior unsecured notes	$	215,000		$	215,000
Unamortized discount		(2,073	)		(2,162	)
Unamortized debt issuance costs		(3,504	)		(3,656	)
Senior unsecured notes less unamortized discount and
debt issuance costs		209,423			209,182
Revolving credit facility		–			–
Mortgage loan obligations		22,696			31,607
Unamortized premium - mortgage loan obligations		225			383
Unamortized debt issuance costs - mortgage loan obligations		(176	)		(283	)
Capital lease obligations		217			206
		232,385			241,095
Less current maturities		1,828			10,078
	$	230,557		$	231,017

On May 14, 2012, we entered into an indenture (the “Indenture”) among the 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 $5.1 million and $1.1 million as of September 1, 2015 and June 2, 2015, respectively, and is included in Accrued liabilities – Rent and other in our Consolidated Balance Sheets. The Senior Notes mature on May 15, 2020.

part, at the redemption prices specified in the Indenture plus accrued and unpaid interest. We may redeem up to 35% of the original aggregate principal balance of the Senior Notes from the proceeds of certain equity offerings. There is no sinking fund for the Senior Notes.

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; and (vii) sell or transfer certain assets. The Indenture also restricts the declaration and payment of a dividend or other distribution on, and/or repurchase by RTI in respect of, its outstanding common stock at any time and from time to time. These covenants are subject to a number of important exceptions and qualifications, as described in the Indenture, and certain covenants will not apply at any time when the Senior Notes are rated investment grade by the Rating Agencies, as defined in the Indenture. The Indenture also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Senior Notes to be due and payable immediately.

On December 3, 2013, we entered into a four-year revolving credit agreement (the “Senior Credit Facility”) under which we may borrow up to $50.0 million with the option, subject to certain conditions, to increase the facility by up to $35.0 million. The terms of the Senior Credit Facility provide for a $25.0 million sublimit for the issuance of standby letters of credit.

Under the terms of the Senior Credit Facility, interest rates charged on borrowings can vary depending on the interest rate option we choose to utilize. Our options for the rate are a Base Rate or LIBOR plus an applicable margin, provided that the rate shall not be less than zero. The Base Rate is defined as the highest of the issuing bank’s prime rate, the Federal Funds rate plus 0.50%, or the Adjusted LIBO rate (as defined in the Senior Credit Facility) plus 1.0%. The applicable margin for the LIBOR rate-based option is a percentage ranging from 2.50% to 3.50% and for the Base Rate option is a percentage ranging from 1.50% to 2.50%. We pay commitment fees quarterly ranging from 0.40% to 0.75% on the unused portion of the Senior Credit Facility.

As security for the Senior Credit Facility, we granted the lenders liens and security interests in substantially all of the shares of capital stock of the Company and each of our present and future subsidiaries, substantially all of the personal property of the Company and each of our present and future subsidiaries, and the real property, improvements, and fixtures of 49 Ruby Tuesday restaurants. The real property, improvements, and fixtures of the 49 restaurants pledged as collateral appraised at $101.4 million at the time of the transaction and have a September 1, 2015 net book value of $78.8 million.

We had no borrowings outstanding under the Senior Credit Facility at September 1, 2015. After consideration of letters of credit outstanding, we had $38.3 million available under the Senior Credit Facility as of September 1, 2015.

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. We did not repurchase any Senior Notes during the 13 weeks ended September 1, 2015.

Under the Senior Credit Facility, we are required to comply with financial covenants relating to the maintenance of a maximum leverage ratio and a minimum fixed charge coverage ratio. The terms of the Senior Credit Facility require us to maintain a maximum leverage ratio of no more than 4.75 to 1.0 and a minimum fixed charge coverage ratio of 1.45 to 1.0 for the quarter ended September 1, 2015. For the remainder of fiscal year 2016, the Senior Credit Facility requires us to maintain a maximum leverage ratio of 4.50 to 1.0 for our second and third fiscal quarters and 4.40 to 1.0 for our fourth fiscal quarter, and requires us to maintain a minimum fixed charge coverage ratio of 1.50 to 1.0 for our second fiscal quarter,

1.55 to 1.0 for our third fiscal quarter, and 1.60 to 1.0 for our fourth fiscal quarter. The minimum required ratios fluctuate thereafter as provided in the Senior Credit Facility.

The Senior Credit Facility terminates no later than December 3, 2017. Upon the occurrence of an event of default, the lenders may terminate the loan commitments, accelerate all loans and exercise any of their rights under the Senior Credit Facility and any ancillary loan documents.

On December 3, 2013, in connection with our entry into the Senior Credit Facility, the Company and certain of its subsidiaries entered into loan modification agreements (the “Loan Modification Agreements”) with certain mortgage lenders to, among other things, provide waivers and consents under certain of our mortgage loan obligations to enter into the Senior Credit Facility. The Loan Modification Agreements also amended certain financial reporting requirements under the specified loans and modify and/or provide for certain financial covenants for the specified loans, including the maximum leverage ratio and the minimum fixed charge coverage ratio.

We were in compliance with our maximum leverage ratio and our minimum consolidated fixed charge coverage ratio as of September 1, 2015.

Our $22.7 million in mortgage loan obligations as of September 1, 2015 consists of various loans acquired upon franchise acquisitions. These loans, which mature between January 2017 and October 2021, have balances which range from $0.7 million to $7.2 million and interest rates of 7.60% to 10.17%. Many of the properties acquired from franchisees collateralize the loans outstanding.

During the 13 weeks ended September 1, 2015, we prepaid and retired ten mortgage loan obligations with an aggregate balance of $8.3 million as of June 2, 2015 using cash on hand. Additionally, we paid $0.9 million in prepayment premiums and an insignificant amount 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 26 properties which had served as collateral.

NOTE 7 – CLOSURES AND IMPAIRMENTS EXPENSE

Closures and impairments expense includes the following for the thirteen weeks ended September 1, 2015 and September 2, 2014 (in thousands):

	September 1, 2015			September 2, 2014

Closures and impairments from continuing operations
Property impairments	$	2,577		$	1,056
Closed restaurant lease reserves		604			466
Other closing expense		121			233
Gain on sale of surplus properties		(590	)		(273	)
Closures and impairments, net	$	2,712		$	1,482

A rollforward of our reserve for future lease obligations associated with closed properties is as follows (in thousands):

	Reserve for Lease Obligations
Balance at June 2, 2015	$	7,051
Closing expense including rent and other lease charges		604
Payments		(627	)
Other adjustments		(368	)
Balance at September 1, 2015	$	6,660

The amounts comprising future lease obligations in the table above are estimated using certain assumptions, including the period of time it will take to settle the lease with the landlord or find a suitable sublease tenant, and the amount of actual future cash payments could differ from our recorded lease obligations. Of the total future lease obligations included in the table above, $6.6 million and $7.0 million are included within the Accrued liabilities – Rent and other caption in our Condensed Consolidated Balance Sheets as of September 1, 2015 and June 2, 2015, respectively. For the remainder of fiscal year 2016 and beyond, we expect that 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.

NOTE 8 – EMPLOYEE POST-EMPLOYMENT 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 may enter the Retirement Plan after that date. Participants receive benefits based upon salary and length of service.

Minimum funding for the Retirement Plan is determined in accordance with the guidelines set forth in employee benefit and tax laws. From time to time we may contribute additional amounts as we deem appropriate. We estimate that we will be required to make contributions totaling $0.1 million to the Retirement Plan during the remainder of fiscal year 2016.

