Note 11 - Impairment of Long-Lived Assets, Discontinued Operations and Property Held for Sale

12 Months Ended

Aug. 28, 2013

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 11. Impairment of Long-Lived Assets, Store Closings, 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 is longer and 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 (credits) to income from operations:

	Year Ended
	August 28, 2013			August 29, 2012			August 31, 2011
	(In thousands, except per share data)
Provision for asset impairments	$	615		$	451		$	84
Net loss (gain) on disposition of property and equipment		(1,723	)		278			(1,574	)
	$	(1,108	)	$	729		$	(1,490	)
Effect on EPS:
Basic	$	0.04		$	(0.03	)	$	0.05
Assuming dilution	$	0.04		$	(0.03	)	$	0.05

The $0.6 million charge in fiscal year 2013 is related to one property held for sale, one operating Fuddruckers restaurant and one operating Koo Koo Roo restaurant as well as a reduction of the estimated fair value of used assets to be refurbished and reused.

The $0.5 million charge in fiscal year 2012 is related to a culinary contract services location and two underperforming restaurant locations. The $0.3 million loss is related to asset retirements and the closures of two leased locations.

The $0.1 million charge in fiscal year 2011 is an impairment of land available for future use. The $1.6 million gain is related to two property transactions during fiscal year 2011 included in Income from operations.

Discontinued Operations

As a result of the first quarter fiscal year 2010 adoption of the Company’s Cash Flow Improvement and Capital Redeployment Plan (“the Plan”), the Company reclassified 23 Luby’s cafeterias 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.

Assets related to discontinued operations include accounts receivable, accrued liabilities, prepaid expenses, deferred taxes, unimproved land, closed restaurant properties and related equipment for locations classified as discontinued operations. The following table sets forth the assets and liabilities for all discontinued operations:

	August 28, 2013		August 29, 2012
	(in thousands)
Trade accounts and other receivable, net	$	0	$	0
Prepaid expenses		21		42
Assets related to discontinued operations—current	$	21	$	42
Property and equipment	$	3,894	$	4,812
Other assets		295		32
Assets related to discontinued operations—non-current	$	4,189	$	4,844
Deferred income taxes	$	246	$	298
Accrued expenses and other liabilities		194		144
Liabilities related to discontinued operations—current	$	440	$	442
Other liabilities	$	304	$	134
Deferred income taxes		—		999
Liabilities related to discontinued operations—non-current	$	304	$	1,133

In conjunction with the Plan adoption, the Company recorded in the fourth quarter of fiscal year 2009 a non-cash, pre-tax impairment charge of $19.0 million. Of the total impairment charge, $13.1 million related to locations closed immediately after the adoption of the Plan, $4.4 million related to stores that have not been closed, $0.9 million related to stores previously closed and $0.6 million related to unimproved properties to be sold.

No impairments were recognized in the first, second or third quarters of fiscal year 2010. However, in the fourth quarter of fiscal year 2010, two properties were further impaired by a total of $369,000.

In the first quarter of fiscal year 2010, the Company sold two closed properties and recognized a gain of $1.2 million. An additional property was sold in the second quarter of fiscal year 2010 resulting in a recognized a gain of $0.4 million. No discontinued locations were sold in the third quarter of fiscal year 2010. One property was sold in the fourth quarter of fiscal year 2010 resulting in no gain or loss.

During the third quarter of fiscal year 2010, the Company entered into a lease agreement with an independent third-party tenant for one of its closed locations. No gain or loss was recognized as part of the transaction. In fiscal year 2012, the tenant vacated the lease premises in violation of the lease terms. The property is now for sale.

During the fourth quarter of fiscal year 2010, the Company entered into two different lease agreements with independent third-party tenants for two of its closed locations. No gains or losses were recognized as part of the transactions period. One of the properties continues to be leased and is no longer included in discontinued operations. One of the properties is no longer leased and was sold in fiscal year 2013.

At the end of fiscal year 2011, two undeveloped land properties that were classified as discontinued operations assets were reclassified as properties related to continuing operations. Plans to sell these assets were changed to plans to develop the properties into new restaurants.

During fiscal year 2011, seven closed locations were sold resulting in a gain of $2.6 million. Total impairment charges for discontinued operations properties during fiscal 2011 were $0.6 million. In fiscal year 2012, four closed locations were sold resulting in a gain of $0.5 million. Total impairment charges for discontinued operations properties during fiscal 2012 were $0.9 million.

In fiscal year 2013, two closed locations were sold resulting in no gain or loss. Total impairment charges in fiscal year 2013 were $0.7 million.

As of August 28, 2013, the Company had six properties classified as discontinued operations assets and the asset carrying value of the owned properties was $3.8 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 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.

The following table sets forth the sales and pretax losses reported for all discontinued locations:

	Year Ended
	August 28, 2013			August 29, 2012			August 31, 2011
	(In thousands, except locations)
Sales	$	–		$	–		$	–
Pretax income (loss)	$	(1,477	)	$	(1,178	)	$	388
Income tax (expense) benefit on discontinued operations	$	540		$	419		$	(223	)
Income (loss) on discontinued operations	$	(937	)	$	(759	)	$	165
Discontinued locations closed during the period		0			0			0

During fiscal years 2011 and 2010, the Company expensed $0.2 million and $0.7 million, respectively, for lease exit costs and future rental costs related to closed locations. The Company incurred $0.7 million in employee settlement costs in fiscal year 2010 but incurred no settlement costs in fiscal years 2011 or 2012.

The following table summarizes discontinued operations for fiscal years 2013, 2012 and 2011:

	Year Ended
	August 28, 2013			August 29, 2012			August 31, 2011
	(In thousands, except per share data)
Impairments	$	(663	)	$	(868	)	$	(618	)
Gains		5			513			2,444
Net impairments		(658	)		(355	)		1,826
Other		(279	)	$	(404	)		(1,661	)
Discontinued operations, net of taxes	$	(937	)	$	(759	)	$	165
Effect on EPS from discontinued operations—decrease—basic	$	(0.04	)	$	(0.03	)	$	0.01

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.

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 two years. Within discontinued operations, the Company also recorded the related fiscal year-to-date net operating results, employee terminations and basic 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 reclassified 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 August 28, 2013, the Company had one owned property recorded at approximately $0.4 million in property held for sale. The Company is actively marketing the location currently classified as property held for sale.

At August 29, 2012, the Company had one owned property recorded at approximately $0.6 million in property held for sale.

At August 30, 2011, the Company had a total of two owned properties recorded at approximately $1.0 million in property held for sale.

The Company’s results of continuing operations will be affected to the extent proceeds from sales exceed or are less than net book value.

A roll forward of property held for sale for fiscal years 2013, 2012 and 2011 is provided below (in thousands):

Balance as of August 25, 2010	$	1,828
Disposals		(754	)
Net impairment charges		(28	)
Balance as of August 31, 2011	$	1,046
Disposals		(444	)
Net impairment charges	–
Balance as of August 29, 2012	$	602
Disposals	–
Net impairment charges		(153	)
Balance as of August 28, 2013	$	449