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

4 Months Ended

Dec. 16, 2020

Discontinued Operations and Disposal Groups [Abstract]

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

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

Impairment of Long-Lived Assets and Store Closings 

Under the going concern basis of accounting, we periodically evaluated long-lived assets held for use and held for sale whenever events or changes in circumstances indicated that the carrying amount of those assets may not be recoverable. We analyzed historical cash flows of operating locations and compared results of poorer performing locations to more profitable locations. We also analyzed 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, we estimated future cash flows using assumptions based on possible outcomes of the areas analyzed. If the estimated undiscounted future cash flows were less than the carrying value of the location’s assets, we recorded 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, required management’s subjective judgments. Assumptions and estimates used included 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 were estimated was 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 could vary within a wide range of outcomes. We considered the likelihood of possible outcomes in determining the best estimate of future cash flows. The measurement for such an impairment loss was then based on the fair value of the asset as determined by discounted cash flows. 

We recognized the following impairment charges to income from operations:

	Period Ended		Quarter Ended
	November 18, 2020		December 18, 2019
	(12 weeks)		(16 weeks)
	(In thousands, except per share data)
Net provision for asset impairments and restaurant closings	$	(85)	$	1,110
Net loss on disposition of property and equipment	117		30
	$	32	$	1,140
Effect on EPS:
Basic	$	—	$	(0.04)
Assuming dilution	$	—	$	(0.04)

The $0.1 million net gain in provision for asset impairments and restaurant closings for the period ended November 18, 2020 is primarily related to a $0.7 million net gain on the termination of seven leases where we permanently ceased operations and negotiated buyouts of the leases, partially offset by a $0.6 million write-off of the right-of-use asset for one of our leased locations.

The $1.1 million provision for asset impairments and restaurant closings for the quarter ended December 18, 2019 was primarily related to the impairment of the right-of-use asset for two of our leased locations where we ceased operations during the period and certain surplus equipment written down to fair value.

Discontinued Operations 

As a result of the first quarter fiscal 2010 adoption of our Cash Flow Improvement and Capital Redeployment Plan, we reclassified 24 Luby’s Cafeterias to discontinued operations. Under the going concern basis of accounting, at November 18, 2020, one non-operating location remained held for sale.

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

		August 26, 2020
	(In thousands)
Property and equipment		$	1,715
Assets related to discontinued operations—non-current		$	1,715
Accrued expenses and other liabilities		$	17
Liabilities related to discontinued operations—current		$	17

Under the going concern basis of accounting, losses from discontinued operations for the 12 week period ended November 18, 2020 and the quarter ended December 18, 2019 were not significant.  

Property Held for Sale 

Under the going concern basis of accounting, property held for sale was accounted for as discussed below. Under the liquidation basis of accounting, all of our property is for sale and is recorded on the statement of net assets in liquidation at the amount of their estimated cash proceeds or other consideration from liquidation.

Under the going concern basis of accounting, we periodically reviewed long-lived assets against our plans to retain or ultimately dispose of properties. If we decided to dispose of a property, it was moved to property held for sale, actively marketed and recorded at fair value less transaction costs. We analyzed market conditions each reporting period and recorded additional impairments due to declines in market values of like assets. The fair value of the property was determined by observable inputs such as appraisals and prices of comparable properties in active markets for assets like ours. Gains were not recognized until the properties were sold.

Under the going concern basis of accounting, property held for sale included unimproved land, closed restaurant properties, properties with operating restaurants that our Board of Directors had approved for sale, and related equipment for locations not classified as discontinued operations. The specific assets were valued at the lower of net depreciated value or net realizable value.

At August 26, 2020, we had 10 owned properties with a carrying value of approximately $11.2 million in property held for sale.

Abandoned Leased Facilities - Liability for Store Closings

As of December 16, 2020 and August 26, 2020, we classified 11 and 18 leased restaurant locations as abandoned, respectively. Although we remain obligated under the terms of the leases for the rent and other costs that may be associated with the leases, we decided to cease operations and we have no foreseeable plans to occupy the spaces as a company restaurant in the future. The total liability represents the present value of the total amount of rent and other direct costs (such as common area costs, property taxes, and insurance allocated by the landlord) for the remaining lease term less the present value of any sublease income expected to be collected. During the quarter ended December 16, 2020, we settled and terminated seven leases.

The liability for our abandoned leases at December 16, 2020 and August 26, 2020 is as follows (in thousands):

	December 16, 2020		August 26, 2020
	(Liquidation Basis)		(Going Concern Basis)
Short-term lease liability	N/A		$	365
Long-term lease liability	N/A		2,348
Operating lease liabilities	$	1,987	2,713
Accrued expenses and other liabilities	1,721		2,088
Total	$	3,708	$	4,801