Executive Supplemental Pension Plan and Management Retirement Plan

Under these unfunded defined benefit pension plans, eligible employees earn supplemental retirement income based upon salary and length of service, reduced by social security benefits and amounts otherwise receivable under other specified Company retirement plans. Effective June 1, 2001, the Management Retirement Plan was amended so that no additional benefits would accrue and no new participants may enter the plan after that date.

Included in our Condensed Consolidated Balance Sheets as of September 1, 2015 and June 2, 2015 are amounts within Accrued liabilities: Payroll and related costs of $3.2 million as of both dates and amounts within Other deferred liabilities of $34.8 million and $33.9 million, respectively, relating to our three defined benefit pension plans.

Postretirement Medical and Life Benefits

Our Postretirement Medical and Life Benefits plans provide medical 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 costs and the amounts recognized in our Condensed Consolidated Financial Statements 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 (in thousands):

	Pension Plans
	Thirteen weeks ended
	September 1, 2015			September 2, 2014
Service cost	$	230		$	75
Interest cost		599			443
Expected return on plan assets		(103	)		(124	)
Recognized actuarial loss		628			430
Net periodic benefit cost	$	1,354		$	824

	Postretirement Medical and Life Benefits
	Thirteen weeks ended
	September 1, 2015		September 2, 2014
Service cost	$	1	$	1
Interest cost		12		12
Recognized actuarial loss		32		33
Net periodic benefit cost	$	45	$	46

During the 13 weeks ended September 1, 2015 and September 2, 2014, we reclassified recognized actuarial losses of $0.7 million and $0.5 million, respectively, out of accumulated other comprehensive loss and into pension expense, which is included in Selling, general and administrative, net within our Condensed Consolidated Statements of Operations and Comprehensive (Loss)/Income.

Accumulated other comprehensive loss in our Condensed Consolidated Balance Sheets as of September 1, 2015 and June 2, 2015 was $11.0 million and $10.9 million, respectively. The change in accumulated other comprehensive loss during the 13 weeks ended September 1, 2015 was attributable to $0.7 million of recognized actuarial losses as discussed above which were offset by $0.7 million of additional liability related to our pension plans.

We also sponsor two defined contribution retirement savings plans. Information regarding these plans is included in our Annual Report on Form 10-K for the fiscal year ended June 2, 2015.

NOTE 9 – INCOME TAXES

Under Accounting Standards Codification 740 (“ASC 740”), companies are required to apply their estimated annual tax rate on a year-to-date basis in each interim period. Under ASC 740, companies should not apply the estimated annual tax rate to interim financial results if the estimated annual tax rate is not reliably predictable. In this situation, the interim tax rate should be based on the actual year-to-date results. Due to changes in our projections, which have fluctuated as we work through our brand repositioning, a reliable projection of our annual effective rate has been difficult to determine. As such, we recorded a tax provision for the 13 weeks ended September 1, 2015 based on the actual year-to-date results, in accordance with ASC 740.

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 $65.5 million and $62.8 million as of September 1, 2015 and June 2, 2015, respectively.

We recorded a tax benefit of $1.0 million and $2.6 million for the 13 weeks ended September 1, 2015 and September 2, 2014, respectively. Included in our $2.6 million tax benefit for the 13 weeks ended September 2, 2014 was a benefit of $3.2 million representing an immaterial prior period correction to our deferred tax asset valuation allowance.

We had a gross liability for unrecognized tax benefits, exclusive of accrued interest and penalties, of $3.9 million as of both September 1, 2015 and June 2, 2015, of which $3.4 million and $3.3 million, respectively, was reclassified against our deferred tax assets. As of September 1, 2015 and June 2, 2015, the total amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate was $2.5 million and $2.4 million, respectively. The liability for unrecognized tax benefits as of September 1, 2015 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.

Interest and penalties related to unrecognized tax benefits are recognized as components of income tax expense. As of both September 1, 2015 and June 2, 2015, we had accrued $0.4 million for the payment of interest and penalties.

At September 1, 2015, we are no longer subject to U.S. federal income tax examinations by tax authorities for fiscal years prior to 2011, and with few exceptions, we are no longer subject to state and local examinations by tax authorities prior to fiscal year 2012.

NOTE 10 – SHARE-BASED EMPLOYEE COMPENSATION

We compensate our employees and directors using share-based compensation through the following plans:

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. 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 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 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 September 1, 2015, we had reserved a total of 3,972,000 shares of common stock for the SIP and 1996 SIP. Of the reserved shares at September 1, 2015, 1,859,000 were subject to options outstanding. Stock option exercises are settled with the issuance of new shares. Net shares of common stock available for issuance at September 1, 2015 were 2,113,000.

Stock Options

The following table summarizes our stock option activity under these plans for the 13 weeks ended September 1, 2015 (in thousands, except per-share data):

	Stock Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Service-based vesting:
Balance at June 2, 2015		2,441		$	7.78
Cancellations and forfeitures		(208	)		6.61
Expired		(12	)		7.07
Balance at September 1, 2015		2,221		$	7.89		3.83	$	377
Exercisable		1,573		$	8.33		3.19	$	118

Market-based vesting:
Balance at June 2, 2015		515		$	8.60
Cancellations and forfeitures		(125	)		9.34
Balance at September 1, 2015		390		$	8.36		4.49	$	–
Exercisable		–		$	–		–	$	–

At September 1, 2015, there was approximately $0.7 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 1.3 years.

Restricted Stock and Restricted Stock Units (“RSU”)

The following table summarizes our restricted stock and RSU activity for the 13 weeks ended September 1, 2015 (in thousands, except per-share data):

				Weighted-Average
	Number of			Grant-Date
Service-based vesting:	Shares			Fair Value
Unvested at June 2, 2015		803		$	6.98
Granted		244			6.51
Vested		(79	)		8.32
Forfeited		(150	)		7.64
Unvested at September 1, 2015		818		$	6.59

			Weighted-Average
	Number of		Grant-Date
Market-based vesting:	Shares		Fair Value
Unvested at June 2, 2015		–	$	–
Granted		262		6.51
Unvested at September 1, 2015		262	$	6.51

The fair values of the restricted stock and RSU awards reflected above were based on the fair market value of our common stock at the time of grant. At September 1, 2015, unrecognized compensation expense related to restricted stock and RSU grants totaled approximately $4.3 million and will be recognized over a weighted average vesting period of approximately 2.0 years.

During the 13 weeks ended September 1, 2015, we granted 244,000 service-based and 262,000 market-based RSUs to certain employees under the terms of the SIP and 1996 SIP. The service-based RSUs will vest in three equal installments over a three-year period following the date of grant. The market-based RSUs will cliff vest at the end of a three-year period following the date of grant. Vesting of the market-based RSUs is further contingent upon the Company’s achievement of a total shareholder return market condition over a three year period, which will be measured in the first quarter of fiscal 2019.

On July 25, 2015, our then President Ruby Tuesday Concept and Chief Operations Officer left the Company. Accordingly, included within our share-based compensation expense for the current quarter is a forfeiture credit of $1.3 million in connection with the forfeiture of 333,000 unvested stock options and 137,000 unvested shares of restricted stock.

Share-based compensation expense is included within Selling, general, and administrative, net in our Condensed Consolidated Statements of Operations and Comprehensive (Loss)/Income. During the 13 weeks ended September 1, 2015 and September 2, 2014, we recorded a net credit for share-based compensation of $0.3 million as a result of the previously mentioned forfeitures, and expense of $1.7 million, respectively.

