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Our
company’s
vision
is that our guests,
employees and
shareholders are
extremely loyal
to our restaurant
brands and value
them as a significant
part of their lives.
We want our
company’s
performance to
make it a leader
wherever it operates
and in its sector of
our industry.
BUSINESS HEALTHCARE VENUES SENIOR LIVING
luby’s, inc. information
Company HEADQUARTERS
Luby’s, Inc.
13111 Northwest Freeway
Suite 600
Houston, TX 77040
713.329.6800
lubysinc.com
NOTICE OF ANNUAL MEETING
The 2019 annual meeting of shareholders will be held
Friday, January 25, 2019, at 10:00 a.m. local time,
at the Luby’s Corporate Office Building,
13111 Northwest Freeway, Suite 300, Houston, TX 77040.
Annual Report
The 2018 Luby’s, Inc. Annual Report on Form 10-K/A is available
online at lubysinc.com or additional copies may be
obtained by contacting Investor Relations at 713.329.6808,
to receive a hard copy report.
Register and Stock Transfer Agent
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
800.937.5449
www.amstock.com
Independent Auditor
Grant Thorton LLP
333 Clay Street
2700 Three Allen Center
Houston, TX 77002
Company Information
NYSE Stock Symbol
LUB
CEO/CFO Certifications
On March 12, 2018, the company submitted its annual Section
303A CEO Certification to the New York Stock Exchange.
The company also filed the CEO and CFO certifications required
under Section 302 of the Sarbanes-Oxley Act of 2002 with the se-
curities and Exchange Commission as exhibits to its Annual Report
on Form 10-K for the fiscal year ended August 29, 2018.
Luby’s, Inc. is a multi-branded food service company operating in the retail restaurant and contract service settings. Our primary brands
include Luby’s Cafeteria, Fuddruckers and Luby’s Culinary Contract Services.
As of November 7, 2018 we operated 142 company-owned restaurants located throughout the United States. These establishments
are located in close proximity to retail centers, business developments and residential areas. Of the 142 restaurants, 82 are Luby’s
Cafeterias, 59 are Fuddruckers Restaurants and 1 is a Cheeseburger in Paradise full service restaurant and bar. We also had 104
franchised Fuddruckers restaurants, of which 93 are located in 26 states, 3 in each Mexico and Panama, 2 in each Canada and
Colombia, and 1 in Puerto Rico. We operate culinary contract services at 30 locations. Of the 30 locations, 29 are in Texas: 22 are in
Houston, 3 are in the Rio Grande Valley, 2 are in Dallas, and 2 are in San Antonio. The remaining culinary contract service location is in
Greensboro, North Carolina. Luby’s Culinary Contract Services provides food service management to healthcare, corporate dining, and
sports stadiums at their facilities as well as sells packaged food items at retail grocery stores.
OUR BRAND PRESENCE
OUR BRAND PRESENCE
OUR BRAND PRESENCE
329 locations worldwide
locations worldwide
locations worldwide*
locations worldwide*
1
4
17
4
5
4
1
1
1
34
50
81
1
1
1
4
2
1
3
1
1
4
1
3
4
1
1
2
5
2
1
4
1
1
8
6
9
82
restaurants
163
restaurants
35
locations
1
restaurant
281 U.S. locations
11 franchised fuddruckers restaurants operate in CANADA, Colombia, mexico, panama and Puerto Rico.
37 fuddruckers locations operate under license in saudi arabia, egypt,
united arab emirates, qatar, jordan, bahrain and kuwait.
* as of november 2018
DEAR SHAREHOLDERS,
As you know, we certainly faced some significant challenges in fiscal 2018, and the
overall decline in profitability was a clear disappointment to all of us. This comes
in the context of a highly competitive restaurant environment that has challenged
many mature restaurant brands, and has made it difficult to gain significant traction.
Ultimately, while our namesake Luby’s Cafeteria brand grew 1.5% on a same-store sales
basis, this was not sufficient to overcome necessary investments and underperformance
elsewhere in our business.
We are tackling these challenges head-on. We are
working hard to execute aggressively on a plan to
enhance our operating performance, grow sales, and
improve financial results. We have successfully steered
Luby’s through difficult periods for the restaurant
industry in the past, and we are confident that we
will do it again. The Luby’s Cafeteria and Fuddruckers
brands are highly regarded in the marketplace, and we
believe these brands can thrive and grow over time.
The bottom line, of course, is that we continued
to serve our loyal guests at truly iconic brands that
have been cherished for generations. We believe our
restaurants offer wonderful choices for our guests and
are known for wholesome quality, freshness and variety.
Delicious menu offerings, combined with a superior
guest experience at excellent values, is a hallmark of
our brands and always will be.
In terms of the financials, fiscal 2018 started out
positively with growth in adjusted EBITDA in the first
fiscal quarter. Luby’s Cafeteria, our largest brand by
revenue and guests served, also grew same-store
sales by 1.5% in fiscal 2018 over the prior year. Our
culinary business segment increased top-line sales
by over 40%. Despite these achievements, our loss
from continuing operations increased to $33 million in
fiscal 2018 compared to $23 million in fiscal 2017, and
our adjusted EBITDA declined to $41,000 in fiscal
2018 compared to $13.3 million in fiscal 2017
(Adjusted EBITDA is a non-GAAP financial measure; a
reconciliation to the most directly comparable financial
measure in accordance with GAAP can be found at the
end of this communication.) Our capital expenditures
grew slightly to $13.2 million in fiscal 2018 compared
to $12.5 million in fiscal 2017 as we rebuilt one of our
Fuddruckers restaurants that had sustained flood
damage during Hurricane Harvey.
A Focus on Innovation,
Without Abandoning Our Roots
Culinary innovation continued to be an on-going
focus for us in fiscal 2018. We developed new menu
offerings and options at both our Luby’s Cafeterias
brand and our Fuddruckers brand—some items were limited-time offerings,
while others became popular permanent fixtures.
At our Luby’s Cafeterias, we balance offering long-standing classic Luby’s
favorites alongside new products that are creative and appealing to current
guests, motivating guests to return with frequency. One constant, however,
is our providing home-style food with deep Texas roots, such as Luby’s Fried
Fish and Chicken Fried Steak, which have been enjoyed by our loyal guests for
decades.
We evaluated several product offerings at our Luby’s Cafeterias
throughout the year. We confirmed that what differentiates us in the
marketplace is our “feels like home” scratch cooking with an emphasis on our
Texas heritage. So, we continued to highlight fresh and colorful vegetables
paired with a selection of beef, seafood, and poultry entrees. In the process,
we scaled back some of the heavy discounting that was utilized in the prior
year, focusing instead on presenting every day value to our guests. Our
promotions and discounting became more targeted and disciplined, utilizing
“bounce-back” offers printed on the cash register receipt to encourage
increased frequency.
Similarly, at Fuddruckers, our innovation centered around creating select
burgers with topping combinations generating excellent flavor profiles that are
intended to pique curiosity, offer variety, and provide opportunities to capture
higher sales. We also continue to evolve the World’s Greatest Hamburgers®
with new specialty burgers and toppings. We encourage combining our
burgers with one of our craft milkshakes, that offer seasonally-favored flavors
that are rotated throughout the year. But the constant at Fuddruckers
remains the 100% fresh all-American premium beef and fresh baked buns as
well as our signature “you top it” produce bar.
Meals are more than just
food; they connect us to
family and friends and
create lasting memories.
Our mission is to serve our
guests convenient, great
tasting meals in a friendly
environment that makes
everyone feel welcome and
at home. We do things The
Luby’s Way, which means
we cook to order from
scratch using real food, real
ingredients prepared fresh
daily. We buy local produce
as much as possible. We
promise to breathe life into
the experience of dining
out and make every meal
meaningful.
We also continue to have success with selling our packaged goods in
the freezer section of H-E-B, a Texas-based retailer and one of the largest
supermarket chains in the country. Customers love the convenience of some
of their perennial Luby’s favorites—our famous Luby’s fried fish and two
varieties of macaroni and cheese—in family size packages to be enjoyed at
home.
Strengthening and Supporting Our Team
We continued our concerted efforts to attract and retain the most
talented individuals to serve and engage with our guests in both restaurant
management and front-line restaurant team member roles. Our relentless
focus must be inspiring, developing, equipping and empowering our team
members to delight our guests. At Luby’s, our goal is always to lead, teach,
and influence our talented team members to provide an excellent guest
experience every time that guests choose to dine with us. The disappointing
financial performance in fiscal 2018 belies the tremendous efforts and
commitment of our team members as they serve our guests.
Meeting Customers Where They Are
On the technology front, we made further improvements in our mobile
ordering capability at Fuddruckers and geared up for launching similar
capabilities for our Luby’s Cafeteria guests. In addition, we made strides in
testing and deploying a “geo-fencing” functionality whereby we can reach
out to our guests on their mobile devices based on their current location and
proximity to our restaurants.
We continued re-directing funds from a traditional media strategy (TV,
radio, billboards, direct mail, sponsorships) to a digital media strategy (on-line
advertising, geo-fencing, E-club promotions) which allow us to connect and
At Fuddruckers, our
mission is to serve
the World’s Greatest
Hamburgers, using only
100% fresh, never frozen,
all American premium
beef, buns baked daily
in our kitchens, and the
freshest, highest quality
ingredients on our “you
top it” produce bar. With
a focus on excellent food,
attentive guest service and
an inviting atmosphere, we
are committed to making
every guest happy, one
burger at a time!
engage directly with our guests in a more personal and relevant manner. For
example, we furthered our use of technology to reach our guests utilizing new
digital media campaigns and targeted advertising to guests’ mobile devices.
While both traditional and digital media messaging channels have a place
in our marketing strategy, we find digital strategies to be particularly cost-
effective, especially when properly paired with limited traditional channels.
We attribute strong 2018 Thanksgiving holiday sales in part to pursuing this
approach.
Speed of service and an easy, friendly ordering process have become
hallmarks of the Fuddruckers brand. We tested and implemented a
simplified menu at Company-owned locations designed to enhance quality
and execution for our guests—eliminating items that were not core elements
of the Fuddruckers brand. We also moved away from certain discounting
and promotional offers we had been using in the past. While transitioning to
this approach of less discounting had the intended effect of increasing our
average spend per guest, the offsetting decreases in guest traffic resulted in a
net decrease in same-store sales at Fuddruckers.
With regard to our Culinary Contract Services segment, we continue to
earn the privilege of serving clients at a variety of venues such as hospitals,
sports arenas, and business offices that have come to appreciate the tailored
solutions we can deliver. We are encouraged and optimistic about the growth
prospects for this business segment based on our existing pipeline and the
overall opportunities in this large portion of the food service sector.
Strategic Growth, with Some Difficult Decisions
In the latter part of fiscal 2018, due to profitability declines, it became
necessary to again assess our portfolio of restaurants. As a result, we
accelerated the closure of underperforming restaurant locations and sold
company-owned property at certain locations. With the closure of these
restaurants, we can focus resources on the locations that exhibit the most
promise for enhanced profitability.
In total, we closed 21 restaurants over the course of fiscal 2018 with 13
of those locations closing in the last month of the fiscal year. Of these 21
locations, four were Luby’s Cafeterias, six were Cheeseburger in Paradise
The Name You Trust. The
Taste They Love. Luby’s
Culinary Services’ mission
is to redefine the contract
food industry by providing
menus with customized
solutions for business,
healthcare, venues and
senior living. We promise
to exceed the expectations
of our clients and guests,
and provide the quality
of a restaurant dining
experience.
From our specialty burgers
made with in-house fresh
baked buns, to our coastal-
themed entrees, we offer
a tropical environment
where our islander guests
can leave behind the stress
of everyday life and enjoy
awesome food, exciting
music and company.
We promise to provide a
welcoming escape where
the food is awesome and
you can enjoy a one-of-a-
kind Kicked Back Vibe.
restaurants, and 11 were Fuddruckers restaurants. Of the
21 locations, only five were in the area surrounding our
home market of Houston, Texas. Subsequent to the end
of fiscal 2018, we closed an additional six restaurants
through December 14, 2018, including three Fuddruckers,
two Luby’s Cafeterias, and one Cheeseburger in Paradise.
In conjunction with these restaurant closures, we
announced a $45.0 million asset sale program; the
proceeds of these assets sales are used primarily to reduce
our debt balance. In total, we sold 10 properties in fiscal
2018 generating $14.6 million in proceeds, or about 25%
of the total program value. In addition, we refinanced our
debt on December 13, 2018, entering into a new five-year
credit facility. This new facility strengthens our financial
position and provides us the funding to work towards our
goals of boosting operating performance, driving sales
growth, and improving profitability.
On the other hand, four new Fuddruckers franchise
restaurants opened in fiscal 2018: two in Florida, one in
Pennsylvania, and one in Mexico. Our franchise network
generated approximately $6.4 million in revenue in fiscal
2018 and represents an excellent way to grow and expand
the reach of the Fuddruckers brand across the United
States and internationally. Going forward, we expect that
most of the growth of the Fuddruckers brand will be from
expanding our franchise network, including the possible
sale of some company-owned Fuddruckers restaurants
to well qualified franchise operators. We will continue
to focus on evolving the Fuddruckers prototype so that
it is an even more appealing restaurant concept and
investment opportunity for franchise owners.
is one of progress—especially when it comes to delighting
guests the unique experience and delicious comfort food
that has always made Luby’s Cafeterias and Fuddruckers
great.
But rest assured, we are not going to fix what isn’t
broken. Keep in mind that the foundational value of
Luby’s iconic brands is extremely strong. According to
a recent survey by a major industry trade publication,
Nation’s Restaurant News, the Luby’s Cafeteria brand
ranks in the top 20 nationally in brand loyalty, based
on the percentage of customers who “visit because of
a real desire to experience the brand, as opposed to
convenience.” In the same survey Fuddruckers was ranked
by consumers in the top 10 for taste, with 82% rating the
chain “best in class” or “above average” for taste. Notably,
highly popular and fast-growing chains like In-N-Out
Burger, Chick-fil-A, and Panera Bread were among the
other winners (“Top brands ranked by customer loyalty”
Consumer Picks 2018, Nation’s Restaurant News, 2018.)
These statistics certainly speak to the strong crave-ability
of our brands—which is one of our greatest assets.
Luby’s Cafeteria and Fuddruckers loyally serve guests
that love and trust our brands—and have for generations.
We are proud to be part of this community of family and
friends that enjoy making Luby’s and Fuddruckers a part
of their daily lives. We look forward to serving generations
to come as we work to enhance shareholder value.
Looking Ahead
We strongly believe that our future is bright. As I hope
I have made clear in this letter, the story of Luby’s today
Christopher J. Pappas
Christopher J. Pappas
President and Chief Executive Officer, Luby’s, Inc.
service of key management personnel; and other risks and
uncertainties disclosed in Luby’s annual reports on Form
10-K and quarterly reports on Form 10-Q. We undertake no
obligation to update publicly or otherwise revise any forward-
looking statements, whether as a result of new information,
future events or other factors that affect the subject of these
statements, except where we are expressly required to do so
by law.
Adjusted EBITDA
PRIVILEGED AND CONFIDENTIAL
ATTORNEY WORK PRODUCT
DRAFT as of December 21, 2018
Prepared at Direction of Counsel
PRIVILEGED AND CONFIDENTIAL
ATTORNEY WORK PRODUCT
DRAFT as of December 21, 2018
Prepared at Direction of Counsel
Adjusted EBITDA is defined as income (loss) from
continuing operations before interest, provision (benefit)
for income taxes, and depreciation and amortization and
Adjusted EBITDA is defined as income (loss) from continuing operations before interest,
Adjusted EBITDA is defined as income (loss) from continuing operations before interest,
excluding net gain (loss) on disposing of property and
equipment, provision for asset impairments and restaurant
provision (benefit) for income taxes, and depreciation and amortization and excluding
provision (benefit) for income taxes, and depreciation and amortization and excluding
closings, non-cash compensation expense, and other income
net gain (loss) on disposing of property and equipment, provision for asset impairments
net gain (loss) on disposing of property and equipment, provision for asset impairments
(expense).
and restaurant closings, non-cash compensation expense, and other income (expense).
and restaurant closings, non-cash compensation expense, and other income (expense).
Adjusted EBITDA is intended as a supplemental measure
of our performance that is not required by, or presented in
Adjusted EBITDA is intended as a supplemental measure of our performance that is not
Adjusted EBITDA is intended as a supplemental measure of our performance that is not
accordance with GAAP. We believe Adjusted EBITDA provides
useful information to management and investors in valuing
required by, or presented in accordance with GAAP. We believe Adjusted EBITDA
required by, or presented in accordance with GAAP. We believe Adjusted EBITDA
the Company and evaluating ongoing operating results and
provides useful information to management and investors in valuing the Company and
provides useful information to management and investors in valuing the Company and
trends and in comparing our results to other competitors.
evaluating ongoing operating results and trends and in comparing our results to other
evaluating ongoing operating results and trends and in comparing our results to other
Our management also uses Adjusted EBITDA in evaluating
competitors. Our management also uses Adjusted EBITDA in evaluating management's
competitors. Our management also uses Adjusted EBITDA in evaluating management's
management's performance when determining incentive
compensation.
performance when determining incentive compensation.
performance when determining incentive compensation.
Adjusted EBITDA, as defined, may not be comparable
to other similarly titled measures as computed by other
Adjusted EBITDA, as defined, may not be comparable to other similarly titled measures
Adjusted EBITDA, as defined, may not be comparable to other similarly titled measures
companies. These measures should be considered
as computed by other companies. These measures should be considered supplemental
as computed by other companies. These measures should be considered supplemental
supplemental and not a substitute or superior to other GAAP
and not a substitute or superior to other GAAP performance measures.
and not a substitute or superior to other GAAP performance measures.
performance measures.
About Luby’s
Luby’s, Inc. (NYSE: LUB) operates 142 restaurants
nationally: 82 Luby’s Cafeterias, 58 Fuddruckers, and 1
Cheeseburger in Paradise. The Company is also the franchisor
for 103 Fuddruckers franchise locations across the United
States (including Puerto Rico), Canada, Mexico, Panama, and
Colombia. Luby's Culinary Contract Services provides food
service management to 30 sites consisting of healthcare,
higher education, sport stadiums, and corporate dining
locations.
Forward-Looking Statements
This letter may contain statements that are “forward-
looking statements” within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended. All
statements contained in this letter, other than statements
of historical fact, are “forward-looking statements” for
purposes of these provisions, including the statements
under the caption “Outlook” and any other statements
regarding scheduled openings of units, scheduled closures
of units, sales of assets, expected proceeds from the sale
of assets, expected levels of capital expenditures, effects of
food commodity costs, anticipated financial results in future
periods and expectations of industry conditions. Luby’s
cautions readers that various factors could cause its actual
financial and operational results to differ materially from
those indicated by forward-looking statements made from
time-to-time in news releases, reports, proxy statements,
registration statements, and other written communications,
as well as oral statements made from time to time by
representatives of Luby’s. The following factors, as well
as any other cautionary language included in this letter,
provide examples of risks, uncertainties and events that
may cause Luby’s actual results to differ materially from
the expectations Luby’s describes in such forward-looking
statements: general business and economic conditions; the
Loss from continuing operations
impact of competition; our operating initiatives; fluctuations
Depreciation and amortization
in the costs of commodities, including beef, poultry, seafood,
Provision (benefit) for income taxes
Interest expense
dairy, cheese and produce; increases in utility costs, including
Interest income
the costs of natural gas and other energy supplies; changes
Gain on disposition of property and
equipment
in the availability and cost of labor; the seasonality of Luby’s
Provision for asset impairments and
business; changes in governmental regulations, including
restaurant closings
changes in minimum wages; the effects of inflation; the
Non-cash compensation expense
Franchise taxes
availability of credit; unfavorable publicity relating to
Decrease (Increase) in fair value of
operations, including publicity concerning food quality, illness
derivative
or other health concerns or labor relations; the continued
Adjusted EBITDA
($ thousands)
($ thousands)
Quarter Ended
Year Ended
Quarter Ended
Year Ended
August 29,
2018
(12 weeks)
August 30,
2017
(12 weeks)
$
$
(5,529 )
(4,069 )
(1,858 )
Loss from continuing operations
Depreciation and amortization
4,461
4,051
(138 )
Provision (benefit) for income taxes
236
544
1,112
Interest expense
(2 )
-
Interest income
Gain on disposition of property and
(2,023 )
equipment
Provision for asset impairments and
3,447
restaurant closings
2,200
730
Non-cash compensation expense
245
42
41
Franchise taxes
Decrease (Increase) in fair value of
-
derivative
498
Adjusted EBITDA
45
3,037
$
$
August 29,
August 29,
2018
2018
(52 weeks)
(12 weeks)
August 30,
August 30,
2017
2017
(52 weeks)
(12 weeks)
$
$
$
$
(1,858 )
(32,954 )
4,051
17,453
7,730
236
1,112
3,348
(12 )
-
(4,069 )
(22,796 )
4,461
20,438
2,438
(138 )
544
2,443
(8 )
(2 )
August 29,
2018
(52 weeks)
August 30,
2017
(52 weeks)
$
$
(32,954 )
17,453
7,730
3,348
(12 )
(22,796 )
20,438
2,438
2,443
(8 )
(5,357 )
(5,529 )
(1,804 )
(2,023 )
(5,357 )
(1,804 )
2,200
8,917
245
1,404
213
41
3,447
10,567
730
1,604
187
42
(701 )
-
41
498
$
$
266
45
13,335
3,037
$
$
$
8,917
1,404
213
(701 )
41
10,567
1,604
187
266
$
13,335
9
9
board of directors
board of directors
board of directors
Pictured left to right:
Jill Griffin (1, 2, 3, 5+)
Principal, Griffin Group
Harris j. pappas (5)
President, Pappas Restaurants Inc.
Judith B. Craven, M.D. (1, 2, 3, 5)
President, JAE & Associates, LLC
Christopher J. Pappas (2)
President and Chief Executive Officer,
Luby’s, Inc.
