Note 8 - Impairment of Long-Lived Assets, Discontinued Operations and Property Held for Sale | 6 Months Ended |
Feb. 12, 2014 |
Impairment Of Long Lived Assets Discontinued Operations And Property Held For Sale Disclosure [Abstract] | ' |
Impairment Of Long Lived Assets Discontinued Operations And Property Held For Sale Disclosure [Text Block] | ' |
Note 8. Impairment of Long-Lived Assets, Discontinued Operations and Property Held for Sale |
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Impairment of Long-Lived Assets and Store Closings |
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The Company periodically evaluates long-lived assets held for use and held for sale whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. The Company analyzes historical cash flows of operating locations and compares results of poorer performing locations to more profitable locations. The Company also analyzes lease terms, condition of the assets and related need for capital expenditures or repairs, as well as construction activity and the economic and market conditions in the surrounding area. |
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For assets held for use, the Company estimates future cash flows using assumptions based on possible outcomes of the areas analyzed. If the undiscounted future cash flows are less than the carrying value of the location’s assets, the Company records an impairment loss based on an estimate of discounted cash flows. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s subjective judgments. Assumptions and estimates used include operating results, changes in working capital, discount rate, growth rate, anticipated net proceeds from disposition of the property and if applicable, lease terms. The span of time for which future cash flows are estimated is often lengthy, increasing the sensitivity to assumptions made. The time span could be 20 to 25 years for newer properties, but only 5 to 10 years for older properties. Depending on the assumptions and estimates used, the estimated future cash flows projected in the evaluation of long-lived assets can vary within a wide range of outcomes. The Company considers the likelihood of possible outcomes in determining the best estimate of future cash flows. The measurement for such an impairment loss is then based on the fair value of the asset as determined by discounted cash flows. |
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The Company recognized the following impairment charges to income from operations: |
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| | Two Quarters Ended | |
| | February 12, | | | February 13, | |
2014 | 2013 |
| | (24 weeks) | | | (24 weeks) | |
| | (In thousands, except per share data) | |
Provision for asset impairments | | $ | 1,850 | | | $ | 90 | |
Net (gain) loss on disposition of property and equipment | | | — | | | | (1,563 | ) |
| | $ | 1,850 | | | $ | (1,473 | ) |
Effect on EPS: | | | | | | | | |
Basic | | $ | (0.06 | ) | | $ | 0.05 | |
Assuming dilution | | $ | (0.06 | ) | | $ | 0.05 | |
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The impairment charge for the two quarters ended February 12, 2014 is related to assets at one Fuddruckers location and assets and allocated goodwill at seven Cheeseburger in Paradise locations. |
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The impairment charge for the two quarters ended February 13, 2013 is related to an operating Fuddruckers restaurant at a leased location. |
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The net gain for the two quarters ended February 13, 2013 includes the gain on disposal of assets at a Koo Koo Roo leased location and proceeds from the eminent domain disposition of part of a parking lot at a Luby’s cafeteria location net of asset retirements. |
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Discontinued Operations |
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As a result of the first quarter fiscal 2010 adoption of the Company’s Cash Flow Improvement and Capital Redeployment Plan (“the Plan”), the Company reclassified 23 operating stores and one previously closed location to discontinued operations. The results of operations, assets and liabilities for all units included in the Plan have been reclassified to discontinued operations in the statement of operations and balance sheets for all periods presented. |
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On March 21, 2014, the Company adopted a disposal plan for selected under-performing recently acquired leaseholds operating as Cheeseburger in Paradise restaurants, see Note 3 regarding the purchase of Cheeseburger in Paradise. As of February 12, 2014, two Cheeseburger in Paradise locations have been reclassified to discontinued operations in the statement of operations and balance sheet accordingly. |
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The following table sets forth the assets and liabilities for all discontinued operations: |
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| | February 12, | | | August 28, | |
2014 | 2013 |
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Cash | | $ | — | | | $ | 5 | |
Food and supply inventories | | | — | | | | 41 | |
Prepaid expenses | | | 12 | | | | 35 | |
Assets related to discontinued operations—current | | $ | 12 | | | $ | 81 | |
Property and equipment | | $ | 3,751 | | | $ | 3,892 | |
Deferred income taxes | | | 290 | | | | 290 | |
Other assets | | | 6 | | | | 21 | |
