PROPERTY, EQUIPMENT, ASSETS HELD FOR SALE, OPERATING LEASES, AND SALE-LEASEBACK TRANSACTIONS

9 Months Ended

Feb. 28, 2012

PROPERTY, EQUIPMENT, ASSETS HELD FOR SALE, OPERATING LEASES, AND SALE-LEASEBACK TRANSACTIONS [Abstract]

PROPERTY, EQUIPMENT, ASSETS HELD FOR SALE, OPERATING LEASES, AND SALE-LEASEBACK TRANSACTIONS

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):

	February 28, 2012		May 31, 2011
Land	$	241,091	$	256,761
Buildings		478,283		512,177
Improvements		418,803		427,169
Restaurant equipment		273,853		279,319
Other equipment		94,230		93,944
Construction in progress and other*		24,061		28,077
		1,530,321		1,597,447
Less accumulated depreciation		574,169		566,296
	$	956,152	$	1,031,151

* Included in Construction in progress and other as of February 28, 2012 and May 31, 2011 are $19.1 million and $23.3 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.

Amounts included in assets held for sale at February 28, 2012 and May 31, 2011 totaled $39.1 million and $1.3 million, respectively, primarily consisting of operating restaurants expected to be sold in sale-leaseback transactions, 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 the 13 and 39 weeks ended February 28, 2012, we sold surplus properties with carrying values of $1.5 million and $2.9 million, respectively, at net gains of $0.1 million and $0.2 million, respectively.  Cash proceeds, net of broker fees, from these sales during the 13 and 39 weeks ended February 28, 2012 totaled $1.5 million and $3.1 million, respectively.  During the 13 and 39 weeks ended March 1, 2011, we sold surplus and other properties with carrying values of $3.9 million and $4.8 million, respectively, at net losses of $0.1 million for each period.  Cash proceeds, net of broker fees, from these sales during the 13 and 39 weeks ended March 1, 2011 totaled $3.8 million and $4.7 million, respectively.

Approximately 51% of our 740 Ruby Tuesday 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 25 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.

Sale-Leaseback Transactions

During the 13 weeks ended February 28, 2012, we completed the sale-leaseback of the land and building for a Company-owned Ruby Tuesday concept restaurant for gross cash proceeds of $2.3 million, exclusive of transaction costs of approximately $0.1 million.  Equipment was not included. The carrying value of the property sold was $1.5 million.  The lease has been classified as an operating lease and has an initial term of 15 years, with renewal options of up to 20 years.  Net proceeds from the sale-leaseback transaction were used to pay down certain of our mortgage loan obligations.

We realized a gain on this transaction of $0.7 million, which has been deferred and is being recognized on a straight-line basis over the initial term of the lease.  The current and long-term portions of the deferred gain are included in Accrued liabilities- Rent and other and Other deferred liabilities, respectively, in our February 28, 2012 Condensed Consolidated Balance Sheet.  Amortization of the deferred gains is included as a reduction to rent expense and is included within Other restaurant operating costs in our Condensed Consolidated Statements of Income for the 13 and 39 weeks ended February 28, 2012.

As of February 28, 2012, 21 of our Ruby Tuesday concept restaurant properties have been classified within Assets held for sale in our Condensed Consolidated Balance Sheet in anticipation of future sale-leaseback transactions.  These properties had carrying values of $35.1 million as of February 28, 2012.  See Note Q to the Condensed Consolidated Financial Statements for a discussion of sale-leaseback transactions which occurred subsequent to February 28, 2012 but prior to the date of the filing of this Quarterly Report on Form 10-Q.