Note 10 - Licensee Acquisitions

9 Months Ended

Aug. 25, 2012

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 three and nine months ended August 25, 2012, we acquired one store located in Knoxville, Tennessee because our licensee desired to exit that market. The acquisition price for the Knoxville store was $673, funded through the exchange of $485 in cash and $188 in existing accounts receivable for the net assets acquired from the licensee plus recognized goodwill.

During the three and nine months ended August 27, 2011, we acquired two and six retail stores, respectively: two operated by a licensee with one store in Kentucky and another in Ohio; three operated by a licensee in Virginia; and one operated by a licensee in Nevada. These stores were acquired pursuant to a strict foreclosure and settlement agreement on the underlying assets subject to the terms of our security agreement with the licensee.  These acquisitions were funded through the exchange of existing accounts receivable for the net assets acquired from the licensee.

These acquisitions were accounted for in accordance with ASC Topic 805, Business Combinations.  The following table summarizes the net assets acquired and consideration given in the store acquisitions:

	Quarter Ended						Nine Months Ended
	August 25, 2012			August 27, 2011			August 25, 2012			August 27, 2011
Net assets acquired:
Inventory	$	467		$	837		$	467		$	2,566
Property and equipment/other		35			152			35			719
Goodwill		375			-			375			-
Customer deposits and other accrued expenses		(204	)		(682	)		(204	)		(2,156	)
Total net assets acquired	$	673		$	307		$	673		$	1,129
Consideration given:
Accounts receivable	$	188		$	307		$	188		$	1,129
Cash		485			-			485			-
Total consideration	$	673		$	307		$	673		$	1,129

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 and 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.

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 25, 2012			August 27,2011			August 25, 2012			August 27, 2011
Net sales	$	237		$	2,551		$	237		$	6,321
Operating loss		(34	)		(418	)		(34	)		(318	)

In connection with the Knoxville store acquisition, we recognized $375 of goodwill, primarily associated with the strength of the local market and the general health of the store at the time of acquisition.  The carrying value of our goodwill, which is not deductible for tax purposes, is included in other long-term assets in the accompanying condensed consolidated balance sheets, by reporting unit, is as follows:

	Wholesale		Retail		Total
Balance as of November 26, 2011	$	276	$	159	$	435
Goodwill from store acquisition		236		139		375
Balance as of August 25, 2012	$	512	$	298	$	810