10-Q 1 form10-q_1stqtrfy14.htm FORM 10-Q form10-q_1stqtrfy14.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 3, 2013
 
OR
 
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

 
61,384,027
 
(Number of shares of common stock, $0.01 par value, outstanding as of October 7, 2013)
 
 

 
 
RUBY TUESDAY, INC.
 
INDEX
 
 
Page
PART I - FINANCIAL INFORMATION
 
 
     ITEM 1. FINANCIAL STATEMENTS
 
 
                CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
 
                SEPTEMBER 3. 2013 AND JUNE 4. 2013
 
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
                ENDED SEPTEMBER 3. 2013 AND SEPTEMBER 4, 2012
 
                CONDENSED CONSOLIDATED STATEMENTS OF CASH
 
                FLOWS FOR THE THIRTEEN WEEKS ENDED
 
                SEPTEMBER 3, 2013 AND SEPTEMBER 4, 2012
 
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL
 
                STATEMENTS
 
 
                OF FINANCIAL CONDITION AND RESULTS
 
                OF OPERATIONS
 
 
                MARKET RISK
 
 
 
PART II - OTHER INFORMATION
 
 
     SIGNATURES
 
 

2
Special Note Regarding Forward-Looking Information
This Quarterly Report on Form 10-Q contains various forward-looking statements, which represent our expectations or beliefs concerning future events, including one or more of the following:  future financial performance and restaurant growth (both Company-owned and franchised), future capital expenditures, 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 (such statements include, but are not limited to, statements relating to cost savings that we estimate may result from any programs we implement, our estimates of future capital spending and free cash flow, our targets for annual growth in same-restaurant sales and average annual sales per restaurant, and the benefits of our television marketing), including, without limitation, the following:

·  
general economic conditions;

·  
changes in promotional, couponing and advertising strategies;

·  
changes in our customers’ disposable income;

·  
consumer spending trends and habits;

·  
increased competition in the restaurant market;

·  
laws and regulations affecting labor and employee benefit costs, including further potential increases in state and federally mandated minimum wages, and healthcare reform;

·  
customers’ acceptance of changes in menu items;
 
·  
changes in the availability and cost of capital;

·  
potential limitations imposed by debt covenants under our debt instruments;
 
·  
mall-traffic trends;

·  
weather conditions in the regions in which Company-owned and franchised restaurants are operated;

·  
costs and availability of food and beverage inventory;

·  
our ability to attract and retain qualified managers, franchisees and team members;
 
·  
customers’ acceptance of our development prototypes and remodeled restaurants;
 
·  
impact of adoption of new accounting standards;

·  
impact of food-borne illnesses resulting from an outbreak at either one of our restaurant concepts or other competing restaurant concepts;

·  
effects of actual or threatened future terrorist attacks in the United States; and

·  
significant fluctuations in energy prices.


CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER-SHARE DATA)

(UNAUDITED)
 
 
SEPTEMBER 3,
 
JUNE 4,
 
 
2013
 
2013
 
     
Assets
(NOTE A)
 
Current assets:
           
      Cash and cash equivalents
$
35,853
 
$
52,907
 
      Accounts receivable
 
4,541
   
4,834
 
      Inventories:
           
        Merchandise
 
19,340
   
21,779
 
        China, silver and supplies
 
9,428
   
9,093
 
      Income tax receivable
 
3,334
   
1,900
 
      Deferred income taxes
 
6,164
   
7,296
 
      Prepaid rent and other expenses
 
14,097
   
14,180
 
      Assets held for sale
 
8,076
   
9,175
 
          Total current assets
 
100,833
 
      
121,164
 
             
Property and equipment, net
 
845,031
   
859,830
 
Other assets
 
61,225
   
62,189
 
          Total assets
$
1,007,089
 
$
1,043,183
 
             
Liabilities & Shareholders’ Equity
           
Current liabilities:
           
      Accounts payable
$
23,865
 
$
14,964
 
      Accrued liabilities:
           
        Taxes, other than income and payroll
 
12,187
   
11,311
 
        Payroll and related costs
 
19,922
   
25,425
 
        Insurance
 
8,684
   
9,095
 
        Deferred revenue – gift cards
 
14,246
   
13,454
 
        Rent and other
 
30,908
   
22,896
 
      Current portion of long-term debt, including capital leases
 
6,130
   
8,487
 
          Total current liabilities
 
115,942
   
105,632
 
             
Long-term debt and capital leases, less current maturities
 
268,530
   
290,515
 
Deferred income taxes
 
4,543
   
5,753
 
Deferred escalating minimum rent
 
47,759
   
46,892
 
Other deferred liabilities
 
72,582
   
77,556
 
          Total liabilities
 
509,356
   
526,348
 
             
Commitments and contingencies (Note N)
           
             
Shareholders’ equity:
           
      Common stock, $0.01 par value; (authorized: 100,000 shares;
           
        issued: 61,372 shares at 9/03/13; 61,248 shares at 6/04/13)
 
614
   
612
 
      Capital in excess of par value
 
70,256
   
67,596
 
      Retained earnings
 
437,330
   
459,572
 
      Deferred compensation liability payable in
           
        Company stock
 
690
   
1,094
 
      Company stock held by Deferred Compensation Plan
 
(690
)
 
(1,094
)
      Accumulated other comprehensive loss
 
(10,467
)
 
(10,945
)
          Total shareholders’ equity
 
497,733
   
  516,835
 
             
  Total liabilities & shareholders’ equity $ 1,007,089   $ 1,043,183  
 
                   The accompanying notes are an integral part of the condensed consolidated financial statements.

4
 
RUBY TUESDAY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND   
COMPREHENSIVE (LOSS)/INCOME
(IN THOUSANDS EXCEPT PER-SHARE DATA)
 
(UNAUDITED)
 
 
THIRTEEN WEEKS ENDED
   
 
SEPTEMBER 3,
2013
 
SEPTEMBER 4,
2012
   
       
 
(NOTE A)
   
Revenue:
         
      Restaurant sales and operating revenue
$    288,092
 
$    326,267
   
      Franchise revenue
1,582
 
1,656
   
 
289,674
 
327,923
   
Operating costs and expenses:
         
      Cost of merchandise
79,938
 
87,863
   
      Payroll and related costs
102,733
 
107,192
   
      Other restaurant operating costs
67,534
 
65,854
   
      Depreciation
14,209
 
15,011
   
      Selling, general and administrative, net
37,015
 
43,007
   
      Closures and impairments
8,033
 
1,087
   
      Interest expense, net
6,753
 
6,790
   
      Loss on extinguishment of debt
511
 
   
 
316,726
 
326,804
   
           
(Loss)/income from continuing operations before income taxes
(27,052
)
1,119
   
Benefit for income taxes from continuing operations
(5,153
(1,955
 
(Loss)/income from continuing operations
(21,899
)
3,074
   
           
Loss from discontinued operations, net of tax
(343
)
(475
)
 
Net (loss)/income
$    (22,242
)
$       2,599
   
           
Other comprehensive income:
         
      Pension liability reclassification, net of tax
478
 
380
   
Total comprehensive (loss)/income
$    (21,764
)
$       2,979
   
           
Basic (loss)/earnings per share:
         
      (Loss)/income from continuing operations
$        (0.36
)
$         0.05
   
      Loss from discontinued operations
(0.01
(0.01
 
         Net (loss)/earnings per share
$        (0.37
$         0.04
   
           
Diluted (loss)/earnings per share:
       
      (Loss)/income from continuing operations
$        (0.36
)
$         0.05
 
      Loss from discontinued operations
(0.01
(0.01
)
         Net (loss)/earnings per share
$        (0.37
$         0.04
 
         
Weighted average shares:
       
      Basic
60,026
 
62,813
 
      Diluted
60,026
 
62,956
 
         
Cash dividends declared per share
$              
 
$              
 
 
                 The accompanying notes are an integral part of the condensed consolidated financial statements.

