Impairment of Long-Lived Assets, Discontinued Operations and Property Held for Sale

Impairment of Long-Lived Assets and Store Closings

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.

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.

The Company recognized the following impairment charges to income from operations:



	Two Quarters Ended
	March 9, 2016			February 11, 2015
	(28 weeks)			(24 weeks)
	(In thousands, except per share data)
Provision for asset impairments	$	37		$	218
Net gain on disposition of property and equipment	(835		)	(1,087		)

	$	(798	)	$	(869	)
Effect on EPS:
Basic	$	0.03		$	0.03
Assuming dilution	$	0.03		$	0.03

The $37 thousand impairment charge for the two quarters ended March 9, 2016 is primarily related to goodwill at one underperforming converted Cheeseburger in Paradise leasehold location.

The $0.2 million impairment charge for the two quarters ended February 11, 2015 is related to assets at three Fuddruckers locations and included $38 thousand in goodwill related to one underperforming converted Cheeseburger in Paradise leasehold location.

The $0.8 million net gain for the two quarters ended March 9, 2016 is related to the sale of property and equipment.

The $1.1 million net gain for the two quarters ended February 11, 2015 is related to the sale of property and equipment.

Discontinued Operations

On March 21, 2014, the Board of Directors of the Company approved a plan focused on improving cash flow from the acquired Cheeseburger in Paradise leasehold locations. This underperforming Cheeseburger in Paradise leasehold disposal plan called for certain Cheeseburger in Paradise restaurants closure or conversion to Fuddruckers restaurants. As of March 9, 2016, one location was reclassified to continuing operations and was reopened as a Fuddruckers restaurant. Three locations remain closed for disposal and classified as discontinued operations as of March 9, 2016.

As a result of the first quarter fiscal year 2010 adoption of the Company’s Cash Flow Improvement and Capital Redeployment Plan, the Company reclassified 24 Luby’s Cafeterias to discontinued operations. As of March 9, 2016,

one location remains held for sale.

The following table sets forth the assets and liabilities for all discontinued operations:



	March 9, 2016		August 26, 2015
	(In thousands)
Prepaid expenses	1		10
Assets related to discontinued operations—current	$	1	$	10
Property and equipment	1,868		1,872
Other assets	1,798		1,799
Assets related to discontinued operations—non-current	$	3,666	$	3,671
Deferred income taxes	$	343	$	343
Accrued expenses and other liabilities	64		65
Liabilities related to discontinued operations—current	$	407	$	408
Other liabilities	$	17	$	182
Liabilities related to discontinued operations—non-current	$	17	$	182

As of March 9, 2016, under both closure plans, the Company had four properties classified as discontinued operations assets and the asset carrying value of the owned properties was $1.9 million and is included in assets related to discontinued operations. The asset carrying values of the ground leases were previously impaired to zero.

The Company is actively marketing all but one of these properties for sale. This property has been sublet to an existing franchisee. 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.

The following table sets forth the sales and pretax losses reported from discontinued operations:



	Two Quarters Ended
	March 9, 2016			February 11, 2015
	(28 weeks)			(24 weeks)
	(In thousands, except discontinued locations)
Sales	$	—		$	—

Pretax loss	(147		)	(408		)
Income tax benefit from discontinued operations	58			195
Loss from discontinued operations, net of income taxes	$	(89	)	$	(213	)
Discontinued locations closed during the period	—			—

The following table summarizes discontinued operations for the first two quarters of fiscal 2016 and 2015:



	Two Quarters Ended
	March 9, 2016			February 11, 2015
	(28 weeks)			(24 weeks)
	(In thousands, except per share data)
Discontinued operating loss	$	(147	)	$	(408	)
Impairments	—			—
Net gains (losses)	—			—
Pretax loss	$	(147	)	$	(408	)
Income tax benefit from discontinued operations	58			195
Loss from discontinued operations, net of income taxes	$	(89	)	$	(213	)
Effect on EPS from discontinued operations—basic	$	(0.00	)	$	(0.01	)

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. 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.

Property Held for Sale

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.

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.

At March 9, 2016, the Company had three owned properties recorded at approximately $3.1 million in property held for sale.

At August 26, 2015, the Company had four owned properties recorded at approximately $4.5 million in property held for sale.

The Company is actively marketing the locations currently classified as property held for sale