NOTE 11 – SEGMENT REPORTING

As discussed in Note 1 to the Condensed Consolidated Financial Statements, we reclassified unamortized debt issuance costs reported in our June 2, 2015 Consolidated Balance Sheets. Those reclassifications are reflected in the prior year amounts shown below for total assets.

Financial results by reportable segment for the 13 weeks ended September 1, 2015 and September 2, 2014 are as follows (in thousands):


	Thirteen weeks ended
	September 1, 2015			September 2, 2014
				(as adjusted)
Revenues:
Ruby Tuesday concept	$	274,247		$	276,043
Lime Fresh concept		5,233			5,139
Total revenues	$	279,480		$	281,182

Segment profit/(loss):
Ruby Tuesday concept	$	25,083		$	30,389
Lime Fresh concept		454			(176	)
Total segment profit	$	25,537		$	30,213

Depreciation and amortization:
Ruby Tuesday concept	$	11,891		$	12,263
Lime Fresh concept		379			423
Support center and other		536			553
Total depreciation and amortization	$	12,806		$	13,239

Closures and impairments, net:
Ruby Tuesday concept	$	2,796		$	652
Lime Fresh concept		(84	)		307
Support center and other		–			523
Total closures and impairments, net	$	2,712		$	1,482

Capital expenditures:
Ruby Tuesday concept	$	9,536		$	6,341
Lime Fresh concept		126			49
Support center and other		280			587
Total capital expenditures	$	9,942		$	6,977

Total assets by reportable segment are as follows (in thousands):

	September 1, 2015		June 2, 2015
Total assets:
Ruby Tuesday concept	$	782,838	$	786,931
Lime Fresh concept		10,632		10,839
Support center and other		110,411		127,682
Total assets	$	903,881	$	925,452

The following is a reconciliation of segment profit to loss before income taxes for the 13 weeks ended September 1, 2015 and September 2, 2014 (in thousands):


	Thirteen weeks ended
	September 1, 2015			September 2, 2014
Segment profit	$	25,537		$	30,213
Less:
Depreciation and amortization		(12,806	)		(13,239	)
Unallocated general and administrative expenses		(11,897	)		(10,962	)
Interest expense, net		(6,000	)		(5,422	)
Other expense, net		(51	)		(659	)
Loss before income taxes	$	(5,217	)	$	(69	)

NOTE 12 – 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.

On July 23, 2014, a case styled Kimberly LaFrance, et al. v. Ruby Tuesday, Inc., was filed against the Company in the State of New York Supreme Court, County of Onondaga on behalf of the plaintiff and all other similarly situated individuals. The plaintiff is alleging violations of certain wage notice requirements under New York law and is seeking wages, liquidated damages and attorneys’ fees. The matter has been removed to the United States District Court for the Northern District of New York. On November 20, 2014, we filed a motion to dismiss, which was followed by motions filed by the plaintiff on December 29, 2014, for class certification, and on December 31, 2014, for partial summary judgment. The parties agreed to mediate the case, and on March 5, 2015, the court stayed all deadlines in the matter pending the completion of mediation. On August 5, 2015, the parties agreed to resolve the matter, but the agreement requires final court approval which will take several months. We believe that we have accrued an appropriate amount based on the agreement.

NOTE 13 – FAIR VALUE MEASUREMENTS

The following table presents the fair value of financial assets and liabilities measured on a recurring basis and the level within the fair value hierarchy in which the measurements fall (in thousands):


	Level		September 1, 2015				June 2, 2015
Deferred compensation plan: other investments – Assets		1		$	7,207			$	8,017
Deferred compensation plan: other investments – Liabilities		1			(7,207	)			(8,017	)

During the 13 weeks ended September 1, 2015 there were no transfers among levels within the fair value hierarchy.

The Ruby Tuesday, Inc. 2005 Deferred Compensation Plan (the “Deferred Compensation Plan”) and the Ruby Tuesday, Inc. Restated Deferred Compensation Plan (the “Predecessor Plan”) are unfunded, non-qualified deferred compensation plans for eligible employees. Assets 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 Condensed 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 investments, as well as the offsetting compensation expense, is recorded in Selling, general and administrative expense in the Condensed 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 Condensed 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 value of assets measured on a non-recurring basis during the quarter ended September 1, 2015 and the level within the fair value hierarchy in which the measurements fall (in thousands):

	Fair Value Measurements
	Level	September 1, 2015
Long-lived assets held for sale	2	$	1,402
Long-lived assets held for use	2		424
Total		$	1,826

The following table presents losses recognized during the 13 weeks ended September 1, 2015 and September 2, 2014 resulting from non-recurring fair value measurements. The amounts presented are included in Closures and impairments, net in our Condensed Consolidated Statements of Operations and Comprehensive (Loss)/Income (in thousands):

	13 weeks ended
	September 1, 2015		September 2, 2014
Included within continuing operations
Long-lived assets held for sale	$	92	$	599
Long-lived assets held for use		2,485		457
Total	$	2,577	$	1,056

Long-lived assets held for sale are valued using Level 2 inputs, primarily from information obtained through broker listings and 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 Condensed 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 also 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 September 1, 2015 and June 2, 2015 consisted of cash and cash equivalents, accounts receivable and payable, and long-term debt. The fair values of cash and cash equivalents and accounts receivable and payable approximated their carrying values because of the short-term nature of these instruments. The carrying amounts and fair values of our long-term debt, which are not measured on a recurring basis using fair value, are as follows (in thousands):

	September 1, 2015				June 2, 2015
					(as adjusted)
	Carrying Value		Fair Value (Level 2)		Carrying Value		Fair Value (Level 2)
Long-term debt (Level 2)	$	232,168	$	244,665	$	240,889	$	255,194

We estimated the fair value of debt using market quotes and calculations based on market rates.

NOTE 14 – SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

As discussed in Note 6 to the Condensed Consolidated Financial Statements, the Senior Notes held by Ruby Tuesday, Inc. (the “Parent”) 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 September 1, 2015

(In thousands)

	Parent			Guarantors			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	56,664		$	294		$	–		$	56,938
Accounts receivable		2,442			3,559			–			6,001
Inventories		16,289			6,494			–			22,783
Income tax receivable		159,262			–			(158,830	)		432
Other current assets		14,098			3,292			–			17,390
Total current assets		248,735			13,639			(158,830	)		103,544

Property and equipment, net		549,815			196,852			–			746,667
Deferred income taxes, net		2,497			(703	)		–			1,794
Investment in subsidiaries		129,843			–			(129,843	)		–
Due from/(to) subsidiaries		80,673			218,348			(299,021	)		–
Other assets		42,105			9,771			–			51,876
Total assets	$	1,053,668		$	437,907		$	(587,694	)	$	903,881

Liabilities & Shareholders’ Equity
Current liabilities:
Accounts payable	$	13,267		$	4,382		$	–		$	17,650
Accrued and other current liabilities		43,448			29,458			–			72,906
Current maturities of long-term debt,
including capital leases		(1,014	)		2,842			–			1,828
Income tax payable		–			158,830			(158,830	)		–
Deferred income taxes, net		4,672			(2,690	)		–			1,982
Total current liabilities		60,373			192,823			(158,830	)		94,366

Long-term debt and capital leases,
less current maturities		210,654			19,903			–			230,557
Due to/(from) subsidiaries		218,348			80,673			(299,021	)		–
Other deferred liabilities		103,233			14,665			–			117,898
Total liabilities		592,608			308,064			(457,851	)		442,821

