Note 6 - Property and Equipment, Intangible Assets and Goodwill

9 Months Ended

May 06, 2015

Property Equipment Intangible Assets And Goodwill Disclosure [Abstract]

Property Equipment Intangible Assets And Goodwill Disclosure [Text Block]

Note 6. Property and Equipment, Intangible Assets and Goodwill

The costs, net of impairment, and accumulated depreciation of property and equipment at May 6, 2015 and August 27, 2014, together with the related estimated useful lives used in computing depreciation and amortization, were as follows:

	May 6, 2015			August 27, 2014			Estimated Useful Lives (years)
	(In thousands)
Land	$	65,218		$	69,767		—
Restaurant equipment and furnishings		140,570			131,932		3 to 15
Buildings		184,534			181,535		20 to 33
Leasehold and leasehold improvements		42,785			40,835		Lesser of lease term or estimated useful life
Office furniture and equipment		7,964			7,537		3 to 10
Construction in progress		771			10,313		—
		441,842			441,919
Less accumulated depreciation and amortization		(236,345	)		(228,427	)
Property and equipment, net	$	205,497		$	213,492
Intangible assets, net	$	23,014		$	24,014		21
Goodwill	$	1,643		$	1,681		—

Intangible assets, net, consist of the Fuddruckers trade name and franchise agreements and the Cheeseburger in Paradise trade name and license agreements and are subject to amortization. The Company believes the Fuddruckers trade name has an expected accounting life of 21 years from the date of acquisition based on the expected use of its assets and the restaurant environment in which it is being used. The trade name represents a respected brand with customer loyalty, and the Company intends to cultivate and protect the use of the trade name. The franchise agreements, after considering renewal periods, have an estimated accounting life of 21 years from the date of acquisition and will be amortized over this period of time. The Cheeseburger in Paradise intangible assets, net, have an expected accounting life of 15 years from the date of acquisition.

The aggregate amortization expense related to intangible assets subject to amortization was $0.3 million for the quarters ended May 6, 2015 and May 7, 2014. For the three quarters ended May 6, 2015 and May 7, 2014, the aggregate amortization expense was $1.0 million and is expected to be $1.4 million in each of the next five successive years.

The following table presents intangible assets as of May 6, 2015 and August 27, 2014:

	May 6, 2015							August 27, 2014
	(In thousands)							(In thousands)
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Intangible Assets Subject to Amortization:
Fuddruckers trade name and franchise agreements	$	29,607	$	(6,749	)	$	22,858	$	29,607	$	(5,767	)	$	23,840
Cheeseburger in Paradise trade name and license agreements	$	416	$	(260	)	$	156	$	416	$	(242	)	$	174
Intangible assets, net	$	30,023	$	(7,009	)	$	23,014	$	30,023	$	(6,009	)	$	24,014

The Company recorded an intangible asset for goodwill in the amount of approximately $0.2 million related to the acquisition of substantially all of the assets of Fuddruckers. The Company also recorded an intangible asset for goodwill in the amount of approximately $2.0 million related to the acquisition of Cheeseburger in Paradise. Goodwill is considered to have an indefinite useful life and is not amortized.

The Company performs a goodwill impairment test annually and more frequently when negative conditions or a triggering event arise. After an assessment of certain qualitative factors, if it is determined to be more likely than not that the fair value of a reporting unit is less than its carrying amount, entities must perform the quantitative analysis of the goodwill impairment test. Otherwise, the quantitative test(s) become optional. For the initial annual analysis in fiscal 2014, the Company elected to bypass the qualitative assessment and proceeded directly to performing the first step of the goodwill impairment test. In future periods, the Company may determine that facts and circumstances indicate use of the qualitative assessment may be the most reasonable approach. Management will perform its formal annual assessment as of the second quarter each fiscal year and will formally perform additional assessments on an interim basis if an event occurs or circumstances exist that indicate that it is more likely than not that a goodwill impairment exists. The individual restaurant level is the level at which goodwill is assessed for impairment under ASC 350. In accordance with our understanding of ASC 350, we have allocated the goodwill value to each reporting unit in proportion to each location’s fair value at the date of acquisition. Of the 23 locations that were acquired, 5 locations were closed including one location where the option to extend the lease was not exercised. The remaining 18 locations not closed may be converted to Fuddruckers, which was part of a contingency strategy when the acquisition was initially consummated. As we are not moving any of the former Cheeseburger in Paradise restaurants out of their respective market, the goodwill associated with the acquired location and market area is expected to be realized through operating these former Cheeseburger in Paradise branded restaurants as Fuddruckers branded restaurants. The Company has experience converting and opening new restaurant locations and the Fuddruckers brand units have positive cash flow history. This historical data was considered when completing our fair value estimates for recovery of the remaining net book value including goodwill. In addition, we included the incremental conversion costs in our cash flow projections when completing our routine impairment of long-lived assets testing. Management has therefore performed valuations using a discounted cash flow analysis for each of its restaurants to determine the fair value of each reporting unit for comparison with the reporting unit’s carrying value.

Since the acquisition of the 23 Cheeseburger in Paradise locations in fiscal year 2013, we implemented many initiatives to improve the food quality and service. Many locations continued to experience sales declines which led to the implementation of our contingency strategy of conversion of certain locations to Fuddruckers restaurants. In considering this change, certain units were determined to be disposed of, 8 locations to remain operating as Cheeseburger in Paradise and other locations to be closed for future conversion. In performing our periodic assessment of long-lived assets and goodwill recoverability, we estimated the fair value of the cash flows at selected units were not sufficient to recover the carrying values of certain locations which resulted in impairment charges including a write-off of approximately $0.5 million in goodwill associated with five Cheeseburger in Paradise locations in fiscal year 2014. As of August 27, 2014 eight locations remained open and operating as Cheeseburger in Paradise locations and ten locations were closed to be converted to new Fuddruckers locations. Four such locations have been converted to Fuddruckers restaurants as of June 11, 2015.

Goodwill was approximately $1.6 million as of May 6, 2015 and approximately $1.7 million as of August 27, 2014 and relates to our Company-owned restaurants reportable segment.

There were no impairments related to goodwill during the quarter ended May 6, 2015. For the three quarters ended May 6, 2015, management determined approximately $38 thousand in goodwill impairment losses related to one underperforming converted Cheeseburger in Paradise leasehold location.