Gasper Mir, III (1+, 2+, 3, 4)
Chairman of the Board, Luby’s, Inc.
PETER TROPOLI
General Counsel and
Corporate Secretary.
Joe C. McKinney (1, 2, 4+)
Vice Chairman, Broadway National Bank
Frank Markantonis (5)
Attorney, Law Offices of Frank Markantonis
GERALD BODZY (1, 2, 3+, 4)
President and Owner
Showcase Custom Vinyl Windows and Doors
(1) Nominating and Corporate Governance
Committee
(2) Executive Committee
(3) Executive Compensation Committee
(4) Finance and Audit Committee
(5) Personnel and Administrative Policy Committee
+ Indicates Chair
officers
officers
Executive officers
GASPER MIR, III
Chairman of the Board*
CHRISTOPHER J. PAPPAS
President and Chief Executive Officer*
BENJAMIN T. COUTEE
Chief Operating Officer*
OFFICERS
DERRICK ROSS
Vice President, Risk Management and Information Technology
TRENT TAYLOR
Vice President, Luby’s Operations
SHAN PETERS
Vice President, Fuddruckers Operations
K. SCOTT GRAY
Senior Vice President, Chief Financial Officer and Treasurer*
MICHAEL RACUSIN
Associate General Counsel and Assistant Corporate Secretary*
PETER TROPOLI
General Counsel and Corporate Secretary*
ROLAND GONZALEZ
Controller*
STEVE GOODWEATHER
Vice President, Financial Planning and Analysis and Investor Relations
BILL GORDON
Vice President, Real Estate
LISA LEE
Vice President, Brand and Marketing Strategy
PAULETTE GERUKOS
Vice President, Human Resource
* Officers of Luby’s, Inc.
Officers listed are as of November 30, 2018.
financial highlights
financial highlights
financial highlights
(in thousands except per share data and percentages)
2018
2017 2016
SALES
Restaurant sales
Culinary contract services
Franchise revenue
Vending revenue
TOTAL SALES
Provision for asset impairments and restaurant closings
Loss before income taxes and discontinued operations
Provision for income taxes
Loss from discontinued operations, net of income taxes
NET LOSS
Net loss per share:
Basic
Assuming dilution
Weighted-average shares outstanding:
Basic
Assuming dilution
ADDITIONAL METRICS
Net cash provided by (used in) operating activities
Purchases of property and equipment
Proceeds from disposal of assets and property held for sale
Credit facility debt
Same-store sales
Number of restaurants open at end of year
PERCENTAGE TABLE
Cost & expenses (as a percentage of restaurant sales)
Cost of food
Payroll and related costs
Other operating expenses
Occupancy costs
Vending revenue
Store level profit(a)
(as a percentage of total sales)
Selling, general & administrative expenses
Loss from operations
$332,518
25,782
6,365
531
$365,196
8,917
(25,224)
7,730
(614)
$350,818
17,943
6,723
547
$378,111
16,695
7,250
583
$376,031
10,567
(20,358)
2,438
(466)
$402,639
1,442
(5,381)
4,875
(90)
$(33,568)
$(23,262)
$(10,346)
$(1.12)
$(1.12)
29,901
29,901
$(8,453)
$13,247
$14,191
$39,506
(0.5%)
146
28.3%
37.4%
18.7%
6.1%
(0.2)%
9.5%
10.6%
(6.1)%
$(0.79)
$(0.79)
29,476
29,476
$(0.35)
$(0.35)
29,226
29,226
$9,640
$12,502
$9,286
$30,985
(3.4%)
167
$13,859
$18,253
$4,794
$37,000
0.7%
175
28.1%
35.9%
17.7%
6.2%
(0.2)%
12.2%
10.1%
(4.6)%
28.3%
35.2%
16.1%
5.9%
(0.2)%
14.7%
10.5%
(0.8)%
(a) Store level profit is defined as restaurant sales plus vending revenue less cost of food, payroll and related cost, other operating expenses and occupancy costs.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________
FORM 10K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended August29, 2018
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
____________________________________
Commission file number 00108308
Luby's, Inc.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification Number)
Delaware
741335253
13111 Northwest Freeway, Suite 600
Houston, Texas 77040
(Address of principal executive offices, including zip code)
(713) 3296800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section12(b) of the Act:
Title of Each Class
Common Stock ($0.32 par value per share)
Common Stock Purchase Rights
Name of Each Exchange onwhich registered
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section12(g) of the Act: None
☐
(cid:3)
Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ☐No
Indicate by check mark if the registrant is not required to file reports pursuant to Section13 or Section15(d) of the Act.Yes☐No
Indicate by check mark whether the registrant (1)has filed all reports required to be filed by Section13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2)has been subject to such filing requirements for
the past 90 days.Yes No☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule405 of RegulationST during the preceding 12months (or for such shorter period that the registrant was required to
submit and post such files).Yes No☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item405 of Regulation SK is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10K or any amendment to this
Form 10K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b2 of the Exchange Act. (Check one):
Largeacceleratedfiler☐
Nonacceleratedfiler☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Acceleratedfiler
Smallerreportingcompany
Emerging growth company☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b2 of the Exchange Act).Yes☐No
The aggregate market value of the shares of common stock of the registrant held by nonaffiliates of the registrant as of March15, 2017, was approximately
$53,432,298 (based upon the assumption that directors and executive officers are the only affiliates).
As of November7, 2018, there were 29,550,002 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference into the designated parts of this Form 10K:
Definitive Proxy Statement relating to 2019 annual meeting of shareholders (in Part III)
EXPLANATORY NOTE
This Amendment No. 1 is being filed solely for the purpose of including the tenure of the independent registered public
accounting firm in their report, which was inadvertently omitted from the initial filing, on page 50 and to insert additional
subject headings, which were inadvertently omitted from the initial filing, on pages 50 and 51.
Except as expressly set forth above, this 10K/A does not, and does not purport to, amend, update, or restate the information in
any other item of the initial filing. Nothing within this 10K/A has restated or altered the financial statements contained in the
initial filing in any manner.
For convenience, the entire Annual Report on Form 10K, as amended, is being refiled.
With this Amendment No. 1, the principal executive officer and principal financial officer of the Company have reissued their
certifications required by Sections 302 and 906 of theSarbanesOxleyAct.
Item1
Item1A
Item1B
Item2
Item3
Item4
Item5
Item6
Item7
Item7A
Item8
Item9
Item9A
Item9B
Item10
Item11
Item12
Item13
Item14
Item15
Signatures
Luby’s, Inc.
Form 10K
Year ended August29, 2018
Table of Contents
Part I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosure
Part II
Marketfor Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative andQualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Part III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership ofCertain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits, Financial Statement Schedules
Part IV
Page
6
11
17
17
18
18
19
22
23
50
51
93
93
93
94
94
94
94
94
95
99
Additional Information
We file reports with the Securities and Exchange Commission (“SEC”), including annual reports on Form 10K, quarterly
reports on Form 10Q, and current reports on Form 8K. The SEC maintains an Internet site at http://www.sec.gov that contains
the reports, proxy and information statements, and other information that we file electronically. Our website address is
www.lubysinc.com. Please note that our website address is provided as an inactive textual reference only. We make available
free of charge through our website the annual report on Form 10K, quarterly reports on Form 10Q, current reports on Form 8
K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or
furnished to the SEC. The information provided on our website is not part of this report, and is therefore not incorporated by
reference unless such information is specifically referenced elsewhere in this report.
Compliance with New York Stock Exchange Requirements
We submitted to the New York Stock Exchange (“NYSE”) the CEO certification required by Section303A.12(a) of the
NYSE’s Listed Company Manual with respect to our fiscal year ended August30, 2017. We expect to submit the CEO
certification with respect to our fiscal year ended August29, 2018 to the NYSE within 30 days after our annual meeting of
shareholders. We are filing as an exhibit to this Form 10K the certifications required by Section302 of the SarbanesOxley Act
of 2002.
FORWARDLOOKING STATEMENTS
This Annual Report on (this "Form 10K”) contains statements that are “forwardlooking statements” within the meaning of
Section27A of the Securities Act of 1933, as amended, and Section21E of the Securities Exchange Act of 1934, as amended.
All statements contained in this Form 10K, other than statements of historical facts, are “forwardlooking statements” for
purposes of these provisions, including any statements regarding:
future operating results;
future capital expenditures, including expected reductions in capital expenditures;
future debt, including liquidity and the sources and availability of funds related to debt;
•
•
•
• plans for our new prototype restaurants;
• plans for expansion of our business;
scheduled openings of new units;
•
closing existing units;
•
effectiveness of management’s disposal plans;
•
future sales of assets and the gains or losses that may be recognized as a result of any such sales; and
•
continued compliance with the terms of our 2016 Credit Agreement.
•
In some cases, investors can identify these statements by forwardlooking words such as “anticipate,” “believe,” “could,”
“estimate,” “expect,” “intend,” “outlook,” “may” “should,” “will,” and “would” or similar words. Forwardlooking statements
are based on certain assumptions and analyses made by management in light of their experience and perception of historical
trends, current conditions, expected future developments and other factors we believe are relevant. Although management
believes that our assumptions are reasonable based on information currently available, those assumptions are subject to
significant risks and uncertainties, many of which are outside of our control. The following factors, as well as the factors set
forth in Item1A of this Form 10K and any other cautionary language in this Form 10K, provide examples of risks,
uncertainties, and events that may cause our financial and operational results to differ materially from the expectations
described in our forwardlooking statements:
• general business and economic conditions;
•
• our operating initiatives, changes in promotional, couponing and advertising strategies, and the success of
the impact of competition;
management’s business plans;
fluctuations in the costs of commodities, including beef, poultry, seafood, dairy, cheese, oils and produce;
ability to raise menu prices and customers acceptance of changes in menu items;
increases in utility costs, including the costs of natural gas and other energy supplies;
changes in the availability and cost of labor, including the ability to attract qualified managers and team members;
the seasonality of the business;
collectability of accounts receivable;
changes in governmental regulations, including changes in minimum wages and healthcare benefit regulation;
the effects of inflation and changes in our customers’ disposable income, spending trends and habits;
the ability to realize property values;
the availability and cost of credit;
•
•
•
•
•
•
•
•
•
•
• weather conditions in the regions in which our restaurants operate;
•
•
•
• unfavorable publicity relating to operations, including publicity concerning food quality, illness or other health
costs relating to legal proceedings;
impact of adoption of new accounting standards;
effects of actual or threatened future terrorist attacks in the United States;
concerns or labor relations; and
the continued service of key management personnel.
•
Each forwardlooking statement speaks only as of the date of this Form 10K, and we undertake no obligation to publicly
update or revise any forwardlooking statements, whether as a result of new information, future events or otherwise. Investors
should be aware that the occurrence of the events described above and elsewhere in this Form 10K could have material
adverse effect on our business, results of operations, cash flows, and financial condition.
PART I
Item1. Business
Overview
Luby’s, Inc. is a multibranded company operating in the restaurant industry and in the contract food services industry. Our
primary brands include Luby’s Cafeteria, Fuddruckers World’s Greatest Hamburgers® and Luby’s Culinary Contract Services.
We also operate another brand named Cheeseburger in Paradise.
In this Form 10K, unless otherwise specified, “Luby’s,” “we,” “our,” “us” and “Company” refer to Luby’s, Inc., Luby's
Fuddruckers Restaurants, LLC, a Texas Limited Liability Company ("LFR") and the consolidated subsidiaries of Luby’s, Inc.
References to “Luby’s Cafeteria” refer specifically to the Luby’s Cafeteria brand restaurant.
Our Company’s vision is that our guests, employees and shareholders stay loyal to our restaurant brands and value them as a
significant part of their lives. We want our company’s performance to make it a leader in our industry.
We are headquartered in Houston, Texas. Our corporate headquarters is located at 13111 Northwest Freeway, Suite 600,
Houston, Texas 77040, and our telephone number at that address is (713)3296800. Our website is www.lubysinc.com. The
information on our website is not, and shall not be deemed to be, a part of this annual report on Form 10K or incorporated into
any of our other filings with the SEC.
As of November7, 2018, we operated 142 restaurants located throughout the United States, as set forth in the table below.
These establishments are located in close proximity to retail centers, business developments and residential areas. Of the 142
restaurants, 77 are located on property that we own and 65 are located on property that we lease. Six locations consist of a side
byside Luby’s Cafeteria and Fuddruckers restaurant, to which we refer herein as a “Combo location”.
Texas:
Houston Metro
San Antonio Metro
Rio Grande Valley
Dallas/Fort Worth Metro
Austin
Other Texas Markets
California
Arizona
Illinois
Georgia
Mississippi
Other States
Total
As of November7, 2018, we operated 30 locations through our Culinary Contract Services (“CCS”).
Texas:
Houston Metro
San Antonio Metro
Rio Grande Valley
Dallas/Fort Worth Metro
Greensboro, NC
Total
Total
47
16
12
12
9
16
10
4
3
3
2
8
142
Total
22
2
3
2
1
30
As of November7, 2018, we had 41 franchisees operating 104 Fuddruckers restaurants in locations as set forth in the table
below. Our largest six franchisees own five to 12 restaurants each. Fourteen franchise owners each own two to four restaurants.
The twentyone remaining franchise owners each own one restaurant.
Texas:
Dallas/Fort Worth Metro
Other Texas Markets
California
Connecticut
Delaware
Florida
Georgia
Iowa
Louisiana
Maryland
Massachusetts
Michigan
Missouri
Montana
Nebraska
Nevada
New Jersey
New Mexico
North Carolina
North Dakota
Oklahoma
Oregon
Pennsylvania
South Carolina
South Dakota
Tennessee
Virginia
International:
Canada
Colombia
Mexico
Panama
Puerto Rico
Total
Fuddruckers
Franchises
8
10
7
1
1
10
3
1
3
1
4
4
3
4
1
3
2
4
1
1
1
1
5
8
1
2
3
2
2
3
3
1
104
In November 1997, a prior owner of the Fuddruckers World’s Greatest Hamburgers® brand granted to a licensee the exclusive
right to use the Fuddruckers proprietary marks, trade dress, and system to develop Fuddruckers restaurants in a territory
consisting of certain countries in Africa, the Middle East, and parts of Asia. As of November7, 2018,this licensee operates 33
restaurants that are licensed to use the Fuddruckers proprietary marks in Saudi Arabia, Egypt, United Arab Emirates, Qatar,
Jordan, Bahrain, and Kuwait. The Company does not receive revenue or royalties from these restaurants.
For additional information regarding our restaurant locations, please read “Properties” in Item2 of Part I of this report.
Luby’s, Inc. (formerly, Luby’s Cafeterias, Inc.) was founded in 1947 in San Antonio, Texas. The Company was originally
incorporated in Texas in 1959, with nine cafeterias in various locations, under the name Cafeterias, Inc. It became a publicly
held corporation in 1973, and became listed on the NYSE in 1982.
Luby’s, Inc. was reincorporated in Delaware on December31, 1991 and was restructured into a holding company on
February1, 1997, at which time all of the operating assets were transferred to Luby’s Restaurants Limited Partnership, a Texas
limited partnership composed of two wholly owned, indirect subsidiaries. On July9, 2010, Luby’s Restaurants Limited
Partnership was converted into LFR. All restaurant operations are conducted by LFR.
On July26, 2010, we, through our subsidiary, LFR, completed the acquisition of substantially all of the assets of Fuddruckers,
Inc., Magic Brands, LLC and certain of their affiliates (collectively, “Fuddruckers”) for approximately $63.1million in cash.
LFR also assumed certain of Fuddruckers’ obligations, real estate leases and contracts. Upon the completion of the acquisition,
LFR became the owner and operator of 56Fuddruckers locations and three Koo Koo Roo Chicken Bistro locations with
franchisees operating an additional 130 Fuddruckers locations.
On December 6, 2012, we completed the acquisition of all of the Membership Units of Paradise Restaurant Group, LLC and
certain of their affiliates, collectively known as Cheeseburger in Paradise, for approximately $10.3 million in cash plus
customary working capital adjustments. We assumed certain of Cheeseburger in Paradise obligations, real estate leases and
contracts and became the owners of 23 full service Cheeseburger in Paradise restaurants located in 14 states.
On August 27, 2014, the Company completed an internal restructuring of certain affiliates of the Luby’s Cafeteria business,
whereby these companies were merged with and into LFR, as the successor. The principal purpose of these events was to
simplify the Luby’s corporate structure. Following these events, the Company’s restaurant operations continue to be conducted
by LFR and Paradise Cheeseburger, LLC. Our operating restaurant locations remain unchanged by these events.
Luby’s Cafeteria Operations
At Luby’s Cafeterias, our mission is to serve our guests convenient, great tasting meals in a friendly environment that makes
everyone feel welcome and at home. We do things The Luby’s Way, which means we cook in small batches from scratch using
real food, real ingredients prepared fresh daily, and our employees and our company get involved and support the fabric of our
local communities. We buy local produce as much as possible. We promise to breathe life into the experience of dining out and
make every meal meaningful. We were founded in San Antonio, Texas in 1947.
Our cafeteria food delivery model allows customers to select freshlyprepared items from our serving line including entrées,
vegetables, salads, desserts, breads and beverages before transporting their selected items on serving trays to a table or booth of
their choice in the dining area. Each restaurant offers 15 to 22 entrées, 12 to 14 vegetable dishes, 8 to 10 salads, and 10 to 12
varieties of desserts daily.
Luby’s Cafeteria’s product offerings are homestyle madefromscratch favorites priced to appeal to a broad range of
customers, including those customers that focus on fast wholesome choices, quality, variety, and affordability. We have had
particular success among families with children, shoppers, travelers, seniors, and business people looking for a quick, freshly
prepared meal at a fair price. All of our restaurants sell foodtogo orders which comprise approximately 13% of our Luby's
Cafeteria restaurant sales.
Menus are reviewed periodically and new offerings and seasonal food preferences are regularly incorporated. Each restaurant is
operated as a separate unit under the control of a general manager who has responsibility for daytoday operations, including
food production and personnel employment and supervision. Restaurants generally have a staff led by a general manager, an
associate manager and assistant managers. We grant authority to our restaurant managers to direct the daily operations of their
stores and, in turn, we compensate them on the basis of their performance. Each general manager is supervised by an area
leader. Each area leader is responsible for approximately 7to10 units, depending on the area supervised.
In fiscal 2018, we closed four Luby's Cafeterias. The number of Luby’s Cafeterias was 84 at fiscal yearend 2018.
Fuddruckers
At Fuddruckers, our mission is to serve the World’s Greatest Hamburgers® using only 100% fresh, never frozen, all American
premium beef, buns baked daily in our kitchens, and the freshest, highest quality ingredients on our “you top it” produce bar.
With a focus on excellent food, attentive guest service and an inviting atmosphere, we are committed to making every guest
happy, one burger at a time! Fuddruckers restaurantsfeature casual, welcoming dining areas where Americanathemed décor is
featured. Fuddruckers was founded in San Antonio, Texas in 1980.
While Fuddruckers’ signature burgers and fries account for the majority of its restaurant sales, its menu also includes exotic
burgers, such as buffalo and elk,chicken breast sandwiches, hot dogs, a variety of salads, chicken tenders, hand breaded onion
rings, soft drinks, handmade milkshakes, and bakery items. A variety of over 100 carbonated soft drinks including our own
unique Sweet Cherry Cream Soda, which is exclusively offered at Fuddruckers restaurants, along with other varieties such as
Powerade®, and flavored waters are offered through Coke Freestyle® selfservice dispensers. Additionally, beer and wine are
served and, generally, account for less than 2% of restaurant sales. Foodtogo sales comprise approximately 8% of
Fuddruckers restaurant sales.
Restaurants generally have one general manager with two or three assistant managers and a number of fulltime and parttime
associates working in overlapping shifts. Since Fuddruckers generally utilizes a selfservice concept, similar to fast casual, it
typically does not employ waiters or waitresses. Fuddruckers restaurant operations are currently divided into a total often
geographic areas, each supervised by an area leader. On average, each area leader supervisesfive to ninerestaurants.
In fiscal 2018, we closed 11 Companyowned Fuddruckers restaurants. The number of Fuddruckers restaurants was 60 at fiscal
yearend 2018.
Cheeseburger in Paradise
Cheeseburger in Paradise is known for its inviting beachparty atmosphere, its big, juicy burgers, salads, coastal fare, and other
tasty and unique items. Cheeseburger in Paradise is a fullservice islandthemed restaurant and bar developed in collaboration
with legendary entertainer Jimmy Buffet based on one of his most popular songs. The restaurants also feature a unique tropical
themed island bar with many televisions and tasty “boat drinks.” As of our fiscal yearend 2018, we operated two of the
original Cheeseburger in Paradise locations.
Culinary Contract Services
Our CCS segment consists of a business line servicing longterm acute care hospitals, acute care medical centers, ambulatory
surgical centers, retail grocery stores, behavioral hospitals, sports stadiums, senior living facilities, government, and business
and industry clients. The healthcare accounts are full service and typically include inroom delivery, catering, vending, coffee
service, and retail dining. Our mission is to redefine the contract food industry by providing tasty and healthy menus with
customized solutions for healthcare, senior living, business and industry and higher education facilities.We seek to provide the
quality of a restaurant dining experience in an institutional setting. At fiscal yearend2018, we had contracts with 11 longterm
acute care hospitals, seven acute care hospitals, three business and industry clients, three sport stadiums, one governmental
facility, one medical office building, one senior living facility, and one freestanding coffee venue located inside an office
building. We have the unique ability to deliver quality services that include facility design and procurement as well as nutrition
and branded food services to our clients.
Franchising
Fuddruckers offers franchises in markets where it deems expansion to be advantageous to the development of the Fuddruckers
concept and system of restaurants. A standard franchise agreement generally has an initial term of 20 years. Franchise
agreements typically grant franchisees an exclusive territorial license to operate a single restaurant within a specified area,
usually a fourmile radius surrounding the franchised restaurant. Luby’s management will continue developing its relationships
with our franchisees over the coming years and beyond.
