Note G - Property, Equipment, Assets Held for Sale, Operating Leases, and Sale-Leaseback Transactions

6 Months Ended

Dec. 03, 2013

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

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):

	December 3, 2013		June 4, 2013
Land	$	218,759	$	222,385
Buildings		439,591		448,681
Improvements		377,432		402,371
Restaurant equipment		253,559		260,576
Other equipment		85,798		91,351
Construction in progress and other*		18,977		23,080
		1,394,116		1,448,444
Less accumulated depreciation		569,956		588,614
	$	824,160	$	859,830

* Included in Construction in progress and other as of December 3, 2013 and June 4, 2013 are $13.5 million and $14.8 million, respectively, of assets held for sale that are not classified as such in the Condensed Consolidated Balance Sheets as we do not expect to sell these assets within the next 12 months. These assets primarily consist of parcels of land upon which we have no intention to build restaurants.

Included within the current assets section of our Condensed Consolidated Balance Sheets at December 3, 2013 and June 4, 2013 are amounts classified as held for sale totaling $4.4 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 and 26 weeks ended December 3, 2013, we sold surplus properties with carrying values of $5.6 million and $8.2 million, respectively, at net gains of $0.3 million and $0.2 million, respectively. Cash proceeds, net of broker fees, from these sales during the 13 and 26 weeks ended December 3, 2013 totaled $5.8 million and $8.4 million, respectively. During the 13 and 26 weeks ended December 4, 2012, we sold surplus properties with carrying values of $1.6 million at net gains of $0.5 million for both periods. Cash proceeds, net of broker fees, from these sales during the 13 and 26 weeks ended December 4, 2012 totaled $2.1 million for both periods.

Approximately 56% of our 724 restaurants are located on leased properties. Of these, approximately 66% are land leases only; the other 34% 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 26 weeks ended December 3, 2013, we completed sale-leaseback transactions of the land and building for three Company-owned Ruby Tuesday concept restaurants for gross cash proceeds of $5.9 million, exclusive of transaction costs of approximately $0.3 million. Equipment was not included. The carrying value of the properties sold was $4.8 million. None of these sale-leaseback transactions occurred during the 13 weeks ended December 3, 2013. During the 13 and 26 weeks ended December 4, 2012, we completed sale-leaseback transactions of the land and building for five and 14 Company-owned Ruby Tuesday concept restaurants, respectively, for gross cash proceeds of $11.7 million and $32.0 million, respectively, exclusive of transaction costs of approximately $0.6 million and $1.6 million, respectively. Equipment was not included. The carrying value of the properties sold was $8.4 million and $22.7 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 26 weeks ended December 3, 2013 and December 4, 2012 of $0.8 million and $7.7 million, respectively, and during the 13 weeks ended December 4, 2012 of $2.7 million, which have been deferred and are being recognized on a straight-line basis over the lease term. The current portion of the deferred gains on all sale-leaseback transactions to date was $1.1 million and $1.0 million as of December 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 $13.5 million and $13.2 million as of December 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 $0.5 million for the 13 and 26 weeks ended December 3, 2013, respectively, and $0.2 million and $0.3 million for the 13 and 26 weeks ended December 4, 2012, respectively, is included within Other restaurant operating costs in our Condensed Consolidated Statement of Operations and Comprehensive Loss.