Note 7 - Closures and Impairments Expense, Including Goodwill and Trademark Impairments

12 Months Ended

Jun. 02, 2015

Disclosure Text Block Supplement [Abstract]

Asset Impairment Charges [Text Block]

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

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

	2015			2014			2013
Closures and impairments from continuing operations:
Property impairments	$	9,822		$	24,335		$	11,325
Closed restaurant lease reserves		1,461			7,302			2,844
Other closing expense		966			2,181			1,152
Gain on sale of surplus properties		(1,707	)		(987	)		(665	)
Closures and impairments, net	$	10,542		$	32,831		$	14,656
Closures and impairments from discontinued operations				$	(468	)	$	21,674

Included within Closures and impairments, net for fiscal year 2015 are impairments of $7.7 million related to restaurants with deteriorating operational performance, $1.8 million related to surplus properties, and $0.3 million associated with lease expirations and restaurant closures.

During fiscal year 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 fiscal year 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 year 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 fiscal year 2013, has a net book value of $3.1 million remaining at June 2, 2015.

Included in Closures and impairments, net from continuing operations for fiscal year 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 year 2014.

As discussed further in Note 3 to the Consolidated Financial Statements, in an effort to focus primarily on the sales turnaround of our core Ruby Tuesday concept and secondly, to improve the financial performance of our Lime Fresh concept, we completed the closure of our Marlin & Ray’s, Wok Hay, and Truffles restaurants during fiscal year 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.

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

	Reserve for Lease Obligations
Balance at June 4, 2013	$	8,727
Closing expense including rent and other lease charges		6,815
Payments		(5,805	)
Other adjustments		1,136
Balance at June 3, 2014		10,873
Closing expense including rent and other lease charges		1,461
Payments		(4,807	)
Other adjustments		(476	)
Balance at June 2, 2015	$	7,051

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, $7.0 million and $10.5 million are included within the Accrued liabilities – Rent and other caption in our Consolidated Balance Sheets as of June 2, 2015 and June 3, 2014, respectively. For fiscal year 2016 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.

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. 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 carrying value of the reporting unit is higher than its fair value, there is an indication that impairment may exist and the second step must be performed to measure the amount of impairment loss, 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.

During the fourth quarter of fiscal year 2013, we tested the goodwill associated with the fiscal year 2012 acquisition of our Lime Fresh concept 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, we recorded a fiscal year 2013 charge of $9.0 million ($5.4 million, net of tax) representing the full value of our Lime Fresh concept goodwill.