Shareholders’ equity:
Common stock		620			–			–			620
Capital in excess of par value		83,586			–			–			83,586
Retained earnings		387,838			129,843			(129,843	)		387,838
Accumulated other comprehensive loss		(10,984	)		–			–			(10,984	)
Total shareholders’ equity		461,060			129,843			(129,843	)		461,060

Total liabilities & shareholders’ equity	$	1,053,668		$	437,907		$	(587,694	)	$	903,881

Condensed Consolidating Balance Sheet

As of June 2, 2015 (as adjusted)

(In thousands)

	Parent			Guarantors				Eliminations				Consolidated
Assets
Current assets:
Cash and cash equivalents	$	75,034			$	297			$	–			$	75,331
Accounts receivable		1,557				3,730				–				5,287
Inventories		14,581				5,830				–				20,411
Income tax receivable		153,146				–				(153,146	)			–
Other current assets		15,543				2,308				–				17,851
Total current assets		259,861				12,165				(153,146	)			118,880

Property and equipment, net		554,089				198,085				–				752,174
Investment in subsidiaries		128,824				–				(128,824	)			–
Due from/(to) subsidiaries		66,019				215,373				(281,392	)			–
Other assets		44,118				10,280				–				54,398
Total assets	$	1,052,911			$	435,903			$	(563,362	)		$	925,452

Liabilities & Shareholders’ Equity
Current liabilities:
Accounts payable	$	18,533			$	4,472			$	–			$	23,005
Accrued and other current liabilities		42,458				33,764				–				76,222
Current maturities of long-term debt,
including capital leases		(994	)			11,072				–				10,078
Income tax payable		–				154,215				(153,146	)			1,069
Deferred income taxes, net		2,839				(2,832	)			–				7
Total current liabilities		63,836				200,691				(153,146	)			110,381

Long-term debt and capital leases,
less current maturities		210,382				20,635				–				231,017
Deferred income taxes		(3,865	)			5,307				–				1,442
Due to/(from) subsidiaries		215,373				66,019				(281,392	)			–
Other deferred liabilities		102,602				14,427				–				117,029
Total liabilities		587,328				307,079				(434,538	)			459,869

Shareholders’ equity:
Common stock		621				–				–				621
Capital in excess of par value		83,870				–				–				83,870
Retained earnings		392,032				128,824				(128,824	)			392,032
Accumulated other comprehensive loss		(10,940	)			–				–				(10,940	)
Total shareholders’ equity		465,583				128,824				(128,824	)			465,583

Total liabilities & shareholders’ equity	$	1,052,911			$	435,903			$	(563,362	)		$	925,452

Condensed Consolidating Statement of Operations and

Comprehensive Loss

For the Thirteen Weeks Ended September 1, 2015

(In thousands)

	Parent			Guarantors			Eliminations			Consolidated
Revenue:
Restaurant sales and operating revenue	$	201,416		$	76,491		$	–		$	277,907
Franchise revenue		15			1,558			–			1,573
		201,431			78,049			–			279,480

Operating costs and expenses:
Cost of goods sold		55,228			21,013			–			76,241
Payroll and related costs		67,341			27,994			–			95,335
Other restaurant operating costs		45,202			17,005			–			62,207
Depreciation and amortization		9,127			3,679			–			12,806
Selling, general, and administrative		20,589			8,807			–			29,396
Intercompany selling, general, and
administrative allocations		11,126			(11,126	)		–			–
Closures and impairments		2,589			123			–			2,712
Equity in earnings of subsidiaries		(11,966	)		–			11,966			–
Interest expense, net		4,598			1,402			–			6,000
Intercompany interest expense/(income)		2,975			(2,975	)		–			–
		206,809			65,922			11,966			284,697

(Loss)/income before income taxes		(5,378	)		12,127			(11,966	)		(5,217	)
(Benefit)/provision for income taxes		(1,184	)		161			–			(1,023	)

Net (loss)/income	$	(4,194	)	$	11,966		$	(11,966	)	$	(4,194	)

Other comprehensive loss:
Changes in pension and postretirement benefits		(44	)		–			–			(44	)
Total comprehensive loss	$	(4,238	)	$	11,966		$	(11,966	)	$	(4,238	)

Condensed Consolidating Statement of Operations and

Comprehensive Loss

For the Thirteen Weeks Ended September 2, 2014 (as adjusted)

(In thousands)

	Parent			Guarantors			Eliminations			Consolidated
Revenue:
Restaurant sales and operating revenue	$	202,551		$	76,906		$	–		$	279,457
Franchise revenue		146			1,579			–			1,725
		202,697			78,485			–			281,182

Operating costs and expenses:
Cost of goods sold		54,530			20,617			–			75,147
Payroll and related costs		68,042			27,800			–			95,842
Other restaurant operating costs		43,332			15,886			–			59,218
Depreciation and amortization		9,467			3,772			–			13,239
Selling, general, and administrative		20,221			10,680			–			30,901
Intercompany selling, general, and
administrative allocations		11,142			(11,142	)		–			–
Closures and impairments		1,231			251			–			1,482
Equity in earnings of subsidiaries		(7,781	)		–			7,781			–
Interest expense, net		4,511			911			–			5,422
Intercompany interest expense/(income)		2,892			(2,892	)		–			–
		207,587			65,883			7,781			281,251

(Loss)/income before income taxes		(4,890	)		12,602			(7,781	)		(69	)
(Benefit)/provision for income taxes		(7,455	)		4,821			–			(2,634	)

Net income	$	2,565		$	7,781		$	(7,781	)	$	2,565

Other comprehensive income:
Pension liability reclassification, net of tax		463			–			–			463
Total comprehensive income	$	3,028		$	7,781		$	(7,781	)	$	3,028

Condensed Consolidating Statement of Cash Flows

For the Thirteen Weeks Ended September 1, 2015

(In thousands)

	Parent			Guarantors			Eliminations			Consolidated

Net cash (used)/provided by operating activities	$	(17,159	)	$	22,659		$	(7,971	)	$	(2,471	)

Investing activities:
Purchases of property and equipment		(7,138	)		(2,804	)		–			(9,942	)
Proceeds from disposal of assets		2,746			–			–			2,746
Other, net		209			–			–			209
Net cash used by investing activities		(4,183	)		(2,804	)		–			(6,987	)

Financing activities:
Principal payments on long-term debt		11			(8,912	)		–			(8,901	)
Stock repurchases		(9	)		–			–			(9	)
Payments for debt issuance costs		(25	)		–			–			(25	)
Intercompany transactions		2,975			(10,946	)		7,971			–
Net cash provided/(used) by financing activities		2,952			(19,858	)		7,971			(8,935	)

Increase in cash and cash equivalents		(18,390	)		(3	)		–			(18,393	)
Cash and cash equivalents:
Beginning of year		75,034			297			–			75,331
End of quarter	$	56,644		$	294		$	–		$	56,938

Condensed Consolidating Statement of Cash Flows

For the Thirteen Weeks Ended September 2, 2014

(In thousands)

	Parent			Guarantors			Eliminations			Consolidated

Net cash provided by operating activities	$	37,370		$	33,445		$	(57,733	)	$	13,082

Investing activities:
Purchases of property and equipment		(5,717	)		(1,260	)		–			(6,977	)
Proceeds from disposal of assets		250			23			–			273
Other, net		370			135			–			505
Net cash used by investing activities		(5,097	)		(1,102	)		–			(6,199	)

Financing activities:
Principal payments on long-term debt		11			(1,216	)		–			(1,205	)
Stock repurchases		(55	)		–			–			(55	)
Payments for debt issuance costs		(60	)		–			–			(60	)
Intercompany transactions		(26,608	)		(31,125	)		57,733			–
Net cash used by financing activities		(26,712	)		(32,341	)		57,733			(1,320	)

Decrease in cash and cash equivalents		5,561			2			–			5,563
Cash and cash equivalents:
Beginning of year		51,012			314			–			51,326
End of quarter	$	56,573		$	316		$	–		$	56,889

NOTE 15 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Adopted During Fiscal Year 2016

In April 2015, the Financial Accounting Standards Board ("FASB") issued ASU 2015-03. The guidance requires an entity to present debt issuance costs in the balance sheet as a direct reduction from the carrying amount of the debt liability, consistent with debt discounts, rather than as an asset. Amortization of debt issuance costs will continue to be reported as interest expense. Debt issuance costs related to revolving credit arrangements, however, will continue to be presented as an asset and amortized ratably over the term of the arrangement. As previously discussed in Note 1 to the Condensed Consolidated Financial Statements, we adopted ASU 2015-03 during the 13 weeks ended September 1, 2015.

