Note 9 - Closures and Impairments Expense, Including Goodwill and Trademark Impairments

12 Months Ended

Jun. 03, 2014

Disclosure Text Block Supplement [Abstract]

Asset Impairment Charges [Text Block]

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

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

	2014			2013			2012
Closures and impairments from continuing operations:
Property impairments	$	24,335		$	11,325		$	12,240
Closed restaurant lease reserves		7,302			2,844			3,516
Other closing expense		2,181			1,152			1,673
(Gain)/loss on sale of surplus properties		(987	)		(665	)		(678	)
Closures and impairments, net	$	32,831		$	14,656		$	16,751
Closures and impairments from discontinued operations	$	(468	)	$	21,674		$	1,914

During the last two quarters of fiscal 2014, we closed 33 Ruby Tuesday concept restaurants in connection with a plan approved by the Board of Directors of Ruby Tuesday, Inc.. Of these closures, 11 of the restaurants closed upon expiration of their lease. Included within Closures and impairments, net for the year ended June 3, 2014 are impairment charges of $4.8 million in connection with early restaurant closures.

In addition to impairment charges recorded in connection with the planned closures discussed above, during fiscal 2014, we recorded $13.5 million of impairments relating to 32 open restaurants with deteriorating operational performance and a $0.9 million impairment charge for the Lime Fresh trademark. The Lime Fresh trademark, which previously had been impaired by $5.0 million in the fourth quarter of fiscal 2013, has a net book value of $3.6 million remaining at June 3, 2014.

Included in Closures and impairments, net 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, two of which closed during fiscal 2014.

As discussed further in Note 3 to the Consolidated Financial Statements, 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 fiscal 2013. 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.

Included in Closures and impairments, net 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 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	)
Other adjustments		1,164			1,128			2,292
Balance at June 4, 2013		6,417			2,310			8,727
Closing expense including rent and other lease charges		7,302			(487	)		6,815
Payments		(4,620	)		(1,185	)		(5,805	)
Other adjustments		1,138			(2	)		1,136
Balance at June 3, 2014	$	10,237		$	636		$	10,873

The amounts comprising future lease obligations in the table above are estimated using certain assumptions, including the period of time it will take to settle the lease with the landlord or find a suitable sublease tenant, and the amount of actual future cash payments could differ from our recorded lease obligations. Of the total future lease obligations included in the table above, $10.5 million and $8.7 million are included within the Accrued liabilities – Rent and other caption in our Consolidated Balance Sheets as of June 3, 2014 and June 4, 2013, respectively. For fiscal 2015 and beyond, our focus will be on obtaining settlements, or subleases as necessary, 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.

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 September 2019. As of June 3, 2014, cash rents of $1.2 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

Goodwill represents the excess of costs over the fair market value of assets of businesses acquired.  We recorded goodwill with the acquisition of Lime Fresh during fiscal 2012 and the acquisition of certain franchise partnerships during fiscal 2011.  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.

In fiscal 2012, given our suppressed stock price and continued 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.

The changes in the carrying amount of goodwill are as follows (in thousands):

Balance at May 31, 2011	$	15,571
Adjustments to fiscal year 2011 purchase price allocations		1,348
Acquisition		7,989
Impairment		(16,919	)
Balance at June 5, 2012	$	7,989
Adjustments to fiscal year 2012 purchase price allocation		1,033
Impairment		(9,022	)
Balance at June 4, 2013 and thereafter	$	–