Note 7 - Impairment of Long-Lived Assets, Discontinued Operations and Property Held for Sale

9 Months Ended

May 06, 2015

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 7. Impairment of Long-Lived Assets, 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 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 and gains on disposition of property and equipment included in income from operations:

	Three Quarters Ended
	May 6, 2015			May 7, 2014
	(36 weeks)			(36 weeks)
	(In thousands, except per share data)
Provision for asset impairments	$	218		$	1,539
Net gain on disposition of property and equipment		(1,696	)		(956	)
	$	(1,478	)	$	583
Effect on EPS:
Basic	$	0.05		$	(0.02	)
Assuming dilution	$	0.05		$	(0.02	)

The impairment charge for the three quarters ended May 6, 2015 was $0.2 million and primarily related to three Fuddruckers locations and included $38 thousand in goodwill related to one underperforming converted Cheeseburger in Paradise leasehold location.

The impairment charge for the three quarters ended May 7, 2014 was $1.5 million and primarily related to assets at two Fuddruckers locations and assets and allocated goodwill at six Cheeseburger in Paradise leasehold locations.

The $1.7 million net gain for the three quarters ended May 6, 2015 is related to the sale of property and equipment.

The $1.0 million net gain for the three quarters ended May 7, 2014 is related to the sale of property and equipment.

Discontinued Operations 

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

On March 21, 2014, the Company adopted a disposal plan for selected under-performing recently acquired leaseholds operating as Cheeseburger in Paradise restaurants. As of May 6, 2015, five Cheeseburger in Paradise locations have been reclassified to discontinued operations in the statements of operations and balance sheet accordingly. 

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

	May 6, 2015		August 27, 2014
	(in thousands)
Prepaid expenses	$	26		52
Assets related to discontinued operations—current	$	26	$	52
Property and equipment, net		3,340		2,817
Other assets		1,385		1,387
Assets related to discontinued operations—non-current	$	4,725	$	4,204
Accrued expenses and other liabilities	$	469		590
Liabilities related to discontinued operations—current	$	469	$	590
Other liabilities	$	62	$	278
Liabilities related to discontinued operations—non-current	$	62	$	278

As of May 6, 2015, the Company had nine restaurant properties classified as discontinued operations assets. The carrying value of three Company-owned properties was $3.3 million at May 6, 2015. The carrying values of one ground lease and five in-line leases were previously impaired to zero.

As of August 27, 2014, the Company had nine restaurant properties classified as discontinued operations. The carrying value of the Company-owned properties was $3.4 million at August 27, 2014.

The Company is actively marketing all of these properties for lease or 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 loss reported for discontinued operations:

	Three Quarters Ended
	May 6, 2015			May 7, 2014
	(36 weeks)			(36 weeks)
	(In thousands, except discontinued locations)
Sales	$	—		$	3,738
Pretax loss		(807	)		(1,985	)
Income tax benefit from discontinued operations		298			517
Loss from discontinued operations		(509	)		(1,468	)
Discontinued locations closed during the period		—			3

The following table summarizes discontinued operations for the first three quarters of fiscal 2015 and 2014:

	Three Quarters Ended
	May 6, 2015			May 7, 2014
	(36 weeks)			(36 weeks)
	(In thousands, except per share data)
Discontinued operating losses	$	(715	)	$	(1,217	)
Impairments		(90	)		(762	)
Losses		(2	)		(6	)
Net loss	$	(807	)		(1,985	)
Income tax benefit from discontinued operations		298			517
Loss from discontinued operations	$	(509	)	$	(1,468	)
Effect on EPS from discontinued operations—basic	$	(0.02	)	$	(0.05	)

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 three years. Within discontinued operations, the Company also recorded the related fiscal year-to-date net operating results, employee terminations and 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 moved 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 May 6, 2015, the Company had five owned properties recorded at approximately $6.3 million in property held for sale. The Company is actively marketing the locations currently classified as property held for sale.

At August 27, 2014, the Company had one owned property recorded at approximately $1.0 million in property held for sale.