5
 
RUBY TUESDAY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
 
(UNAUDITED)
 
  
THIRTEEN WEEKS ENDED
 
 
  
SEPTEMBER 3,
2013
 
SEPTEMBER 4,
2012
 
     
 
(NOTE A)
 
Operating activities:
       
Net (loss)/income
$    (22,242
$       2,599
 
Adjustments to reconcile net (loss)/income to net cash
       
  provided by operating activities:
       
    Depreciation
14,209
 
15,392
 
    Amortization of intangibles
665
 
839
 
    Deferred income taxes
(79
)
(9,041
    Loss on impairments, including disposition of assets
5,494
 
441
 
    Share-based compensation expense
1,704
 
851
 
    Excess tax benefits from share-based compensation
(256
)
(1
)
    Amortization of deferred gain on sale-leaseback transactions
(262
)
(143
)
    Other
1,024
 
23
 
  Changes in operating assets and liabilities:
       
     Receivables
428
 
(3,721
)
     Inventories
2,104
 
(6,393
)
     Income taxes
(1,434
)
2,623
 
     Prepaid and other assets
(22
)
(1,638
)
     Accounts payable, accrued and other liabilities
7,531
 
9,371
 
  Net cash provided by operating activities
8,864
 
11,202
 
         
Investing activities:
       
Purchases of property and equipment
(11,159
)
(6,360
)
Proceeds from sale-leaseback transactions, net
5,637
 
19,286
 
Proceeds from disposal of assets
2,548
 
5
 
Insurance proceeds from property claims
218
 
 
Reductions in Deferred Compensation Plan assets
130
 
127
 
Other, net
(143
)
(227
)
  Net cash (used)/provided by investing activities
(2,769
)
12,831
 
         
Financing activities:
       
Principal payments on long-term debt
(24,284
)
(4,474
)
Stock repurchases
(540
(2,346
Proceeds from exercise of stock options
1,419
 
90
 
Excess tax benefits from share-based compensation
256
 
1
 
  Net cash used by financing activities
(23,149
)
(6,729
)
         
(Decrease)/increase in cash and cash equivalents
(17,054
)
17,304
 
Cash and cash equivalents:
       
  Beginning of year
52,907
 
48,184
 
  End of quarter
$     35,853
 
$     65,488
 
         
Supplemental disclosure of cash flow information:
       
      Cash paid for:
       
        Interest, net of amount capitalized
$       2,176
 
$      1,683
 
        Income taxes, net
$            74
 
$         238
 
Significant non-cash investing and financing activities:
       
        Retirement of fully depreciated assets
$       6,101
 
$    12,614
 
        Reclassification of properties to assets held for sale
$       1,643
 
$      3,298
 
 
                 The accompanying notes are an integral part of the condensed consolidated financial statements.

6
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE A – 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 and Lime Fresh concepts in selected domestic and international 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 3, 2013 are not necessarily indicative of results that may be expected for the 52-week year ending June 3, 2014.
 
The Condensed Consolidated Balance Sheet at June 4, 2013 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.  We made certain reclassifications to prior year amounts in our Condensed Consolidated Statements of Operations and Comprehensive (Loss)/Income to reclassify the results of operations of our discontinued concepts as discontinued operations for all periods presented.
 
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 4, 2013.
 
NOTE B – (LOSS)/EARNINGS PER SHARE AND STOCK REPURCHASES
 
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, if 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):
 
   
Thirteen weeks ended
   
September 3,
2013
 
September 4,
 2012
  (Loss)/income from continuing operations
$
  (21,899)
$
  3,074
  Loss from discontinued operations
 
        (343)
 
     (475)
  Net (loss)/income
$
  (22,242)
$
  2,599
 
       
  Weighted-average common shares outstanding
 
60,026
 
62,813
  Dilutive effect of stock options and restricted stock
 
         –
 
     143
  Weighted average common and dilutive potential
       
    common shares outstanding
 
60,026
 
62,956
         
(Loss)/earnings per share – Basic
       
  (Loss)/income from continuing operations
$
     (0.36)
$
     0.05
  Loss from discontinued operations
 
     (0.01)
 
     (0.01)
  Net (loss)/earnings per share
$
     (0.37)
$
     0.04
         
(Loss)/earnings per share – Diluted
       
  (Loss)/income from continuing operations
$
     (0.36)
$
     0.05
  Loss from discontinued operations
 
     (0.01)
 
     (0.01)
  Net (loss)/earnings per share
$
     (0.37)
$
     0.04
 

7
Stock options with an exercise price greater than the average market price of our common stock and certain options with unrecognized compensation expense do not impact the computation of diluted (loss)/earnings per share because the effect would be anti-dilutive.  The following table summarizes stock options and restricted shares that did not impact the computation of diluted (loss)/earnings per share because their inclusion would have had an anti-dilutive effect (in thousands):
 
   
Thirteen weeks ended
   
September 3,
 2013
 
September 4,
2012
  Stock options
 
  3,114*
 
  2,068
  Restricted shares
 
  1,246*
 
  1,105
  Total
 
  4,360*
 
  3,173
*Due to a net loss from continuing operations for the 13 weeks ended September 3, 2013, all outstanding share-based awards were excluded from the computation of diluted loss per share.

During the first quarter of fiscal 2014, we repurchased 0.1 million shares of our common stock at a cost of $0.5 million.  As of September 3, 2013, the total number of remaining shares authorized by our Board of Directors to be repurchased was 11.8 million.  All shares repurchased during the current quarter were cancelled as of September 3, 2013.

NOTE C – FRANCHISE PROGRAMS

As of September 3, 2013, our domestic and international franchisees collectively operated 75 Ruby Tuesday restaurants and eight Lime Fresh restaurants.  We do not own any equity interest in our franchisees.

Under the terms of the franchise operating agreements, we charge a royalty fee (generally 4.0% of monthly sales) and require all domestic franchisees to contribute a percentage, 0.5% as of September 3, 2013, 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 franchise agreements allow us to charge up to a 2.0% support service fee and a 1.5% marketing and purchasing fee.  For the 13 weeks ended September 3, 2013 and September 4, 2012, we recorded $0.3 million for both periods, 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 D – DISCONTINUED OPERATIONS

In an effort to focus primarily on the successful sales turnaround of our core Ruby Tuesday concept and secondly, to improve the financial performance of our Lime Fresh concept, we closed all 13 Marlin & Ray’s restaurants, the Company’s one Wok Hay restaurant, and our two Truffles restaurants during the fourth quarter of fiscal 2013.  We have classified the results of operations of our Company-owned Marlin & Ray’s, Wok Hay, and Truffles concepts as discontinued operations for all periods presented.  The results of operations of our discontinued operations are as follows (in thousands):
    
 
Thirteen weeks ended
 
 
September 3, 2013
 
September 4, 2012
 
Restaurant sales and operating revenue
 $
           
   $
   4,998
 
Loss before income taxes
 $
       (528)
   $
     (848)
 
Benefit for income taxes
 
       (185)
   
     (373)
 
Loss from discontinued operations
 $
       (343)
   $
     (475)
 

As of September 3, 2013 and June 4, 2013, we had $1.3 million and $2.8 million, respectively, of assets associated with the closed concept restaurants, which are included in Property and equipment, net in our
 

8
Condensed Consolidated Balance Sheets. Additionally, included within Assets held for sale in our September 3, 2013 and June 4, 2013 Condensed Consolidated Balance Sheet are $5.6 million and $4.2 million, respectively, of assets associated with the closed concept restaurants. See Note I to the Condensed Consolidated Financial Statements for a discussion of closed restaurant lease reserves as of September 3, 2013 and June 4, 2013 associated with the closed concept restaurants.
 