Accounting Pronouncements Not Yet Adopted

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”). The guidance applies to inventory that is measured using either the first-in, first-out or average cost methods and requires entities to measure their inventory at the lower of cost and net realizable value. ASU 2015-11 defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 is effective for annual periods beginning after December 15, 2016, and interim periods therein (our fiscal year 2018). We do not expect the adoption of this guidance to have a material impact on our Condensed Consolidated Financial Statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). The guidance requires an entity to evaluate whether there are conditions or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued and to provide related footnote disclosures in certain circumstances. The guidance is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter (our fiscal year 2017). Early application is permitted. We do not believe the adoption of this guidance will have an impact on our Condensed 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. During the 13 weeks ended September 1, 2015, the FASB revised ASU 2014-09 to allow companies to defer adoption of this standard for up to one year. With the deferral, the guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 (the first quarter of our fiscal year 2019). We have not yet selected a transition method and are currently evaluating the impact of this guidance on our Condensed-Consolidated Financial Statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The discussion and analysis below for the Company should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and the notes to such financial statements included elsewhere in this Quarterly Report on Form 10-Q. The discussion below contains forward-looking statements which should be read in conjunction with the “Special Note Regarding Forward-Looking Information” included elsewhere in this Quarterly Report on Form 10-Q.

General:

Ruby Tuesday, Inc., including its wholly-owned subsidiaries (“RTI,” the “Company,” “we” and/or “our”), owns and operates Ruby Tuesday® casual dining and Lime Fresh Mexican Grill® (“Lime Fresh”) fast casual restaurants. As of September 1, 2015, we owned and operated 656, and franchised 78, Ruby Tuesday restaurants. Ruby Tuesday restaurants can be found in 44 states, 12 foreign countries, and Guam.

As of September 1, 2015, there were 19 Company-owned and operated Lime Fresh restaurants, as well as eight domestic Lime Fresh restaurants operated by franchisees.

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 our business, strengthen our competitive position, enhance our profitability, and create value through the execution of the following strategies:

Enhancing Our Business Model

Over the past year, we made significant progress towards lowering our overall cost structure with identified reductions in cost of goods sold, payroll and related costs, and selling, general, and administrative expenses. In April 2014, we implemented a new labor management system to facilitate more efficient staffing that is contributing to lower labor costs. Further, we are in the process of implementing enhanced business processes and capabilities, such as an inventory/food waste management system that should benefit our business model by reducing food waste and manager time on inventory management leading to a better customer experience and improved profitability. We believe there is opportunity to improve our business model with a continued focus on improving our restaurant level margins through the implementation of business technology platforms and through a continued focus on lowering our overall cost structure.

Enhance Sales and Margins Through Repositioning of Our Core Brand

We are in the process of executing a strategic brand transformation of the Ruby Tuesday concept which is designed to make our brand more energetic, affordable, and broadly appealing. We believe the execution of this strategy provides opportunities for increased customer counts, same-restaurant sales growth, and increased shareholder value. Our brand transformation is supported by four key pillars: food, service, communication, and atmosphere.

As part of our transformation strategy, we have taken what we believe to be meaningful steps to improve our food, customer experience, organizational capabilities, and business model. We continue to transform our menu to be broadly appealing, approachable, and affordable by offering compelling value throughout the menu at a wide-range of price points. Our intent is to incorporate customer feedback to continue to evolve our menu as well as to promote menu items that customers find highly satisfying.

Enhancing our service is also a critical component of our brand transformation strategy. As we introduced new menu and culinary platforms, we also simplified recipes and operational processes which we believe will result in better and more consistent food and service execution. Further, in January 2015, we rolled-out a new service training platform which encourages our restaurant teams to provide a genuine, customized experience to our customers while also reinforcing techniques to build add-on sales for beverages, appetizers and desserts.

The third pillar of our brand transformation strategy is our communication and marketing programs. The program is designed to reshape consumer perceptions of the Ruby Tuesday brand and enhance our Fresh American Grill positioning by showcasing our brand personality in a fresh and energetic way, featuring compelling new food products, highlighting the freshness and variety of our Garden Bar, and effectively communicating value and affordability. We continue to build key capabilities in our marketing organization, strengthen our culinary innovation pipeline, and become more efficient, expansive and cost-effective with our marketing spend including leveraging digital and social media platforms.

Lastly, to further enhance the atmosphere of our restaurants, we also introduced more casual and colorful new team uniforms and have evolved the menu design, both of which better reflect our brand personality. In addition, we are currently developing a remodel plan and we expect to begin testing prototypes in fiscal year 2016 to determine sales building potential, cost effectiveness, and return on investment. We believe these combined changes will deliver an improved customer experience and create a more energetic dining atmosphere for our customers.

The four key areas of menu, service, communication, and atmosphere will continue to be foundational drivers of our brand transformation and key to building a stronger business model. We expect the culmination of the four pillars working fluidly together in conjunction with engaged restaurant and support teams will ultimately drive customer counts, sales, and average check.

Strengthen our Balance Sheet to Facilitate Growth and Value Creation

Our objective over the next several years is to grow our net cash provided by operating activities, which will provide us with funds that can be used to reinvest in our restaurants to support the business. We also plan to continue to reduce outstanding debt levels in order to improve our credit metrics to ensure access to capital at reasonable rates while providing flexibility for overall business needs and economic conditions. 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.

During the second quarter of fiscal year 2014, we entered into a four-year $50.0 million revolving credit agreement (the “Senior Credit Facility”). Our Senior Credit Facility, which is secured by substantially all of the shares of capital stock of the Company’s subsidiaries, real property, improvements and fixtures of 49 Ruby Tuesday restaurants, and substantially all of the personal property of the Company and each of its present and future subsidiaries, was obtained to provide access to capital for general corporate purposes and provides us with more covenant flexibility than our previous revolving credit facility. The Senior Credit Facility has a $35.0 million accordion feature which provides us with additional liquidity if needed. Aside from the $11.7 million allocated to letters of credit issued primarily in conjunction with our insurance programs, the $50.0 million revolving Senior Credit Facility has remained undrawn.

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is based upon our Condensed 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.

Results of Operations:

The following is an overview of our results of operations for the 13-week period ended September 1, 2015:

Net loss was $4.2 million for the 13 weeks ended September 1, 2015 compared to net income of $2.6 million for the corresponding period of the previous fiscal year. Diluted loss per share for the fiscal quarter ended September 1, 2015 was $0.07 compared to diluted earnings per share of $0.04 for the corresponding period of the prior fiscal year as a result of an increase in net loss as discussed below.

