Note 10 - Licensee Acquisitions

9 Months Ended

Aug. 27, 2011

Business Combination Disclosure [Text Block]

10. Licensee Acquisitions

As we continually monitor business relationships with our licensees, we may determine from time to time that it is in our best interest to acquire a licensee’s operations in order to mitigate certain risks associated with the poor performance or potential failure of a licensee.  Such risks include loss of receivables or underlying collateral, potential impairment of the value of our investments in real estate used by a licensee or exposure to contingent liabilities under lease guarantees, and potential harm to our market share and brand integrity within a licensee’s market. In addition, we are sometimes approached by our licensees to acquire all or certain stores operated by the licensee.  We evaluate such opportunities considering, among other things, the viability of the market and our participation in the store real estate.

During the nine months ended August 27, 2011, we acquired three retail stores operated by a licensee in Virginia, two operated by a licensee in Kentucky and Ohio, and one from another licensee in Nevada. During the nine months ended August 28, 2010, we acquired eight retail stores operated by six licensees in Maryland, Missouri, Illinois, New York, Alabama, Mississippi and California. Six stores were acquired pursuant to foreclosure on the underlying assets subject to the terms of our security agreements with the licensees.  Two stores were acquired from licensees following their requests for a buyout.

These acquisitions were accounted for in accordance with ASC Topic 805, Business Combinations.  As required by ASC 805, the settlements of certain pre-existing relationships were excluded from the value of the consideration exchanged in the transactions, and gains or losses on such settlements were recognized.  The primary relationships settled involved the write off of accounts and notes receivable which had been foreclosed upon pursuant to security agreements with the licensees, as well as the assumption of certain guaranteed obligations of the licensees. Remaining receivables not foreclosed upon were given as consideration in exchange for net assets acquired. As a result of these settlements, we recognized the following charges:

	Quarter Ended				Nine Months Ended
	August 27, 2011		August 28, 2010		August 27, 2011		August 28, 2010
Bad debt expense & notes receivable valuation charges	$	69	$	537	$	2,509	$	2,332
Loan & lease guarantee expense*		-		478		421		687
Total charges	$	69	$	1,015	$	2,930	$	3,019

 * Included in other income (loss), net in the condensed consolidated statements of operations and retained earnings.

The following table summarizes the net assets acquired and consideration given in the store acquisitions:

	Quarter Ended						Nine Months Ended
	August 27, 2011			August 28, 2010			August 27, 2011			August 28, 2010
Net assets acquired:
Inventory	$	837		$	844		$	2,566		$	2,980
Property & equipment/other		152			650			719			2,938
Customer deposits and other accrued expenses		(682	)		(752	)		(2,156	)		(2,790	)
Total net assets acquired	$	307		$	742		$	1,129		$	3,128
Consideration given:
Accounts receivable	$	307		$	742		$	1,129		$	2,751
Cash		-			-			-			377
Total consideration	$	307		$	742		$	1,129		$	3,128

The assets acquired and liabilities assumed were measured at fair value in accordance with ASC 805.  Acquired inventory is valued at expected retail sales price less an allowance for direct selling costs and profit thereon. Acquired property & equipment are valued based upon our estimate of replacement cost less an allowance for age and condition at the time of acquisition.  Customer deposits and accrued expenses are expected to be settled at face value within a short period following acquisition; therefore, face value is assumed to approximate fair value. 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 820, Fair Value Measurements and Disclosures. See Note 14.

Due to the level of settlements involved with these acquisitions and the related losses recognized, no goodwill was recognized in these store acquisitions.  The pro forma impact of the acquisitions on current and prior periods is not presented as we believe it is impractical to do so. We were not able to compile what we believed to be complete, accurate and reliable accounting information to use as a basis for pro forma presentations without an unreasonable effort.  Net sales and operating loss generated by these stores subsequent to their acquisition were as follows:

	Quarter Ended						Nine Months Ended
	August 27, 2011			August 28, 2010			August 27, 2011			August 28, 2010
Net sales	$	2,551		$	4,665		$	6,321		$	10,125
Operating loss		(418	)		(794	)		(318	)		(1,546	)

Subsequent to August 27, 2011, we acquired the operations of three retail stores from one licensee in Connecticut. The acquisition was funded through the exchange of existing accounts receivable for net assets acquired of approximately $1,600. We do not expect to incur any charges against earnings in the fourth quarter of 2011 in connection with this acquisition.