Franchisees bear all direct costs involved in the development, construction and operation of their restaurants. In exchange for a
franchise fee, we provide franchise assistance in the following areas: site selection, prototypical architectural plans, interior and
exterior design and layout, training, marketing and sales techniques, assistance by a Fuddruckers “opening team” at the time a
franchised restaurant opens, and operations and accounting guidelines set forth in various policies and procedures manuals.
All franchisees are required to operate their restaurants in accordance with Fuddruckers standards and specifications, including
controls over menu items, food quality and preparation. We require the successful completion of our training program by a
minimum of three managers for each franchised restaurant. In addition, franchised restaurants are evaluated regularly for
compliance with franchise agreements, including standards and specifications through the use of periodic, unannounced onsite
inspections, and standards evaluation reports.
The number of franchised restaurants was 105 at fiscal yearend 2018 and 113 at fiscal yearend2017.
For additional information regarding our business segments, please read Notes 1 and 4 to the consolidated financial statements
included in Part II, Item8 of this Form 10K.
Strategic Focus
Our strategic focus is to generate consistent and sustainable samestore sales growth and improved store level profit. We want
our company’s performance to make it a leader wherever it operates and in its sector of our industry. We strive to provide
attractive returns on shareholder capital. From an operating standpoint, we support this strategic focus through the following:
Consistently successful execution: Every day, with every guest, at every restaurant we operate.
Growing our human capital: Our team members are the most critical factor in ensuring our Company’s success. Our
relentless focus as a company must be inspiring and developing our team members to delight our guests.
Raising awareness of our brand: Our restaurants provide guests in our local communities with memories of family,
friends, childhood, a great date, a memorable birthday, or a significant accomplishment. The most reliable ways to
grow and sustain our business is to perpetuate word of mouth and remain involved in the community. We must share
our story with our guests in our restaurants. This allows new guests to learn our brand story and also reaffirms it with
legacy and loyal guests. Loyal guests spread and preach the word about our brand. Our most loyal guests typically
agree to be in our Eclub so we can communicate with them and reward them.
Improving restaurant appearances: We recognize the importance of remodeling our legacy restaurants to remain
relevant and appealing to keep loyal guests coming back and draw in new guests.
Effective cost management: We evaluate each area of our business to assess that we are spending and investing at
appropriate levels. This includes restaurant operating costs and corporate overhead costs.Within our restaurants, we
seek opportunities with our food and supplies purchasing, menu offerings, labor productivity, and contracts with
restaurant service providers to maintain an appropriate restaurant level cost structure.Within our corporate overhead,
we seek opportunities to leverage technology and efficient work processes to maintain a streamlined corporate
overhead.
We remain focused on the key drivers of our businesses to achieve operational excellence of our brands and to efficiently
manage costs to grow profitability and enhance shareholder value.
Intellectual Property
Luby’s, Inc. owns or is licensed to use valuable intellectual property including trademarks, service marks, patents, copyrights,
trade secrets and other proprietary information, including the Luby’s and Fuddruckers logos, trade names and trademarks,
which are of material importance to our business. Depending on the jurisdiction, trademarks, and service marks generally are
valid as long as they are used and/or registered. Patents, copyrights, and licenses are of varying durations. The success of our
business depends on the continued ability to use existing trademarks, service marks, and other components of our brands in
order to increase brand awareness and further develop branded products. We take prudent actions to protect our intellectual
property.
Employees
As of November7, 2018, we had an active workforce of 6,589 employees consisting of restaurant management employees,
nonmanagement restaurant employees, CCS management employees, CCS nonmanagement employees, and office and
facility service employees. Employee relations are considered to be good. We have never had a strike or work stoppage, and we
are not subject to collective bargaining agreements.
Item1A. Risk Factors
An investment in our common stock involves a high degree of risk. Investors should consider carefully the risks and
uncertainties described below, and all other information included in this Form 10K, before deciding whether to invest in our
common stock. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also
become important factors that may harm our business, financial condition or results of operations. The occurrence of any of
the following risks could harm our business, financial condition, and results of operations. The trading price of our common
stock could decline due to any of these risks and uncertainties, and investors may lose part or all of their investment.
Our operating losses and working capital and liquidity deficiency raise substantial doubt about our ability to continue as a
going concern.
The Company sustained a net loss of approximately $33.6 million in fiscal 2018. Cash flow from operations has declined to a
use of cash of approximately $8.5 million in fiscal 2018. The Company’s continuation as a going concern is dependent on its
ability to generate sufficient cash flows from operations to meet its obligations and its ability to obtain alternative financing to
refund and repay the current debt owed under it's Credit Agreement. The above conditions raise substantial doubt about the
Company’s ability to continue as a going concern.
Our ability to service our debt obligations is primarily dependent upon our future financial performance.
As of August29, 2018, we had shareholders’ equity of approximately $113 million compared to approximately:
• $39.5 million of shortterm debt comprised of $19.5 million Term Loan and $20.0 million Revolver;
• $53.0 million of minimum operating and capital lease commitments; and
• $1.3 million of standby letters of credit.
Our ability to meet our debt service obligations depends on our ability to generate positive cash flows from operations and
proceeds from assets held for sale.
If we are unable to service our debt obligations, we may have to:
• delay spending on maintenance projects and other capital projects, including new restaurant development;
•
•
•
sell assets;
restructure or refinance our debt; or
sell equity securities.
Our debt, and the covenants contained in the instruments governing our debt, could:
•
•
•
result in a reduction of our credit rating, which would make it more difficult for us to obtain additional financing on
acceptable terms;
require us to dedicate a substantial portion of our cash flows from operating activities to the repayment of our debt and
the interest associated with our debt;
limit our operating flexibility due to financial and other restrictive covenants, including restrictions on capital
investments, debt levels, incurring additional debt and creating liens on our properties;
• place us at a competitive disadvantage compared with our competitors that have relatively less debt;
expose us to interest rate risk because certain of our borrowings are at variable rates of interest; and
•
• make us more vulnerable to downturns in our business.
If we are unable to service our debt obligations, we may not be able to sell equity securities, sell additional assets, or restructure
or refinance our debt. Our ability to generate sufficient cash flow from operating activities to pay the principal of and interest
on our indebtedness is subject to market conditions and other factors which are beyond our control.
Nonperformance under the debt covenants in our revolving credit facility could adversely affect our ability to respond to
changes in our business.
As of June 6, 2018, the Company was not in compliance with certain of its Credit Agreement financial covenants. The
Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet
its obligations and obtain alternative financing to refinance or otherwise repay our current Credit Agreement. While the
Company has obtained a Waiver of the default from the lenders under the Credit Agreement until December 31, 2018,
announced a limited asset sales plan intended to help reduce the Company’s outstanding debt and engaged a thirdparty
financial adviser to assist with refinancing such outstanding debt, there is no guarantee that we will be able to comply with the
terms of the Waiver or with the financial covenants under the Credit Agreement once the Waiver expires.Our failure to comply
with the financial covenants under the Credit Agreement once the Waiver has expired or to receive a new waiver from the
lenders under the Credit Agreement could result in an event of default, which would have a material adverse effect on our
financial condition and could cause us to seek bankruptcy protection, be unable to pay our debts when they become due or
otherwise become insolvent because, among other things, our lenders: may declare any outstanding principal and the interest
accrued thereon under the Credit Agreement to be due and payable, and we may not have sufficient cash to repay that
indebtedness; may foreclose against the assets securing our borrowings; and will be under no obligation to extend further credit
to us. For a more detailed discussion of our credit agreement please review the footnotes to our financial statements located in
Part II, Item 8 of this Form 10K.
The impact of inflation may adversely affect our results of operations.
The impact of inflation on food, labor and other aspects of our business can adversely affect our results of operations.
Commodity inflation in food, beverages, and utilities can also impact our financial performance. Although we attempt to offset
the effects of inflation through periodic menu price increases, cost controls, and incremental improvement in operating margins,
we may not be able to completely eliminate such effects, which could adversely affect our results of operations.
We face the risk of adverse publicity and litigation, which could have a material adverse effect on our business and financial
performance.
We may from, time to time, be the subject of complaints or litigation from customers alleging illness, injury or other food
quality, health or operational concerns. Unfavorable publicity relating to one or more of our restaurants or to the restaurant
industry in general may taint public perception of the Luby’s Cafeteria and Fuddruckers brands. Multiunit restaurant
businesses can be adversely affected by publicity resulting from poor food quality, illness, or other health concerns or operating
issues stemming from one or a limited number of restaurants. Publicity resulting from these allegations may materially
adversely affect our business and financial performance, regardless of whether the allegations are valid or whether we are
liable. In addition, we are subject to employee claims alleging injuries, wage and hour violations, discrimination, harassment or
wrongful termination. In recent years, a number of restaurant companies have been subject to lawsuits, including class action
lawsuits, alleging violations of federal and state law regarding workplace, employment, and similar matters. A number of these
lawsuits have resulted in the payment of substantial damages by the defendants. Regardless of whether any claims against us
are valid or whether we are ultimately determined to be liable, claims may be expensive to defend, and may divert time and
money away from our operations and hurt our financial performance. A judgment significantly in excess of our insurance
coverage, if any, for any claims could materially adversely affect our financial condition or results of operations.
We are subject to risks related to the provision of employee healthcare benefits, worker’s compensation and employee injury
claims.
Effective January 1, 2018, we maintain a selfinsured health benefit plan which provides medical and prescription drug benefits
to certain of our employees electing coverage under the plan. Our exposure is limited by individual and aggregate stoploss
limits.We record expenses under the plan based on estimates of the costs of expected claims, administrative costs and stoploss
insurance premiums. Selfinsurance costs are accrued based upon the aggregate of the expected liability for reported claims and
the estimated liability for claims incurred but not reported, based on information on historical claims experience provided by
our third party insurance advisors, adjusted as necessary based upon management’s reasoned judgment. Actual employee
medical claims expense may differ from estimated loss provisions based on historical experience. In the event our cost
estimates differ from actual costs, we could incur additional unplanned costs, which could adversely impact our financial
condition.
Workers’ compensation coverage is provided through “selfinsurance” by LFR.We record expenses under the plan based on
estimates of the costs of expected claims, administrative costs, stoploss insurance premiums, and expected trends. These
estimates are then adjusted each year to reflect actual costs incurred. Actual costs under these plans are subject to variability
that is dependent upon demographics and the actual costs of claims made. In the event our cost estimates differ from actual
costs, we could incur additional unplanned costs, which could adversely impact our financial condition.
In March 2010, comprehensive healthcare reform legislation under the Patient Protection and Affordable Care Act (the
"Affordable Care Act")and Healthcare Education and Affordability Reconciliation Act was passed and signed into law. Among
other things, the healthcare reform legislation includes mandated coverage requirements, eliminates preexisting condition
exclusions and annual and lifetime maximum limits, restricts the extent to which policies can be rescinded, and imposes new
and significant taxes on health insurers and healthcare benefits. Although requirements were phased in over a period of time,
the most impactful provisions began in the third quarter of fiscal 2015.
Due to the breadth and complexity of the healthcare reform legislation, the lack of implementing regulations in some cases, and
interpretive guidance, and the phasedin nature of the implementation, it is difficult to predict the overall impact of the
healthcare reform legislation on our business and the businesses of our franchisees over the coming years. Possible adverse
effects of the healthcare reform legislation include reduced revenues, increased costs and exposure to expanded liability and
requirements for us to revise the ways in which we conduct business or risk of loss of business. It is also possible that
healthcare plans offered by other companies with which we compete for employees will make us less attractive to our current
or potential employees. And in any event, implementing the requirements of the Affordable Care Act has imposed some
additional administrative costs on us, and those costs may increase over time. In addition, our results of operations, financial
position and cash flows could be materially adversely affected. Our franchisees face the potential of similar adverse effects, and
many of them are small business owners who may have significant difficulty absorbing the increased costs.
We face intense competition, and if we are unable to compete effectively or if customer preferences change, our business,
financial condition and results of operations may be adversely affected.
The restaurant industry is intensely competitive and is affected by changes in customer tastes and dietary habits and by
national, regional and local economic conditions and demographic trends. New menu items, concepts, and trends are constantly
emerging. Our Luby’s Cafeteria brand offer a large variety of entrées, side dishes and desserts and our continued success
depends, in part, on the popularity of our cuisine and cafeteriastyle dining. A change away from this cuisine or dining style
could have a material adverse effect on our results of operations. Our Fuddruckers brand offers grilledtoorder burgers that
feature always fresh and never frozen, 100% premiumcut beef with no fillers or additives and sesametopped buns baked from
scratch onsite throughout the day.While burgers are the signature, the engaging menu offers variety for many tastes with an
array of sandwiches, and salads. Changing customer preferences, tastes and dietary habits can adversely affect our business and
financial performance. We compete on quality, variety, value, service, concept, price, and location with wellestablished
national and regional chains, as well as with locally owned and operated restaurants. We face significant competition from
familystyle restaurants, fastcasual restaurants, and buffets as well as fast food restaurants. In addition, we also face growing
competition as a result of the trend toward convergence in grocery, delicatessen, and restaurant services, particularly in the
supermarket industry, which offers “convenient meals” in the form of improved entrées and side dishes from the delicatessen
section. Many of our competitors have significantly greater financial resources than we do. We also compete with other
restaurants and retail establishments for restaurant sites and personnel. We anticipate that intense competition will continue. If
we are unable to compete effectively, our business, financial condition, and results of operations may be adversely affected.
Our growth plan may not be successful.
Depending on future economic conditions, we may not be able to open new restaurants in current or future fiscal years. Our
ability to open and profitably operate new restaurants is subject to various risks such as the identification and availability of
suitable and economically viable locations, the negotiation of acceptable terms for the purchase or lease of new locations, the
need to obtain all required governmental permits (including zoning approvals) on a timely basis, the need to comply with other
regulatory requirements, the availability of necessary contractors and subcontractors, the availability of construction materials
and labor, the ability to meet construction schedules and budgets, the ability to manage union activities such as picketing or
hand billing which could delay construction, increases in labor and building materials costs, the availability of financing at
acceptable rates and terms, changes in weather or other acts of God that could result in construction delays and adversely affect
the results of one or more restaurants for an indeterminate amount of time, our ability to hire and train qualified management
personnel and general economic and business conditions. At each potential location, we compete with other restaurants and
retail businesses for desirable development sites, construction contractors, management personnel, hourly employees and other
resources.
If we are unable to successfully manage these risks, we could face increased costs and lower than anticipated revenues and
earnings in future periods. We may be evaluating acquisitions or engaging in acquisition negotiations at any given time. We
cannot be sure that we will be able to continue to identify acquisition candidates on commercially reasonable terms or at all. If
we make additional acquisitions, we also cannot be sure that any benefits anticipated from the acquisition will actually be
realized. Likewise, we cannot be sure that we will be able to obtain necessary financing for acquisitions. Such financing could
be restricted by the terms of our debt agreements or it could be more expensive than our current debt. The amount of such debt
financing for acquisitions could be significant and the terms of such debt instruments could be more restrictive than our current
covenants. In addition, a prolonged economic downturn would adversely affect our ability to open new stores or upgrade
existing units and we may not be able to maintain the existing number of restaurants in future fiscal years. We may not be able
to renew existing leases and various other risks could cause a decline in the number of restaurants in future fiscal years, which
could adversely affect our results of operations.
Regional events can adversely affect our financial performance.
Many of our restaurants and franchises are located in Texas, California and in the northern United States. Our results of
operations may be adversely affected by economic conditions in Texas, California or the northern United States or the
occurrence of an event of terrorism or natural disaster in any of the communities in which we operate. Also, given our
geographic concentration, negative publicity relating to our restaurants could have a pronounced adverse effect on our overall
revenues. Although we generally maintain property and casualty insurance to protect against property damage caused by
casualties and natural disasters, inclement weather, flooding, hurricanes, and other acts of God, these events can adversely
impact our sales by discouraging potential customers from going out to eat or by rendering a restaurant or CCS location
inoperable for a significant amount of time.
An increase in the minimum wage and regulatory mandates could adversely affect our financial performance.
From time to time, the U.S. Congress and state legislatures have increased and will consider increases in the minimum wage.
The restaurant industry is intensely competitive, and if the minimum wage is increased, we may not be able to transfer all of the
resulting increases in operating costs to our customers in the form of price increases. In addition, because our business is labor
intensive, shortages in the labor pool or other inflationary pressure could increase labor costs that could adversely affect our
results of operations.
We may be required to recognize additional impairment charges.
We assess our longlived assets in accordance with generally accepted accounting principles in the United States (“GAAP”)
and determine when they are impaired. Based on market conditions and operating results, we may be required to record
additional impairment charges, which would reduce expected earnings for the periods in which they are recorded.
We may be harmed by security risks we face in connection with our electronic processing and transmission of confidential
customer and employee information.
We accept electronic payment cards for payment in our restaurants. During fiscal 2018, approximately 73% of our restaurant
sales were attributable to credit and debit card transactions, and credit and debit card usage could continue to increase. A
number of retailers have experienced actual or potential security breaches in which credit and debit card information may have
been stolen, including a number of highly publicized incidents with wellknown retailers in recent years. In addition, we have
previously been the victim of a cyber attack by hackers who deployed a version of the SamSam ransomware that encrypted
electronic files, locking us out of many of our pointofsale and other systems.These hackers requested a “ransom” payment in
exchange for restoring access to these encrypted files.Such attacks, while they did not provide the hackers with access to
confidential customer and employee information, did adversely affect our profits due to our temporary inability to operate our
restaurants and increased costs associated further protecting and restoring our computer systems.While we have taken
preventative measures, no assurances can be provided that we will not be the subject of cyber attacks again in the future.
We may in the future become subject to additional claims for purportedly fraudulent transactions arising out of the actual or
alleged theft of credit or debit card information, and we may also be subject to lawsuits or other proceedings in the future
relating to these types of incidents. Proceedings related to theft of credit or debit card information may be brought by payment
card providers, banks and credit unions that issue cards, cardholders (either individually or as part of a class action lawsuit) and
federal and state regulators. Any such proceedings could distract our management from running our business and cause us to
incur significant unplanned losses and expenses. Consumer perception of our brand could also be negatively affected by these
events, which could further adversely affect our results and prospects.
We also are required to collect and maintain personal information about our employees, and we collect information about
customers as part of some of our marketing programs as well. The collection and use of such information is regulated at the
federal and state levels, and the regulatory environment related to information security and privacy is increasingly demanding.
At the same time, we are relying increasingly on cloud computing and other technologies that result in third parties holding
significant amounts of customer or employee information on our behalf. If the security and information systems of ours or of
outsourced third party providers we use to store or process such information are compromised or if we, or such third parties,
otherwise fail to comply with these laws and regulations, we could face litigation and the imposition of penalties that could
adversely affect our financial performance. Our reputation as a brand or as an employer could also be adversely affected from
these types of security breaches or regulatory violations, which could impair our sales or ability to attract and keep qualified
employees.
Labor shortages or increases in labor costs could adversely affect our business and results of operations and thepace of
new restaurant openings.
Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified employees,
including regional managers, restaurant general managers and chefs, in a manner consistent with our standards and
expectations. Qualified individuals that we need to fill these positions are in short supply and competition for these employees
is intense. If we are unable to recruit and retain sufficient qualified individuals, our operations and reputation could be
adversely affected. Additionally, competition for qualified employees could require us to pay higher wages, which could result
in higher labor costs. Any increase in labor costs could adversely affect our results of operations.
If we are unable to anticipate and react to changes in food, utility and other costs, our results of operations could be
materially adversely affected.
Many of the food and beverage products we purchase are affected by commodity pricing, and as such, are subject to price
volatility caused by production problems, shortages, weather or other factors outside of our control. Our profitability depends,
in part, on our successfully anticipating and reacting to changes in the prices of commodities. Therefore, we enter into purchase
commitments with suppliers when we believe that it is advantageous for us to do so. If commodity prices were to increase, we
may be forced to absorb the additional costs rather than transfer these increases to our customers in the form of menu price
increases. Our success also depends, in part, on our ability to absorb increases in utility costs. Our operating results are affected
by fluctuations in the price of utilities. Our inability to anticipate and respond effectively to an adverse change in any of these
factors could have a material adverse effect on our results of operations.
Our business is subject to extensive federal, state and local laws and regulations.
The restaurant industry is subject to extensive federal, state and local laws and regulations. We are also subject to licensing and
regulation by state and local authorities relating to health, healthcare, employee medical plans, sanitation, safety and fire
standards, building codes and liquor licenses, federal and state laws governing our relationships with employees (including the
Fair Labor Standards Act and applicable minimum wage requirements, overtime, unemployment tax rates, family leave, tip
credits, working conditions, safety standards, healthcare and citizenship requirements), federal and state laws which prohibit
discrimination, potential healthcare benefits legislative mandates, and other laws regulating the design and operation of
facilities, such as the Americans With Disabilities Act of 1990.
As a publicly traded corporation, we are subject to various rules and regulations as mandated by the SEC and the NYSE.
Failure to timely comply with these rules and regulations could result in penalties and negative publicity.
We are subject to federal regulation and certain state laws which govern the offer and sale of franchises. Many state franchise
laws contain provisions that supersede the terms of franchise agreements, including provisions concerning the termination or
nonrenewal of a franchise. Some state franchise laws require that certain materials be registered before franchises can be
offered or sold in that state. The failure to obtain or retain licenses or approvals to sell franchises could adversely affect us and
the franchisees.
Termination of franchise agreements may disrupt restaurant performance.
Our franchise agreements are subject to termination by us in the event of default by the franchisee after applicable cure periods.
Upon the expiration of the initial term of a franchise agreement, the franchisee generally has an option to renew the franchise
agreement for an additional term. There is no assurance that franchisees will meet the criteria for renewal or will desire or be
able to renew their franchise agreements. If not renewed, a franchise agreement, and payments required there under, will
terminate. We may be unable to find a new franchisee to replace a nonrenewing franchisee. Furthermore, while we will be
entitled to terminate franchise agreements following a default that is not cured within the applicable grace period, if any, the
disruption to the performance of the restaurants could adversely affect our business and revenues.