NOTE E – ACCOUNTS RECEIVABLE
 
Accounts receivable – current consist of the following (in thousands):
 
September 3, 2013
 
June 4, 2013
           
Rebates receivable
$
970
 
$
874
Amounts due from franchisees
 
1,219
   
917
Other receivables
 
2,352
   
3,043
 
$
4,541
 
$
4,834

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.

As of September 3, 2013 and June 4, 2013, Other receivables consisted primarily of amounts due for third-party gift card sales ($0.9 million and $1.8 million, respectively), amounts due from landlords ($0.4 million and $0.5 million, respectively), and amounts due from our distributor ($0.5 million and $0.4 million, respectively).
 
NOTE F – INVENTORIES
 
Our merchandise inventory was $19.3 million and $21.8 million as of September 3, 2013 and June 4, 2013, respectively.  In order to ensure adequate supply and competitive pricing, we have historically purchased lobster in advance of our needs and stored it in third-party facilities prior to our distributor taking possession of the inventory.  The decrease in merchandise inventory from the end of the prior fiscal year is due primarily to a reduction in lobster inventory as we have suspended the advance purchasing of lobster in order to utilize the lobster that is currently on hand.

NOTE G – PROPERTY, EQUIPMENT, ASSETS HELD FOR SALE, OPERATING LEASES, AND SALE-LEASEBACK TRANSACTIONS
 
Property and equipment, net, is comprised of the following (in thousands):
 
 
September 3, 2013
 
June 4, 2013
Land
$
219,498
 
$
222,385
Buildings
 
444,181
   
448,681
Improvements
 
393,447
   
402,371
Restaurant equipment
 
258,986
   
260,576
Other equipment
 
89,536
   
91,351
Construction in progress and other*
 
22,257
   
       23,080
   
1,427,905
   
1,448,444
Less accumulated depreciation
 
582,874
   
     588,614
 
  $
845,031
 
$
859,830

* Included in Construction in progress and other as of September 3, 2013 and June 4, 2013 are $14.7 million and $14.8 million, respectively, of assets held for sale that are not classified as such in the
 

9
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.
 
Included within the current assets section of our Condensed Consolidated Balance Sheets at September 3, 2013 and June 4, 2013 are amounts classified as held for sale totaling $8.1 million and $9.2 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 3, 2013, we sold surplus properties with carrying values of $2.6 million at a $0.1 million net loss.  Cash proceeds, net of broker fees, from these sales totaled $2.5 million.  During the 13 weeks ended September 4, 2012, we did not sell any properties other than the sale-leaseback transactions discussed below.

Approximately 56% of our 724 restaurants are located on leased properties.  Of these, approximately 67% are land leases only; the other 33% are for both land and building.  The initial terms of these leases expire at various dates over the next 23 years.  These leases may also contain required increases in minimum rent at varying times during the lease term and have options to extend the terms of the leases at a rate that is included in the original lease agreement.  Most of our leases require the payment of additional (contingent) rent that is based upon a percentage of restaurant sales above agreed upon sales levels for the year.  These sales levels vary for each restaurant and are established in the lease agreements.  We recognize contingent rental expense (in annual as well as interim periods) prior to the achievement of the specified target that triggers the contingent rental expense, provided that achievement of that target is considered probable.

During the 13 weeks ended September 3, 2013 and September 4, 2012, we completed sale-leaseback transactions of the land and building for three and nine Company-owned Ruby Tuesday concept restaurants, respectively, for gross cash proceeds of $5.9 million and $20.2 million, respectively, exclusive of transaction costs of approximately $0.3 million and $1.0 million, respectively.  Equipment was not included.  The carrying value of the properties sold was $4.8 million and $14.2 million, respectively.  The leases have been classified as operating leases and have initial terms of 15 years, with renewal options of up to 20 years following a rent reset based on fair market value at the end of the initial term.  Net proceeds from fiscal 2013 and 2014’s sale-leaseback transactions have been used for general corporate purposes, including debt payments and the repurchase of shares of our common stock.

We realized gains on these transactions during the 13 weeks ended September 3, 2013 and September 4, 2012 of $0.8 million and $5.0 million, respectively, which have been deferred and are being recognized on a straight-line basis over the initial terms of the leases.  The current portion of the deferred gains on all sale-leaseback transactions to date was $1.1 million and $1.0 million as of September 3, 2013 and June 4, 2013, respectively, and is included in Accrued liabilities – Rent and other in our Condensed Consolidated Balance Sheets.  The long-term portion of the deferred gains on all sale-leaseback transactions to date was $13.8 million and $13.2 million as of September 3, 2013 and June 4, 2013, respectively, and is included in Other deferred liabilities in our Condensed Consolidated Balance Sheets.  Amortization of the deferred gains of $0.3 million and $0.1 million is included within Other restaurant operating costs in our Condensed Consolidated Statement of Operations and Comprehensive (Loss)/Income for the 13 weeks ended September 3, 2013 and September 4, 2012, respectively.
 
NOTE H – LONG-TERM DEBT AND CAPITAL LEASES
 
Long-term debt and capital lease obligations consist of the following (in thousands):
 
 
September 3, 2013
 
June 4, 2013
           
Senior unsecured notes
$
222,113
 
$
235,000
Unamortized discount
 
(2,834)
   
(3,083)
Senior unsecured notes less unamortized discount
 
219,279
   
231,917
Revolving credit facility
 
   
Mortgage loan obligations
 
55,171
   
66,883
Capital lease obligations
 
210
   
202
   
274,660
   
299,002
Less current maturities
 
6,130
   
8,487
 
$
268,530
 
$
290,515
 
 

10
On May 14, 2012, we entered into an indenture (the “Indenture”) among the Company, 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 is included in Accrued liabilities – Rent and other in our Condensed 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.  At any time prior to May 15, 2015, we may redeem up to 35% 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.  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 August 10, 2012, we entered into the third amendment to our five-year revolving credit agreement (the “Credit Facility” discussed below) which, among other things, allows us to repurchase up to $15.0 million of the Senior Notes in any fiscal year.  During the 13 weeks ended September 3, 2013, we repurchased $12.9 million of the Senior Notes for $13.0 million plus $0.2 million of accrued interest.  We realized a loss of $0.5 million on these transactions.  The balance on the Senior Notes was $222.1 million at September 3, 2013 as a result of these repurchases.

On December 1, 2010, we entered into the Credit Facility, under which we could borrow up to $320.0 million with the option to increase our capacity by $50.0 million to $370.0 million.  On May 14, 2012, we entered into the second amendment to our Credit Facility to, among other things, reduce the maximum aggregate revolving commitment to $200.0 million, secure the Credit Facility with a lien over the equity interests of certain subsidiaries, modify certain financial covenants and ratios and permit the issuance of the Senior Notes.

The terms of the Credit Facility provide for a $40.0 million letter of credit subcommitment.  The Credit Facility also includes a $50.0 million franchise facility subcommitment (the “Franchise Facility Subcommitment”), which covered our previous guarantees of franchise debt.  The Franchise Facility Subcommitment matures no later than December 1, 2015.  All amounts guaranteed under the Franchise Facility Subcommitment have been settled.