During the 13 weeks ended September 1, 2015:

·	Same-restaurant sales* at Company-owned Ruby Tuesday restaurants increased 0.6%, while same-restaurant sales at domestic franchise Ruby Tuesday restaurants increased 4.3%.

·	Two Company-owned Ruby Tuesday restaurants were closed;

·	Two franchised Ruby Tuesday restaurants were opened and two were closed;

·	One franchised Lime Fresh restaurant were opened;

·	We prepaid and retired ten mortgage loan obligations with an aggregate balance of $8.2 million plus prepayment penalties of $0.9 million and an insignificant amount of accrued interest; and

·	On July 25, 2015, Todd A. Burrowes voluntarily resigned as the Company’s President, Ruby Tuesday Concept and Chief Operations Officer. On July 27, 2015, Brett A. Patterson, our then Senior Vice President of Operations, was appointed Ruby Tuesday Concept President.

* 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.

The following table sets forth selected restaurant operating data as a percentage of total revenue, except where otherwise noted, for the periods indicated. All information is derived from our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

	Thirteen weeks ended
	September 1,		September 2,
	2015		2014
Revenue:
Restaurant sales and operating revenue	99	.4%	99	.4%
Franchise revenue	0	.6	0	.6
Total revenue	100	.0	100	.0
Operating costs and expenses:
Cost of goods sold (1)	27	.4	26	.9
Payroll and related costs (1)	34	.3	34	.3
Other restaurant operating costs (1)	22	.4	21	.2
Depreciation and amortization (1)	4	.6	4	.7
Selling, general and administrative, net	10	.5	11	.0
Closures and impairments	1	.0	0	.5
Interest expense, net	2	.1	1	.9
Total operating costs and expenses	101	.9	100	.0
Loss before income taxes	(1	.9)	(0	.0)
Benefit for income taxes	(0	.4)	(0	.9)
Net (loss)/income	(1	.5)%	0	.9%

(1) As a percentage of restaurant sales and operating revenue.

The following table shows Company-owned Ruby Tuesday and Lime Fresh concept restaurant activity for the 13-week periods ended September 1, 2015 and September 2, 2014.

	Ruby Tuesday		Lime Fresh	Total
13 weeks ended September 1, 2015
Beginning number	658		19	677
Opened	–		–	–
Closed	(2)	)	–	(2)	)
Ending number	656		19	675

13 weeks ended September 2, 2014
Beginning number	668		20	688
Opened	–		–	–
Closed	(2)	)	–	(2)	)
Ending number	666		20	686

The following table shows franchised Ruby Tuesday and Lime Fresh concept restaurant activity for the 13-week periods ended September 1, 2015 and September 2, 2014.

	Ruby Tuesday		Lime Fresh
13 weeks ended September 1, 2015
Beginning number	78		7
Opened	2		1
Closed	(2)	)	–
Ending number	78		8

13 weeks ended September 2, 2014
Beginning number	79		6
Opened	4		1
Closed	–		–
Ending number	83		7

Revenue

Restaurant sales and operating revenue by concept for the 13 weeks ended September 1, 2015 and September 2, 2014 was as follows (in thousands):

	Thirteen weeks ended
	September 1, 2015		September 2, 2014
Restaurant sales and operating revenue:
Ruby Tuesday concept	$	272,868	$	274,497
Lime Fresh concept		5,039		4,960
Total	$	277,907	$	279,457

The Ruby Tuesday concept restaurant sales and operating revenue for the 13 weeks ended September 1, 2015 decreased 0.6% to $272.9 million compared to the same period of the prior fiscal year. This decrease is primarily a result of restaurant closings since the first quarter of the prior fiscal year. In addition, restaurant sales and operating revenue for the 13 weeks ended September 1, 2015 were negatively impacted by the Labor Day holiday occurring in the the first quarter of the prior fiscal year versus the second quarter of the current fiscal year. These were offset by a 0.6% increase in same-restaurant sales at Company-owned Ruby Tuesday restaurants. The increase in Ruby Tuesday concept same-restaurant sales is attributable to a 3.5% increase in net check offset by a 2.9% decrease in customer traffic.

The Lime Fresh concept restaurant sales and operating revenue totaled $5.0 million for both the 13 weeks ended September 1, 2015 and September 2, 2014.

Franchise revenue for the 13 weeks ended September 1, 2015 and September 2, 2014 was as follows (in thousands):

	Thirteen weeks ended
	September 1, 2015		September 2, 2014
Franchise revenue:
Ruby Tuesday concept	$	1,379	$	1,546
Lime Fresh concept		194		179
Total	$	1,573	$	1,725

Franchise revenue for the 13 weeks ended September 1, 2015 decreased 8.8% to $1.6 million compared to the same period of the prior fiscal year. Franchise revenue is predominately comprised of domestic and international franchise royalties, which totaled $1.6 million for both 13-week periods ended September 1, 2015 and September 2, 2014. The decrease in franchise revenue for the 13 weeks ended September 1, 2015 was due to a $0.1 million decrease in international franchise license fees as compared to the corresponding period of the prior fiscal year.

Segment Profit

Segment profit/(loss) by reportable segment for the 13 weeks ended September 1, 2015 and September 2, 2014 is as follows (in thousands):


	Thirteen weeks ended
	September 1, 2015			September 2, 2014
Segment profit/(loss):
Ruby Tuesday concept		$	25,083		$	30,389
Lime Fresh concept			454			(176	)
Total segment profit		$	25,537		$	30,213

Segment profit/(loss) for the 13 weeks ended September 1, 2015 for the Ruby Tuesday concept decreased $5.3 million to $25.1 million compared to the 13 weeks ended September 2, 2014 due primarily to increases in cost of goods sold and other restaurant operating costs as further discussed later within this MD&A and increases in closures and impairments expense of $2.1 million as a result of higher impairments of open restaurants for poor performance as compared to the corresponding period of the prior fiscal year. These were partially offset by a 0.6% increase in same-restaurant sales at Company-owned Ruby Tuesday restaurants, decreases in general and administrative expenses of $1.3 million primarily as a result of a share-based compensation forfeiture credit as further discussed in Note 10 to the Condensed Consolidated Financial Statements, and decreases in advertising spending of $1.0 million due to reduced television advertising.

Segment profit/(loss) for the 13 weeks ended September 1, 2015 for the Lime Fresh concept increased $0.6 million compared to the 13 weeks ended September 2, 2014 to $0.5 million due primarily to decreases in closures and impairments expense of $0.4 million as the prior fiscal year Lime Fresh segment losses included a charge for an open restaurant impaired for poor performance.

The following is a reconciliation of segment profit to loss from continuing operations before taxes for the 13 weeks ended September 1, 2015 and September 2, 2014 (in thousands):


	Thirteen weeks ended
	September 1, 2015			September 2, 2014
Segment profit	$	25,537		$	30,213
Less:
Depreciation and amortization		(12,806	)		(13,239	)
Unallocated general and administrative expenses		(11,897	)		(10,962	)
Interest expense, net		(6,000	)		(5,422	)
Other expense, net		(51	)		(659	)
Loss before income taxes	$	(5,217	)	$	(69	)

Pre-tax Loss

Pre-tax loss was $5.2 million for the 13 weeks ended September 1, 2015 compared to $0.1 million for the corresponding period of the prior fiscal year. The increase in pre-tax loss is due to higher closures and impairments expense ($1.2 million) and interest expense ($0.6 million) and increases, as a percentage of restaurant sales and operating revenue, of costs of goods sold and other restaurant operating costs. These were partially offset by an increase in same-restaurant sales of 0.6% at Company-owned Ruby Tuesday restaurants, and decreases, as a percentage of restaurant sales and operating revenue or total revenue, as appropriate, of depreciation and amortization and selling general, and administrative, net.