Franchisees may breach the terms of their franchise agreements in a manner that adversely affects the reputation of our
brands.
Franchisees are required to conform to specified product quality standards and other requirements pursuant to their franchise
agreements in order to protect our brands and to optimize restaurant performance. However, franchisees may receive through
the supply chain or produce substandard food or beverage products, which may adversely impact the reputation of our brands.
Franchisees may also breach the standards set forth in their respective franchise agreements. Any negative actions could have a
corresponding material adverse effect on our business and revenues.
Our planned CCS expansion may not be successful.
Successful expansion of our CCS operations depends on our ability to obtain new clients as well as retain and renew our
existing client contracts. Our ability to do so generally depends on a variety of factors, including the quality, price and
responsiveness of our services, as well as our ability to market these services effectively and differentiate ourselves from our
competitors. We may not be able to renew existing client contracts at the same or higher rates or our current clients may turn to
competitors, cease operations, or elect to selfoperate or terminate contracts with us. The failure to renew a significant number
of our existing contracts could have a material adverse effect on our business and results of operations.
Failure to collect account receivables could adversely affect our results of operations.
A portion of our accounts receivable is concentrated in our CCS operations among several customers. In addition, our
franchises generate significant accounts receivables. Failure to collect from several of these accounts receivable could
adversely affect our results of operations.
If we lose the services of any of our key management personnel, our business could suffer.
The success of our business is highly dependent upon our key management personnel, particularly Christopher J. Pappas, our
President and Chief Executive Officer, and Benjamin T. Coutee, our Chief Operating Officer. The loss of the services of any
key management personnel could have a material adverse effect upon our business.
Our business is subject to seasonal fluctuations, and, as a result, our results of operations for any given quarter may not be
indicative of the results that may be achieved for the full fiscal year.
Our business is subject to seasonal fluctuations. Historically, our highest earnings have occurred in the third quarter of the fiscal
year, as our revenues in most of our restaurants have typically been higher during the third quarter of the fiscal year. Similarly,
our results of operations for any single quarter will not necessarily be indicative of the results that may be achieved for a full
fiscal year.
Economic factors affecting financial institutions could affect our access to capital.
We refinanced our 2013 Credit Facility on November 8, 2016 to a new senior secured credit agreement. The 2016 Credit
Agreement, as amended, matures May 1, 2019. We may not be able to amend or renew the new facility with terms and
conditions favorable to our operating needs.
We may not be able to adequately protect our intellectual property, which could harm the value of our brands and adversely
affect our business.
Our ability to successfully implement our business plan depends in part on our ability to further build brand recognition using
our trademarks, service marks, trade dress and other proprietary intellectual property, including our name and logos, and the
unique ambience of our restaurants. If our efforts to protect our intellectual property are inadequate, or if any third party
misappropriates or infringes on our intellectual property, either in print or on the internet, the value of our brands may be
harmed, which could have a material adverse effect on our business and might prevent our brands from achieving or
maintaining market acceptance. We may also encounter claims from prior users of similar intellectual property in areas where
we operate or intend to conduct operations. This could harm our image, brand or competitive position and cause us to incur
significant penalties and costs.
Item1B. Unresolved Staff Comments
None.
Item2. Properties
As of November7, 2018, we operated 142 restaurants at 136 property locations. Six of the operating locations are Combo
locations and are considered two restaurants. Luby’s Cafeterias have seating capacity for 250 to 300 customers at each location
while Fuddruckers locations generally seat 125 to 200 customers and Cheeseburger in Paradise locations generally seat 180 to
220.
We own the underlying land and buildings on which 59 of our Luby’s Cafeteria and 18 of our Fuddruckers restaurants are
located. Two of these restaurant properties contain excess building space or an extra building on the property which have 7
tenants unaffiliated with Luby’s, Inc.
In addition to the owned locations, 23 Luby’s Cafeteria restaurants, 41 Fuddruckers restaurants, and 1 Cheeseburger in Paradise
restaurants are held under 64 leases. One of the 64 leases includes two restaurants at one Combo location: one Luby's Cafeteria
and one Fuddruckers restaurant. The majority of the leases are fixeddollar rentals, which require us to pay additional amounts
related to property taxes, hazard insurance, and maintenance of common areas. Of the 64 restaurant leases, the current terms of
thirteen expire in less than one year, 35 expire between one and five years, and 16 expire thereafter. Additionally, 47 leases can
be extended beyond their current terms at our option.
As of November7, 2018, we had four owned nonoperating properties with a carrying value of approximately $3.9 million and
11 operating properties with a carrying value of approximately $15.6 million related to continuing operations recorded in
property held for sale. In addition, we had one owned property with a carrying value of approximately $1.8 million included in
assets related to discontinued operations.
We currently have one owned otheruse property which is used as a central bakery supporting our operating restaurants.
We also have four leased locations that have three third party tenants and three Fuddruckers franchisees.
Our corporate office lease of approximately 26,000 square feet of office space runs through December 2021.
We also lease approximately 60,000 square feet of warehouse space for inhouse repair, fabrication and storage in Houston,
Texas. In addition, we lease approximately 630 square feet of office space in Farmers Branch, Texas and an executive suite in
North Andover, MA where we have additional legal personnel.
We maintain general liability insurance and property damage insurance on all properties in amounts which management
believes provide adequate coverage.
Item3. Legal Proceedings
From time to time, we are subject to various private lawsuits, administrative proceedings and claims that arise in the ordinary
course of our business. A number of these lawsuits, proceedings and claims may exist at any given time. These matters
typically involve claims from guests, employees and others related to issues common to the restaurant industry. We currently
believe that the final disposition of these types of lawsuits, proceedings, and claims will not have a material adverse effect on
our financial position, results of operations, or liquidity. It is possible, however, that our future results of operations for a
particular fiscal quarter or fiscal year could be impacted by changes in circumstances relating to lawsuits, proceedings, or
claims.
Item4. Mine Safety Disclosures
Not applicable.
PART II
Item5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Stock Prices
Our common stock is traded on the NYSE under the symbol “LUB.” The following table sets forth, for the last two fiscal years,
the high and low sales prices on the NYSE as reported in the consolidated transaction reporting system.
Fiscal Quarter Ended
December 21, 2016
March 15, 2017
June 7, 2017
August 30, 2017
December 20, 2017
March 14, 2018
June 6, 2018
August 29, 2018
High
4.50
4.33
3.41
3.12
2.87
3.20
3.06
2.89
Low
4.03
3.30
2.46
2.63
2.36
2.60
2.35
2.00
As of November7, 2018, there were 1,975 holders of record of our common stock. On November7, 2018, the closing price of
our common stock on the NYSE was $1.41.
Equity Compensation Plans
Securities authorized under our equity compensation plans as of August29, 2018, were as follows:
(a)
(b)
Plan Category
Equity compensation plans previously approved by security
holders
Equity compensation plans not previously approved by security
holders (1)
Total
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options,
Warrants and
Rights
Weighted
Average
Exercise Price
of
Outstanding
Options,
Warrants and
Rights
$
1,066,103
17,801
1,083,904 $
4.53
0
4.47
(c)
Number of
Securities
Remaining
Available for
Future
Issuance
Under Equity
Compensation
Plans
Excluding
Securities
Reflected in
Column (a)
1,612,652
0
1,612,652
(1) Represents the Luby’s, Inc. Nonemployee Director Phantom Stock Plan.
See Note 16, “ShareBased Compensation,” to our Consolidated Financial Statements included in Item8 of Part II of this
report.
The following graph compares the cumulative total stockholder return on our common stock for the five fiscal years ended
August29, 2018, with the cumulative total return on the S&P SmallCap 600 Index and an industry peer group index. The peer
group index consists of Bob Evans Farms, Inc., CBRL Group, Inc., Darden Restaurants, Inc., Denny’s Corporation, Diversified
Restaurant Holdings, Inc., and Red Robin Gourmet Burgers. These companies are multiunit family and casual dining
restaurant operators in the midprice range.
The cumulative total shareholder return computations set forth in the performance graph assume an investment of $100 on
August 29, 2013, and the reinvestment of all dividends. The returns of each company in the peer group index have been
weighed according to that company’s stock market capitalization.
Luby’s, Inc.
S&P 500 Index—Total Return
S&P 500 Restaurant Index
Peer Group Index Only
Peer Group Index + Luby’s, Inc.
2013
100.00
100.00
100.00
100.00
100.00
2014
74.76
124.89
109.12
102.87
102.39
2015
64.28
123.66
127.67
148.01
146.51
2016
62.07
141.50
141.05
149.08
147.52
2017
36.41
163.53
169.16
192.47
189.49
2018
28.14
197.61
181.31
245.57
241.33
Item 6. Selected Financial Data
Sales
FIVEYEAR SUMMARY OF OPERATIONS
August 29,
2018
(364 days)
Fiscal Year Ended
August 31,
2016
(371 days)
(In thousands, except per share data)
August 30,
2017
(364 days)
August 26,
2015
(364 days)
August 27,
2014
(364 days)
Restaurant sales
Culinary contract services
Franchise revenue
Vending revenue
Total sales
Provision for asset impairments and restaurant
closings
Loss from continuing operations
Loss from discontinued operations
Net Loss
Loss per share from continuing operations:
Basic
Assuming dilution
Loss per share from discontinued operation:
Basic
Assuming dilution
Loss per share:
Basic
Assuming dilution
Weightedaverage shares outstanding:
Basic
Assuming dilution
Total assets
Total debt
Number of restaurants at fiscal year end
Number of franchised restaurants at fiscal year end
Number of Culinary Contract Services contracts at
fiscal year end
Costs and Expenses
(As a percentage of restaurant sales)
Cost of food
Payroll and related costs
Other operating expenses
Occupancy costs
$ 332,518
25,782
6,365
531
365,196
8,917
(32,954)
(614)
(33,568) $
$ 350,818
17,943
6,723
547
376,031
10,567
(22,796)
(466)
(23,262) $
$ 378,111
16,695
7,250
583
402,639
1,442
(10,256)
(90)
(10,346) $
$ 370,192
16,401
6,961
531
394,085
636
(1,616)
(458)
(2,074) $
$ 369,808
18,555
7,027
532
395,922
2,717
(2,011)
(1,436)
(3,447)
$
$
$
$
$
$
$
(1.10) $
(1.10) $
(0.77) $
(0.77) $
(0.35) $
(0.35) $
(0.05) $
(0.05) $
(0.06)
(0.06)
(0.02) $
(0.02) $
(0.02) $
(0.02) $
(0.00) $
(0.00) $
(0.02) $
(0.02) $
(0.06)
(0.06)
(1.12) $
(1.12) $
(0.79) $
(0.79) $
(0.35) $
(0.35) $
(0.07) $
(0.07) $
(0.12)
(0.12)
29,901
29,901
$ 199,989
39,506
$
146
105
28
29,476
29,476
$ 226,457
30,985
$
167
113
25
29,226
29,226
$ 252,225
37,000
$
175
113
24
28,974
28,974
$ 264,258
37,500
$
177
106
23
28,812
28,812
$ 275,435
42,000
$
174
110
25
28.3%
37.4%
18.7%
6.1%
28.1%
35.9%
17.7%
6.2%
28.3%
35.2%
16.1%
5.9%
28.9%
34.5%
17.1%
5.7%
28.9%
34.3%
16.8%
6.0%
Item7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s discussion and analysis of the financial condition and results of operations should be read in conjunction with
the consolidated financial statements and footnotes for the fiscal years ended August29, 2018 (“fiscal 2018”), August30,
2017, (“fiscal 2017”), and August31, 2016 (“fiscal 2016”) included in Part II, Item8 of this Form 10K.
The table on the following page sets forth selected operating data as a percentage of total revenues (unless otherwise noted) for
the periods indicated. All information is derived from the accompanying Consolidated Statements of Operations. Percentages
may not add due to rounding.
91.1 %
7.1 %
1.7 %
0.1 %
100.0 %
Restaurant sales
Culinary contract services
Franchise revenue
Vending revenue
TOTAL SALES
STORE COSTS AND EXPENSES:
(As a percentage of restaurant sales)
Cost of food
Payroll and related costs
Other operating expenses
Occupancy costs
Vending revenue
Store level profit
COMPANY COSTS AND EXPENSES (as a percentage of total sales)
Opening costs
Depreciation and amortization
Selling, general and administrative expenses
Provision for asset impairments and restaurant closings
Net Gain on disposition of property and equipment
Culinary Contract Services Costs (as a percentage of Culinary contract services sales)
28.3 %
37.4 %
18.7 %
6.1 %
(0.2)%
9.5 %
0.2 %
4.8 %
10.6 %
2.7 %
(1.6)%
August 29,
2018
(52 weeks)
Fiscal Year Ended
August 30,
2017
(52 weeks)
August 31,
2016
(53 weeks)
93.9 %
4.1 %
1.8 %
0.1 %
100.0 %
93.3 %
4.8 %
1.8 %
0.1 %
100.0 %
28.1 %
35.9 %
17.7 %
6.2 %
(0.2)%
12.2 %
0.1 %
5.4 %
10.1 %
3.0 %
(0.5)%
28.3 %
35.2 %
16.1 %
5.9 %
(0.2)%
14.7 %
0.2 %
5.4 %
10.5 %
0.4 %
(0.2)%
Cost of culinary contract services
Culinary income
Franchise Operations Costs (as a percentage of Franchise revenue)
Cost of franchise operations
Franchise income
(As a percentage of total sales)
LOSS FROM OPERATIONS
Interest income
Interest expense
Other income (expense), net
Loss before income taxes and discontinued operations
Provision for income taxes
Loss from continuing operations
Loss from discontinued operations, net of income taxes
NET LOSS
93.7 %
6.3 %
87.9 %
12.1 %
89.6 %
10.4 %
24.0 %
76.0 %
25.8 %
74.2 %
25.9 %
74.1 %
(6.1)%
0.0 %
(0.9)%
0.1 %
(6.9)%
2.1 %
(9.0)%
(0.2)%
(9.2)%
(4.6)%
0.0 %
(0.6)%
(0.1)%
(5.3)%
0.6 %
(5.9)%
(0.1)%
(6.0)%
(0.8)%
0.0 %
(0.6)%
0.0 %
(1.4)%
1.2 %
(2.6)%
0.0 %
(2.6)%
Although store level profit, defined as restaurant sales plus vending revenue less cost of food, payroll and related costs, other
operating expenses, and occupancy costsis a nonGAAP measure, we believe its presentation is useful because it explicitly
shows the results of our most significant reportable segment. The following table reconciles between store level profit, a non
GAAP measure to loss from continuing operations, a GAAP measure:
Store level profit
Plus:
Sales from culinary contract services
Sales from franchise operations
Less:
Opening costs
Cost of culinary contract services
Cost of franchise operations
Depreciation and amortization
Selling, general and administrative expenses(1)
Provision for asset impairments and restaurant closings
Net Gain on disposition of property and equipment
Interest income
Interest expense
Other income (expense), net
Provision for income taxes
Loss from continuing operations
$
$
August 29,
2018
(52 weeks)
Fiscal Year Ended
August 30,
2017
(52 weeks)
(In thousands)
August 31,
2016
(53 weeks)
31,648 $
42,943 $
55,419
25,782
6,365
17,943
6,723
16,695
7,250
554
24,161
1,528
17,453
38,725
8,917
(5,357)
(12)
3,348
(298)
7,730
(32,954) $
492
15,774
1,733
20,438
37,878
10,567
(1,804)
(8)
2,443
454
2,438
(22,796) $
787
14,955
1,877
21,889
42,422
1,442
(684)
(4)
2,247
(186)
4,875
(10,256)
(1) Marketing and advertising expense included in Selling, general and administrative expenses was $3.5 million,$5.1 million, and $5.6
million in fiscal 2018, 2017, and 2016, respectively.
The following table shows our restaurant unit count as of August29, 2018 and August30, 2017.
Restaurant Counts:
Luby’s Cafeterias(1)
Fuddruckers Restaurants(1)
Cheeseburger in Paradise
Total
(1) Includes 6 restaurants that are part of Combo locations
Fiscal 2018
Year Begin
88
71
8
167
Fiscal 2018
Openings
Fiscal 2018
Closings
—
—
—
—
(4)
(11)
(6)
(21)
Fiscal 2018
Year End
84
60
2
146
Overview
Description of the business
We generate revenues primarily by providing quality food to customers at our 84 Luby’s branded restaurants located mostly in
Texas, 60 Fuddruckers restaurants located throughout the United States, 2 Cheeseburger in Paradise restaurants located in New
Jersey and Nebraska, and 105 Fuddruckers franchises located primarily in the United States. In addition to our restaurant
business model, we also provide culinary contract services for organizations that offer onsite food service, such as healthcare
facilities, colleges and universities, sports stadiums, businesses and institutions, as well as sales through retail grocery outlets.
Business Strategy
In fiscal 2018, we continued our focus on enhancing the guest experience at each of our restaurant brands, executing our
growth plan for our Culinary Contract Services segment, and supporting our Fuddruckers franchise network for future growth.
In the latter part of the fiscal year, in light of continued sales weakness at our Fuddruckers brand and further profitability
declines at each restaurant brand, it became necessary to address shortterm liquidity. Management's shortterm action plan
included accelerating the closure of underperforming restaurant locations, selling owned property at certain locations, and
taking other steps in order to refinance our debt load and provide financial liquidity. All steps taken in accordance with the
shortterm action plan are with the aim of reestablishing a solid foundation with a portfolio of restaurants and business
segments that can successfully restore future profitability.
At our Companyowned restaurants, we focused on menu innovation and variety across the weeks and the seasons. We
furthered our efforts in attracting and retaining the most talented individuals to serve and engage with our guests in both
restaurant management roles and frontline hourly restaurant team member roles. We have an experienced culinary team that
vigorously pursues culinary innovation enhancements. Our marketing initiatives centered around developing a more personal
and direct connection with our guests, deploying technology where it makes most sense. Over the last year, we have
transitioned much of our advertising and messaging away from traditional medium such as television advertising toward digital
media as we transition to the next phase of our loyalty and recognition programs. We continue to make these investments as
part of our longterm strategy to increase our brand awareness and motivate new and more frequent guest visits. As we
continued to evaluate our portfolio of restaurant locations, we closed 21 restaurants so that resources could be focused on the
locations that exhibit the most promise for enhanced profitability. Over the long term, our strategy is to continue to refine our
restaurant protoype design and build new restaurants in markets where we believe we can achieve superior restaurant cash
flows.
In fiscal 2018, our Fuddruckers franchise business segment continued supporting our loyal franchisees and we continued to
pursue opportunities to refranchise companyowned Fuddruckers locations as part of our strategy to grow franchise revenues.
Our Culinary Contract Services segment continues its focus on expanding the number of locations that we serve and
developing business partnerships for the longterm, while servicing our existing agreements with our customized and highlevel
of client service. We are working to ensure that we have the right corporate headcount and overhead to support each of our
business segments while balancing our corporate overhead costs: on this front, we made significant strides in reducing
overhead costs, including reduced headcount, corporate travel expense, and associated other overhead costs.
Financial and Operation Highlights for Fiscal 2018
Financial Performance
• Total company sales decreased approximately $10.8 million, or 2.9%, in fiscal 2018 compared to fiscal 2017,
consisting primarily of an approximate $18.3 million decrease in restaurant sales, an approximate $7.8 million
increase in Culinary contract services sales, an approximate $0.4 million decrease in franchise revenue, and a less than
$0.1 million decrease in vending revenue. The decrease in restaurant sales included an approximate $4.0 million
decrease in sales at standalone Luby's Cafeterias, an approximate $10.5 million decrease in sales at standalone
Fuddruckers restaurants, an approximate $0.4 million decrease at sales from our Combo locations, and an approximate
$3.4 million decrease in sales from Cheeseburger in Paradise restaurants.
• Total segment profit decreased approximately $12.0 million to approximately $38.1 million in fiscal 2018 compared to
approximately $50.1 million in fiscal 2017. The approximate $12.0 million decrease in total segment profit resulted
from a decrease of approximately $11.3 million in Companyowned restaurant segment profit, an approximate $0.2
million decrease in franchise segment profit and an approximate $0.5 million decrease in Culinary contract services
segment profit. The approximate $11.3 million decrease in Companyowned restaurant segment profit resulted from
restaurant sales and vending income decreasing approximately $18.3 million with the cost of food, payroll and related
costs, other operating expenses, and occupancy costs decreasing approximately $7.0 million.
• Loss before income taxes and discontinued operations included noncash charges for asset impairments and restaurant
closings of approximately $8.9 million and approximately $10.6 million in fiscal 2018 and fiscal 2017, respectively.
Net loss included nontax charges for deferred tax asset valuation allowance increases of approximately $8.4 million
and $9.5 million in fiscal 2018 and fiscal 2017, respectively.
• The loss from continuing operations was approximately $33.0 million in fiscal 2018 compared to a loss of
approximately $22.8 million in fiscal 2017.
Operational Endeavors and Milestones
• Core restaurant brands. In fiscal 2018, we continued to promote our "made–from–scratch" cooking with many
locallysourced “from the farm” ingredients at our Luby’s Cafeterias with our “The Luby’s Way” slogan. “The Luby’s
Way” signifies that we are dedicated to serving our guests only the best handcrafted recipes, prepared fresh each day
in our kitchens. We support local farmers and use only the freshest produce and highest quality ingredients. We have
introduced new seasonal menu offerings throughout the year that showcase our 70year history of "madefrom
scratch" cooking expertise. Our guests were presented with new offerings at each section of the cafeteria line: fresh
colorful vegetable presentations, expanded and refreshed cold sides, and new recipes and presentations for carved
turkey, roast beef, salmon, and chicken. We introduce and rotate new menu offerings throughout the year to remain
relevant to both our existing customer base and attract new customers. From a marketing and promotion standpoint,
we initiated steps to gain an even better understanding of our guests and laid the groundwork for leveraging
technology to improve and personalize the guest experience. We will be using these insights to refine our brand
positioning strategies going forward. Our decline in Companyowned restaurant segment profitability primarily
occurred during the second and third quarters, due to changes in product offerings and discounts, increased investment
in our labor, and operating expenses. We moved away from certain discounting and promotional offers we had been
using in the past. While transitioning to this approach of less discounting, it had the intended effect of increasing our
average spend per guest. The offsetting decreases in guest traffic resulted in a net decrease in samestore sales.