The interest rate charged on borrowings pursuant to the Credit Facility can vary depending on the interest rate option we choose to utilize.  Our Base Rate for borrowings is defined to be the higher of Bank of America’s prime rate, the Federal Funds Rate plus 0.5%, or an adjusted LIBO Rate plus 1.00%, plus an
 

11
applicable margin ranging from 0.25% to 1.50%.  The applicable margin for our Eurodollar Borrowings ranges from 1.25% to 2.50% depending on our Total Debt to EBITDAR ratio.

A commitment fee for the account of each lender at a rate ranging from 0.30% to 0.45% (depending on our Total Debt to EBITDAR ratio) on the daily amount of the unused revolving commitment of such lender is payable on the last day of each calendar quarter and on the termination date of the Credit Facility.  On the first day after the end of each calendar quarter until the termination date of the Credit Facility, we are required to pay a letter of credit fee for the account of each lender with respect to such lender’s participation in each letter of credit.  The letter of credit fee accrues at the applicable margin for Eurodollar Loans then in effect on the average daily amount of such lender’s letter of credit exposure (excluding any portion attributable to unreimbursed letter of credit disbursements) attributable to such letter of credit during the period from and including the date of issuance of such letter of credit to but excluding the date on which such letter of credit expires or is drawn in full.  Besides the commitment fee and the letter of credit fee, we are also required to pay a fronting fee on the daily amount of the letter of credit exposure (excluding any portion attributable to unreimbursed letter of credit disbursements) on the tenth day after the end of each calendar quarter until the termination date of the Credit Facility.  We must also pay standard fees with respect to issuance, amendment, renewal or extension of any letter of credit or processing of drawings thereunder.

We are entitled to make voluntary prepayments of our borrowings under the Credit Facility at any time, in whole or in part, without premium or penalty.  Subject to certain exceptions, mandatory prepayments will be required upon occurrence of certain events, including the revolving credit exposure of all lenders exceeding the aggregate revolving commitment then in effect, sales of certain assets and any additional debt issuances.

Under the terms of the Credit Facility, we had no borrowings outstanding at either September 3, 2013 or June 4, 2013.  After consideration of letters of credit outstanding, we had $187.6 million available under the Credit Facility as of September 3, 2013.

The Credit Facility contains a number of customary affirmative and negative covenants that, among others, 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.  In addition, under the 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 and we were in compliance with these financial covenants as of September 3, 2013.  The terms of the Credit Facility require us to maintain a maximum leverage ratio of no more than  4.25 to 1.0 and a minimum fixed charge coverage ratio of 1.75 to 1.0 through and including the fiscal quarter ending June 3, 2014 and 1.85 to 1.0 thereafter.

The Credit Facility terminates on December 1, 2015.  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 Credit Facility and any ancillary loan documents.

As further discussed in Note R to the Condensed Consolidated Financial Statements, as of the date of this filing we are in the process of finalizing a four-year $50.0 million revolving credit agreement (the “New Credit Facility”) which will replace the Credit Facility.  We will have additional covenant flexibility under the New Credit Facility which will enable us to make the necessary long-term investments in our business with less covenant pressure in the near term as we implement our brand repositioning.  We are currently in compliance with our debt covenants.  Under current Company and industry conditions, however, absent closing on the New Credit Facility, we anticipate that, at some point during the next twelve months, we will likely be in violation of our minimum fixed charge coverage ratio.  An event of default on our Credit Facility would trigger a similar event of default on our mortgage loan obligations and could trigger an event of default on the Senior Notes.  In the event of default, there is no assurance that our lenders will waive any future covenant violations or agree to any future amendments of our Credit Facility.

Our $55.2 million in mortgage loan obligations as of September 3, 2013 consists of various loans acquired upon franchise acquisitions.  These loans, which mature between January 2015 and November 2022, have balances which range from $0.2 million to $7.9 million and interest rates of 7.60% to 10.92%.  Many of the properties acquired from franchisees collateralize the loans outstanding.
 

12
NOTE I – CLOSURES AND IMPAIRMENTS EXPENSE

Closures and impairments expense includes the following for the thirteen weeks ended September 3, 2013 and September 4, 2012 (in thousands):
 
September 3, 2013
 
September 4, 2012
           
Closures and impairments from continuing operations
         
  Property impairments
$
4,930
 
$
448
  Closed restaurant lease reserves
 
2,595
   
474
  Other closing expense
 
468
   
256
  Loss/(gain) on sale of surplus properties
 
40
   
(91)
Closures and impairments, net
$
8,033
 
$
1,087
           
Closures and impairments from discontinued operations
$
518
 
$
37

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

 
Reserve for Lease Obligations
 
 
Continuing
Operations
 
Discontinued
 Concepts
 
 
Total
 
  Balance at June 4, 2013
$
6,417
 
$
2,310
 
$
8,727
 
  Closing expense including rent and other lease charges
 
2,595
   
197
   
2,792
 
  Payments
 
(871
)
 
(269
)
 
(1,140
)
  Other adjustments
 
105
   
   
105
 
  Balance at September 3, 2013
$
8,246
 
$
2,238
 
$
10,484
 

For the remainder of fiscal 2014 and beyond, our focus will be on obtaining settlements 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.

At September 3, 2013, we had 48 restaurants that had been open more than one year with rolling 12-month negative cash flows of which 32 have been impaired to salvage value.  Of the 16 which remained, we reviewed the plans to improve cash flows at each of the restaurants and determined that no impairment was necessary.  The remaining net book value of these 16 restaurants, eight of which are located on owned properties, was $18.7 million at September 3, 2013.

Should sales at these 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.
 
NOTE J – 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 $0.4 million to the Retirement Plan during the remainder of fiscal 2014.
 

13
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.

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 Benefits
 
Thirteen weeks ended
 
September 3, 2013
 
September 4, 2012
Service cost
$         89
   
$         115
 
Interest cost
434
   
525
 
Expected return on plan assets
(111
)
 
(102
)
Amortization of prior service cost (a)
   
26
 
Recognized actuarial loss
428
   
565
 
Net periodic benefit cost
           $      840
   
           $      1,129
 
   
 
Postretirement Medical and Life Benefits
 
Thirteen weeks ended
 
September 3, 2013
 
September 4, 2012
Service cost
$          3
   
$          3
 
Interest cost
17
   
15
 
Amortization of prior service cost (a)
(11
)
 
(14
)
Recognized actuarial loss
61
   
53
 
Net periodic benefit cost
$       70
   
$       57
 
(a)  
Prior service costs are amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits.

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 4, 2013.

Executive Separation
On June 7, 2013, our then Executive Vice President, Chief Operations Officer separated employment with the Company.  During the 13 weeks ended September 3, 2013, we recorded severance expense of $0.9 million in connection with the separation agreement for the former executive, which represents obligations pursuant to the Ruby Tuesday, Inc. Severance Pay Plan (the “Severance Plan”) of two times base salary.  Of this amount, $0.5 million was paid to the former executive during the 13 weeks ended September 3, 2013, and the remaining $0.4 million will be paid subject to six-month delay in accordance with the Severance Plan.
 

14
NOTE K – 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 benefit for the first quarter of fiscal 2014 based on the actual year-to-date results, in accordance with ASC 740.

We recorded a tax benefit from continuing operations of $5.2 million during the first quarter of fiscal 2014, compared to $2.0 million in the prior year quarter, to reflect the current benefit of federal and certain state net operating loss carrybacks as well as the recognition of unrecognized tax benefits.  The change in income taxes is attributable to lower pre-tax income for the current quarter as compared to the same quarter of the prior year offset by an increase in the valuation allowance for deferred tax assets as discussed below.

