Note 3 - Discontinued Operations

6 Months Ended

Jun. 28, 2015

Mitchells Restaurants [Member]

Notes to Financial Statements

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

(2) Mitchell’s Restaurants

 

In November 2014, the Company, 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. The assets and related liabilities of the Mitchell’s Restaurants are classified as held for sale in the consolidated balance sheet as of December 28, 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 on the closing date of the sale. The Company’s continuing involvement was limited to the provision of transition services for 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 will reimburse Landry’s for gift cards that were sold prior to the closing date and are used at the Mitchell’s Restaurants during the eighteen months following the closing date. In the Agreement, the Company and Landry’s have made customary representations and warranties and have agreed to customary covenants relating to the sale of the Mitchell’s Restaurants. Specifically, (i) before the closing date, the Company was subject to certain business conduct restrictions with respect to its operation of the Mitchell’s Restaurants, and (ii) for eighteen months following the closing date, neither the Company nor Landry’s will knowingly solicit or employ, or seek to solicit or employ, certain key employees of the other party, subject to certain limited exceptions. Landry’s offered employment to substantially all of the employees 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 has guaranteed Landry’s lease obligations aggregating $39.0 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. The Company did record a $250 thousand liability for its letter of credit obligation related to one of the leases.

The following summarizes the financial statement carrying amounts of assets and liabilities associated with the Mitchell’s Restaurants which are classified as held for sale (in thousands):

	June 28,		December 28,
	2015		2014
Inventory	$	-	$	952
Property and equipment, net		-		8,775
Trademarks		-		2,847
Other intangibles		250		2,545
Total assets held for sale	$	250	$	15,119
Deferred rent liability	$	-	$	4,869
Total liabilities associated with assets held for sale	$	-	$	4,869

As of June 28, 2015, the Company owned a liquor license related to the Mitchell’s Restaurants, which is classified as held for sale in the consolidated balance sheet as of June 28, 2015.

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

(3) Discontinued Operations

The Company accounts for its closed restaurants in accordance with the provisions of FASB ASC Topic 360-10, “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 will not be 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 the thirteen and twenty-six week periods ended June 28, 2015 and June 29, 2014, all restaurant sales, direct 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 income tax benefit in the condensed consolidated statements of income for all periods presented. Loss from discontinued operations, net of income tax benefit is comprised of the following (in thousands):

	13 Weeks Ended						26 Weeks Ended
	June 28,			June 29,			June 28,			June 29,
	2015			2014			2015			2014
Revenues
Mitchell's Restaurants	$	-		$	19,242		$	4,343		$	37,896
Other Restaurants		-			744			-			2,687
Total revenues		-			19,986			4,343			40,583
Costs and expenses
Recurring costs and expenses
Mitchell's Restaurants		217			18,980			5,138			37,847
Other Restaurants		43			912			117			3,155
Total costs and expenses		260			19,892			5,255			41,002
Income (loss) before income taxes		(260	)		94			(912	)		(419	)
Income tax benefit		(107	)		(142	)		(403	)		(530	)
Income (loss) from discontinued operations, net of income taxes	$	(153	)	$	236		$	(509	)	$	112

In addition to the Mitchell’s Restaurants, discontinued operations for the thirteen and twenty-six week periods ended June 28, 2015 and June 29, 2014 also includes the results of other closed restaurants. Due to an expiring lease term, the Company closed the Company-owned Ruth’s Chris Steak House in Kansas City, MO in March 2014 after seventeen years of operation. As the closing of this restaurant coincided with the termination of the lease agreement, the Company did not incur significant expenses related to the closing of this location. Due to local market conditions and disappointing financial results, the Company negotiated early terminations of the facility leases for the Stamford, CT Mitchell’s Fish Market restaurant, which closed in March 2014, and the Providence, RI Ruth’s Chris Steak House restaurant, which closed in September 2014.

Cash flows from discontinued operations are combined with the cash flows from continuing operations within each of the categories on our condensed consolidated statement of cash flows. Except for the receipt of $10 million for the sale of the Mitchell’s Restaurants during the first quarter of fiscal year 2015, we do not anticipate that the sale of the Mitchell’s Restaurants or any of our closed restaurants reported as discontinued operations will have a material impact on the Company’s cash flow during fiscal year 2015.