At Fuddruckers, we continue to evolve the World’s Greatest Hamburgers®, with new specialty burger combinations
and toppings. In fiscal 2018, we continued to focus on speed of service and the ordering experience. We also began
testing a simplified menu at Company–owned locations designed to enhance quality and execution for our guests. We
furthered our use of technology to reach our guests utilizing new digital media campaigns and targeted advertising to
guests' mobile devices. We continued to measure guest satisfaction through surveys and other guest interactions that
helped us identify areas of excellence and areas for improvement. We are confident the focus on great food and
enhanced service will in the long run lead to increased guest frequency and loyalty.
• Franchise Network. As of August29, 2018, we supported a franchise network of 105 Fuddruckers franchise locations
with an additional 44 locations under development agreements.For fiscal 2018, our franchisees opened four new
Fuddruckers restaurants.Three of the opened locations were in the United States (Florida and Pennsylvania) and one
in Mexico. For fiscal 2018, there were 12 Fuddruckers franchise locations that closed as franchiseoperated
restaurants.Our franchise network generated approximately $6.4 million in revenue in fiscal 2018.
• Culinary Contract Services. Our Culinary Contract Services segment generated approximately $25.8 million in
revenue during fiscal 2018 compared to approximately $17.9 million in revenue during fiscal 2017. The approximate
$7.8 million increase in revenue was primarily due to a net increase in the number of locations in operation and higher
sales volume locations replacing lower sales volume locations. We view this area as a longterm growth business that
generally requires less capital investment and produces favorable percentage returns on invested capital.
• Cheeseburger in Paradise. Despite previous efforts to revitalize the Cheeseburger in Paradise brand and improve
financial results, we determined that the best course of action was to cease operations at most of our Cheeseburger in
Paradise restaurants. As part of our all overall plan to close underperforming restaurants that do not meet our
profitability targets on a sustained basis, we elected to reduce Cheeseburger in Paradise to two locations at our fiscal
yearend 2018. Subsequent to the end of fiscal year 2018, we elected to close one of those Cheeseburger in Paradise
locations. As of November7, 2018, we operate one Cheeseburger in Paradise location.
• Capital Spending. Purchases of property and equipment were approximately $13.2 million in fiscal 2018,up from
approximately $12.5 million in fiscal 2017. These capital investments were funded through a combination of cash
from operations, sale of property, and utilization of our revolving credit facility. Capital investments in
fiscal2018included (1) approximately $1.1 million on information technology infrastructure maintenance and
upgrade projects;(2) approximately $2.1 million on the rebuilding and refurbishing and updating of restaurants,
mostly related to restorations after hurricane and flood damage incurred in August 2017; and (3) approximately $10.0
million for recurring capital expenditures. Our debt balance at the end of fiscal 2018 was approximately $39.5 million.
We remain committed to maintaining the attractiveness of all of our restaurant locations where we anticipate operating
over the long term. In fiscal 2019, we anticipate making capital investments of up to $8.0 million for recurring
maintenance of all of our restaurant properties and for point of sale hardware associated with our technology
infrastructure.
Our longterm plan continues to focus on expanding each of our core brands, including the Fuddruckers franchise network, as
well as growing our culinary contract service business. We are also committed to reducing our debt balances and making
capital investments with suitable return characteristics. We plan to use cash generated from operations, combined with our
borrowing capacity, when necessary, in order to seize these capital investment opportunities. As we improve and elevate our
operating standards, we believe that we are wellpositioned to enhance shareholder value over the long term.
Accounting Periods
Our fiscal year ends on the last Wednesday in August. Accordingly, each fiscal year normally consists of 13 fourweek periods,
or accounting periods, accounting for 364 days in the aggregate. However, every fifth or sixth year, we have a fiscal year that
consists of 53 weeks, accounting for 371 days in the aggregate. Fiscal year 2016 is such a year that contained 53 weeks,
accounting for 371 days in the aggregate. In fiscal year 2015, and prior, each of the first three quarters of each fiscal year
consisted of three fourweek periods, while the fourth quarter normally consisted of four fourweek periods. Beginning in fiscal
2016, the first quarter consisted of four fourweek periods, while the last three quarters normally consist of three fourweek
periods. However, fiscal 2016 is a fiscal year consisting of 53 weeks, accounting for 371 days in the aggregate. Comparability
between quarters may be affected by the varying lengths of the quarters, as well as the seasonality associated with the
restaurant business.
SameStoreSales
The restaurant business is highly competitive with respect to food quality, concept, location, price, and service, all of which
may have an effect on samestore sales. Our samestore sales calculation measures the relative performance of a certain group
of restaurants.A store is included in this group of restaurants after it has been open for six completeconsecutive
quarters.Stores that close on a permanent basis (or on a temporary basis for remodeling) are removed from the group in the
fiscal quarter when operations cease at the restaurant, but remain in the samestore group for previously reported fiscal
quarters. Although management believes this approach leads to more effective yearoveryear comparisons, neither the time
frame nor the exact practice may be similar to those used by other restaurant companies. Samestore sales at our restaurant
units decreased 0.5% for fiscal 2018, decreased 3.4% for fiscal 2017, and increased 0.7% for fiscal 2016.
The following table shows the samestore sales change for comparative historical quarters:
Fiscal 2018
Fiscal 2017
Fiscal 2016
Increase (Decrease) Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Samestore sales
1.2%
(0.9)%
(3.7)%
0.8%
(5.2)%
(2.7)%
(3.8)%
(2.3)%
(0.5)%
(0.6)%
2.2%
1.4%
RESULTS OF OPERATIONS
Fiscal 2018 (52 weeks) compared to Fiscal 2017 (52 weeks) and Fiscal 2016 (53 weeks)
Sales
Fiscal Year 2018
Ended
Fiscal Year 2017
Ended
Fiscal 2018 vs
Fiscal 2017
Fiscal Year 2016
Ended
Fiscal 2017 vs
Fiscal 2016
($000s)
August 29, 2018
August 30, 2017
Higher/(Lower)
August 31, 2016
Higher/(Lower)
$
Restaurant sales
Culinary contract
services
Franchise revenue
Vending revenue
TOTAL SALES
$
(52 weeks)
332,518 $
25,782
6,365
531
365,196 $
(52 weeks)
350,818
17,943
6,723
547
376,031
(52 vs 52 weeks)
(5.2)% $
43.7 %
(5.3)%
(2.9)%
(2.9)% $
(53 weeks)
378,111
16,695
7,250
583
402,639
(52 vs 53 weeks)
(7.2)%
7.5 %
(7.3)%
(6.2)%
(6.6)%
Total company sales decreased approximately $10.8 million, or 2.9%, in fiscal 2018 compared to fiscal 2017, consisting
primarily of an approximate $18.3 million decrease in restaurant sales, an approximate $7.8 million increase in Culinary
contract services sales, an approximate $0.4 million decrease in franchise revenue, and less than a $0.1 million decrease in
vending revenue.
Total company sales decreased approximately $26.6 million, or 6.6%, in fiscal 2017 compared to fiscal 2016, consisting
primarily of an approximate $27.3 million decrease in restaurant sales, an approximate $0.5 million decrease in franchise
revenue, an approximate $1.2 million increase in Culinary contract service sales, and a less than $0.1 million decrease in
vending revenue. Fiscal 2016 contained one additional week of operations during which approximately $6.7 million in
restaurant sales were generated and approximately $7.1 million in total sales were generated.
The Company operates with three reportable operating segments: Companyowned Restaurants, Franchise Operations, and
Culinary Contract Services.
CompanyOwned Restaurants
Restaurant Sales
Restaurant Brand
Luby’s Cafeterias
Fuddruckers Restaurants
Combo locations
Cheeseburger in Paradise
Restaurant Sales
Fiscal Year
2018 Ended
August 29,
2018
Fiscal Year
2017 Ended
August 30,
2017
(52 weeks)
$
$
210,972 $
87,618
20,886
13,042
332,518 $
(52 weeks)
214,976
98,115
21,304
16,423
350,818
Fiscal 2018 vs
Fiscal 2017
Higher/(Lower)
(52 vs 52 weeks)
Fiscal Year
2016 Ended
August 31,
2016
(1.9)% $
(10.7)%
(2.0)%
(20.6)%
(5.2)% $
(53 weeks)
229,880
106,456
23,107
18,668
378,111
Fiscal 2017 vs
Fiscal 2016
Higher/(Lower)
(52 vs 53 weeks)
(6.5)%
(7.8)%
(7.8)%
(12.0)%
(7.2)%
Total restaurant sales decreased approximately $18.3 million in fiscal 2018 compared to fiscal 2017. The decrease in restaurant
sales included an approximate $4.0 million decrease in sales at standalone Luby’s Cafeterias, an approximate $10.5 million
decrease in sales at standalone Fuddruckers restaurants, an approximate $0.4 million decrease in sales from Combo locations,
and an approximate $3.4 million decrease at sales from our Cheeseburger in Paradise restaurants.
• The approximate $4.0 million decrease in sales at standalone Luby’s reflects the reduction of eight operating
restaurants, partially offset by a 1.5% increase in samestore standalone Luby's Cafeteria sales. The 1.5% increase in
samestore sales includes a 7.8% increase in average spend per guest partially offset by a 5.8% decrease in guest
traffic.
• The approximate $10.5 million decrease in sales at standalone Fuddruckers restaurants reflects a net reduction of 15
operating restaurants and a 3.6% decrease in samestore standalone Fuddruckers sales. The 3.6% decrease in same
store sales includes a 8.2% decrease in guest traffic partially offset by a 5.0% increase in average spend per guest.
• The approximate $0.4 million decrease in sales from Combo locations reflects a 2.0% decrease in sales at the six
locations in operation throughout fiscal 2018 and fiscal 2017.
• The approximate $3.4 million decrease in sales from our Cheeseburger in Paradise reflects a 11.0% decrease in same
store sales (seven locations in the first three fiscal quarters of fiscal 2018 and two stores in the fourth quarter of fiscal
2018). The closure of six stores reduced sales by approximately $2.1 million whereby five of the six closures took
place near the end of fiscal 2018.
Total restaurant sales decreased approximately $27.3 million in fiscal 2017 compared to fiscal 2016. The decrease in restaurant
sales included an approximate $14.9 million decrease in sales at standalone Luby’s Cafeterias, an approximate $8.4 million
decrease in sales at standalone Fuddruckers restaurants, an approximate $1.8 million decrease in sales from Combo locations,
and an approximate $2.2 million decrease at sales from our Cheeseburger in Paradise restaurants. The approximate $27.3
million decrease in total restaurant sales reflects comparison to fiscal 2016 which included one additional week of operations.
Fiscal 2017 was comprised of a typical 52 weeks compared to fiscal 2016 which was comprised of 53 weeks. The additional
week of operations in fiscal 2016 generated approximately $6.7 million in restaurant sales.
• The approximate $14.9 million decrease in sales at standalone Luby’s Cafeterias reflects that fiscal 2016 included one
additional week of operations which generated approximately $4.1 million in sales in fiscal 2016, a 3.3% decrease in
samestore standalone Luby's Cafeteria sales, and a reduction of six operating restaurants. The 3.3% decrease in
samestore sales includes a 5.6% decrease in guest traffic partially offset by a 2.3% increase in average spend per
guest.
• The approximate $8.4 million decrease in sales at standalone Fuddruckers restaurants includes approximately $1.9
million in sales generated in the additional week in fiscal 2016, a 1.8% decrease in samestore standalone
Fuddruckers sales, and a net reduction of six operating restaurants. The 1.8% decrease in samestore sales includes a
4.6% decrease in guest traffic partially offset by a 2.8% increase in average spend per guest.
• The approximate $1.8 million decrease in sales from Combo locations includes approximately $0.4 million in sales
generated in the additional week in fiscal 2016 and a 5.3% decrease in sales at the six locations in operation
throughout fiscal 2016 and fiscal 2017.
• The approximate $2.2 million decrease in sales from our Cheeseburger in Paradise restaurants includes approximately
$0.3 million in sales generated in the additional week in fiscal 2016 and a 10.5% decrease in sales at the eight
locations in operation throughout fiscal 2016 and fiscal 2017.
Cost of Food
($000s)
Cost of food
As a percentage of restaurant
sales
Fiscal Year
2018 Ended
August 29,
2018
Fiscal Year
2017 Ended
August 30,
2017
(52 weeks)
94,238
$
(52 weeks)
98,714
$
Fiscal 2018 vs
Fiscal 2017
Higher/(Lower)
(52 vs 52 weeks)
Fiscal Year
2016 Ended
August 31,
2016
Fiscal 2017 vs
Fiscal 2016
Higher/(Lower)
(4.5)% $
(53 weeks)
106,980
(52 vs 53 weeks)
(7.7)%
28.3%
28.1%
0.2 %
28.3%
(0.2)%
Cost of food, which is comprised of the cost associated with the sale of food and beverage products that are consumed while
dining in our restaurants, as takeout, and as catering.Cost of fooddecreased approximately $4.5 million, or 4.5%, in fiscal
2018 compared to fiscal 2017.Cost of foodis variable and generally fluctuates with sales volume. As a percentage of restaurant
sales, food costs increased 0.2% to 28.3% in fiscal 2018 compared to 28.1% in fiscal 2017. The Cost of foodas percentage of
sales was impacted by several offsetting factors: (1) higher food commodity costs driven in large part by higher freight charges
and (2) changes in product offerings (for a portion of the fiscal year) with generally higher food ingredient costs, partially offset
by (3) higher menu pricing.
Cost of food decreased approximately $8.3 million, or 7.7%, in fiscal 2017 compared to fiscal 2016. Cost of food is variable
and generally fluctuates with sales volume. As a percentage of restaurant sales, food costs decreased 0.2%% to 28.1%% in
fiscal 2017 compared to 28.3% in fiscal 2016. The Cost of food as percentage of sales decreased with lower average food
commodity costs, higher realized average menu prices, and continued careful food cost controls. At our Luby’s Cafeterias we
experienced an approximate 1% decrease in the cost of our basket of food commodity purchases, occurring as a result of
decreases in the cost in our primary commodities of beef and poultry as well as in our other commodities of eggs and oils and
shortenings partially offset by increases in the cost of seafood, dairy and butter, and fresh produce. At our Fuddruckers, the cost
of our basket of food commodity purchases was stable, with modest increases in the cost of beef, cheese and dairy, and produce
offset by decreases in the cost of poultry, pork, and dough used in the production of buns.
Payroll and Related Costs
($000s)
Fiscal Year
2018 Ended
August 29,
2018
Fiscal Year
2017 Ended
August 30,
2017
Payroll and related costs
(52 weeks)
124,478
$
(52 weeks)
125,997
$
Fiscal 2018 vs
Fiscal 2017
Higher/(Lower)
(52 vs 52 weeks)
Fiscal Year
2016 Ended
August 31,
2016
(53 weeks)
132,960
(1.2)% $
As a percentage of restaurant
sales
37.4%
35.9%
1.5 %
35.2%
Fiscal 2017 vs
Fiscal 2016
Higher/(Lower)
(52 vs 53 weeks)
(5.2)%
0.7 %
Payroll and related costs includes restaurantlevel hourly wages, including overtime pay, and pay while training, as well as
management salaries and incentive payments. Payroll and related costs also include the payroll taxes, workers’ compensation
expense, group health insurance costs, and 401(k) matching expense for all restaurantlevel hourly and management
employees. Payroll and related costs decreased approximately $1.5 million, or 1.2%, in fiscal 2018 compared to fiscal 2017 due
in part to (1) operating 29 fewer restaurants (net reduction of eight restaurants in fiscal 2017 and reduction of 21 restaurants in
fiscal 2018); partially offset by (2) an approximate $1.0 million increase in workers' compensation expense; and (3) higher
average wage rates reflective of market pressures. Payroll and related costs as a percentage of restaurant sales increased 1.5%
due to (1) the fixed cost component of labor costs with lower samestore sales levels; (2) higher average hourly wage rates
reflective of market pressures; and (3) an approximate $1.0 million increase in workers' compensation expense.
Payroll and related costs decreased approximately $7.0 million, or 5.2%, in fiscal 2017 compared to fiscal 2016 due in part to
(1) operating ten fewer restaurants; (2) an additional week of operations in fiscal 2016; (3) an approximate $0.7 million
decrease in workers' compensation expense; partially offset by (4) higher average wage rates. Payroll and related costs as a
percentage of restaurant sales increased 0.7% due to (1) the fixed cost component of labor costs (mainly management labor)
with lower samestore sales levels; (2) higher average hourly wage rates reflective of market pressures; (3) higher average
restaurant management compensation; partially offset by (4) lower workers' compensation insurance expense.
Other Operating Expenses
($000s)
Other operating expenses
As a percentage of restaurant
sales
Fiscal Year
2018 Ended
August 29,
2018
(52 weeks)
62,286
$
Fiscal Year
2017 Ended
August 30,
2017
(52 weeks)
61,924
$
Fiscal 2018 vs
Fiscal 2017
Higher/(Lower)
(52 vs 52 weeks)
0.6% $
Fiscal Year
2016 Ended
August 31,
2016
(53 weeks)
60,961
Fiscal 2017 vs
Fiscal 2016
Higher/(Lower)
(52 vs 53 weeks)
1.6%
1.6%
18.7%
17.7%
1.0%
16.1%
Other operating expenses primarily include restaurantrelated expenses for utilities, repairs and maintenance, advertising,
insurance, and services. Other operating expenses increased approximately $0.4 million, or 0.6%, in fiscal 2018 compared to
fiscal 2017. As a percentage of restaurant sales, Other operating expenses increased 1.0% to 18.7% in fiscal 2018 compared to
17.7% in fiscal 2017. The 1.0% increase in Other operating expenses as a percentage of restaurant sales was due to (1) a 0.5%
increase in restaurant supplies related to efforts within fiscal 2018 to refresh, restock, and upgrade kitchen and dining room
supplies in order to enhance the guest experience as well as increased foodtogo packaging costs with the growth in foodtogo
sales through third party delivery services; (2) a 0.3% increase in repairs and maintenance expense; (3) a 0.2% increase in
utilities expense on higher electricity utility rates; and (4) 0.2% increase in other expenses primarily related to posthurricane
Harvey related costs as well as increased reserves for doubtful accounts.
Other operating expenses increased approximately $1.0 million, or 1.6%, in fiscal 2017 compared to fiscal 2016. As a
percentage of restaurant sales, Other operating expenses increased 1.6% to 17.7% in fiscal 2017 compared to 16.1% in fiscal
2016. The 1.6% increase in Other operating expenses as a percentage of restaurant sales was due to (1) a 0.6% increase in
restaurant services including higher computer network connectivity, point of sale software, foodtogo delivery charges to third
parties, increased store security costs, and higher fees associated with armored car services; (2) a 0.6% increase in repairs and
maintenance costs; (3) a 0.3% increase in utilities costs due to higher average utility rates; and (4) a 0.1% increase in restaurant
supplies expense with typical inflationary cost increases on lower samestore sales volumes.
Occupancy Costs
($000s)
Occupancy costs
As a percentage of restaurant
sales
Fiscal Year
2018 Ended
August 29,
2018
(52 weeks)
20,399
Fiscal Year
2017 Ended
August 30,
2017
(52 weeks)
21,787
$
$
Fiscal 2018 vs
Fiscal 2017
Higher/(Lower)
(52 vs 52 weeks)
(6.4)% $
Fiscal Year
2016 Ended
August 31,
2016
(53 weeks)
22,374
Fiscal 2017 vs
Fiscal 2016
Higher/(Lower)
(52 vs 53 weeks)
(2.6)%
6.1%
6.2%
(0.1)%
5.9%
0.3 %
Occupancy costs include property lease expense, property taxes, and common area maintenance charges, property insurance,
and permits and licenses. Occupancy costs decreased $1.4 million in fiscal 2018 compared to fiscal 2017 due to primarily
operating 29 fewer restaurants (net reduction of eight restaurants in fiscal 2017 and reduction of 21 restaurants in fiscal 2018).
Of the net reduction of 29 restaurants, 19 were properties that we leased.
Occupancy costs decreased $0.6 million in fiscal 2017 compared to fiscal 2016 due to primarily operating seven fewer leased
restaurant locations (one of which is now subleased to a Fuddruckers franchise operator) and one additional week of
operations in fiscal 2016. The occupancy costs of closed locations previously operated as Cheeseburger in Paradise, but
selected for conversion to Fuddruckers restaurants in fiscal 2017 or beyond were classified as preopening cost and reflected in
our Opening costs expense line.