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 have considered both positive and negative evidence related to the likelihood of realization of the deferred tax assets for each jurisdiction.

Through the third quarter of fiscal 2013, we had concluded that objective and subjective positive evidence outweighed negative evidence, and concluded it was more likely than not to realize all of our federal and most of our state deferred tax assets, except for loss carryforwards in certain states that have had cumulative losses due to our state tax planning strategies and/or relatively short carryforward periods and annual limits on how much loss carryforward can be used to offset future taxable income.   During the fourth quarter of fiscal 2013, we recorded a valuation allowance following the conclusion that the negative evidence outweighed the positive evidence. 

Our valuation allowance totaled $31.5 million and $24.6 million as of September 3, 2013 and June 4, 2013, respectively.  Netted against our tax benefit from continuing operations was a charge of $7.3 million representing the amount reserved for the increase in deferred tax assets during the quarter which primarily related to general business credit carryforwards and state net operating loss carryforwards.

We had a liability for unrecognized tax benefits, exclusive of accrued interest and penalties, of $9.0 million and $13.0 million as of September 3, 2013 and June 4, 2013, respectively.  As of September 3, 2013 and June 4, 2013, the total amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate was $3.6 million and $3.5 million, respectively.  The liability for unrecognized tax benefits as of September 3, 2013 includes $1.1 million related to tax positions for which it is reasonably possible that the total amounts could change within the next twelve months based on the outcome of examinations and negotiations with tax authorities.

Interest and penalties related to unrecognized tax benefits are recognized as components of income tax expense.  As of September 3, 2013 and June 4, 2013, we had accrued $0.9 million for both periods for the payment of interest and penalties.  During the first quarter of fiscal 2013, accrued interest and penalties increased by an insignificant amount.

At September 3, 2013, we are no longer subject to U.S. federal income tax examinations by tax authorities for fiscal years prior to 2010, and with few exceptions, state and local examinations by tax authorities prior to fiscal year 2009.
 

15
NOTE L – SHARE-BASED EMPLOYEE COMPENSATION

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

The Ruby Tuesday, Inc. Stock Incentive and Deferred Compensation Plan for Directors
Under the Ruby Tuesday, Inc. Stock Incentive and Deferred Compensation Plan for directors (the “Directors’ Plan”), non-employee directors are eligible for awards of share-based incentives.  Restricted shares granted under the Directors’ Plan either cliff vest after a one year period or vest in equal amounts after one, two, and three years provided the director continually serves on the Board of Directors.  Options issued under the Directors’ Plan become vested after 30 months and are exercisable until five years after the grant date.  Stock option exercises are settled with the issuance of new shares of common stock.

All options awarded under the Directors’ Plan have been at the fair market value at the time of grant.  A committee, appointed by the Board of Directors, administers the Directors’ Plan.  At September 3, 2013, we had reserved 13,000 shares of common stock under the Directors’ Plan, 12,000 of which were subject to options outstanding, for a net of 1,000 shares of common stock currently available for issuance under the Directors’ Plan.  As discussed in Note R to the Condensed Consolidated Financial Statements, subsequent to September 3, 2013 our shareholders approved an amendment to the Ruby Tuesday, Inc. Stock Incentive Plan to allow for the participation of non-employee directors.

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 and officers 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 3, 2013, we had reserved a total of 4,906,000 and 151,000 shares of common stock for the SIP and 1996 SIP, respectively.  Of the reserved shares at September 3, 2013, 2,248,000 and 102,000 were subject to options outstanding for the SIP and 1996 SIP, respectively.  Stock option exercises are settled with the issuance of new shares.  Net shares of common stock available for issuance at September 3, 2013 under the SIP and 1996 SIP were 2,658,000 and 49,000, respectively.  As discussed in Note R to the Condensed Consolidated Financial Statements, subsequent to September 3, 2013 our shareholders approved an amendment to the SIP allowing non-employee directors to participate in the SIP.

Stock Options
The following table summarizes the activity in options for the 13 weeks ended September 3, 2013 under these stock option plans (in thousands, except per-share data):
 
     Weighted Average
 
Options
Exercise Price
Service-based vesting:
       
Balance at June 4, 2013
1,911
 
$
8.27
Granted
601
   
9.34
Exercised
(218
)
 
6.51
Forfeited
   
Balance at September 3, 2013
2,294
 
$
8.72
Exercisable
1,190
 
$
8.79
         
Market-based vesting:
       
Balance at June 4, 2013
250
 
$
7.81
Granted
570
   
9.34
Balance at September 3, 2013
820
 
$
8.87
Exercisable
 
$

16
At September 3, 2013, there was approximately $5.3 million of unrecognized pre-tax compensation expense related to non-vested stock options.  This cost is expected to be recognized over a weighted-average period of 1.9 years.

During the first quarter of fiscal 2014, we granted 601,000 service-based stock options to certain employees under the terms of the SIP.  The stock options awarded vest in equal annual installments over a three-year period following grant of the award, and have a maximum life of seven years.  There are no performance-based vesting requirements associated with these stock options.

Additionally, during the current quarter we granted 570,000 market-based stock options to certain employees under the terms of the SIP.  The stock options vest if a share of our common stock appreciates to $14 per share or more for a period of 20 consecutive trading days on or before December 3, 2015.  The stock options have a maximum life of seven years.

Restricted Stock
The following table summarizes our restricted stock activity for the 13 weeks ended September 3, 2013 (in thousands, except per-share data):
     
Weighted-Average
 
Restricted
 
Grant-Date
Performance-based vesting:
Stock
 
Fair Value
Non-vested at June 4, 2013
356 
 
$    7.06
Granted
– 
 
Vested
(9)
 
7.87
Forfeited
(269)
 
6.81
Non-vested at September 3, 2013
78 
 
$   7.82
       
     
Weighted-Average
 
Restricted
 
Grant-Date
Service-based vesting:
Stock
 
Fair Value
Non-vested at June 4, 2013
1,136 
 
$    7.92
Granted
344 
 
9.27
Vested
(200)
 
8.47
Forfeited
(112)
 
9.06
Non-vested at September 3, 2013
1,168 
 
$   8.12

The fair values of the restricted stock awards reflected above were based on the fair market value of our common stock at the time of grant.  At September 3, 2013, unrecognized compensation expense related to restricted stock grants expected to vest totaled approximately $6.9 million and will be recognized over a weighted average vesting period of approximately 1.9 years.

During the first quarter of fiscal 2014, we granted 344,000 shares of service-based restricted stock to certain employees under the terms of the SIP and 1996 SIP, 186,000 of which will cliff vest 2.5 years following the grant date and 158,000 of which will vest in three equal installments over a three-year period following the date of grant.

Also during the first quarter of fiscal 2014, the Executive Compensation Committee of the Board of Directors determined that the performance condition was not achieved for 269,000 shares of performance-based restricted stock granted in fiscal 2013.  As a result, 235,000 shares of restricted stock were cancelled and returned to the pool of shares available for grant under the SIP and 1996 SIP and 34,000 shares of restricted stock awarded to our President and Chief Executive Officer were cancelled and retired.

