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

12 Months Ended

Aug. 27, 2014

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 27, 2014			August 28, 2013			August 29, 2012
	(In thousands, except per share data)
Provision for asset impairments	$	2,498		$	615		$	451
Net loss (gain) on disposition of property and equipment		(2,357	)		(1,723	)		278
	$	141		$	(1,108	)	$	729
Effect on EPS:
Basic	$	—		$	0.04		$	(0.03	)
Assuming dilution	$	—		$	0.04		$	(0.03	)

The $2.5 million charge in fiscal 2014 is related to one operating Luby’s Cafeteria, two operating Fuddruckers restaurants, two operating Cheeseburger in Paradise restaurants and nine closed Cheeseburger in Paradise restaurants.

The $0.6 million charge in fiscal 2013 is related to one property held for sale, one operating Fuddruckers restaurant and one operating Koo Koo Roo Chicken Bistro ®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 2012 is related to a CCS location and two underperforming restaurant locations. The $0.3 million loss is related to asset retirements and the closures of two leased locations.

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. On March 24, 2014, the Company announced that it has initiated a plan focused on improving cash flow from the recently acquired Cheeseburger in Paradise leasehold locations. This underperforming Cheeseburger in Paradise leasehold disposal plan called for five or more units to be closed by the end of Fiscal 2014 and disposed of within 12 months. As of August 27, 2014, four locations have been closed for disposal and reclassified to 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 Company reclassified 24 Luby’s Cafeterias to discontinued operations. As of August 27, 2014, four locations remain, one is under lease to a third party and three remain held for sale.

We believe the majority of cash flows lost will not be recovered by ongoing operations and the majority of sales lost by closing will not be recovered. In addition, there will not be any ongoing involvement or significant cash flows from the closed stores. Stores we close, but do not classify as discontinued operations, follow the implementation guidance in ASC 205-20-55 because cash flows are expected to be generated by the ongoing entity. There is some migration of customer traffic to existing or new locations, and ultimately the majority of sales lost by closing these stores are expected to be eventually replaced by sales from new locations.

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 27, 2014		August 28, 2013
	(in thousands)
Trade accounts and other receivable, net	$	—	$	—
Food and supply inventories		—		118
Prepaid expenses		52		78
Assets related to discontinued operations—current	$	52	$	196
Property and equipment	$	2,817	$	3,918
Other assets		1,387		300
Assets related to discontinued operations—non-current	$	4,204	$	4,218
Deferred income taxes	$	308	$	246
Accrued expenses and other liabilities		282		281
Liabilities related to discontinued operations—current	$	590	$	527
Other liabilities	$	278	$	448
Deferred income taxes		—		—
Liabilities related to discontinued operations—non-current	$	278	$	448

As of August 27, 2014, under both closure plans, the Company had nine properties classified as discontinued operations assets and the asset carrying value of the owned properties was $5.3 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 27, 2014			August 28, 2013			August 29, 2012
	(In thousands, except locations)
Sales	$	4,691		$	6,153		$	—
Pretax income (loss)	$	(2,813	)	$	(1,926	)	$	(1,064	)
Income tax (expense) benefit on discontinued operations	$	979		$	540		$	419
Income (loss) on discontinued operations	$	(1,834	)	$	(1,386	)	$	(645	)
Discontinued locations closed during the period		5			0			0

During fiscal 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 2010 but incurred no settlement costs in fiscal 2011 or 2012.

The following table summarizes discontinued operations for fiscal 2014, 2013 and 2012:

	Year Ended
	August 27, 2014			August 28, 2013			August 29, 2012
	(In thousands, except per share data)
Impairments	$	(1,199	)	$	(663	)	$	(868	)
Gains		(7	)		5			513
Net impairments		(1,206	)		(658	)		(355	)
Other		(628	)	$	(728	)		(290	)
Discontinued operations, net of taxes	$	(1,834	)	$	(1,386	)	$	(645	)
Effect on EPS from discontinued operations—decrease—basic	$	(0.06	)	$	(0.05	)	$	(0.02	)

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 27, 2014, the Company had one owned properties recorded at approximately $1.0 million in property held for sale. The Company is actively marketing the locations currently classified as property held for sale.

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.

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 2014, 2013 and 2012 is provided below (in thousands):

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
Disposals		(449	)
Net transfers to property held for sale		991
Balance as of August 27, 2014	$	991