Assets related to discontinued operations—non-current | | $ | 4,047 | | | $ | 4,203 | |
Deferred income taxes | | $ | 246 | | | $ | 246 | |
Accrued expenses and other liabilities | | | 247 | | | | 231 | |
Liabilities related to discontinued operations—current | | $ | 493 | | | $ | 477 | |
Other liabilities | | $ | 396 | | | $ | 327 | |
Liabilities related to discontinued operations—non-current | | $ | 396 | | | $ | 327 | |
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As of August 28, 2013, the Company had six restaurant properties classified as discontinued operations assets. The carrying value of four owned properties was $3.8 million at August 28, 2013. The carrying values of two ground leases were previously impaired to zero. |
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During the second quarter of fiscal 2014, construction began at one of the ground lease locations. Consequently, the property was reclassified as a continuing operations asset. Also during the second quarter of fiscal 2014, two Cheeseburger in Paradise restaurants at in-line leased locations were closed and reclassified as part of discontinued operations. |
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As of February 12, 2014, the Company had seven restaurant properties classified as discontinued operations. The carrying value of four owned properties was $3.7 million at February 12, 2014. The carrying value of the one ground lease and two in-line leases were previously impaired to zero. |
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The Company is actively marketing all of these properties for lease or sale and the Company’s results of discontinued operations will be affected by the disposal of properties related to discontinued operations to the extent proceeds from the sales exceed or are less than net book value. |
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The following table sets forth the sales and pretax income (losses) reported for discontinued operations: |
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| | Two Quarters Ended | |
| | February 12, | | | February 13, | |
2014 | 2013 |
| | (24 weeks) | | | (24 weeks) | |
| | (In thousands, except discontinued locations) | |
Sales | | $ | 565 | | | $ | 466 | |
Pretax loss | | | (1,167 | ) | | | (817 | ) |
Income tax benefit from discontinued operations | | | 350 | | | | 280 | |
Loss on discontinued operations | | | (818 | ) | | | (537 | ) |
Discontinued locations closed during the period | | | 2 | | | | — | |
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The following table summarizes discontinued operations for the first two quarters of fiscal 2014 and 2013: |
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| | Two Quarters Ended | |
| | February 12, | | | February 13, | |
2014 | 2013 |
| | (24 weeks) | | | (24 weeks) | |
| | (In thousands, except per share data) | |
Impairments | | $ | (451 | ) | | $ | (506 | ) |
Gains (losses) | | | 6 | | | | — | |
Net gains (losses) | | $ | (445 | ) | | | (506 | ) |
Other | | | (373 | ) | | | (31 | ) |
Discontinued operations | | $ | (818 | ) | | $ | (537 | ) |
Effect on EPS from discontinued operations—basic | | $ | (0.03 | ) | | $ | (0.02 | ) |
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Within discontinued operations, the Company offsets gains from applicable property disposals against total impairments. The amounts in the table described as “Other” include employment termination and shut-down costs, as well as operating losses through each restaurant’s closing date and carrying costs until the locations are finally disposed of. |
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The impairment charges included above relate to properties closed and designated for immediate disposal. The assets of these individual operating units have been written down to their net realizable values. In turn, the related properties have either been sold or are being actively marketed for sale. All dispositions are expected to be completed within one to three years. Within discontinued operations, the Company also recorded the related fiscal year-to-date net operating results, employee terminations and carrying costs of the closed units. |
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Property Held for Sale |
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The Company periodically reviews long-lived assets against its plans to retain or ultimately dispose of properties. If the Company decides to dispose of a property, it will be moved to property held for sale and actively marketed. The Company analyzes market conditions each reporting period and records additional impairments due to declines in market values of like assets. The fair value of the property is determined by observable inputs such as appraisals and prices of comparable properties in active markets for assets like the Company’s. Gains are not recognized until the properties are sold. |
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Property held for sale includes unimproved land, closed restaurant properties and related equipment for locations not classified as discontinued operations. The specific assets are valued at the lower of net depreciable value or net realizable value. |
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At August 28, 2013, the Company had one owned property recorded at approximately $0.6 million in property held for sale. The Company sold this property during the quarter ended November 20, 2013. |