17
NOTE M – SEGMENT REPORTING

Our President and Chief Executive Officer, who is our chief operating decision maker, with the assistance of our senior management, reviews discrete financial information for both the Ruby Tuesday and Lime Fresh restaurant concepts to assess performance and allocate resources.  We consider the Ruby Tuesday and Lime Fresh concepts to be our reportable segments as we do not believe they have similar economic and other characteristics to be aggregated into a single reportable segment.  Financial results by reportable segment for the 13 weeks ended September 3, 2013 and September 4, 2012 are as follows (in thousands):
             
 
Thirteen weeks ended
 
September 3, 2013
September 4, 2012
Revenues:
           
   Ruby Tuesday concept
$
284,022
 
$
323,827
 
   Lime Fresh concept
 
5,652
   
4,096
 
      Total revenues
$
289,674
 
$
327,923
 
             
Segment profit:
           
   Ruby Tuesday concept
$
9,851
 
$
29,547
 
   Lime Fresh concept
 
(2,454
)
 
(319
)
      Total segment profit
$
7,397
 
$
29,228
 
             
Depreciation and amortization:
           
   Ruby Tuesday concept
$
13,792
 
$
14,759
 
   Lime Fresh concept
 
499
   
519
 
   Support center and other
 
583
   
572
 
      Total depreciation and amortization
$
14,874
 
$
15,850
 
             
Capital expenditures:
           
   Ruby Tuesday concept
$
8,242
 
$
3,635
 
   Lime Fresh concept
 
2,366
   
1,316
 
   Support center and other
 
551
   
1,409
 
      Total capital expenditures
$
11,159
 
$
6,360
 

Total assets by reportable segment as of September 3, 2013 and June 4, 2013 are as follows (in thousands):
 
 
September 3, 2013
June 4, 2013
Total assets:
           
   Ruby Tuesday concept
$
872,646
 
$
893,750
 
   Lime Fresh concept
 
20,637
   
18,943
 
   Support center and other
 
113,806
   
130,490
 
      Total assets
$
1,007,089
 
$
1,043,183
 

The following is a reconciliation of segment profit to (loss)/income from continuing operations before taxes for the 13 weeks ended September 3, 2013 and September 4, 2012 (in thousands):
 
   Thirteen weeks ended
 
September 3, 2013
   September 4, 2012
Segment profit
$         7,397
 
$    29,228
 
Less:
   
 
 
   Depreciation and amortization
(14,874
)
(15,850
)
   Unallocated general and administrative expenses
(11,897
)
(5,020
)
   Preopening expenses
(354
)
(195
)
   Interest expense, net
(6,753
)
(6,790
)
   Other expense, net
(571
)
(254
)
(Loss)/income from continuing operations
       
     before income taxes
 $     (27,052
)
$      1,119
 

18
NOTE N – 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 matters referred to below, will not have a material adverse effect on our operations, financial position, or cash flows.

On April 17, 2012, a wage and hour case styled Guttentag, et al vs. Ruby Tuesday, Inc. was filed in the United States District Court, Southern District of New York.  The named plaintiffs, and five additional former employees who have joined the suit as opt-in plaintiffs, allege that the Company violated the Fair Labor Standards Act and state wage and hour laws in New York and Florida.  Plaintiffs filed their motion for conditional certification on March 8, 2013, which sought a nationwide putative class of all current and former servers, bartenders, and food runners who worked for the Company between April 17, 2009 and the present.   On June 11, 2013 the court entered an order granting conditional certification of the nationwide class requested by plaintiffs.  Mediation was conducted in early September 2013, but the effort was unsuccessful.  We continue to explore a possible agreed resolution.  The court has made no findings as to the merits or lack of merits of the plantiffs' claims and we are vigorously defending this matter.  Notice of the lawsuit and the right to opt-in will likely be mailed to the putative class members by the end of October 2013

On September 30, 2009, an age discrimination case styled Equal Employment Opportunity Commission (Pittsburgh) v. Ruby Tuesday, Inc. (the “EEOC Lawsuit”), was filed in the United States District Court for the Western District of Pennsylvania (the “Court”).  The U.S. Equal Employment Opportunity Commission (“EEOC”) Pittsburgh Area Office alleges in the suit that the Company violated the Age Discrimination in Employment Act (“ADEA”) by failing to hire employees within the protected age group in five Pennsylvania restaurants and one Ohio restaurant.  All deadlines in this EEOC Lawsuit are in abeyance pending exhaustion of a conciliation process.  On October 19, 2009, the EEOC issued a Notice of an ADEA Directed Investigation (“DI”), regarding potential age discrimination in violation of the ADEA in hiring and discharge for all positions at all restaurant facilities in the United States.  On April 30, 2013, the Court entered an order terminating a miscellaneous action filed by the EEOC in furtherance of the DI approving a joint motion to enforce an administrative subpoena.  We have denied the allegations in the EEOC Lawsuit and are vigorously defending against the DI.  Despite the pending EEOC Lawsuit and DI, we do not believe that this matter will have a material adverse effect on our operations, financial position, or cash flows.

On November 8, 2010, a personal injury case styled Dan Maddy v. Ruby Tuesday, Inc., which had been filed in the Circuit Court for Rutherford County, Tennessee, was resolved through mediation.  Included in the Maddy settlement was a payment made by our secondary insurance carrier of $2,750,000.  Despite making this voluntary payment, our secondary insurance carrier filed a claim against us based on our alleged failure to timely notify the carrier of the Maddy case in accordance with the terms of the policy. 
 
We believe our secondary insurance carrier received timely notice in accordance with the policy and we are vigorously defending this matter.  Should we incur potential liability to our secondary carrier, we believe we have indemnification claims against two claims administrators. 
 
We believe, and have obtained a consistent opinion from outside counsel, that we have valid coverage under our insurance policies for any amounts in excess of our self-insured retention.  We believe this provides a basis for not recording a liability for any contingency associated with the Maddy settlement.  We further believe we have the right to the indemnification referred to above.  Based on the information currently available, our September 3, 2013 and June 4, 2013 Condensed Consolidated Balance Sheets reflect no accrual relating to the Maddy case.  There can be no assurance, however, that we will be successful in our defense of our carrier’s claim against us.
 

19
NOTE O – 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 3,
2013
 
June 4,
2013
 
Deferred compensation plan: other investments – Assets
1
 
$
8,626
 
$
8,721
 
Deferred compensation plan: other investments – Liabilities
1
   
(8,626
)
 
(8,721
)
Deferred compensation plan: RTI common stock – Equity
1
   
690
   
1,094
 
Deferred compensation plan: RTI common stock – Equity
1
   
(690
)
 
(1,094
)
   Total
     
$
 
$
 

During the 13 weeks ended September 3, 2013 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 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 following table presents the fair value of assets measured on a non-recurring basis and the level within the fair value hierarchy in which the measurements fall (in thousands):
 
Fair Value Measurements
 
 
Level
 
September 3, 2013
 
June 4, 2013
 
Long-lived assets held for sale *
2
 
$
22,730
 
$
24,006
 
Long-lived assets held for use
2
   
1,131
   
5,802
 
   Total
     
$
23,861
 
$
29,808
 

* Included in the carrying value of long-lived assets held for sale as of September 3, 2013 and June 4, 2013 are $14.7 million and $14.8 million, respectively, of assets included in Construction in progress in the Condensed Consolidated Balance Sheets as we do not expect to sell these assets within the next 12 months.