Franchise Operations Segment Profit
($000s)
Franchise revenue
Cost of franchise operations
Franchise profit
Franchise profit as percent of
Franchise revenue
Fiscal Year
2018 Ended
August 29,
2018
Fiscal Year
2017 Ended
August 30,
2017
(52 weeks)
6,365
1,528
4,837
$
$
(52 weeks)
6,723
1,733
4,990
$
$
Fiscal 2018 vs
Fiscal 2017
Higher/(Lower)
(52 vs 52 weeks)
Fiscal Year
2016 Ended
August 31,
2016
Fiscal 2017 vs
Fiscal 2016
Higher/(Lower)
(52 vs 53 weeks)
(5.3)% $
(11.8)%
(3.1)% $
(53 weeks)
7,250
1,877
5,373
(7.3)%
(7.7)%
(7.1)%
0.1 %
76.0%
74.2%
1.8 %
74.1%
We offer franchises for the Fuddruckers brand. Franchises are sold in markets where expansion is deemed advantageous to the
development of the Fuddruckers concept and system of restaurants. Franchise revenue includes (1)franchise royalties and
(2)franchise and area development agreement fees. Franchise revenue decreased approximately $0.4 million, or 5.3%, in fiscal
2018 compared to fiscal 2017 which included an approximate $0.2 million decrease in franchise royalties and an approximate
$0.2 million decrease in franchise fees. The approximate $0.2 million decrease in franchise royalties was due primarily to a net
decrease of eight franchise locations in operation and a 1.4% decrease in domestic franchise samestore sales. The approximate
$0.2 million decrease in franchise fees was due to fewer openings and lower fees earned associated with franchisees not fully
achieving timetables for store openings under development agreements. Cost of franchise operations decreased approximately
$0.2 million, or 11.8%, in fiscal 2018 compared to fiscal 2017, primarily as a result of decreased overhead cost to support
franchise operations and the opening of fewer franchise locations. Franchisees opened four locations in fiscal 2018 (two in
Florida, one in Pennsylvania, and one in Mexico). Franchise profit, defined as Franchise revenue less Cost of franchise
operations, decreased approximately $0.2 million in fiscal 2018 compared to fiscal 2017. During fiscal 2018, we opened the
four franchise locations enumerated above and there were12 franchise units that closed on a permanent basis. We ended fiscal
2018 with 105 Fuddruckers franchise restaurants.
Franchise revenue decreased approximately $0.5 million in fiscal 2017 compared to fiscal 2016 which included an approximate
$0.6 million decrease in franchise royalties, partially offset by an approximate $0.1 million increase in franchise fees. Cost of
franchise operations decreased approximately $0.1 million, or 7.7%%, in fiscal 2017 compared to fiscal 2016, primarily as a
result of decreased overhead cost to support franchise operations and the opening of fewer franchise locations. Franchisees
opened four international locations (one in Panama; one in Colombia; one in the Dominican Republic; and one in Canada) in
fiscal 2017. Franchise profit, defined as Franchise revenue less Cost of franchise operations, decreased approximately $0.4
million in fiscal 2017 compared to fiscal 2016. During fiscal 2017, we opened the eight franchise locations enumerated above
and there were also eight franchise units that closed on a permanent basis. We ended fiscal 2017 with 113 Fuddruckers
franchise restaurants.
Culinary Contract Services Segment Profit
Culinary Contract Services is a business line servicing healthcare, corporate dining clients, government buildings, sports
stadiums, and sales through retail grocery outlets. The healthcare accounts are full service and typically include inroom
delivery, catering, vending, coffee service and retail dining. Retail grocery outlet sales are through HEB stores, a Texasborn
retailer, where we sell familysized versions of Luby's Famous Macaroni & Cheese (two varieties) and Luby's famous Fried
Fish in the freezer section.
This Culinary Contract Services business segment varied between 22 and 28 client locations in fiscal 2018 and between 23 and
25 client locations in fiscal 2017. In fiscal 2018 and fiscal 2017, we continued concentrating on clients able to enter into
agreements where all operating costs are reimbursed to us and we generally charge a fixed fee. These agreements typically
present lower financial risk to the company.
($000s)
Culinary contract services
Cost of culinary contract
services
Culinary contract profit
Culinary contract profit as
percent of Culinary contract
services sales
Fiscal Year
2018 Ended
August 29,
2018
Fiscal Year
2017 Ended
August 30,
2017
(52 weeks)
25,782
24,161
1,621
$
$
(52 weeks)
17,943
15,774
2,169
$
$
Fiscal 2018 vs
Fiscal 2017
Higher/(Lower)
(52 vs 52 weeks)
Fiscal Year
2016 Ended
August 31,
2016
43.7 % $
53.2 %
(25.3)% $
(53 weeks)
16,695
14,955
1,740
Fiscal 2017 vs
Fiscal 2016
Higher/(Lower)
(52 vs 53 weeks)
7.5%
5.5%
24.7%
6.3%
12.1%
(5.8)%
10.4%
1.7%
Culinary contract services revenue increased $7.8 million, or 43.7%, in fiscal 2018 compared to fiscal 2017. The $7.8 million
increase in revenue was primarily due to (1) 15 new locations opening since the beginning of fiscal 2017 contributing a total of
$10.4 million in increased sales; and (2) an increase of $0.5 million at locations that were in operation throughout fiscal 2017
and fiscal 2018; partially offset by (3) the closure of nine locations which reduced sales by $3.1 million. Cost of culinary
contract services includes the food, payroll and related costs, other direct operating expenses associated with generating
culinary contract sales, and the direct overhead costs (primarily salary and related costs) associated with the management of
this business segment. Cost of culinary contract services increased approximately $8.4 million, or 53.2%, in fiscal 2018
compared to fiscal 2017 due primarily to a net increase in culinary contract sales volume and an increase in corporate overhead
supporting the Culinary Contract Services business segment. Profit in our Culinary Contract Services business segment
(defined as Culinary contract cervices revenue less Cost of culinary contract services) decreased in dollar terms by
approximately $0.5 million and decreased as a percent of Culinary contract services revenue to 6.3% in fiscal 2018 from 12.1%
in fiscal 2017.
Culinary contract services revenue increased $1.2 million, or 7.5%, in fiscal 2017 compared to fiscal 2016. The $1.2 million,
increase in revenue was primarily due to (1) twelve new locations opening since the beginning of fiscal 2016 contributing a
total of $6.2 million in sales; partially offset by (2) the closure of nine locations which reduced sales by $4.6 million; and (3) a
reduction of $0.4 million in sales from locations that were in operation throughout fiscal 2016 and fiscal 2017. Cost of culinary
contract services includes the food, payroll and related costs, other direct operating expenses associated with generating
culinary contract sales, and the direct overhead costs (primarily salary and related costs) associated with the management of
this business segment. Cost of culinary contract services increased approximately $0.8 million, or 5.5%, in fiscal 2017
compared to fiscal 2016 due primarily to a net increase in culinary contract sales volume, partially offset by an additional week
of operations in fiscal 2016. Profit in our Culinary Contract Services business segment (defined as Culinary contract cervices
revenue less Cost of culinary contract services) increased in dollar terms by approximately $0.4 million and increased as a
percent of Culinary contract services revenue to 12.1% in fiscal 2017 from 10.4% in fiscal 2016.
Opening Costs
Opening costs includes labor, supplies, occupancy, and other costs necessary to support the restaurant through its opening
period. Opening costs were approximately $0.6 million in fiscal 2018 compared to approximately $0.5 million in fiscal 2017
and approximately $0.8 million in fiscal 2016.
Opening costs of $0.6 million in fiscal 2018 included the reopening costs associated with one Fuddruckers location that was
damaged during Hurricane Harvey and subsequently restored and reopened for business in fiscal 2018 as well as the carrying
costs for one location where we previously operated a Cheeseburger in Paradise restaurant and one location that we lease for a
potential future Fuddruckers opening.
Opening costs of $0.5 million in fiscal 2017 included the costs of opening one Fuddruckers location and the carrying costs
(mainly rent, property taxes, and utilities) for two locations that were selected for possible conversion from Cheeseburger in
Paradise restaurants to Fuddruckers restaurants.
Opening costs of $0.8 million in fiscal 2016 included the costs of opening three Fuddruckers locations and the carrying costs
(mainly rent, property taxes, and utilities) for two locations that were selected for possible conversion from Cheeseburger in
Paradise restaurants to Fuddruckers restaurants.
Depreciation and Amortization
($000s)
Depreciation and amortization $
As a percentage of total sales
Fiscal Year
2018 Ended
August 29,
2018
Fiscal Year
2017 Ended
August 30,
2017
(52 weeks)
17,453
$
(52 weeks)
20,438
Fiscal 2018 vs
Fiscal 2017
Higher/(Lower)
(52 vs 52 weeks)
(14.6)% $
Fiscal Year
2016 Ended
August 31,
2016
(53 weeks)
21,889
Fiscal 2017 vs
Fiscal 2016
Higher/(Lower)
(52 vs 53 weeks)
(6.6)%
4.8%
5.4%
(0.6)%
5.4%
0.0 %
Depreciation and amortization expense decreased $3.0 million in fiscal 2018 compared to fiscal 2017 due primarily to certain
assets reaching the end of their depreciable lives and the removal of certain assets upon sale.
Depreciation and amortization expense decreased $1.5 million in fiscal 2017 compared to fiscal 2016 due primarily to certain
existing assets reaching the end of their depreciable lives.
Selling, General and Administrative Expenses
($000s)
General and administrative
expenses
Marketing and advertising
expenses
Selling, general and
administrative expenses
As percent of total sales
Fiscal Year
2018 Ended
August 29,
2018
Fiscal Year
2017 Ended
August 30,
2017
Fiscal 2018 vs
Fiscal 2017
Higher/(Lower)
Fiscal Year
2016 Ended
August 31,
2016
Fiscal 2017 vs
Fiscal 2016
Higher/(Lower)
(52 weeks)
(52 weeks)
(52 vs 52 weeks)
(53 weeks)
(52 vs 53 weeks)
$
$
35,201
3,524
38,725
$
$
32,746
5,132
37,878
10.6%
10.1%
7.5 % $
(31.3)%
2.2 % $
0.5 %
36,808
5,614
42,422
10.5%
(11.0)%
(8.6)%
(10.7)%
(0.4)%
Selling, general and administrative expenses include corporate salaries and benefitsrelated costs, including restaurant area
leaders and regional directors, sharebased compensation, professional fees, travel and recruiting expenses and other office
expenses. Selling, general and administrative expenses increased by approximately $0.8 million, or 2.2%, in fiscal 2018
compared to fiscal 2017. The approximate $0.8 million increase in Selling, general and administrative expenses include (1) an
approximate $1.9 million increase in outside professional service fees which includes increased information technology
consulting to supplement our inhouse information technology staff and increased spending for marketing consulting, and
outside legal fees; (2) an approximate $0.8 million increase in salaries and benefits expense mostly related to onetime
employee separation costs as we reduced our restaurant count and corporate overhead staffing levels; partially offset by (3) an
approximate $1.6 million reduction in marketing and advertising expenses due to redirecting marketing investment away from
more costly broad channels, such as television advertising, toward more focused and economical channels for our brands, such
as digital media; and (4) an approximate $0.3 million reduction in corporate travel expense, corporate occupancy costs, bank
charges, and other various corporate overhead costs. As a percentage of total sales, Selling, general and administrative expenses
increased to 10.6% in fiscal 2018 compared to 10.1% in fiscal 2017 primarily due to net increases in the expenses enumerated
above.
Selling, general and administrative expenses decreased by approximately $4.5 million, or 10.7%, in fiscal 2017 compared to
fiscal 2016. Decreases in Selling, general and administrative expenses include (1) an approximate $3.5 million decrease in
salaries, benefits, and other compensation expenses due to reduced headcount, significantly reduced bonus and incentive
expense (including an adjustment to the estimated fair value of performance awards under an incentive compensation plan),
and to a lesser extent, one less operating week in fiscal 2017 compared to fiscal 2016; (2) an approximate $0.7 million decrease
in corporate employee travel costs; and (3) an approximate $0.5 million reduction in marketing and advertising costs, partially
offset by (4) an approximate $0.1 million increase in corporate supplies expense and other overhead expenses, net of a
reduction in outside professional service fees As a percentage of total sales, Selling, general and administrative expenses
decreased to 10.1% in fiscal 2017 compared to 10.5% in fiscal 2016 primarily due to net decreases in the expenses enumerated
above.
Provision for Asset Impairments and Restaurant Closings
The provision for asset impairment and restaurant closings of approximately $8.9 million in fiscal 2018 is primarily related to
assets impaired at 21 property locations, goodwill at three property locations, ten properties held for sale written down to their
fair value, and a reserve for 15 restaurant closings of approximately $1.3 million.
The asset impairment of approximately $10.6 million in fiscal 2017 is primarily related to assets impaired at 17 property
locations, goodwill at six property locations, five properties held for sale written down to their fair value, and a reserve for 10
restaurant closings of approximately $0.5 million.
The asset impairment of approximately $1.4 million in fiscal 2016 reflects (1) a $1.2 million impairment for one owned
Fuddruckers location and three leased Fuddruckers locations; (2) a $0.2 million charge for restaurant closings related to three
Fuddruckers locations and one Luby's Cafeteria location; and (3) a $38 thousand impairment of Goodwill. The $0.2 million
charge for restaurant closings includes the total amount of rent and other direct costs for the remaining period of time the
properties will be unoccupied plus the value of the amount by which the rent we pay to the landlord exceeds any rent paid to us
by a tenant under a sublease over the remaining period of the lease terms.
Net Gain on Disposition of Property and Equipment
The approximate $5.4 million net gain on disposition of property and equipment in fiscal 2018 is primarily related to the gain
on the sale of 10 properties of approximately $4.9 million and approximately $1.3 million of insurance proceeds received for
property and equipment damaged by Hurricane Harvey, partially offset by lease termination costs at eight restaurant location
closures and routine asset retirements.
The disposition of property and equipment in fiscal 2017 resulted in a net gain of approximately $1.8 million, which included
(1) the gain on the sale of three properties where we operated a cafeteria up until the time of the sale offset by (2) normal asset
retirement activity at operating locations and costs associated with disposal of assets at one leased property we operated up
until the time of lease termination.
The disposition of property and equipment in fiscal 2016 resulted in a net gain of approximately $0.7 million, which included
(1) the gain on the sale of one property where we operated a cafeteria up until the time of the sale offset by (2) normal asset
retirement activity.
Interest Income
Interest income was $12 thousand in fiscal 2018 compared to $8 thousand in fiscal 2017, and compared to $4 thousand in fiscal
2016.
Interest Expense
Interest expense in fiscal 2018 increased approximately $0.9 million compared to fiscal 2017 on higher average debt balances
and higher average interest rates inherent in our amended credit agreement and acceleration of deferred financing fees related to
shortening the maturity in our amended credit agreement in the quarter ended June 6, 2018 exceeding the acceleration of
deferred financing fees related to the extinguishment of debt in the quarter ended March 15, 2017. Interest expense in fiscal
2017 increased approximately $0.2 million compared to fiscal 2016 on marginally higher average debt balances and higher
average interest rates.
Other Income (Expense), Net
Other income (expense), net, consisted primarily of the following components: net rental property income and expenses
relating to property for which we are the landlord; prepaid sales tax discounts; oil and gas royalty income; and dining card sales
discounts.
Other income (expense), net, was income of approximately $0.3 million in fiscal 2018 compared to expense of approximately
$0.5 million in fiscal 2017 and income of approximately $0.2 million in fiscal 2016. Other income (expense), net, increased
approximately $0.8 million in fiscal 2018 compared to fiscal 2017 primarily related to (1) an increase in the fair value of our
interest rate swap; and (2) higher net rental income; partially offset by (3) greater gift card related expense and comparison to a
fiscal 2017 reduction in our gift card liability. Other income (expense), net, decreased approximately $0.6 million in fiscal 2017
compared to fiscal 2016 primarily related to (1) recording a net reduction in the fair value of our interest rate swap agreement;
(2) lower rental net income; and (3) a decrease in sales tax discounts as we did not participate in state tax prepayment programs
to the full extent in fiscal 2017.
Taxes
The income tax provision related to continuing operations for fiscal 2018 was approximately $7.7 million compared to an
income tax provision of approximately $2.4 million for fiscal 2017 and an income tax provision of approximately $4.9 million
for fiscal 2016. The income tax provision in fiscal 2018, reflects the impact of U.S. tax reform that is commonly referred to as
Tax Cuts and Jobs Act (the "Tax Act"), of $3.2 million in deferred income taxes, and additional $4.1 million of deferred income
tax provision including a valuation allowance increase and $0.4 million of current state income taxes. The income tax provision
in fiscal 2017 reflects recording a deferred tax asset valuation allowance of $9.5 million partially offset by recording a tax
benefit related to the pretax loss for the year adjusted for state income taxes and general business tax credits. The income tax
provision in fiscal 2016 reflects recording a deferred tax asset valuation allowance of $6.9 million partially offset by recording
a tax benefit related to the pretax loss for the year adjusted for state income taxes, and general business and foreign tax credits.
The effective tax rate ("ETR") from continuing operations was a negative 30.6%, a negative 12.0%, and a negative 90.4% for
fiscal 2018, 2017, and 2016, respectively. The Tax Act lowered the federal statutory tax rate from 35% to 21% effective January
1, 2018. In accordance with the application of IRC Section 15, the Company's federal statutory tax rate for fiscal 2018 was
25%, representing a blended tax rate for the current fiscal year. The ETR for the year ended August29, 2018 differs from the
blended federal statutory rate of 25%, due to the change in valuation allowance, the impact upon enactment of the Tax Act, the
federal job credits, state income taxes, and other discrete items. The ETR for the year ended August30, 2017 and the year
ended August31, 2016 differs from the federal statutory rate of 34% due to the change in valuation allowance, federal jobs
credits, state income taxes and other discrete items.
Discontinued Operations
August 29,
2018
(52 weeks)
Fiscal Year Ended
August 30,
2017
(52 weeks)
(21) $
(59)
—
(80) $
(534)
(614) $
(438)
(466) $
(28) $
—
—
(28) $
August 31,
2016
(53 weeks)
(161)
—
25
(136)
46
(90)
($000s)
Discontinued operating losses
Impairments
Gains
Pretax loss
Income tax benefit (expense) from discontinued operations
Loss from discontinued operations, net of income taxes
$
$
$
The loss from discontinued operations, net of income taxes was approximately $0.6 million in fiscal 2018 compared to a loss of
approximately $0.5 million in fiscal 2017 and a loss of approximately $0.1 million in fiscal 2016. The loss of approximately
$0.6 million in fiscal 2018 included (1) less than $0.1 million in “carrying costs” (typically rent, property taxes, utilities, and
maintenance) associated with assets that were related to discontinued operations; (2) less than $0.1 million impairment charges
for certain assets related to discontinued operations; and (3) an approximate $0.5 million income tax provision related to
increasing the deferred tax asset valuation allowance associated with discontinued operations. The loss of $0.5 million in fiscal
2017 included (1)less than $0.1 million in “carrying costs” associated with assets that were related to discontinued operations
and (2) an approximate $0.4 million income tax provision related to increasing the deferred tax asset valuation allowance
associated with discontinued operations. The loss of approximately $0.1 million in fiscal 2016 included (1)approximately $0.2
million in carrying costs associated with assets that were related to discontinued operations; partially offset by (2) a less than
$0.1 million gain on sale of assets that were related to discontinued operations; and (3) a less than $0.1 million income tax
benefit related to discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and Cash Equivalents
General. Our primary sources of shortterm and longterm liquidity are cash flows from operations and our revolving credit
facility.
Cash and cash equivalents increased approximately $2.6 million as of the end of fiscal 2018 compared to the end of fiscal 2017.
Cash provided by investing activities of approximately $3.0 million and cash provided by financing activities of approximately
$8.1 million was offset by cash used in operating activities of approximately $8.5 million.
Cash used in operating activities of approximately $8.5 million in fiscal 2018 was a decrease of approximately $18.1 million
from a source of cash of approximately $9.6 million in fiscal 2017. Net cash provided by investing activities, in fiscal 2018,
was approximately $3.0 million representing an approximate $6.2 million increase from net cash used in investing activities of
approximately $3.2 million in fiscal 2017. Cash flows from financing activities was a source of cash, in fiscal 2018, of
approximately $8.1 million and an increase of approximately $14.7 million from the use of cash of approximately $6.6 million
in fiscal 2017. Our total outstanding debt increased to approximately $39.5 million at the end of fiscal 2018 from
approximately $31.0 million at the end of fiscal 2017 primarily due to the use of cash and decline in cash provided by operating
activities before changes in operating assets and liabilities of approximately $12.3 million partially offset by proceeds from
property sales. We plan to continue the level of capital expenditures necessary to keep our restaurants attractive and operating
efficiently.
Cash and cash equivalents decreased approximately $0.2 million as of the end of fiscal 2017 compared to the end of fiscal
2016. Cash provided by operating activities of approximately $9.6 million was offset by cash used in investing activities of
approximately $3.2 million and cash used in financing activities of approximately $6.6 million.
Cash flow from operations was unfavorably impacted by decreased restaurant sales and increased other operating expenses in
fiscal 2017 compared to fiscal 2016 but favorably impacted by decreased cost of food, payroll and related costs, and occupancy
costs. We decreased our net borrowings from our 2016 Credit facility in fiscal 2017 compared to fiscal 2016 primarily due to
decreases in our capital expenditures and proceeds on the sale of properties.
Our cash requirements for fiscal 2018 consisted principally of:
•
capital expenditures for recurring maintenance of our restaurant property and equipment, restaurant renovations and
upgrades, new construction, and information technology;
• payments to reduce our debt; and
• working capital primarily for our Companyowned restaurants and obligations under our CCS agreements.
Based upon our level of past and projected capital requirements, we expect that proceeds from the sale of assets and cash flows
from operations, combined with other financing alternatives in place or available, will be sufficient to meet our capital
expenditures and working capital requirements during the next twelve months.
As is common in the restaurant industry, we maintain relatively low levels of accounts receivable and inventories and our
vendors grant trade credit for purchases such as food and supplies. However, higher levels of accounts receivable are typical in
our CCS business segment and Franchise Operations business segment. We also invest in our business through the addition of
new restaurant units and refurbishment of existing restaurant units, which are reflected as longterm assets.
The following table summarizes our cash flows from operating, investing and financing activities:
Total cash provided by (used in):
Operating activities
Investing activities
Financing activities
Increase (Decrease) in cash and cash equivalents
$
$
August 29,
2018
(52 weeks)
Fiscal Year Ended
August 30,
2017
(52 weeks)
(In thousands)
August 31,
2016
(53 weeks)
(8,453) $
3,014
8,065
2,626 $
9,640 $
(3,216)
(6,667)
(243) $
13,859
(13,442)
(579)
(162)
Operating Activities. Cash flow from operating activities decreased from a source of cash of approximately $9.6 million in
fiscal 2017 to a use of cash of approximately $8.5 million in fiscal 2018. The $18.1 million decrease in operating cash flow was
primarily due to an approximate $12.3 million decrease in cash provided by operations before changes in operating assets and
liabilities and an approximate $5.8 million increase in cash used in changes in operating assets and liabilities.
