9. Closures and Impairments Expense, Including Goodwill and Trademark Impairments

As discussed further in Note 3 to the Consolidated Financial Statements, on January 9, 2013, the Board of Directors of Ruby Tuesday, Inc. approved management's plan to close all 13 Marlin & Ray's restaurants, the Company's one Wok Hay restaurant, and two of the Company-owned Lime Fresh restaurants in the third quarter of fiscal 2013. The two Lime Fresh restaurants had been opened by the Company within the prior twelve months and were not among those purchased in April 2012. We closed these restaurants on January 9, 2013 and subsequently closed two more relatively new Lime Fresh restaurants prior to the end of fiscal 2013. Additionally, we announced on the same date our intention to seek a buyer for our two Truffles restaurants. No buyer suitable to our landlords was found and we consequently opted, on April 7, 2013, to close the restaurants instead. Predominantly as a result of these decisions, pre-tax charges of $21.7 million were recognized for asset impairments, lease reserves, and other closing costs within Loss from discontinued operations, net of tax for the fiscal year ended June 4, 2013.

Closures and impairments, net include the following (in thousands):

	2013			2012			2011
Closures and impairments from continuing operations:
Property impairments	$	11,325		$	12,240		$	4,077
Closed restaurant lease reserves		2,844			3,516			(367	)
Other closing expense		1,152			1,673			418
(Gain)/loss on sale of surplus properties		(665	)		(678	)		47
Closures and impairments, net	$	14,656		$	16,751		$	4,175

Closures and impairments from discontinued operations	$	21,674		$	1,914		$	2,074

Included in the amounts shown above from continuing operations for fiscal 2013 are $4.3 million of impairment and lease charges relating to the closing of four Lime Fresh concept restaurants and $3.6 million of impairment charges for four underperforming Lime Fresh open restaurants. Included in the amounts shown above from continuing operations for fiscal 2012 are property impairments of $9.7 million resulting from management's decision to close approximately 25 to 27 Ruby Tuesday concept restaurants.

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

	Lease Obligations
	Continuing Operations			Discontinued Concepts			Total
Balance at May 31, 2011	$	2,626		$	34		$	2,660
Closing expense including rent and other lease charges		3,516			325			3,841
Payments		(1,474	)		(131	)		(1,605	)
Transfer of deferred escalating minimum rent balance		1,699			356			2,055
Other adjustments		(140	)		2			(138	)
Balance at June 5, 2012		6,227			586			6,813
Closing expense including rent and other lease charges		2,844			1,404			4,248
Payments		(3,818	)		(808)			(4,626)
Transfer of deferred escalating minimum rent balance		699			1,128			1,827
Other adjustments		465			–			465
Balance at June 4, 2013	$	6,417		$	2,310		$	8,727

For fiscal 2014 and beyond, our focus will be on obtaining settlements on as many of these leases as is 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.

Included within closing expense in the table above are $0.2 million in charges we recorded during fiscal 2013 associated with lease obligations on a restaurant subleased to RT Midwest that has closed. As of June 4, 2013, we continue to remain a sublease guarantor for three of RT Midwest's operating restaurants, which have remaining lease terms extending through April 2019. As of June 4, 2013, cash rents of $0.7 million are required under the terms of the subleases. Should RT Midwest decide to close any of these restaurants we may incur further lease obligations associated with these subleases.

Goodwill represents the excess of costs over the fair market value of assets of businesses acquired. We recorded goodwill with the acquisition of certain franchise partnerships during fiscal 2011 and the acquisition of Lime Fresh during fiscal 2012. We perform tests for impairments annually, or more frequently when events or circumstances indicate it might be impaired.

Impairment tests for goodwill require a two-step process and are performed after testing of all other assets is complete. Under the first step, the estimation of fair value of the reporting unit is compared with its carrying value, including goodwill. If the first step indicates a potential impairment, the second step is performed to measure the amount of impairment, if any. Goodwill impairment exists when the implied fair value of goodwill is less than its carrying value. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation.

As we acquired Lime Fresh during the fourth quarter of fiscal 2012, we tested the goodwill associated with our Lime Fresh concept during the fourth quarter of fiscal 2013 using the two-step method as discussed above. The results of the first step indicated a potential goodwill impairment as the fair value of the Lime Fresh concept was less than its carrying value. We determined the fair value of the Lime Fresh concept using the discounted cash flow method. The results of the second step indicated that all of the goodwill recorded in connection with the Lime Fresh acquisition was impaired. Accordingly, during the fourth quarter of fiscal 2013 we recorded a charge of $9.0 million ($5.4 million, net of tax) representing the full value of our Lime Fresh concept goodwill.

Our normal timing for the annual testing of the Ruby Tuesday concept goodwill is as of the end of our third fiscal quarter. In fiscal 2012, given our lowered stock price and the continuation of negative same-restaurant sales, we tested our Ruby Tuesday concept goodwill throughout the year and determined, in the fourth fiscal quarter, it to be fully impaired. As a result, we recorded a charge of $16.9 million ($12.0 million, net of tax) in fiscal 2012, representing the full value of our Ruby Tuesday concept goodwill.

In addition to the Lime Fresh goodwill impairment and the charges recorded in connection with the closing of four Lime Fresh concept restaurants during our third and fourth quarters of fiscal 2013, we recorded a $3.6 million impairment charge for four underperforming Lime Fresh concept restaurants, which opened between May and November 2012, and a $5.0 million impairment charge for the Lime Fresh trademark.