The following table presents losses recognized during the 13 weeks ended September 3, 2013 and September 4, 2012 resulting from non-recurring fair value measurements.  The losses associated with continuing operations are included in Closures and impairments, net and the losses associated with discontinued operations are included in Loss from discontinued operations, net of tax in our Condensed Consolidated Statements of Operations and Comprehensive (Loss)/Income (in thousands):

 
13 weeks ended
 
 
September 3,
 2013
 
September 4,
2012
 
Included within continuing operations
           
  Long-lived assets held for sale
$
269
 
$
157
 
  Long-lived assets held for use
 
4,661
   
291
 
   Total
$
4,930
 
$
448
 
             
Included within discontinued operations
$
153
 
$
 
               
 
Long-lived assets held for sale are valued using Level 2 inputs, primarily representing information obtained through broker listings and sales agreements.  Costs to market and/or sell the assets are factored into the estimates of fair value for those assets included in Assets held for sale on our Condensed Consolidated Balance Sheets.

20
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 the long-lived asset may not be recoverable.

Long-lived assets held for use presented in the table above include restaurants or groups of restaurants that we have impaired.  From time to time, this will also include closed restaurants or surplus sites that do not meet the held for sale criteria that we have offered for sale at a price less than carrying value.

The Level 2 fair values of our long-lived assets held for use are based on broker estimates of the value of the land, building, leasehold improvements, and other residual assets.
 
Our financial instruments at September 3, 2013 and June 4, 2013 consisted of cash and cash equivalents, accounts receivable and payable, long-term debt, and letters of credit.  The fair value of cash and cash equivalents and accounts receivable and payable approximated carrying value due to of the short-term nature of these instruments.  The carrying value and fair value of our other financial instruments not measured at fair value on a recurring basis, however subject to fair value disclosures, are as follows (in thousands):
 
 
September 3, 2013
 
June 4, 2013
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Long-term debt and capital leases
$  274,660
 
$  282,523
 
$  299,002
 
$  310,441
Letters of credit
 
327
 
 
270
 
We estimated the fair value of debt and letters of credit using market quotes and present value calculations based on market rates.
 
NOTE P – SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

As discussed in Note H 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.
 

21
 
Condensed Consolidating Balance Sheet
As of September 3, 2013
(In thousands)

   Parent  
Guarantors
 
Eliminations
   Consolidated  
Assets
                 
Current assets:
                 
     Cash and cash equivalents
$
35,545
 
$
308
 
$
    $
35,853
 
     Accounts receivable
 
2,212
   
2,329
   
   
4,541
 
     Inventories
 
20,463
   
8,305
   
   
28,768
 
     Income tax receivable
 
124,524
   
   
(121,190
)
 
3,334
 
     Deferred income taxes
 
3,083
   
3,081
   
   
6,164
 
     Other current assets
 
19,569
   
2,604
   
   
22,173
 
          Total current assets
 
205,396
   
16,627
   
(121,190
)
 
100,833
 
     
                       
Property and equipment, net
 
623,643
   
221,388
   
   
845,031
 
Investment in subsidiaries
 
160,537
   
   
(160,537
)
 
 
Due from/(to) subsidiaries
 
89,015
   
233,769
   
(322,784
)
 
 
Other assets
 
46,527
   
14,698
   
   
61,225
 
          Total assets
$
1,125,118
 
$
486,482
 
$
(604,511
)
$
1,007,089
 
                         
Liabilities & Shareholders’ Equity
                       
Current liabilities:
                       
     Accounts payable
$
18,021
 
$
5,844
 
$
    $
23,865
 
     Accrued and other current liabilities
 
52,345
   
33,602
   
   
85,947
 
     Current maturities of long-term debt,
                       
        including capital leases
 
(334
)  
6,464
   
   
6,130
 
     Income tax payable
 
   
121,190
   
(121,190
)
 
 
          Total current liabilities
 
70,032
   
167,100
   
(121,190
)
 
115,942
 
     
                       
Long-term debt and capital leases,
                       
   less current maturities
 
219,821
   
48,709
   
   
268,530
 
Deferred income taxes
 
(2,781
)  
7,324
   
   
4,543
 
Due to/(from) subsidiaries
 
233,769
   
89,015
   
(322,784
)
 
 
Other deferred liabilities
 
106,544
   
13,797
   
   
120,341
 
          Total liabilities
 
627,385
   
325,945
   
(443,974
)
 
509,356
 
                         
Shareholders’ equity:
                       
     Common stock
 
614
   
   
   
614
 
     Capital in excess of par value
 
70,256
   
   
   
70,256
 
     Retained earnings
 
437,330
   
160,537
   
(160,537
)
 
437,330
 
     Accumulated other comprehensive loss
 
(10,467
)  
   
   
(10,467
) 
         Total shareholders’ equity
 
497,733
   
160,537
   
(160,537
)
 
497,733
 
     
                       
        Total liabilities & shareholders’ equity
$
1,125,118
 
$
486,482
 
$
(604,511
)
$
1,007,089
 
 

22
Condensed Consolidating Balance Sheet
As of June 4, 2013
(In thousands)
 
  Parent  
Guarantors
 
Eliminations
  Consolidated  
Assets
                 
Current assets:
                 
Cash and cash equivalents
$
52,635
 
$
272
 
$
  $
52,907
 
Accounts receivable
 
1,854
   
2,980
   
   
4,834
 
Inventories
 
21,961
   
8,911
   
   
30,872
 
Income tax receivable
 
118,329
   
   
(116,429
)
 
1,900
 
Deferred income taxes
 
5,372
   
1,924
   
   
7,296
 
Other current assets
 
19,519
   
3,836
   
   
23,355
 
  Total current assets
 
219,670
   
17,923
   
(116,429
)
 
121,164
 
 
                       
Property and equipment, net
 
635,478
   
224,352
   
   
859,830
 
Investment in subsidiaries
 
167,887
   
   
(167,887
)
 
 
Due from/(to) subsidiaries
 
76,485
   
230,583
   
(307,068
)
 
 
Other assets
 
46,812
   
15,377
   
   
62,189
 
  Total assets
$
1,146,332
 
$
488,235
 
$
(591,384
)
$
1,043,183
 
                         
Liabilities & Shareholders’ Equity
                       
Current liabilities:
                       
Accounts payable
$
11,725
 
$
3,239
 
$
  $
14,964
 
Accrued and other current liabilities
 
47,775
   
34,406
   
   
82,181
 
Current maturities of long-term debt,
                       
including capital leases
 
(347
)  
8,834
   
   
8,487
 
Income tax payable
 
   
116,429
   
(116,429
)
 
 
  Total current liabilities
 
59,153
   
162,908
   
(116,429
)
 
105,632
 
 
                       
Long-term debt and capital leases,
                       
less current maturities
 
232,462
   
58,053
   
   
290,515
 
Deferred income taxes
 
(1,070
)  
6,823
   
   
5,753
 
Due to/(from) subsidiaries
 
230,583
   
76,485
   
(307,068
)
 
 
Other deferred liabilities
 
108,369
   
16,079
   
   
124,448
 
  Total liabilities
 
629,497
   
320,348
   
(423,497
)
 
526,348
 
                         
Shareholders’ equity:
                       
Common stock
 
612
   
   
   
612
 
Capital in excess of par value
 
67,596
   
   
   
67,596
 
Retained earnings
 
459,572
   
167,887
   
(167,887
)
 
459,572
 
Accumulated other comprehensive loss
 
(10,945
)  
   
   
(10,945
)
 Total shareholders’ equity
 
516,835
   
167,887
   
(167,887
)
 
516,835
 
 
                       
 Total liabilities & shareholders’ equity
$
1,146,332
 
$
488,235
 
$
(591,384
)
$
1,043,183
 

23
Condensed Consolidating Statement of Operations and
Comprehensive (Loss)/Income
For the Thirteen Weeks Ended September 3, 2013
(In thousands)