The $12.3 million decrease in cash provided by operating activities before changes in operating assets and liabilities was
primarily due to uses of cash from an approximate $12.0 million decrease total in total segment level profit, an approximate
$0.9 million increase in interest expense, an approximate $0.2 million increase in discounts on the sale of gift cards, and an
approximate $0.2 million decrease in sales tax discounts as a result of discontinuing the prepayment of certain sales taxes
partially offset by a source of cash of an approximate $1.0 million increase in the fair value of our interest rate swap.
The $5.8 million increase in cash used in changes in operating assets and liabilities was primarily due to an approximate $7.7
million decrease in the change of accounts payable, accrued expenses and other liabilities, partially offset by an approximate
$1.3 million decrease in the change of trade accounts receivable and other receivables, an approximate $0.3 million decrease in
the change of food and supply inventories, and an approximate $0.3 million decrease in the change of prepaid expenses and
other assets, in fiscal 2018 compared to fiscal 2017.
Cash flow from operating activities decreased from approximately $13.8 million in fiscal 2016 to approximately $9.6 million in
fiscal 2017. The $4.2 million decrease in cash provided by operating activities was primarily due to an approximate $8.3
million decrease in cash provided by operations before changes in operating assets and liabilities offset by an approximate $4.1
million decrease in cash used in changes in operating assets and liabilities.
Investing Activities. We generally reinvest available cash flows from operations to develop new restaurants, maintain and
enhance existing restaurants, and to support CCS. Our capital expenditure program includes, among other things, investments
in new restaurants, restaurant remodeling, and information technology enhancements. Companyowned restaurant capital
expenditures included purchases of new equipment, restaurant renovations and upgrades and new restaurant construction.
Cash provided by investing activities was approximately $3.0 million in fiscal 2018, an increase of approximately $6.2 million
compared to cash used in investing activities of approximately $3.2 million in fiscal 2017, primarily due to the proceeds from
disposal of assets and property held for sale and proceeds from property and equipment insurance claims. We invested
approximately $13.2 million in the purchase of property and equipment in fiscal 2018, an increase of $0.7 million from our
investment of approximately $12.5 million in fiscal 2017. Proceeds from disposal of assets and property held for sale was
approximately $14.2 million in fiscal 2018, an increase of $4.9 million from proceeds of approximately $9.3 million in fiscal
2017. Proceeds on property and equipment insurance claims of approximately $2.1 million was a source of cash in fiscal 2018.
The purchases of property and equipment of approximately $13.2 million in fiscal 2018 included approximately $11.1 million
in capital expenditures related to Companyowned restaurants, approximately $1.9 million in corporate related capital
expenditures, and approximately $0.2 million in Culinary Contract Services. The purchases of property and equipment of
approximately $12.5 million in fiscal 2017 included $11.4 million in capital expenditures related to Companyowned
restaurants and $1.1 million in corporate related capital expenditures.
Cash used in investing activities was approximately $3.2 million in fiscal 2017 compared to cash used in investing activities of
approximately $13.4 million in fiscal 2016. In fiscal 2017, proceeds from disposal of assets and property held for sale was
approximately $9.3 million. In fiscal 2017, purchases of property and equipment was approximately $12.5 million, including
$11.4 million in capital expenditures related to Companyowned restaurants and approximately $1.1 million in corporate
related capital expenditures.
Financing Activities. Cash provided by financing activities was approximately $8.1 million in fiscal 2018, an increase of $14.7
million from cash used in financing activities of approximately $6.6 million in fiscal 2017. Cash flows from financing activities
was primarily the result of borrowings and repayments related to the 2016 Credit facility, as amended; our Revolver and our
Term Loan. During fiscal 2018, cash provided by Revolver borrowings was approximately $15.6 million, our Term Loan
repayments was approximately $7.0 million, cash used for debt issuance costs was approximately $0.4 million, and cash used
for equity shares withheld to cover taxes was approximately $0.1 million.
In fiscal 2017, we decreased debt from $37.0 million at the end of fiscal 2016 to $31.0 million at the end of fiscal 2017. In
fiscal 2017, we paid approximately $652 thousand in debt issuance costs.
STATUS OF LONGTERM INVESTMENTS AND LIQUIDITY
At August29, 2018, we did not hold any longterm investments.
STATUS OF TRADE ACCOUNTS AND OTHER RECEIVABLES, NET
We monitor the aging of our receivables, including Fuddruckers franchising related receivables, and record provisions for
uncollectability, as appropriate. Credit terms of accounts receivable associated with our CCS business vary from 30 to 45 days
based on contract terms.
WORKING CAPITAL
At fiscal yearend 2018, current assets increased approximately $2.8 million including an increase of approximately $2.6
million in cash. Trade accounts and other receivables increased approximately $1.7 million while insurance receivables, food
and supply inventory, and prepaid expenses decreased approximately $0.9 million, $0.4 million and $0.2 million, respectively.
The $1.7 million increase in trade accounts and other receivables was primarily due to increases in receivables related to our
culinary contract services. The $0.9 million decrease in insurance receivables related to insurance proceeds received on two
properties damaged by flooding during Hurricane Harvey. The $0.4 million decrease in food and supply inventory was
primarily due to lower spending for restaurant supplies and food supplies on lower sales volumes and the $0.2 million decrease
in prepaid expenses was primarily due to reduction in prepayments of expenses.
At fiscal yearend 2018, current liabilities increased approximately $37.2 million due primarily to an approximate $39.3 million
increase in Credit facility debt and an approximate $3.3 million increase in accrued expenses and other liabilities partially
offset by an approximate $5.4 million decrease in accounts payable. The increase of approximately $39.3 million in Credit
facility debt was due to the reclassification of Credit facility debt from longterm to shortterm due to the maturity of the loans
on May 1, 2019 and the approximate $3.3 million increase in accrued expenses and other liabilities is primarily a result of lease
termination costs reserves of approximately $1.5 million, selfinsured medical claims reserves of approximately $0.9 million,
accrued salaries and incentives of approximately $0.7 million, accrued professional fees of approximately $0.4 million,
insurance claims of approximately $0.4 million, accrued interest expense of approximately $0.3 million, worker's compensation
claims reserves of approximately $0.2 million, and accrued travel costs of approximately $0.1 million, partially offset by
decreases in deferred income taxes of approximately $0.4 million, accrued property taxes of approximately $0.2 million,
accrued legal and professional fees of approximately $0.1 million, and unredeemed gift cards of approximately $0.1 million,
The $5.4 million decrease in accounts payable was due to an approximate $1.9 million decrease in checks in transit, an
approximate $3.2 million decrease in trade payables, and an approximate $0.3 million decrease in accrued purchases.
CAPITAL EXPENDITURES
Capital expenditures consist of purchases of real estate for future restaurant sites, culinary contract services investments, new
unit construction, purchases of new and replacement restaurant furniture and equipment, and ongoing remodeling programs.
Capital expenditures for fiscal 2018 were approximately $13.2 millionconsisting of (1) approximately $1.1 million in
information technology infrastructure maintenance and upgrade projects;(2) approximately $2.1 million in the rebuilding and
refurbishing and updating of restaurants, mostly related to restorations after hurricane and flood damage incurred in August
2017; and (3) approximately $10.0 million in recurring capital expenditures. In fiscal 2019, we expect to invest up to $8.0
million for recurring maintenance for our restaurant properties and information technology investments. We expect to be able to
fund all capital expenditures in fiscal 2019 using cash flows from operations, proceeds from the sale of assets, and our available
credit.
DEBT
Senior Secured Credit Agreement
On November 8, 2016, we entered into a $65.0 million Senior Secured Credit Facility with Wells Fargo Bank, National
Association, as Administrative Agent and Cadence Bank, NA and Texas Capital Bank, NA, as lenders (“2016 Credit
Agreement”). The 2016 Credit Agreement, prior to amendments discussed below, is comprised of a $30.0 million 5year
Revolver (the “Revolver”) and a $35.0 million 5year Term Loan (the “Term Loan”). The maturity date of the 2016 Credit
Agreement is November 8, 2021. For this section of the form 10K, capitalized terms that are used but not otherwise defined
shall have the meanings given to such terms in the 2016 Credit Agreement.
The Term Loan and/or Revolver commitments may be increased by up to an additional $10 million in the aggregate.
The 2016 Credit Agreement also provides for the issuance of letters of credit in an aggregate amount equal to the lesser of $5.0
million and the Revolving Credit Commitment, which was $30 million as of November 8, 2016. The 2016 Credit Agreement is
guaranteed by all of our present subsidiaries and will be guaranteed by our future subsidiaries.
At any time throughout the term of the 2016 Credit Agreement, we have the option to elect one of two bases of interest rates.
One interest rate option is the highest of (a)the Prime Rate, (b)the Federal Funds Rate plus 0.50% and (c) 30day LIBOR plus
1%, plus, in each case, the Applicable Margin, which ranges from 1.50% to 2.50%per annum. The other interest rate option is
LIBOR plus the Applicable Margin, which ranges from 2.50% to 3.50%per annum. The Applicable Margin under each option
is dependent upon our Consolidated Total Lease Adjusted Leverage Ratio ("CTLAL") at the most recent quarterly
determination date.
The Term Loan amortizes 7.0% per year (35.0% in 5 years) which includes the quarterly payment of principal. As of August
30, 2017, the Company has prepaid its required principal payments through the second calendar quarter of 2019. On December
14, 2016, we entered into an interest rate swap with a notional amount of $17.5 million, representing 50% of the initial
outstanding Term Loan.
We are obligated to pay to the Administrative Agent for the account of each lender a quarterly commitment fee based on the
average daily unused amount of the commitment of such lender, ranging from 0.30% to 0.35%per annum depending on the
CTLAL at the most recent quarterly determination date.
The proceeds of the 2016 Credit Agreement are available for us to (i) pay in full all indebtedness outstanding under the 2013
Credit Agreement as of November 8, 2016, (ii) pay fees, commissions, and expenses in connection with our repayment of the
2013 Credit Agreement, initial extensions of credit under the 2016 Credit Agreement, and (iii) for working capital and general
corporate purposes of the Company.
The 2016 Credit Agreement, as amended,contains the following covenants among others:
• CTLAL of not more than (i) 5.00 to 1.00, at the end of each fiscal quarter, through and including the third fiscal
quarter of the Borrower’s fiscal 2018, and (ii) 4.75 to 1.00 thereafter,
• Consolidated Fixed Charge Coverage Ratio of not less than 1.25 to 1.00, at the end of each fiscal quarter,
• Limit on Growth Capital Expenditures so long as the CTLAL is at least 0.25X less than the thenapplicable permitted
maximum CTLAL,
restrictions on mergers, acquisitions, consolidations, and asset sales,
restrictions on the payment of dividends, redemption of stock, and other distributions,
restrictions on incurring indebtedness, including certain guarantees, and capital lease obligations,
restrictions on incurring liens on certain of our property and the property of our subsidiaries,
restrictions on transactions with affiliates and materially changing our business,
•
•
•
•
•
restrictions on making certain investments, loans, advances, and guarantees,
restrictions on selling assets outside the ordinary course of business,
•
•
• prohibitions on entering into sale and leaseback transactions, and
•
restrictions on certain acquisitions of all or a substantial portion of the assets, property and/or equity interests of any
person, including share repurchases and dividends.
The 2016 Credit Agreement is secured by substantially all of the personal property, including without limitation the equity
interest in each of our subsidiaries. The 2016 Credit Agreement also includes customary events of default. If a default occurs
and is continuing, the lenders’ commitments under the 2016 Credit Agreement may be immediately terminated and/or we may
be required to repay all amounts outstanding under the 2016 Credit Agreement.
Second Amendment to 2016 Credit Agreement
On April 20, 2018, the Company entered into the Second Amendment to the 2016 Credit Agreement, effective as of March14,
2018. The amendment accelerates the maturity date of the Credit Agreement to May1, 2019, approximately 9 months after the
balance sheet date, August29, 2018. The amendment included the following changes:
• Aggregate commitments under the senior secured revolving credit facility (“Revolver”) were reduced from $30.0
million to $27.0 million beginning August29, 2018.
• Changed the maturity date of the Revolver and Term Loan to May1, 2019.
• Reduced the letter of credit sublimit from $5.0 million to $2.0 million.
•
Interest rate on LIBOR Rate Loans (LIBOR + Applicable Margin) changed to the following:
◦ LIBOR + 4.50% April20, 2018 June30, 2018
◦ LIBOR + 4.75% July1, 2018 September30, 2018
◦ LIBOR + 5.00% October1, 2018 December31, 2018
◦ LIBOR + 5.25% January1, 2019 March31, 2019
◦ LIBOR + 5.50% April1, 2019 Maturity Date
•
Interest rate margin on Base Rate Loans changed to the following:
◦ 100 basis points less than the Applicable Margin for LIBOR Rate Loans
• Maximum Consolidated Total LeaseAdjusted Leverage Ratio (“CTLAL”) is changed to 6.50 to 1.00 at March 14,
2018; 6.75 to 1.00 at June6, 2018 and August29, 2018; and 6.50 to 1.00 at each measurement period in fiscal 2019.
• Minimum Consolidated EBITDA covenant required at $7.0 million (thirteen consecutive accounting periods) tested
monthly, prior to the second fiscal quarter fiscal 2019 and $7.5 million for each fiscal quarter thereafter (consisting of
thirteen consecutive accounting periods).
• Minimum liquidity covenant requiring for at least $2.0 million in liquidity at all times.
• Maximum annual maintenance capital expenditures not to exceed $9.6 million for the fiscal year ending August29,
2018 and $8.5 million in fiscal 2019.
• Within 30 days of the date of amendment, a senior security interest in and lien on any of the Company's real estate
properties identified by the Administrative Agent and loan to value ratio of 0.50 to 1.00 on collateral real estate.
• Excess liquidity provision requiring any consolidated cash balances of the Borrower and its Subsidiaries in excess of
$1.0 million, as reported in the 13week cash flow reports, used to repay Revolving Credit Loans.
Management has identified approximately 14 owned properties inclusive of assets currently classified as Assets related to
discontinued operations and Property held for sale on the Company’s Balance Sheet, as of June6, 2018, as part of a limited
asset disposal plan to accelerate repayment of its outstanding term loans. The Board approved the limited asset sales plan on
April18, 2018. The Company estimates that such additional limited asset sales plan will be implemented over the course of the
next 18 months. These asset disposal plans, in conjunction with other operational changes, are designed to lower the
outstanding debt and to improve the Company’s financial condition as the Company pursues a new credit facility.
As of March14, 2018, the Company would not have been in compliance with the Company’s Lease Adjusted Leverage Ratio
and Fixed Charge Coverage Ratio covenants of the Credit Agreement prior to the Second Amendment thereto, which became
effective on March14, 2018. At any determination date, if the results of the Company's covenants exceed the maximums or
minimums permitted under its 2016 Credit Agreement, the Company would be considered in default under the terms of the
agreement which could cause a substantial financial burden by requiring the Company to repay the debt earlier than otherwise
anticipated. Due to negative results in the first three quarters of fiscal 2018, continued under performance in the current fiscal
year could cause the Company's financial ratios to exceed the permitted limits under the terms of the Credit Agreement.
Third Amendment to 2016 Credit Agreement
On August 24, 2018, the Company entered into the Third Amendment to Credit Agreement (the “Third Amendment”)
amending the Credit Agreement dated as of November 8, 2016, as amended by the Second Amendment to Credit Agreement
dated as of April 20, 2018 (together, with the Third Amendment, the “Credit Agreement”), by and among the Company, the
other credit parties party thereto, the lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent
for the lenders (the “Administrative Agent”).
The Third Amendment amended the interest rate on LIBOR rate loans (LIBOR + applicable margin) to (i) LIBOR + 6.50%
from the effective date of the Third Amendment through the date the term loan has been paid in full in cash and (ii) LIBOR +
5.50% from the date following the date the term loan has been paid in full in cash and thereafter. The interest rate on base rate
loans is 100 basis points less than the applicable margin for LIBOR rate loans.
Pursuant to the Third Amendment, the lenders agreed to waive the existing events of default as of the effective date of the Third
Amendment resulting from any breach of certain financial covenants or the limitation on maintenance capital expenditures, in
each case that may have occurred during the period from and including May 9, 2018 until the effective date of the Third
Amendment, and any related events of default. Additionally, the lenders agreed to waive the requirements that the Company
comply with certain financial covenants until December 31, 2018.
The Third Amendment requires the Company to make mandatory principal prepayments upon certain asset dispositions as
follows: (i) 50% of the first $12.0 million of net cash proceeds from asset dispositions received by the Company; (ii) 75% of
the next $8.0 million of net cash proceeds from asset dispositions received by the Company; and (iii) 100% of all net cash
proceeds in excess of the first $20.0 million of net cash proceeds from asset dispositions received by the Company, in each case
from and after the effective date of the Third Amendment.
Additionally, the Company agreed to grant liens on additional properties of the Company to secure borrowings under the Credit
Agreement.
At August 29, 2018, the Company had approximately $8.5 million available to borrow under the Revolver in the 2016 Credit
Agreement.
As of August29, 2018, under the 2016 Credit Agreement, we had $39.5 million in total outstanding loans and approximately
$1.3 million committed under letters of credit, which is used as security for the payment of insurance obligations, and
approximately $0.2 million in other indebtedness.
2013 Credit Facility
We were party to a revolving credit agreement with Wells Fargo Bank, National Association, as Administrative Agent, and ZB,
N.A. dba Amegy Bank (formerly Amegy Bank, N.A.), as Syndication Agent (the “2013 Credit Facility”). The 2013 Credit
Facility matured and was refunded on November 8, 2016, through the entering of the 2016 Credit Agreement, and there were
no amounts outstanding under the 2013 Credit Facility at August 30, 2017.
COMMITMENTS AND CONTINGENCIES
OffBalance Sheet Arrangements
We have no offbalance sheet arrangements except for operating leases for our corporate office, facility service warehouse and
certain restaurant properties.
Claims
From time to time, we are subject to various other private lawsuits, administrative proceedings and claims that arise in the
ordinary course of our business. A number of these lawsuits, proceedings and claims may exist at any given time. These matters
typically involve claims from guests, employees and others related to issues common to the restaurant industry. We currently
believe that the final disposition of these types of lawsuits, proceedings and claims will not have a material adverse effect on
our financial position, results of operations or liquidity. It is possible, however, that our future results of operations for a
particular quarter or fiscal year could be impacted by changes in circumstances relating to lawsuits, proceedings or claims.
Construction Activity
From time to time, we enter into noncancelable contracts for the construction of our new restaurants and restaurant remodels.
This construction activity exposes us to the risks inherent in this industry including but not limited to rising material prices,
labor shortages, delays in getting required permits and inspections, adverse weather conditions, and injuries sustained by
workers.
Contractual Obligations
At August29, 2018, we had contractual obligations and other commercial commitments as described below:
Contractual Obligations
Payments due by Period
Total
Less than
1 Year
13 Years
35 Years
After
5 Years
Revolver
Term Loan
Capital lease and other obligations(1)
Operating lease obligations (2)
Uncertain tax positions liability (3)
Total
Other Commercial Commitments
Letters of credit
$
$
$
20,000 $
19,506
201
52,815
25
92,547 $
(In thousands)
20,000 $
19,506
64
10,790
25
50,385 $
— $
—
132
15,464
—
15,596 $
— $
—
5
9,921
—
9,926 $
—
—
—
16,640
—
16,640
Total
Amount of Commitment by Expiration Period
Fiscal
20202021
(In thousands)
Fiscal
20212022
Fiscal
2019
Thereafter
1,287 $
1,287 $
— $
— $
—
Capital lease obligations contain leases relating to notes on automobile purchases.
Operating lease obligations contain rent escalations and renewal options ranging from one to twentyfive years.
The timing and amounts of future cash payments related to these liabilities are uncertain.
In addition to the commitments described above, we enter into a number of cancelable and noncancelable commitments during
each fiscal year. Typically, these commitments expire within one year and are generally focused on food inventory. We do not
maintain any longterm or exclusive commitments or arrangements to purchase products from any single supplier. Substantially
all of our product purchase commitments are cancelable up to 30 days prior to the vendor’s scheduled shipment date.
Longterm liabilities reflected in our consolidated financial statements as of August29, 2018 included amounts accrued for
benefit payments under our supplemental executive retirement plan of $39 thousand, accrued noncash compensation of
approximately $21 thousand, accrued insurance reserves of approximately $1.0 million, and deferred rent liabilities of
approximately $2.1 million.
We are also contractually obligated to our Chief Executive Officer pursuant to an employment agreement. See “Affiliations and
Related Parties” below for further information.
AFFILIATIONS AND RELATED PARTIES
Affiliate Services
Our Chief Executive Officer, Christopher J. Pappas, and one of our directors and our former Chief Operating Officer, Harris J.
Pappas, own two restaurant entities (the “Pappas entities”) that may from time to time provide services to Luby’s, Inc. and its
subsidiaries, as detailed in the Amended and Restated Master Sales Agreement dated November 8, 2013 among us and the
Pappas entities (the “Master Sales Agreement”).
Under the terms of the Amended and Restated Master Sales Agreement, the Pappas entities continue to provide specialized
(customized) equipment fabrication, primarily for new construction, and basic equipment maintenance, including stainless steel
stoves, shelving, rolling carts, and chef tables. The total costs under the Master Sales Agreement of customfabricated and
refurbished equipment in fiscal 2018, 2017, and 2016 were approximately $31 thousand, $4 thousand, and $2 thousand,
respectively. The Company also incurred $2 thousand of other operating expenses in fiscal 2018 from the Pappas entities.
