Note 12 - Share-Based Employee Compensation

12 Months Ended

Jun. 03, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

12. Share-Based Employee Compensation

Preferred Stock

RTI is authorized, under its Certificate of Incorporation, to issue up to 250,000 shares of preferred stock with a par value of $0.01. These shares may be issued from time to time in one or more series. Each series will have dividend rates, rights of conversion and redemption, liquidation prices, and other terms or conditions as determined by the Board of Directors. No preferred shares have been issued as of June 3, 2014 and June 4, 2013.

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 June 3, 2014, we had reserved a total of 4,849,000 and 143,000 shares of common stock for the SIP and 1996 SIP, respectively. Of the reserved shares at June 3, 2014, 1,857,000 and 77,000 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 June 3, 2014 under the SIP and 1996 SIP were 2,992,000 and 66,000, respectively. As discussed below, during the second quarter of fiscal 2014 our shareholders approved an amendment to the SIP allowing non-employee directors to participate in the SIP.

The Ruby Tuesday, Inc. Deferred Compensation Plan for Directors

In addition to providing for the awards of share-based incentives, the Ruby Tuesday, Inc. Stock Incentive and Deferred Compensation Plan for directors (the “Directors’ Plan”) has historically provided our non-employee directors the opportunity to defer certain of their compensation. On October 9, 2013, our shareholders approved an amendment to the SIP allowing non-employee directors to participate in the SIP instead of requiring that such awards be made from the Directors’ Plan. The amendment did not increase the number of shares of common stock available for issuance under the SIP. On April 9, 2014, our Board of Directors adopted a resolution amending and restating the Directors’ Plan to terminate those portions of the plan providing for the award of share-based compensation to non-employee directors but preserving the deferred compensation component of the plan. The amendment and restatement also changed the name of the Directors’ Plan to the Ruby Tuesday, Inc. Deferred Compensation Plan for Directors. All remaining shares of common stock available for issuance under the Directors’ Plan, which were insignificant as of the date of the resolution, were released and will not be reserved for any future purpose. All future share-based compensation granted to non-employee directors will be awarded from shares of common stock available for issuance under the SIP.

Chief Executive Officer Awards

On December 1, 2012, James J. Buettgen became President and CEO of the Company. In connection with Mr. Buettgen’s appointment as CEO, on December 3, 2012 he received an initial award of approximately 68,000 service-based restricted shares and 102,000 performance-based restricted shares, both of which cliff vest 2.5 years following the grant date. Pursuant to the terms of Mr. Buettgen’s employment agreement, the Company has guaranteed the earning of the performance-based restricted shares as the greater of the target value of the award or based on the Company’s achievement of certain performance conditions related to fiscal 2013, which were measured in the first quarter of fiscal 2014.

The Executive Compensation Committee of the Board of Directors determined during the first quarter of fiscal 2014 that the performance conditions were not achieved for 34,000 shares of restricted stock awarded to our President and CEO during fiscal 2013, and these shares were cancelled and retired accordingly.

In addition to the above, on December 3, 2012, Mr. Buettgen received a one-time make-whole equity award which was comprised of approximately 179,000 service-based restricted shares and 253,000 service-based stock options. The restricted shares cliff vest 2.5 years following the grant date and the stock options vest in three equal annual installments following the date of grant.

Finally, on that same date, Mr. Buettgen received a one-time high-performance and inducement award which was comprised of approximately 250,000 service-based restricted shares, 250,000 service-based stock options, and 250,000 market-based stock options. The restricted shares cliff vest 2.5 years following the grant date and the service-based stock options vest in three equal annual installments following the date of grant. The market-based stock options will cliff vest if and when the Company’s stock price appreciates to $14 per share for a period of 20 consecutive days within Mr. Buettgen’s first three years of employment.

Stock Options

The following table summarizes our stock option activity under these stock option plans (Options and Aggregate Intrinsic Value are in thousands):

	Stock Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Service-based vesting:
Balance at May 31, 2011		3,239		$	13.10
Granted		253			7.87
Exercised		(61	)		5.82
Forfeited		(715	)		28.24
Balance at June 5, 2012		2,716		$	8.79
Granted		503			7.81
Exercised		(591	)		6.93
Forfeited		(717	)		11.03
Balance at June 4, 2013		1,911		$	8.27
Granted		601			9.34
Exercised		(244	)		6.45
Forfeited		(315	)		9.29
Balance at June 3, 2014		1,953		$	8.66		4.60	$	89
Exercisable		1,110		$	8.61		3.62	$	89
Market-based vesting:
Balance at June 5, 2012		–		$	–
Granted		250			7.81
Balance at June 4, 2013		250		$	7.81
Granted		570			9.34
Forfeited		(85	)		9.34
Balance at June 3, 2014		735		$	8.82		5.93	$	–
Exercisable		–		$	–		–	$	–

The aggregate intrinsic value represents the closing stock price as of June 3, 2014 less the strike price, multiplied by the number of stock options that have a strike price that is less than that closing stock price. The total intrinsic value of stock options exercised during fiscal 2014, 2013, and 2012 was $0.7 million, $1.0 million, and $0.1 million, respectively.

At June 3, 2014, there was approximately $2.5 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 1.4 years. The total fair value at grant date of awards vested during fiscal 2014, 2013, and 2012 totaled $1.0 million, $2.2 million, and $5.5 million, respectively.

