Note 7 - Closures and Impairments Expense

9 Months Ended

Feb. 28, 2017

Notes to Financial Statements

Asset Impairment Charges [Text Block]

7.

Closures and Impairments Expense

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

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	February 28, 2017			March 1, 2016			February 28, 2017			March 1, 2016
Property impairments	$	14,946		$	6,938		$	32,774		$	15,730
Closed restaurant lease reserves		(133	)		(1,207	)		17,445			3,118
Inventory write-off		–			–			2,754			–
Severance benefits		13			68			1,606			213
Other closing expense		949			403			4,830			877
Gain on sale of properties		(2,334	)		(79	)		(68	)		(1,030	)
Lime Fresh trademark impairment		–			–			–			1,999
Closures and impairments, net	$	13,441		$	6,123		$	59,341		$	20,907

During the

39

weeks ended

February

28,

2017,

we closed

102

Company-owned restaurants,

95

of which were closed in connection with an asset rationalization plan announced on

August

11,

2016.

The plan was formulated in response to a comprehensive review of our property portfolio which included the planned closure of restaurants with perceived limited upside due to market concentration, challenged trade areas, or other factors. Included within Closures and impairments, net for the

39

weeks ended

February

28,

2017

are closed restaurant lease reserves, inventory write-off, severance benefits, and other closing expense of

$30.2

 million related to the closures in connection with the asset rationalization plan.

During the

39

weeks ended

February

28,

2017,

we sold

one

of

two

office buildings comprising our Restaurant Support Center in Maryville, Tennessee

for net proceeds of

$2.6

million. The building sold had a net book value of

$5.8

million at the time of the sale. Accordingly, included within the loss on sale of surplus properties in the table above for the

39

weeks ended

February

28,

2017

was a loss of

$3.2

million related to the sale of the building. Our

two

Tennessee Restaurant Support Center office buildings were consolidated into the

one

remaining building during our 

third

quarter of fiscal year

2017.

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

	Reserve for Lease Obligations
Balance at May 31, 2016	$	6,270
Closing expense including rent and other lease charges		17,445
Payments		(13 ,772	)
A djustments to deferred escalating minimum rent and other		9,196
Balance at February 28, 2017	$	19,139

The amounts comprising future lease obligations associated with closed restaurants 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,

$18.1

million is included

within Accrued liabilities:– Rent and other,

$0.5

million is included within Deferred escalating minimum rent, and

$0.5

million is included within Other deferred liabilities in our Condensed Consolidated Balance Sheet as of

February

28,

2017.

  For the remainder of fiscal year

2017

and beyond, our focus will be to obtain settlements, or subleases on as many leases as possible.

Settlements could be higher or lower than the lease obligations 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.