Note 6 - Notes Receivable

9 Months Ended

Aug. 25, 2012

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

6. Notes Receivable

Our notes receivable consist of the following:

	August 25, 2012			November 26, 2011
Notes receivable	$	5,917		$	6,017
Allowance for doubtful accounts and discounts on notes receivable		(4,139	)		(4,140	)
Notes receivable, net		1,778			1,877
Less: current portion of notes receivable		(75	)		(75	)
Long term notes receivable	$	1,703		$	1,802

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 44% of our notes receivable represent conversions of past due accounts receivable at August 25, 2012 and November 26, 2011.  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.  Interest income on the notes is recognized on a cash basis and is not material.

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 $1,778 at August 25, 2012 and $1,877 at November 26, 2011.  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 of financing receivables 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 25, 2012:

	Gross Notes Receivable		Allowance for Doubtful Accounts and Discounts			Notes Receivable Net
Due from current licensees	$	1,529	$	(1,529	)	$	-
Due from former licencees:
Secured by real estate		2,657		(975	)		1,682
Unsecured		1,635		(1,635	)		-
Other notes		96		-			96
Balance at August 25, 2012	$	5,917	$	(4,139	)	$	1,778

The notes receivable shown above by class include impaired notes and related allowances as of August 25, 2012 as follows:

	Gross Notes Receivable		Allowance for Doubtful Accounts and Discounts			Notes Receivable Net
Due from current licensees	$	1,529	$	(1,529	)	$	-
Due from former licencees:
Secured by real estate		1,558		(975	)		583
Unsecured		1,635		(1,635	)		-
Balance at August 25, 2012	$	4,722	$	(4,139	)	$	583

The average recorded investment in the impaired notes by class for the nine months ended August 25, 2012 was as follows:

Due from current licensees	$	-
Due from former licencess:
Secured by real estate		583
Unsecured		-
Total average recorded investment in impaired loans	$	583

The aging of our investment in notes receivable by class, based on scheduled principal due dates, is as follows at August 25, 2012:

	Current		30-90 Days Past Due		Over 90 Days Past Due (1)		Total
Due from current licensees	$	1,137	$	86	$	306	$	1,529
Due from former licencees:
Secured by real estate		947		29		1,681		2,657
Unsecured		-		-		1,635		1,635
Other notes		96		-		-		96
Balance at August 25, 2012	$	2,180	$	115	$	3,622	$	5,917

(1) 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 25, 2012 (disaggregated by class) was as follows:

			2012 Activity by Class
			Due from Former Licensees
	Due from Current Licensees		Secured by Real Estate		Unsecured			Other Notes		Total
Balance, November 26, 2011	$	1,529	$	975	$	1,636		$	-	$	4,140
Recovery credited to expense		-		-		(1	)		-		(1	)
Write-offs and other deductions		-		-		-			-		-
Amortization of discounts		-		-		-			-		-
Balance, August 25, 2012	$	1,529	$	975	$	1,635		$	-	$	4,139

We have ceased amortization of discounts as the notes to which they relate are on non-accrual status.