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

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 estimated 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 13, 2019			March 14, 2018
	(28 weeks)			(28 weeks)
	(In thousands, except per share data)
Provision for asset impairments and restaurant closings	$	2,422		$	2,252
Net loss (gain) on disposition of property and equipment	(12,501		)	18

	$	(10,079	)	$	2,270
Effect on EPS:
Basic	$	0.34		$	(0.08	)
Assuming dilution	$	0.34		$	(0.08	)

The approximate $2.4 million impairment charge for the two quarters ended March 13, 2019 is primarily related to assets at eight property locations held for use, six properties held for sale written down to their fair value and one international joint venture investment.

The approximate $2.3 million impairment charge for the two quarters ended March 14, 2018 is primarily related to assets at seven property locations held for use, three properties held for sale written down to their fair value, goodwill at 2 locations, and approximately $0.6 million in net lease termination costs at five property locations.

The approximate $12.5 million net gain for the two quarters ended March 13, 2019 is primarily related to gains on the sale and leaseback of two properties partially offset by routine asset retirements.

The approximate $18 thousand net loss for the two quarters ended March 14, 2018 is primarily related to asset retirements at six property location closures partially offset by gains on the sale of two property locations.

Discontinued Operations

As a result of the first quarter fiscal 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 13, 2019, one location remains held for sale.

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



	March 13, 2019		August 29, 2018
	(In thousands)
Property and equipment	$	1,813	$	1,813
Assets related to discontinued operations—non-current	$	1,813	$	1,813
Accrued expenses and other liabilities	$	4	$	14
Liabilities related to discontinued operations—current	$	4	$	14
Other liabilities	$	16	$	16
Liabilities related to discontinued operations—non-current	$	16	$	16

As of March 13, 2019, under both closure plans, the Company had one property classified as discontinued operations. The asset carrying value of the owned property was approximately $1.8 million and is included in assets related to discontinued operations. The Company is actively marketing this property for sale. The asset carrying value at one other property with a ground lease, included in discontinued operations, was previously impaired to zero.

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



	Two Quarters Ended
	March 13, 2019			March 14, 2018
	(28 weeks)			(28 weeks)
	(In thousands)
Sales	$	—		$	—

Pretax loss	$	(13	)	$	(8	)
Income tax expense from discontinued operations	—			(137		)
Loss from discontinued operations, net of income taxes	$	(13	)	$	(145	)

The following table summarizes discontinued operations for the two quarters of fiscal 2019 and 2018:



	Two Quarters Ended
	March 13, 2019			March 14, 2018
	(28 weeks)			(28 weeks)
	(In thousands, except per share data)
Discontinued operating loss	$	(13	)	$	(8	)
Impairments	—			—
Pretax loss	(13		)	(8		)
Income tax expense from discontinued operations	—			(137		)
Loss from discontinued operations, net of income taxes	$	(13	)	$	(145	)
Effect on EPS from discontinued operations—basic	$	(0.00	)	$	(0.00	)

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, actively marketed and recorded at fair value less transaction costs. 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, properties with operating restaurants the Board approved for sale, 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 13, 2019, the Company had 13 owned properties with a carrying value of approximately $14.9 million in property held for sale. The pretax profit (loss) for the disposal group of locations operating for the two quarters ended ended March 13, 2019 and March 14, 2018 was a pretax income of approximately $12.8 million and $0.5 million, respectively. Included in the pretax income for the disposal group of locations was net gains on disposal of assets of approximately $12.9 million and $0.2 million, respectively for the two quarters ended March 13, 2019 and March 14, 2018.

At August 29, 2018, the Company had 15 owned properties, of which two restaurants are located on one property, with a carrying value of approximately $19.5 million in property held for sale. The pretax loss for the disposal group of locations operating in fiscal 2018 was approximately $1.2 million.

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

Abandoned Leased Facilities - Reserve for Store Closings

As of March 13, 2019, the Company classified 11 restaurant leased locations in Arizona, Florida, Illinois, Indiana, Maryland, New York, Oklahoma, Texas and Virginia as abandoned. Although the Company remains obligated under the terms of the leases for the rent and other costs that may be associated with the leases, the Company decided to cease operations and has no foreseeable plans to occupy the spaces as a company restaurant in the future. During the two quarters ended March 13, 2019, the Company recorded an increase to the liability for lease termination expense and a charge to earnings, in provision for asset impairments and restaurant closings of approximately $0.2 million. The liability is equal to the total amount of rent and other direct costs for the remaining period of time the properties will be unoccupied plus the present value, calculated using a credit-adjusted risk free rate, of the amount by which the rent paid by the Company to the landlord exceeds any rent paid to the Company by a tenant under a sublease over the remaining period of the lease terms. Accrued lease termination expense was approximately $2.0 million as of March 13, 2019 and August 29, 2018, respectively.