During fiscal 2014 and 2012, we granted 601,000 and 253,000 stock options, respectively, to certain employees under the terms of the SIP and 1996 SIP. The stock options awarded in those fiscal years 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. These stock options do provide for immediate vesting if the optionee retires during the option period. For employees meeting this criterion at the time of grant, the accelerated vesting provision renders the requisite service condition non-substantive and we therefore fully expense the fair value of stock options awarded to retirement-eligible employees on the date of grant. As a result, we recorded expense during the first quarter of fiscal 2012 of $1.2 million related to stock options awarded to our former CEO.

Also during fiscal 2014, 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.

The weighted average Black-Scholes grant date fair value for options awarded during fiscal 2014, 2013, and 2012 was $4.43, $4.37, and $4.60 per share, respectively. The grant date fair values of unvested stock options are amortized over the respective vesting period of the awards unless a recipient becomes retirement eligible during the vesting period. For retirement eligible individuals, the grant date fair value of the award is amortized from the period of the date of grant through the date upon which the individual becomes retirement eligible. Our former CEO was the only recipient of stock option awards during fiscal 2012. The weighted average assumptions used in our Black-Scholes option-pricing model are as follows:

	2014			2013			2012
Risk-free interest rate		1.17	%		0.62	%		0.80	%
Expected dividend yield		0	%		0	%		0	%
Expected stock price volatility		58.03	%		71.84	%		75.63	%
Expected life (in years)		4.50			4.50			4.50

As previously mentioned, we awarded 570,000 market-based stock options to certain employees during fiscal 2014 and 250,000 market-based stock options to our CEO during fiscal 2013. We estimated the grant date fair value of these awards at $2.42 and $2.14 per share, respectively, using the Monte-Carlo simulation model. The primary assumptions used in our Monte-Carlo simulation model are as follows:

	2014			2013
Risk-free interest rate		0.45	%		0.34	%
Expected dividend yield		0	%		0	%
Expected stock price volatility		42.86	%		46.71	%
Expected life (in years)		2.40			1.52

Restricted Stock

The following table summarizes the status of our restricted stock activity (in thousands, except per-share data):

	2014								2013		2012
	Shares			Weighted Average Fair Value		Shares			Weighted Average Fair Value		Shares			Weighted Average Fair Value
Performance-Based Vesting:
Unvested at beginning of year		356		$	7.06		423		$	7.75		299		$	7.24
Granted		–			–		344			6.99		384			7.87
Vested		(18	)		7.87		(89	)		7.31		(260	)		7.33
Forfeited		(270	)		6.81		(322	)		7.82		–			–
Unvested at end of year		68		$	7.81		356		$	7.06		423		$	7.75
Service-Based Vesting:
Unvested at beginning of year		1,136		$	7.92		797		$	8.37		551		$	8.22
Granted		423			8.83		795			7.47		495			8.30
Vested		(411	)		8.10		(340	)		7.56		(248	)		7.89
Forfeited		(140	)		8.76		(116	)		8.92		(1	)		9.39
Unvested at end of year		1,008		$	8.11		1,136		$	7.92		797		$	8.37

The fair value of restricted share awards is based on the closing price of our common stock at the time of grant. At June 3, 2014, unrecognized compensation expense related to restricted stock grants expected to vest totaled $3.8 million and will be recognized over a weighted-average vesting period of 1.2 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.

During fiscal 2013 and 2012, we granted 213,000 and 186,000 service-based restricted shares, respectively, and 242,000 and 384,000 performance-based restricted shares, respectively, of our common stock to certain employees under the terms of the SIP and 1996 SIP. The service-based restricted shares cliff vest approximately 2.5 years following the grant date. Vesting of the performance-based restricted shares was also contingent upon the Company’s achievement of certain performance conditions related to fiscal 2013 and 2012, which was measured in the first quarters of fiscal 2014 and 2013, respectively. In addition to satisfaction of the performance conditions, recipients must satisfy the same service condition as is required for the service-based restricted shares.

The Executive Compensation Committee of the Board of Directors determined during the first quarters of fiscal 2014 and 2013 that the performance conditions were not achieved for 269,000 and 314,000 shares of performance-based restricted stock granted in fiscal 2013 and 2012, respectively. As a result, the restricted shares were cancelled and returned to the pool of shares available for grant under the SIP and 1996 SIP.

During the fourth quarter of fiscal 2012, we granted 221,000 service-based restricted shares of our common stock to certain employees under the terms of the SIP. The shares vest in three equal installments over periods ranging from the grant date through October 2017.

During fiscal 2014, 2013, and 2012, we granted 60,000, 63,000, and 88,000 restricted shares, respectively, to non-employee directors. The shares cliff vest over a one year period following the grant of the award.

As discussed further in Note 10 to the Consolidated Financial Statements, our former Executive Vice President, Chief Operations Officer, Senior Vice President, Chief People Officer, and other management personnel left the Company during the first three quarters of fiscal 2014. Several of these individuals held share-based compensation awards at the times of their separations, and these awards were either vested or forfeited in accordance with the terms of the original awards.

Included within share-based compensation expense for fiscal 2014 were charges of $0.3 million representing the incremental costs resulting from accelerated vesting, net of forfeitures.