 
Parent
 
Guarantors
 
Eliminations
   Consolidated  
Revenue:
                     
     Restaurant sales and operating revenue
$
210,082
 
$
78,010
 
$
 
 $
288,092
 
     Franchise revenue
 
21
   
1,561
   
   
1,582
 
 
 
210,103
   
79,571
   
   
289,674
 
     
                       
Operating costs and expenses:
                       
     Cost of merchandise
 
58,527
   
21,411
   
   
79,938
 
     Payroll and related costs
 
73,526
   
29,207
   
   
102,733
 
     Other restaurant operating costs
 
48,402
   
19,132
   
   
67,534
 
     Depreciation
 
10,364
   
3,845
   
   
14,209
 
     Selling, general, and administrative
 
25,994
   
11,021
   
   
37,015
 
     Intercompany selling, general, and
                       
        administrative allocations
 
14,763
   
(14,763
)
 
   
 
     Closures and impairments
 
5,165
   
2,868
   
   
8,033
 
     Equity in earnings of subsidiaries
 
(4,525
)
 
   
4,525
   
 
     Interest expense, net
 
5,060
   
1,693
   
   
6,753
 
     Intercompany interest expense/(income)
 
3,185
   
(3,185
)
 
   
 
     Loss on extinguishment of debt
 
511
   
   
   
511
 
 
 
240,972
   
71,229
   
4,525
   
316,726
 
                         
(Loss)/income from continuing operations
                       
     before income taxes
 
(30,869
)
 
8,342
   
(4,525
 
(27,052
)
Provision/(benefit) for income taxes from
                       
     continuing operations
 
(8,970
)
 
3,817
   
   
(5,153
)
(Loss)/income from continuing operations
 
(21,899
)
 
4,525
   
(4,525
 
(21,899
)
     
                       
Loss from discontinued operations, net of tax
 
(343
)
 
   
   
(343
)
Net (loss)/income
$
(22,242
)
$
4,525
 
$
(4,525
)
 $
(22,242
)
                         
Other comprehensive income:
                       
     Pension liability reclassification, net of tax
 
478
   
   
   
478
 
Total comprehensive (loss)/income
$
(21,764
)
$
4,525
 
$
(4,525
)
 $
(21,764
)
 

24
Condensed Consolidating Statement of Operations and
Comprehensive (Loss)/Income
For the Thirteen Weeks Ended September 4, 2012
(In thousands)

 
Parent
 
Guarantors
 
Eliminations
   Consolidated  
Revenue:
                     
     Restaurant sales and operating revenue
$
237,972
 
$
88,295
 
$
 
$
326,267
 
     Franchise revenue
 
92
   
1,564
   
   
1,656
 
 
 
238,064
   
89,859
   
   
327,923
 
     
                       
Operating costs and expenses:
                       
     Cost of merchandise
 
64,202
   
23,661
   
   
87,863
 
     Payroll and related costs
 
76,193
   
30,999
   
   
107,192
 
     Other restaurant operating costs
 
46,820
   
19,034
   
   
65,854
 
     Depreciation
 
11,099
   
3,912
   
   
15,011
 
     Selling, general, and administrative
 
29,021
   
13,986
   
   
43,007
 
     Intercompany selling, general, and
                       
        administrative allocations
 
18,042
   
(18,042
)
 
   
 
     Closures and impairments
 
837
   
250
   
   
1,087
 
     Equity in earnings of subsidiaries
 
(12,032
)
 
   
12,032
   
 
     Interest expense, net
 
5,299
   
1,491
   
   
6,790
 
     Intercompany interest expense/(income)
 
3,388
   
(3,388
)
 
   
 
 
 
242,869
   
71,903
   
12,032
   
326,804
 
                         
(Loss)/income from continuing operations
                       
     before income taxes
 
(4,805
)
 
17,956
   
(12,032
)
 
1,119
 
Provision/(benefit) for income taxes from
                       
     continuing operations
 
(7,879
)
 
5,924
   
   
(1,955
)
(Loss)/income from continuing operations
 
3,074
   
12,032
   
(12,032
)
 
3,074
 
     
                       
Loss from discontinued operations, net of tax
 
(475
)
 
(72
)
 
72
   
(475
)
Net income
$
2,599
 
$
11,960
 
$
(11,960
)
$
2,599
 
                         
Other comprehensive income:
                       
     Pension liability reclassification, net of tax
 
380
   
   
   
380
 
Total comprehensive income
$
2,979
 
$
11,960
 
$
(11,960
)
$
2,979
 
 

25
 
Condensed Consolidating Statement of Cash Flows
For the Thirteen Weeks Ended September 3, 2013
(In thousands)

 
Parent
 
Guarantors
 
Eliminations
  Consolidated   
                 
Net cash provided by operating activities
$
(7,987
)
$
25,540
 
$
(8,689
$
8,864
 
     
                       
Investing activities:
                       
     Purchases of property and equipment
 
(7,850
 
(3,309
 
   
(11,159
     Proceeds from sale-leaseback transactions, net
 
5,637
   
   
   
5,637
 
     Proceeds from disposal of assets
 
1,525
   
1,023
   
   
2,548
 
     Other, net
 
205
   
   
   
205
 
Net cash used by investing activities
 
(483
 
(2,286
)  
   
(2,769
                         
Financing activities:
                       
     Principal payments on long-term debt
 
(12,941
 
(11,343
 
   
(24,284
 
     Stock repurchases
 
(540
 
   
   
(540
     Proceeds from exercise of stock options
 
1,419
   
   
   
1,419
 
     Excess tax benefits from share-based
                       
        compensation
 
256
   
   
   
256
 
     Intercompany transactions
 
3,186
   
(11,875
 
8,689
   
 
Net cash used by financing activities
 
(8,620
 
(23,218
 
8,689
   
(23,149
                         
Decrease in cash and cash equivalents
 
(17,090
 
36
   
   
(17,054
Cash and cash equivalents:
                       
     Beginning of year
 
52,635
   
272
   
   
52,907
 
     End of quarter
 $
35,545
 
 $
308
 
$
 
$
35,853
 
 

26
 
Condensed Consolidating Statement of Cash Flows
For the Thirteen Weeks Ended September 4, 2012
(In thousands)

 
Parent
 
Guarantors
 
Eliminations
  Consolidated   
                       
Net cash provided by operating activities
$
2,304
 
$
15,944
 
$
(7,046
$
11,202
 
     
                       
Investing activities:
                       
     Purchases of property and equipment
 
(5,338
 
(1,022
)
 
   
(6,360
     Proceeds from sale-leaseback transactions, net
 
19,286
   
   
   
19,286
 
     Proceeds from disposal of assets
 
5
   
   
   
5
 
     Other, net
 
(100
 
   
   
(100
Net cash used by investing activities
 
13,853
   
(1,022
)
 
   
12,831
 
                         
Financing activities:
                       
     Principal payments on long-term debt
 
11
   
(4,485
)  
   
(4,474
     Stock repurchases
 
(2,346
 
   
   
(2,346
     Proceeds from exercise of stock options
 
90
   
   
   
90
 
     Excess tax benefits from share-based
                       
        compensation
 
1
   
   
   
1
 
     Intercompany transactions
 
3,388
   
(10,434
)
 
7,046
   
 
Net cash used by financing activities
1,144
   
(14,919
)  
7,046
   
(6,729
                         
Increase in cash and cash equivalents
 
17,301
   
3
   
   
17,304
 
Cash and cash equivalents:
                       
     Beginning of year
 
47,986
   
198
   
   
48,184
 
     End of quarter
$
65,287