In the paragraphs that follow, we discuss in more detail the components of the increase in pre-tax loss for the 13-week period ended September 1, 2015, as compared to the comparable period in the 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 and amortization categories are either variable or highly correlative with the number of restaurants we operate, we evaluate our trends by comparing the costs as a percentage of restaurant sales and operating revenue, as well as the absolute dollar change, to the comparable prior year period.

Cost of Goods Sold

Cost of goods sold increased $1.1 million (1.5%) to $76.2 million for the 13 weeks ended September 1, 2015, over the corresponding period of the prior fiscal year. As a percentage of restaurant sales and operating revenue, cost of goods sold increased from 26.9% to 27.4%.

The absolute dollar increase in cost of goods sold for the 13-week period ended September 1, 2015 was the result of price increases on beef, poultry, and certain other products since the corresponding period of the prior fiscal year.

As a percentage of restaurant sales and operating revenue, the increase in cost of goods sold for the 13-week period ended September 1, 2015 is primarily the result of price increases since the corresponding period of the prior fiscal year as discussed above.

Payroll and Related Costs

Payroll and related costs decreased $0.5 million (0.5%) to $95.3 million for the 13 weeks ended September 1, 2015, as compared to the corresponding period in the prior fiscal year. As a percentage of restaurant sales and operating revenue, payroll and related costs was consistent with the same period of the prior fiscal year at 34.3%.

The absolute dollar decrease in payroll and related costs for the 13-week period ended September 1, 2015 was primarily due primarily to restaurant closures and lower management labor costs as a result of staffing reductions since the first quarter of the prior fiscal year.

Other Restaurant Operating Costs

Other restaurant operating costs increased $3.0 million (5.0%) to $62.2 million for the 13-week period ended September 1, 2015, as compared to the corresponding period in the prior fiscal year. As a percentage of restaurant sales and operating revenue, these costs increased from 21.2% to 22.4%.

For the 13 weeks ended September 1, 2015, the increase in other restaurant operating costs related to the following (in thousands):

Business interruption recoveries	$	1,089
Repairs		959
Legal		508
Other increases, net		433
Net increase	$	2,989

In both absolute dollars and as a percentage of restaurant sales and operating revenue for the 13-week period ended September 1, 2015, the increase was a result of business interruption recoveries related to

claims collected in the prior fiscal year for certain of our restaurants in the Gulf Coast area, higher building repairs, and increased legal costs related to pending litigation.

Depreciation and Amortization

Depreciation and amortization expense decreased $0.4 million (3.3%) to $12.8 million for the 13-week period ended September 1, 2015, as compared to the corresponding period in the prior fiscal year. As a percentage of restaurant sales and operating revenue, depreciation and amortization expense decreased from 4.7% to 4.6%.

In terms of absolute dollars and as a percentage of restaurant sales and operating revenue, the decrease for the 13-week period ended September 1, 2015 is due primarily to assets that became fully depreciated since the first quarter of the prior fiscal year coupled with restaurant closures and leveraging associated with higher sales volumes.

Selling, General and Administrative Expenses, Net

Selling, general and administrative expenses, net decreased $1.5 million (4.9%) to $29.4 million for the 13-week period ended September 1, 2015, as compared to the corresponding period in the prior fiscal year.

The decrease for the 13-week period ended September 1, 2015 is due to lower advertising costs ($1.1 million), primarily as a result of decreased television advertising, and general and administrative costs ($0.4 million). The reduction in general and administrative costs is primarily due to lower share-based compensation expense as a result of a forfeiture credit as further discussed in Note 10 to the Condensed Consolidated Financial Statements, which was partially offset by higher employee benefit related costs and travel expenses associated with restaurant manager training at our Restaurant Support Services Center.

Closures and Impairments

Closures and impairments increased $1.2 million to $2.7 million for the 13-week period ended September 1, 2015, as compared to the corresponding period of the prior fiscal year. The increase for the 13-week period ended September 1, 2015 is primarily due to higher property impairment charges ($1.5 million) resulting from the impairment of three open Ruby Tuesday concept restaurants for poor performance during the current quarter, offset by higher gains on the sale of surplus properties ($0.3 million). See Note 7 to our Condensed Consolidated Financial Statements for further information on our closures and impairment charges recorded during the 13 weeks ended September 1, 2015 and September 2, 2014.

As a result of our impairment analysis for the13-week period ended September 1, 2015, we had 57 restaurants that had been open for more than six full quarters with rolling 12-month negative cash flows of which 35 have been impaired to salvage value. Of the 22 which remained, we reviewed the plans to improve cash flows and determined that no impairment was necessary. The remaining net book value of these 22 restaurants, five of which are located on owned properties, was $18.8 million at September 1, 2015.

Should cash flows at these 22 cash flow negative restaurants not improve within a reasonable period of time, further impairment charges are possible. Considerable management judgment is necessary to estimate future cash flows, including cash flows from continuing use, terminal value, closure costs, salvage value, and sublease income. Accordingly, actual results could vary significantly from our estimates.

Interest Expense, Net

Interest expense, net increased $0.6 million to $6.0 million for the 13 weeks ended September 1, 2015, as compared to the corresponding period in the prior fiscal year, primarily due to $0.9 million in prepayment premiums paid in connection with ten mortgage obligations that we prepaid and retired during the 13 weeks ended September 1, 2015, which was partially offset by lower interest resulting from the early payoff of certain mortgage loans since the 13 weeks ended September 2, 2014.

Benefit for Income Taxes

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. We will maintain a valuation allowance for our deferred tax assets until sufficient positive evidence exists to support a reversal of some or all of the valuation allowance. Our tax benefit recorded in the future will be reduced or increased in the event that changes to the valuation allowance are required.

Liquidity and Capital Resources:

Cash and cash equivalents (decreased)/increased by $(18.4) million and $5.6 million during the first 13 weeks of fiscal year 2016 and 2015, respectively. The change in cash and cash equivalents is as follows (in thousands):

	Thirteen weeks ended
	September 1,				September 2,
	2015				2014
Cash (used)/provided by operating activities		$	(2,471	)		$	13,082
Cash used by investing activities			(6,987	)			(6,199	)
Cash used by financing activities			(8,935	)			(1,320	)
(Decrease)/increase in cash and cash equivalents		$	(18,393	)		$	5,563

Operating Activities

Our cash provided by operations is generally derived from cash receipts generated by our restaurant customers and franchisees. Substantially all of the $277.9 million and $279.5 million of restaurant sales and operating revenue disclosed in our Condensed Consolidated Statements of Operations and Comprehensive (Loss)/Income for the 13 weeks ended September 1, 2015 and September 2, 2014, respectively, was received in cash either at the point of sale or within two to four days (when our customers paid with debit or credit cards). Our primary uses of cash for operating activities are food and beverage purchases, payroll and benefit costs, restaurant operating costs, general and administrative expenses, and marketing, a significant portion of which are incurred and paid in the same period.

Cash used by operating activities for the first 13 weeks of fiscal year 2016 was $2.5 million as compared to cash provided by operating activities of $13.1 million for the same period in the prior fiscal year. The change is primarily the result of lower Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) as a result of higher operating costs and expenses for reasons previously discussed within this MD&A, an increase in cash paid for taxes ($1.7 million), higher cash paid for interest ($0.6 million) due to prepayment penalties associated with the early payoff of certain of our mortgage obligations during the

current quarter, and an increase in amounts spent to acquire inventory (approximately $3.6 million). These were partially offset by lower amounts spent on media advertising (approximately $1.0 million).

