Annual report pursuant to Section 13 and 15(d)

Note 4 - Discontinued Operations

v3.7.0.1
Note 4 - Discontinued Operations
12 Months Ended
Dec. 25, 2016
Notes to Financial Statements  
Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]
(4)
Discontinued Operations
 
The Company accounts for its closed restaurants in accordance with the provisions of FASB ASC Topic
360,
Property, Plant and Equipment. As of
December
29,
2014,
the Company adopted ASU
2014
-
08,
“Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,” which changed the criteria for reporting discontinued operations and requires additional disclosures about discontinued operations. ASU
2014
-
08
requires that an entity report as a discontinued operation only a disposal that represents a strategic shift in operations that has a major effect on its operations and financial results. Therefore, individual restaurants which are closed after
December
28,
2014
are not classified as discontinued operations. Prior to the Company’s adoption of ASU
2014
-
08,
when a restaurant was closed or the restaurant was either held for sale or abandoned, the restaurant’s operations were eliminated from the ongoing operations. Accordingly, the operations of such restaurants, net of applicable income taxes, are presented as discontinued operations and prior period operations of such restaurants, net of applicable income taxes, were reclassified. For fiscal years
2016,
2015
and
2014,
all impairment charges, loss on disposal and remeasurement of lease liabilities along with restaurant sales, direct recurring costs and expenses and income taxes attributable to restaurants classified as discontinued operations have been aggregated to a single caption entitled loss from discontinued operations, net of tax benefit in the consolidated statements of income for all periods presented. Loss from discontinued operations, net of tax benefit is comprised of the following (in thousands):
 
 
 
Fiscal Year
 
 
 
2016
 
 
2015
 
 
2014
 
                         
Revenues
                       
Mitchell's Restaurants
  $
-
    $
4,343
    $
73,974
 
Other Restaurants
   
-
     
(3
)    
3,386
 
Total revenues
   
-
     
4,340
     
77,360
 
                         
Costs and expenses
                       
Recurring costs and expenses
                       
Mitchell's Restaurants
   
(351
)    
5,196
     
73,852
 
Other Restaurants
   
827
     
175
     
4,115
 
Impairment losses
                       
Mitchell's Restaurants
   
-
     
-
     
15,295
 
Other Restaurants
   
-
     
-
     
-
 
Loss on pending sale of Mitchell's Restaurants
   
-
     
-
     
1,825
 
Total costs and expenses
   
476
     
5,371
     
95,087
 
                         
Loss before income taxes
   
(476
)    
(1,031
)    
(17,727
)
                         
Income tax benefit
   
(186
)    
(869
)    
(7,472
)
                         
Loss from discontinued operations, net of income taxes
  $
(290
)   $
(162
)   $
(10,255
)
 
Cash flows from discontinued operations are combined with the cash flows from continuing operations within each of the categories on our consolidated statements of cash flows. The income from the Mitchell’s Restaurants in
2016
was primarily attributable to a
$466
thousand benefit from the extinguishment of a liability related to Mitchell’s Restaurant gift cards. The Other Restaurant expense is primarily attributable to occupancy related costs from a closed Ruth’s Chris Steak House restaurant. In addition to the Mitchell’s Restaurants, discontinued operations for fiscal years
2016,
2015
and
2014
also includes the results of the other closed restaurants.
Mitchells Restaurants [Member]  
Notes to Financial Statements  
Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]
(3)
Mitchell’s Restaurants
 
As of
December
28,
2014,
the Company operated
eighteen
Mitchell’s Fish Markets and
three
Mitchell’s/Cameron’s Steakhouse restaurants (collectively, the Mitchell’s Restaurants).
 
During the
third
quarter of fiscal year
2014,
the Company reassessed its asset grouping specific to the Mitchell’s Restaurants under Topic
360
and concluded that it was appropriate to change the asset group from the individual restaurant unit to the set of Mitchell’s Restaurants. As a result of the reassessment, the Company determined that a triggering event had occurred requiring an impairment evaluation of its trademarks and long-lived assets. Consequently, during the
third
quarter of fiscal year
2014,
the Company recorded an impairment loss aggregating to
$15.3
million. Specifically, the Company recorded a
$7.3
million impairment loss related to trademark intangible assets and an
$8.0
million impairment loss related to long-lived assets (primarily leasehold improvements). The impairment of both the trademark intangible assets and the long-lived assets was measured based on the amount by which the carrying amount of assets exceeded fair value. Fair value was estimated based on both the market and income approaches utilizing market participant assumptions reflecting all available information as of the
September
28,
2014
balance sheet date. These impairment losses have been reclassified to discontinued operations.
 
In
November
2014,
the Company and Landry’s, Inc. and Mitchell’s Entertainment, Inc., an affiliate of Landry’s Inc. (together with Landry’s Inc., Landry’s), entered into an asset purchase agreement (the Agreement). Pursuant to the Agreement, the Company agreed to sell the Mitchell’s Restaurants and related assets to Landry’s for
$10
million. The sale of the Mitchell’s Restaurants closed on
January
21,
2015.
The assets sold consisted primarily of leasehold interests, leasehold improvements, restaurant equipment and furnishings, inventory, and related intangible assets, including brand names and trademarks associated with the
21
Mitchell’s Restaurants. A
$1.8
million loss on assets held for sale was recorded in the
fourth
quarter of fiscal year
2014.
The results of operations, impairment charges and loss on assets held for sale have been classified as discontinued operations in the consolidated statements of income for all periods presented.
No
amounts for shared general and administrative costs or interest expense were allocated to discontinued operations. Substantially all direct cash flows related to operating these restaurants were eliminated at the closing date of the sale. The Company’s continuing involvement was limited to transition services up to
four
months with minimal impact on cash flows.
 
Under the terms of the Agreement, Landry’s assumed the Mitchell’s Restaurants’ facility lease obligations and the Company reimbursed Landry’s for gift cards that were sold prior to the closing date and used at the Mitchell’s Restaurants during the
eighteen
months following the closing date. In the Agreement, the Company and Landry’s made customary representations and warranties and agreed to customary covenants relating to the sale of the Mitchell’s Restaurants. The Company and Landry’s have agreed to indemnify each other for losses arising from certain breaches of the Agreement and for certain other liabilities.
 
The Company guaranteed Landry’s lease obligations aggregating
$35.3
million under
nine
of the Mitchell’s Restaurants’ leases. The Company did not record a financial accounting liability for the lease guarantees, because the likelihood of Landry’s defaulting on the lease agreements was deemed to be remote. Landry’s also indemnified the Company in the event of a default under any of the leases.