Note 7 - Property, Equipment, Assets Held for Sale, Operating Leases, and Sale-Leaseback Transactions

12 Months Ended

Jun. 03, 2014

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

7. Property, Equipment, Assets Held for Sale, Operating Leases, and Sale-Leaseback Transactions

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

	2014		2013
Land	$	214,277	$	222,385
Buildings		430,988		448,681
Improvements		365,599		402,371
Restaurant equipment		248,852		260,576
Other equipment		84,876		91,351
Construction in progress and other*		22,246		23,080
		1,366,838		1,448,444
Less accumulated depreciation		571,992		588,614
	$	794,846	$	859,830

* Included in Construction in progress and other as of June 3, 2014 and June 4, 2013 are $18.4 million and $14.8 million, respectively, of assets held for sale that are not classified as such in the 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 and closed properties which include a building.

Included within the current assets section of our Consolidated Balance Sheets at June 3, 2014 and June 4, 2013 are amounts classified as assets held for sale totaling $4.7 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. In addition to operating restaurants sold and leased back, as discussed below, during fiscal 2014, 2013, and 2012 we sold surplus properties with carrying values of $14.0 million, $6.4 million, and $5.3 million, respectively, at net gains of $1.5 million, $0.6 million, and $0.8 million, respectively. Cash proceeds, net of broker fees, from these sales totaled $15.4 million, $7.0 million, and $6.0 million, respectively.

Approximately 56% of our 688 Company-owned restaurants are located on leased properties. Of these, approximately 68% are land leases only; the other 32% are for both land and building. The initial terms of these leases expire at various dates over the next 22 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 years ended June 3, 2014, June 4, 2013, and June 5, 2012, we completed sale-leaseback transactions of the land and building for three, 24, and 10 Company-owned Ruby Tuesday concept restaurants, respectively, for gross cash proceeds of $5.9 million, $54.4 million, and $22.2 million, respectively, exclusive of transaction costs of approximately $0.3 million, $2.6 million, and $1.1 million, respectively. Equipment was not included. The carrying value of the properties sold was $4.8 million, $41.4 million, and $16.5 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. Net proceeds from the sale-leaseback transactions were used for general corporate purposes, including capital expenditures, debt payments, and the repurchase of shares of our common stock.

We realized gains during fiscal 2014, 2013, and 2012 on these transactions of $0.8 million, $10.4 million, and $4.6 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 June 3, 2014 and June 4, 2013, respectively, and is included in Accrued liabilities – Rent and other in our Consolidated Balance Sheets. The long-term portion of the deferred gains on all sale-leaseback transactions to date was $13.0 million and $13.2 million as of June 3, 2014 and June 4, 2013, respectively, and is included in Other deferred liabilities in our Consolidated Balance Sheets. Amortization of the deferred gains of $1.1 million, $0.8 million, and $0.1 million is included within Other restaurant operating costs in our Consolidated Statements of Operations and Comprehensive Loss for the fiscal years ended June 3, 2014, June 4, 2013, and June 5, 2012, respectively.

The following is a schedule by year of future minimum lease payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of June 3, 2014 (in thousands):

2015	$	48,625
2016		44,381
2017		40,520
2018		37,266
2019		34,014
Subsequent years		166,424
Total minimum lease payments	$	371,230

The following schedule shows the future minimum sub-lease payments contractually due from franchisees and others for the next five years and thereafter under noncancelable sub-lease agreements (in thousands):

	Franchisees		Others		Total
2015	$	243	$	233	$	476
2016		247		215		462
2017		247		75		322
2018		247		74		321
2019		208		74		282
Subsequent years		27		478		505
Total minimum sub-lease payments	$	1,219	$	1,149	$	2,368

The following table summarizes our minimum and contingent rent expense and our sublease rental income under our operating leases (in thousands):

	2014			2013			2012
Included within continuing operations
Minimum rent	$	52,774		$	51,398		$	47,808
Contingent rent		430			472			467
		53,204			51,870			48,275
Sublease rental income		(409	)		(357	)		(416	)
	$	52,795		$	51,513		$	47,859
Included within discontinued operations	$	–		$	546		$	967

The amounts shown for fiscal 2014, 2013, and 2012 above exclude rent expense of $5.7 million, $2.0 million, and $3.4 million, respectively, relating to lease reserves established for closed restaurants or dead sites, which is included within Closures and impairments expense in our Consolidated Statements of Operations and Comprehensive Loss.