Our working capital and current ratio as of September 1, 2015 were $9.2 million and 1.1:1, respectively. While we typically carry current liabilities in excess of current assets as is common in the restaurant industry, we have reduced our accounts payable and other short-term obligations since the prior fiscal year.

Investing Activities

We require capital principally for the maintenance and upkeep of our existing restaurants, limited new restaurant construction, investments in technology, equipment, remodeling of existing restaurants, and on occasion for the acquisition of franchisees or other restaurant concepts. Property and equipment expenditures purchased with internally generated cash flows for the 13 weeks ended September 1, 2015 and September 2, 2014 were $9.9 million and $7.0 million, respectively.

Capital expenditures for the remainder of the fiscal year are projected to be approximately $24.1 million to $28.1 million. We intend to fund our investing activities with cash currently on hand, cash provided by operations, or borrowings on the Senior Credit Facility.

Financing Activities

Historically our primary sources of cash have been operating activities and refranchising 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 are described below.

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 is included in Accrued liabilities – Rent and other in our Consolidated Balance Sheets. The Senior Notes mature on May 15, 2020.

At any time prior to May 15, 2016, we may redeem the Senior Notes, in whole or in part, at a redemption price equal to 100% of the principal amount, plus an applicable “make-whole” premium and accrued and unpaid interest. At any time on or after May 15, 2016, we may redeem the Senior Notes, in whole or in part, at the redemption prices specified in the Indenture plus accrued and unpaid interest. We may redeem up to 35% of the original aggregate principal balance of the Senior Notes from the proceeds of certain equity offerings. There is no sinking fund for the Senior Notes.

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.

certain financial covenants for the specified loans, including the maximum leverage ratio and the minimum fixed charge coverage ratio.

We were in compliance with our maximum leverage ratio and our minimum fixed charge coverage ratio as of September 1, 2015.

During the remainder of fiscal year 2016, we expect to fund operations, capital expansion, and any other investments from cash currently on hand, operating cash flows, or borrowings on our Senior Credit Facility.

Significant Contractual Obligations and Commercial Commitments

Payments due under our notes payable and other long-term debt financial obligations have changed significantly from the amounts disclosed in our Form 10-K for the year ended June 2, 2015. As previously discussed within this MD&A, during the 13 weeks ended September 1, 2015, we prepaid and retired ten mortgage loan obligations with an aggregate balance of $8.3 million as of June 2, 2015 using cash on hand.

Accounting Pronouncements Adopted During Fiscal Year 2016

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2015-03 (“ASU 2015-03”). The guidance requires an entity to present debt issuance costs in the balance sheet as a direct reduction from the carrying amount of the debt liability, consistent with debt discounts, rather than as an asset. Amortization of debt issuance costs will continue to be reported as interest expense. Debt issuance costs related to revolving credit arrangements, however, will continue to be presented as an asset and amortized ratably over the term of the arrangement. As discussed in Note 1 to the Condensed Consolidated Financial Statements, we adopted ASU 2015-03 during 13 weeks ended September 1, 2015.

Accounting Pronouncements Not Yet Adopted

Known Events, Uncertainties and Trends:

Financial Strategy and Stock Repurchase Plan

Cash and cash equivalents as of September 1, 2015 were $56.9 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 repurchase within the limitations of our debt covenants to return capital to shareholders. 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. We did not repurchase any of the Senior Notes during the 13 weeks ended September 1, 2015. As of the date of this filing, we may repurchase $20.0 million of the Senior Notes during the remainder of fiscal year 2016. 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 13 weeks ended September 1, 2015 or September 2, 2014. 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material changes during the quarter ended September 1, 2015 to the disclosures made in Item 7A of our Form 10-K for the year ended June 2, 2015.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation and under the supervision of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 1, 2015.

Changes in Internal Control

During the fiscal quarter ended September 1, 2015, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are presently, and from time to time, subject to pending claims and lawsuits arising in the ordinary course of business, including claims relating to injury or wrongful death under “dram shop” laws, workers’ compensation and employment matters, claims relating to lease and contractual obligations, and claims from customers alleging illness or injury. We provide reserves for such claims when payment is probable and estimable in accordance with U.S. generally accepted accounting principles. At this time, in the opinion of management, the ultimate resolution of pending legal proceedings will not have a material adverse effect on our consolidated operations, financial position, or cash flows. See Note 12 to the Condensed Consolidated Financial Statements for further information about our legal proceedings as of September 1, 2015.

ITEM 1A. RISK FACTORS

Information regarding risk factors appears in our Annual Report on Form 10-K for the year ended June 2, 2015 in Part I, Item 1A. Risk Factors. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table includes information regarding purchases of our common stock made by us during the first quarter ended September 1, 2015:

(a)

(b)

(c)

(d)

Total number

Average

Total number of shares

Maximum number of shares

of shares

price paid

purchased as part of publicly

that may yet be purchased

Period

purchased (1)

per share

announced plans or programs (1)

under the plans or programs (2)

Month #1

(June 3 to July 7)

1,390

6.22

1,390

11,762,706

Month #2

(July 8 to August 4)

–

11,762,706

Month #3

(August 5 to September 1)

–

11,762,706

Total

1,390

6.22

1,390

(1) No shares were repurchased other than through our publicly-announced repurchase programs and authorizations during the first quarter of our year ending May 31, 2016.

(2) As of September 1, 2015, 11.8 million shares remained available for purchase under existing programs, which consists of 1.8 million shares remaining under a July 11, 2007 authorization by the Board of Directors to repurchase 6.5 million shares and a January 8, 2013 authorization by the Board of Directors, not yet begun, to repurchase 10.0 million shares. The timing, price, quantity, and manner of the purchases to be made are at the discretion of management upon instruction from the Board of Directors, depending upon market conditions. The repurchase of shares in any particular future period and the actual amount thereof remain at the discretion of the Board of Directors, and no assurance can be given that shares will be repurchased in the future.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The following exhibits are filed as part of this report:

Exhibit No.

10	.1	First Amendment, dated as of October 7, 2015, to the Ruby Tuesday, Inc. 2015 Executive Incentive Compensation Plan

12	.1	Statement regarding computation of Consolidated Ratio of Earnings to Fixed Charges.

18	.1	Preferability letter from Independent Registered Public Accounting Firm.

31	.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31	.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32	.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
		Section 906 of the Sarbanes-Oxley Act of 2002.

32	.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
		Section 906 of the Sarbanes-Oxley Act of 2002.

10	1.INS	XBRL Instance Document.

10	1.SCH	XBRL Schema Document.

10	1.CAL	XBRL Calculation Linkbase Document.

10	1.DEF	XBRL Definition Linkbase Document.

10	1.LAB	XBRL Labels Linkbase Document.

10	1.PRE	XBRL Presentation Linkbase Document.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

RUBY TUESDAY, INC.

(Registrant)

Date: October 9, 2015

BY: /s/ JILL M. GOLDER

——————————————

Jill M. Golder

Executive Vice President – Chief Financial Officer, Treasurer, and Assistant Secretary

(Principal Financial Officer)

Date: October 9, 2015

BY: /s/ FRANKLIN E. SOUTHALL, JR.

—————————————————

Franklin E. Southall, Jr.

Vice President – Corporate Controller and

Principal Accounting Officer

(Principal Accounting Officer)

Attached files

RUBY TUESDAY INC Reports

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