Note 2 - Acquisition

12 Months Ended

Aug. 28, 2013

Disclosure Text Block Supplement [Abstract]

Mergers, Acquisitions and Dispositions Disclosures [Text Block]

Note 2. Acquisitions

Cheeseburger in Paradise

The Company through its newly created subsidiary, Paradise Cheeseburgers, LLC, purchased 100% of the membership units of Paradise Restaurant Group, LLC and affiliated companies which operate Cheeseburger in Paradise brand restaurants (collectively, “Cheeseburger in Paradise”) on December 6, 2012 for $10.2 million in cash. The Company assumed $2.4 million of Cheeseburger in Paradise obligations, real estate leases and contracts. The Company funded the purchase with existing cash reserves and borrowings from its credit facility.

The Company believes the acquisition of Cheeseburger in Paradise will produce significant benefits. The acquisition is expected to increase the Company’s market presence and opportunities for growth in sales, earnings and shareholder returns. The acquisition provides a complementary growth vehicle in the casual segment of the restaurant industry. The Company believes these factors support the amount of goodwill recorded as a result of the purchase price paid for the Cheeseburger in Paradise intangible and tangible assets, net of liabilities assumed.

The Company has accounted for the acquisition of Cheeseburger in Paradise using the acquisition method and, accordingly, the results of operations related to this acquisition have been included in the consolidated results of the Company since the acquisition date. The Company incurred $0.4 million in acquisition costs which were expensed as incurred and classified as general and administrative expenses on the consolidated statements of operations.

The allocation of the purchase price for the acquisition requires extensive use of accounting estimates and judgments to allocate the purchase price to tangible and intangible assets acquired and liabilities assumed based on respective fair values. The purchase price for the Company’s acquisition of Cheeseburger in Paradise and the assumption of liabilities is based on estimates of fair values at the acquisition date. The Company’s fair value estimates for the purchase price allocation may change during the allowable period, which is up to one year from the acquisition date to provide sufficient time to develop fair value estimates. The fair values that take longer to estimate and are more likely to change include property and equipment, intangible assets and leases.

Such valuations require significant estimates and assumptions. The Company believes the fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions.

The following table summarizes the estimated fair values of net assets acquired and liabilities assumed, in thousands:

Cash and cash equivalents	$	58
Accounts receivable		93
Inventories		561
Other current assets		376
Property and equipment		6,374
Liquor licenses and permits		188
Favorable leases		2,646
License agreement and trade name		254
Goodwill		1,975
Accrued liabilities		(2,356	)
Net acquisition cost	$	10,169

The license agreement and trade name relates to a perpetual license to use intangible assets including trademarks, service marks and publicity rights related to Cheeseburger in Paradise owned by Jimmy Buffet and affiliated entities. In return, the Company will pay a royalty fee of 2.5% of gross sales, less discounts, at acquired Cheeseburger in Paradise locations to an entity owned or controlled by Jimmy Buffet. The trade name represents a respected brand with positive customer loyalty, and the Company intends to cultivate and protect the use of the trade name.

The Company will amortize the fair value allocated to the license agreement and trade name over an expected accounting life of 15 years based on the expected use of its assets and the restaurant environment in which it is being used. The Company recorded approximately $11 thousand of amortization expense for the fiscal year ended August 28, 2013, which is classified as depreciation and amortization expense in the accompanying consolidated statement of operations. Because the value of these assets will be amortized using the straight-line method over 15 years, the annual amortization will be $17 thousand in future years.

A portion of the acquired lease portfolio contained favorable leases. Acquired lease terms were compared to current market lease terms to determine if the acquired leases were below or above the current rates tenants would pay for similar leases. The favorable lease assets totaled $2.6 million and are recorded in other assets and, after considering renewal periods, have an estimated weighted average life of approximately 20.3 years at August 28, 2013. There were determined to be no unfavorable leases. The favorable leases are amortized to rent expense on a straight line basis over the lives of the related leases. The Company recorded $88 thousand of amortization expense for the year ended August 28, 2013, which is classified as additional rent expense in the accompanying consolidated statement of operations.

The following table shows the prospective amortization of the favorable lease asset:

	Fiscal Year Ended
	August 27, 2014		August 26, 2015		August 31, 2016		August 30, 2017		August 29, 2018
	(In thousands)
Favorable	$	132	$	132	$	132	$	132	$	132

Annual depreciation expense will be approximately $0.5 million of the $6.4 million of property and equipment.

The Company also recorded an intangible asset for goodwill in the amount of $2.0 million. Goodwill is considered to have an indefinite useful life and is not amortized but is tested for impairment at least annually. The total amount of goodwill is expected to be deductible for income tax purposes.

The following unaudited pro forma information assumes the Cheeseburger in Paradise acquisition occurred as of the beginning of the fiscal year ended August 29, 2012. The unaudited pro forma data is presented for informational purposes only and does not purport to be indicative of the results of future operations of the Company or of the results that would have actually been attained had the acquisition taken place at the beginning of the fiscal year ended August 29, 2012.

	Year Ended
	August 28, 2013		August 29, 2012
	(Unaudited)		(Unaudited)
	(In thousands, except per share data)
Pro forma total sales	$	401,960	$	403,572
Pro forma income from continuing operations		3,397		8,494
Pro forma net income		2,274		7,734
Pro forma income from continuing operations per share
Basic		0.12		0.30
Diluted		0.12		0.30
Pro forma net income per share
Basic		0.08		0.27
Diluted		0.08		0.27

Included in the Consolidated Statement of Operations for the year ended August 28, 2013 were actual restaurant sales for Cheeseburger in Paradise of $35.7 million and loss from operations for Cheeseburger in Paradise of $1.8 million. Excluding first year integration costs of $0.7 million after-tax, the loss from operations related to Cheeseburger in Paradise included in the Consolidated Statement of Operations for the year ended August 28, 2013 was $1.1 million.

Fuddruckers 

Luby’s, Inc., through its subsidiary Fuddruckers Tulsa, LLC, purchased substantially all of the assets associated with one franchised location on June 30, 2011 for approximately $0.6 million. The following table summarizes the estimated fair value of net assets acquired and liabilities assumed, in thousands:

	Fiscal Year Ended
	August 31, 2011
	(In thousands)
Property and equipment	$	740
Reacquired franchise agreement		200
Unfavorable lease liability		(220	)
Gain on purchase		(120	)
Net cash paid for acquisition	$	600

The Company believes the acquisition of this location does not have a material effect on the consolidated financial statements. The Company accounted for this acquisition using the acquisition method. The allocation of the purchase price for the acquisition required extensive use of accounting estimates.