Note 6 - Notes Receivable

9 Months Ended

Aug. 27, 2011

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

6. Notes Receivable

Our notes receivable consist of the following:

	August 27, 2011			November 27, 2010
Notes receivable	$	6,024		$	14,914
Allowance for doubtful accounts and discounts on notes receivable		(4,065	)		(6,748	)
Notes receivable, net		1,959			8,166
Less: current portion of notes receivable		(75	)		(658	)
Long term notes receivable	$	1,884		$	7,508

Our notes receivable, which bear interest at rates ranging from 2% to 6%, consist primarily of amounts due from our licensees from loans made by the Company to help licensees fund their operations. Approximately 43% and 61% of our notes receivable represent conversions of past due accounts receivable at August 27, 2011 and November 27, 2010, respectively. We have discontinued these conversions and have no plans to resume this practice. At the inception of the note receivable, we determined whether the note carried a market rate of interest. A discount on the note was recorded if we determined that the note carried an interest rate below the market rate. We amortize the related note discount over the contractual term of the note and cease amortizing the discount to interest income when the present value of expected future cash flows is less than the carrying value of the note. Interest income on the notes receivable, which is included in other income (loss), net, was as follows:

	Quarter Ended				Nine Months Ended
	August 27, 2011		August 28, 2010		August 27, 2011		August 28, 2010
Interest income	$	27	$	125	$	102	$	392

The initial carrying value of the notes receivable was determined using present value techniques which consider the fair market rate of interest based on the licensee’s risk profile and estimated cash flows to be received. The estimated fair value of our notes receivable portfolio was $1,959 at August 27, 2011 and $8,212 at November 27, 2010. The inputs into these fair value calculations reflect our market assumptions and are not observable. Consequently, the inputs are considered to be Level 3 as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurements and Disclosures. See Note 14.

Substantially all of our notes receivable comprise a single portfolio segment of financing receivables consisting of notes receivable from current and former licensees. These notes receivable are evaluated in three classes – those due from current licensees, those due from former licensees which are secured by real estate, and those due from former licensees which are unsecured. On a quarterly basis, we examine these notes receivable for evidence of impairment. With respect to current licensees, we consider factors such as licensee capitalization, projected operating performance, the viability of the market in which the licensee operates and the licensee’s operating history, including our cash receipts from the licensee, licensee sales and any underlying collateral. Our evaluation of former licensees is primarily based upon payment history and an evaluation of the underlying collateral. After considering these factors, should we believe that all or a portion of the expected cash flows attributable to the note receivable will not be received, we record an impairment charge on the note by estimating future cash flows and discounting them at the effective interest rate. Any difference between the estimated discounted cash flows and the carrying value of the note is recorded as an increase to the allowance for doubtful accounts. Notes receivable are charged off if they are deemed to be uncollectible with no recoverable collateral value. Each note within a class is evaluated individually using the criteria described above as applicable to its respective class.

These notes receivable, as well as our accounts receivable, are generally secured by the filing of security statements in accordance with the Uniform Commercial Code and/or real estate owned by the maker of the note and in some cases, personal guarantees by our licensees.

Our investment in notes receivable and related allowances, disaggregated by class, are as follows at August 27, 2011:

			Allowance for
	Gross		Doubtful Accounts			Notes Receivable
	Notes Receivable		and Discounts			Net

Due from current licensees	$	1,529	$	(1,454	)	$	75
Due from former licencees:
Secured by real estate		2,657		(975	)		1,682
Unsecured		1,636		(1,636	)		-
Other notes		202		-			202

Balance at August 27, 2011	$	6,024	$	(4,065	)	$	1,959

The notes receivable shown above by class include impaired notes and related allowances as of August 27, 2011 as follows:

			Allowance for
	Gross		Doubtful Accounts			Notes Receivable
	Notes Receivable		and Discounts			Net

Due from current licensees	$	1,454	$	(1,454	)	$	-
Due from former licencees:
Secured by real estate		1,558		(975	)		583
Unsecured		1,636		(1,636	)		-

Balance at August 27, 2011	$	4,648	$	(4,065	)	$	583

The average recorded investment in the impaired loans by class for the nine months ended August 27, 2011 was as follows:

Due from current licensees	$	1,124
Due from former licencess:
Secured by real estate		783
Unsecured		115
Total average recorded investment in impaired loans	$	2,022

The aging of our investment in notes receivable by class, based on scheduled principal due dates, is as follows at August 27, 2011:

				30-90 Days		Over 90 Days
	Current			Past Due		Past Due			Total

Due from current licensees	$	1,411	(1)	$	11	$	107		$	1,529
Due from former licencees:
Secured by real estate		1,061			29		1,567	(2)		2,657
Unsecured		-			-		1,636	(2)		1,636
Other notes		202			-		-			202

Balance at August 27, 2011	$	2,674		$	40	$	3,310		$	6,024

(1) Current balance includes principal of $625 on notes which currently require payments of interest only.
(2) Balance over 90 days past due represents notes in default.

The change in our allowance for doubtful accounts and discounts for the nine months ended August 27, 2011, disaggregated by class, is as follows:

				Due from Former Licensees
	Due from Current Licensees			Secured by Real Estate		Unsecured		Other Notes		Total

Balance at November 27, 2010	$	4,825		$	575	$	1,348	$	-	$	6,748
Additions charged to expense		3,949			400		288		-		4,637
Write-offs and other deductions		(7,292	)		-		-		-		(7,292	)
Amortization of discounts		(28	)		-		-		-		(28	)
Balance at August 27, 2011	$	1,454		$	975	$	1,636	$	-	$	4,065

Additions charged to expense with respect to the allowance for notes due from current licensees for the three and nine months ended August 27, 2011 include $0 and $663, respectively, related to the settlement of notes receivable due from a licensee acquired during the first quarter of 2011 (see Note 10).