Services provided under this agreement are subject to review and approval by the Finance and Audit Committee of the
Company’s Board of Directors.
Operating Leases
In the third quarter of fiscal 2004, Messrs. Pappas became partners in a limited partnership which purchased a retail strip center
in Houston, Texas. Messrs. Pappas collectively own a 50% limited partner interest and a 50% general partner interest in the
limited partnership. A third party company manages the center. One of the Company’s restaurants has rented approximately 7%
of the space in that center since July 1969. No changes were made to the Company’s lease terms as a result of the transfer of
ownership of the center to the new partnership.
On November22, 2006, the Company executed a new lease agreement with respect to this property. Effective upon the
Company’s relocation and occupancy into the new space in July 2008, the new lease agreement provides for a primary term of
approximately 12 years with two subsequent fiveyear options. The new lease also gave the landlord an option to buy out the
tenant on or after the calendar year 2015 by paying the then unamortized cost of improvements to the tenant. The Company
paid rent of $22.00 per square foot plus maintenance, taxes, and insurance for the remaining primary term of the lease.
Thereafter, the lease provides for increases in rent at set intervals. The Company made payments of approximately $460
thousand, $419 thousand, and $417 thousand, in fiscal 2018, 2017, and 2016, respectively. The new lease agreement was
approved by the Finance and Audit Committee of our Board of Directors.
In the third quarter of fiscal 2014, on March 12, 2014, the Company executed a new lease agreement for one of the Company’s
Houston Fuddruckers locations with Pappas Restaurants, Inc. The lease provides for a primary term of approximately six years
with two subsequent fiveyear options. Pursuant to the new ground lease agreement, the Company paid $28.06 per square foot
plus maintenance, taxes, and insurance from March 12, 2014 until May 31, 2020. Thereafter, the new ground lease agreement
provides for increases in rent at set intervals. The Company made payments of $168 thousand, $162 thousand, and $160
thousand, in fiscal 2018, 2017, and 2016, respectively.
Affiliated rents paid for these Houston property leases represented 3.1%, 2.7%, and 2.6% of the total rents for continuing
operations in fiscal 2018, 2017, and 2016, respectively.
The following table compares current and prior two fiscal years charges incurred under the Amended and Restated Master Sales
Agreement, affiliated property leases, and other related party agreements to our total capital expenditures, as well as relative
Selling, general and administrative expenses, and other operating expenses included in continuing operations:
AFFILIATED COSTS INCURRED:
Selling, general and administrative expenses—professional
and other costs
Capital expenditures—customfabricated and refurbished
equipment
Other operating expenses, occupancy costs and opening costs,
including property leases
Total
RELATIVE TOTAL COMPANY COSTS:
Selling, general and administrative expenses
Capital expenditures
Other operating expenses, occupancy costs and opening costs
Total
AFFILIATED COSTS INCURRED AS A PERCENTAGE OF
RELATIVE TOTAL COMPANY COSTS
$
$
$
$
August 29,
2018
(364 days)
Fiscal Year Ended
August 30,
2017
(364 days)
(In thousands, except percentages)
August 31,
2016
(371 days)
—
31
628
659
38,725
13,247
83,239
135,211
$
$
$
$
1
4
581
586
37,878
12,502
84,203
134,583
$
$
$
$
1
2
577
580
42,422
18,253
84,122
144,797
0.49%
0.44%
0.40%
The Company entered into a new employment agreement with Christopher Pappas on January 24, 2014. The employment
agreement was amended on August 2, 2017, to extend the termination date thereof to August 29, 2018. The employment
agreement was restated on December 11, 2017 to extend the termination date thereof to August 28, 2019. Mr. Pappas continues
to devote his primary time and business efforts to the Company while maintaining his role at Pappas Restaurants, Inc. The
Employment Agreement was unanimously approved by the Executive Compensation Committee (the “Committee”) of the
Board as well as by the full Board. Effective August 1, 2018, the Company and Christopher J. Pappas agreed to reduce his fixed
annual base salary to one dollar.
Peter Tropoli, a director of the Company served as the Company's Chief Operating Officer until October 22, 2018. On October
22, 2018, he was appointed as General Counsel and Secretary, which was a role he formerly served. He continues to serve as a
director of the Company. He is an attorney and stepson of Frank Markantonis, who is a director of the Company.
Paulette Gerukos, our Vice President of Human Resources, is the sisterinlaw of Harris J. Pappas, who is a director of the
Company.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our accounting policies are described in Note 1, “Nature of Operations and Significant Accounting Policies,” to our
Consolidated Financial Statements included in Item8 of Part II of this report. The Consolidated Financial Statements are
prepared in conformity with accounting principles generally accepted in the United States. Preparation of the financial
statements requires us to make judgments, estimates and assumptions that affect the amounts of assets and liabilities in the
financial statements and revenues and expenses during the reporting periods. Management believes the following are critical
accounting policies due to the significant, subjective and complex judgments and estimates used when preparing our
consolidated financial statements. Management regularly reviews these assumptions and estimates with the Finance and Audit
Committee of our Board of Directors.
Income Taxes
Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s
best estimate of current and future taxes to be paid. We are subject to income taxes in the United States and a limited number of
foreign jurisdictions, involving franchised locations in South America, Mexico, Dominican Republic, Canada, Poland and Italy.
Significant judgments and estimates are required in the determination of the consolidated income tax expense. On December
22, 2017, President Donald J. Trump signed into law U.S. tax reform legislation that is commonly referred to as the Tax Cuts
and Jobs Act (the “Tax Act”). The enactment date occurred during the second quarter of fiscal 2018 and the impact on our
income tax accounts of the Tax Act are accounted for in the period of enactment, in accordance with ASC 740. The Tax Act
makes broad and complex changes to the U.S. tax code and most notably to the Company, the Tax Act lowered the federal
statutory tax rate from 35% to 21% effective January 1, 2018. In accordance with the application of IRC Section 15, the
Company's federal statutory tax rate for fiscal 2018 was 25 percent, representing a blended tax rate for the current fiscal year
based on the number of days in the fiscal year before and after the effective date. For subsequent years, the Company's federal
statutory tax rate is anticipated to be 21%. The Company was also required to remeasure its deferred tax assets and liabilities
using the new federal statutory tax rate in the second quarter of fiscal year 2018, upon enactment of the Tax Act. At that time,
the Company's net deferred tax asset balance was $7.8 million, and the Tax Act reduction in the federal statutory tax rate
resulted in a onetime noncash reduction to the Company's net deferred tax balance of approximately $3.2 million with a
corresponding income tax provision increase in the second quarter of fiscal 2018. Deferred income taxes arise from temporary
differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will
result in taxable or deductible amounts in the future, as well as from tax Net Operating Losses ("NOL") and tax credit
carryovers. We establish a valuation allowance when we no longer consider it more likely than not that a deferred tax asset will
be realized. In evaluating our ability to recover our deferred tax assets, we consider available positive and negative evidence,
including scheduled reversals of deferred tax liabilities, taxplanning strategies and existing business conditions, including
amendment to our credit agreement(s) to avoid default and results of recent operations.
We evaluated new negative evidence during the third quarter of fiscal 2018, in connection with our response to a default in
certain of the Company’s Credit Agreement financial covenants, a condition that raised substantial doubt as to the Company
continuing as a going concern for a reasonable period of time. This circumstance and its added negative evidence, supported
management’s conclusion that a full valuation allowance on the Company’s net deferred tax assets in the amount of $25.3
million was necessary during the third quarter of fiscal 2018. Management's conclusion for a full valuation allowance reduces
fully the Company’s net deferred tax balances, net of deferred tax liabilities, through and including the fiscal year ended August
29, 2018.
The composition of the Company’s deferred tax assets, excluding the offsetting impact of the valuation allowance, includes
income tax NOL’s and tax credits of approximately $16.5 million, approximately $4.4 million relating to income tax NOL’s
and $12.1 million relating to tax credit carryover, which expire in varying amounts between fiscal 2022 through 2038. At this
time, the management is uncertain as to the realization of these deferred tax assets, which is otherwise dependent on numerous
factors, including our ability to generate sufficient taxable income prospectively, and if necessary gain on sale of owned
property locations, prior to expiration of the tax NOL’s and tax credit carryovers.
Management makes judgments regarding the interpretation of tax laws that might be challenged upon an audit and cause
changes to previous estimates of tax liability. We operate within multiple taxing jurisdictions and are subject to examination in
these tax jurisdictions, as well as by the Internal Revenue Service (“IRS”). In management’s opinion, adequate provisions for
income taxes have been made for all open income tax periods. The potential outcomes of examinations are regularly assessed in
determining the adequacy of the provision for income taxes and income tax liabilities. Management believes that adequate
provisions have been made for reasonable and foreseeable outcomes related to uncertain tax matters.
Impairment of LongLived Assets
We periodically evaluate longlived assets held for use and held for sale, whenever events or changes in circumstances indicate
that the carrying amount of those assets may not be recoverable. We analyze historical cash flows of operating locations and
compare results of poorer performing locations to more profitable locations. We also analyze lease terms, condition of the
assets and related need for capital expenditures or repairs, construction activity in the surrounding area as well as the economic
and market conditions in the surrounding area.
For assets held for use, we estimate future cash flows using assumptions based on possible outcomes of the areas analyzed. If
the undiscounted future cash flows are less than the carrying value of our location’s assets, we record an impairment based on
an estimate of discounted cash flows. The estimates of future cash flows, based on reasonable and supportable assumptions and
projections, require management’s subjective judgments. Assumptions and estimates used include operating results, changes in
working capital, discount rate, growth rate, anticipated net proceeds from disposition of the property and if applicable, lease
terms. The span of time for which future cash flows are estimated is often lengthy, increasing the sensitivity to assumptions
made. The time span is longer and could be 20 to 25 years for newer properties, but only 5 to 10 years for older properties.
Depending on the assumptions and estimates used, the estimated future cash flows projected in the evaluation of longlived
assets can vary within a wide range of outcomes. We consider the likelihood of possible outcomes in determining the best
estimate of future cash flows. The measurement for such an impairment loss is then based on the fair value of the asset as
determined by discounted cash flows. We operated 142 restaurants as of November7, 2018 and periodically experience
unanticipated changes in our assumptions and estimates. Those changes could have a significant impact on discounted cash
flow models with a corresponding significant impact on the measurement of an impairment. Gains are not recognized until the
assets are disposed.
We evaluate the useful lives of our other intangible assets, primarily the Fuddruckers trademarks and franchise agreements to
determine if they are definite or indefinitelived. Reaching a determination of useful life requires significant judgments and
assumptions regarding the future effects of obsolescence, contract term, demand, competition, other economic factors (such as
the stability of the industry, legislative action that results in an uncertain or changing regulatory environment, and expected
changes in distribution channels), the level of required maintenance expenditures, and the expected lives of other related groups
of assets.
We periodically evaluate our intangible assets, primarily the Fuddruckers trademarks and franchise agreements, to determine if
events or changes in circumstances such as economic or market conditions indicate that the carrying amount of the assets may
not be recoverable. We analyze historical cash flows of operating locations to determine trends that would indicate a need for
impairment. We also analyze royalties and collectability from our franchisees to determine if there are trends that would
indicate a need for impairment.
Property Held for Sale
We periodically review longlived assets against our plans to retain or ultimately dispose of properties. If we decide to dispose
of a property, it will be moved to property held for sale and actively marketed. Property held for sale is recorded at amounts not
in excess of what management currently expects to receive upon sale, less costs of disposal. We analyze market conditions each
reporting period and record additional impairments due to declines in market values of like assets. The fair value of the
property is determined by observable inputs such as appraisals and prices of comparable properties in active markets for assets
like ours. Gains are not recognized until the properties are sold.
Insurance and Claims
We selfinsure a significant portion of risks and associated liabilities under our employee injury, workers’ compensation and
general liability programs. We maintain insurance coverage with third party carriers to limit our peroccurrence claim exposure.
We have recorded accrued liabilities for selfinsurance based upon analysis of historical data and actuarial estimates, and we
review these amounts on a quarterly basis to ensure that the liability is appropriate.
The significant assumptions made by the actuary to estimate selfinsurance reserves, including incurred but not reported claims,
are as follows: (1)historical patterns of loss development will continue in the future as they have in the past (Loss
Development Method), (2)historical trend patterns and loss cost levels will continue in the future as they have in the past
(BornhuetterFerguson Method), and (3)historical claim counts and exposures are used to calculate historical frequency rates
and average claim costs are analyzed to get a projected severity (Frequency and Severity Method). The results of these methods
are blended by the actuary to provide the reserves estimates.
Actual workers’ compensation, employee injury and general liability claims expense may differ from estimated loss provisions.
The ultimate level of claims under the inhouse safety program are not known, and declines in incidence of claims as well as
claims costs experiences or reductions in reserve requirements under the program may not continue in future periods.
Prior to January 1, 2018, employee health insurance coverage was offered through fullyinsured contracts with insurance
carriers and the liability for covered health claims was borne by the insurance carriers per the terms of each policy contract.
Effective January 1, 2018, we maintain a selfinsured health benefit plan which provides medical and prescription drug benefits
to certain of our employees electing coverage under the plan. Our exposure is limited by individual and aggregate stop loss
limits per 3rd party insurance carriers.Our selfinsurance expense is accrued based upon the aggregate of the expected liability
for reported claims and the estimated liability for claims incurred but not reported, based on historical claims experience
provided by our 3rd party insurance advisors, adjusted as necessary based upon management’s reasoned judgment. Actual
employee medical claims expense may differ from estimated loss provisions based on historical experience. The liabilities for
these claims are included as a component of Accrued expenses and other liabilities on our consolidated balance sheets.
SHAREBASED COMPENSATION
Sharebased compensation is recognized as compensation expense in the income statement utilizing the fair value on the date
of the grant. The fair value of performance share based award liabilities are estimated based on a Monte Carlo simulation
model. The fair value of restricted stock units is valued at the closing market price of our common stock at the date of grant.
The fair value of each option award is estimated on the date of grant using the BlackScholes option pricing model.
Assumptions for volatility, forfeitures, expected option life, risk free interest rate, and dividend yield are used in the model.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 1 to the accompanying Consolidated Financial Statements for a discussion of recent accounting guidance adopted and
not yet adopted.The adoptedaccounting guidance discussed in Note 1 did not have a significant impact on our consolidated
financial position or results of operations.The Company either expects that theaccounting guidance not yet adopted will not
have a significant impact on the Company’s consolidated financial position or results of operations or is currently evaluating
the impact of adopting theaccountingguidance.
INFLATION
It is generally our policy to maintain stable menu prices without regard to seasonal variations in food costs. Certain increases in
costs of food, wages, supplies, transportation and services may require us to increase our menu prices from time to time. To the
extent prevailing market conditions allow, we intend to adjust menu prices to maintain profit margins.
Item7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to interest rate risk due to changes in interest rates affecting our variablerate debt, Term Loan and borrowings
under our 2016 Revolver. As of fiscal yearend 2018, the total amount of debt subject to interest rate fluctuations outstanding
under our Revolver and Term Loan was approximately $22.0 million. Assuming an average debt balance with interest rate
exposure of approximately $22.0 million, a 100 basis point increase in prevailing interest rates would increase our annual
interest expense by approximately $0.2 million. The interest rate on our remaining $17.5 million in outstanding debt is fixed
plus an applicable margin based on our CTLAL at each determination date, beginning December 14, 2016, under the terms of
our interest rate swap agreement. Under the terms of our 2016 Credit Agreement, we are required to manage interest rate risk,
utilizing interest rate swaps, on at least 50% of our 2016 Credit Agreement variable rate debt ("Term Loan"). Prior to
November 8, 2016, we did not utilize any interest rate swaps to manage interest rate risk on our variable rate 2013 Credit
Facility debt.
We have exposure to various foreign currency exchange rate fluctuations for revenues generated by our operations outside of
the United States, which can adversely impact our net income and cash flows. Approximately 0.10%, 0.12%, and 0.14% of our
total revenues in fiscal 2018, 2017, and 2016, respectively, were derived from sales to customers and royalties from franchisees
outside the contiguous United States. All of this business is conducted in the local currency of the country the franchise
operates. We do not enter into financial instruments to manage this foreign currency exchange risk.
Many ingredients in the products sold in our restaurants are commodities, subject to unpredictable price fluctuations. We
attempt to minimize price volatility by negotiating fixed price contracts for the supply of key ingredients and in some cases by
passing increased commodity costs through to the customer by adjusting menu prices or menu offerings. Our ingredients are
available from multiple suppliers so we are not dependent on a single vendor for our ingredients.
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Luby’s, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Luby’s, Inc. (a Delaware corporation) and subsidiaries(the
"Company") as of August29, 2018 and August30, 2017, the related consolidated statements of operations, shareholders’
equity, and cash flows for each of the three years in the period ended August29, 2018, and the related notes (collectively
referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of August29, 2018 and August30, 2017, and the results of its operations and its cash
flows for each of the three years in the period ended August29, 2018, in conformity with accounting principles generally
accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of August29, 2018, based on criteria established in the
2013 Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”), and our report dated November16, 2018 expressed an unqualified opinion.
Going concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As
discussed in Note 2 to the financial statements, the Company sustained a net loss of approximately $33.6 million and net cash
used in operating activities of approximately $8.5 million. The Company’s term and revolving debt of approximately
$39.5million is due May 1, 2019. The Company was in default of certain debt covenants of its term and revolving credit
agreements maturing on May 1, 2019. On August 24, 2018, the lenders agreed to waive the existing events of default resulting
from any breach of certain financial covenants or the limitation on maintenance capital expenditures, in each case that may
have occurred during the period from and including May 9, 2018 until August 24, 2018, and any related events of default.
Additionally, the lenders agreed to waive the requirements that the Company comply with certain financial covenants until
December 31, 2018, at which time the Company will be in default without an additional waiver or alternative financing. These
conditions, along with other matters as set forth in Note 2 raise substantial doubt about the Company’s ability to continue as a
going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company's auditor since 2007.
Houston, Texas
November16, 2018
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Luby’s, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting ofLuby’s, Inc. (a Delaware corporation) and subsidiaries (the
"Company")as of August29, 2018, based on criteria established in the 2013 Internal ControlIntegrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of August29, 2018, based on criteria
established in the 2013 Internal ControlIntegrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated financial statements of the Company as of and for the year ended August 29, 2018, and our report
dated November16, 2018 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Houston, Texas
November16, 2018
Luby’s, Inc.
Consolidated Balance Sheets
August 29,
2018
August 30,
2017
ASSETS
Current Assets:
Cash and cash equivalents
Trade accounts and other receivables, net
Food and supply inventories
Prepaid expenses
Total current assets
Property held for sale
Assets related to discontinued operations
Property and equipment, net
Intangible assets, net
Goodwill
Deferred income taxes
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
Liabilities related to discontinued operations
Current portion of credit facility debt
Accrued expenses and other liabilities
Total current liabilities
Credit facility debt, less current portion
Liabilities related to discontinued operations
Other liabilities
Total liabilities
$
$
$
1,096
8,011
4,453
3,431
16,991
3,372
2,755
172,814
19,640
1,068
7,254
2,563
226,457
(In thousands, except share data)
3,722 $
8,787
4,022
3,219
19,750
19,469
1,813
138,287
18,179
555
—
1,936
199,989 $
10,457 $
14
39,338
31,755
81,564
—
16
5,781
87,361
15,937
367
—
28,076
44,380
30,698
16
7,311
82,405
Commitments and Contingencies
SHAREHOLDERS’ EQUITY
Common stock, $0.32 par value; 100,000,000 shares authorized; Shares issued were
30,003,642 and 29,624,083, respectively; Shares outstanding were 29,503,642 and
29,124,083, respectively
Paidin capital
Retained earnings
Less cost of treasury stock, 500,000 shares
Total shareholders’ equity
Total liabilities and shareholders’ equity
$
9,602
33,872
73,929
(4,775)
112,628
199,989 $
9,480
31,850
107,497
(4,775)
144,052
226,457
The accompanying notes are an integral part of these Consolidated Financial Statements.
Luby’s, Inc.
Consolidated Statements of Operations
SALES:
Restaurant sales
Culinary contract services
Franchise revenue
Vending revenue
TOTAL SALES
COSTS AND EXPENSES:
Cost of food
Payroll and related costs
Other operating expenses
Occupancy costs
Opening costs
Cost of culinary contract services
Cost of franchise operations
Depreciation and amortization
Selling, general and administrative expenses
Provision for asset impairments and restaurant closings
Net Gain on disposition of property and equipment
Total costs and expenses
LOSS FROM OPERATIONS
Interest income
Interest expense
Other income (expense), net
Loss before income taxes and discontinued operations
Provision for income taxes
Loss from continuing operations
Loss from discontinued operations, net of income taxes
NET LOSS
Loss per share from continuing operations:
Basic
Assuming dilution
Loss per share from discontinued operations:
Basic
Assuming dilution
Net loss per share:
Basic
Assuming dilution
Weightedaverage shares outstanding:
Basic
Assuming dilution
August 29,
2018
Year Ended
August 30,
2017
(In thousands, except per share data)
August 31,
2016
$
$
$
$
$
$
$
$
332,518 $
25,782
6,365
531
365,196
350,818 $
17,943
6,723
547
376,031
94,238
124,478
62,286
20,399
554
24,161
1,528
17,453
38,725
8,917
(5,357)
387,382
(22,186)
12
(3,348)
298
(25,224)
7,730
(32,954)
(614)
98,714
125,997
61,924
21,787
492
15,774
1,733
20,438
37,878
10,567
(1,804)
393,500
(17,469)
8
(2,443)
(454)
(20,358)
2,438
(22,796)
(466)
(33,568) $
(23,262) $
(1.10) $
(1.10) $
(0.02) $
(0.02) $
(1.12) $
(1.12) $
(0.77) $
(0.77) $
(0.02) $
(0.02) $
(0.79) $
(0.79) $
378,111
16,695
7,250
583
402,639
106,980
132,960
60,961
22,374
787
14,955
1,877
21,889
42,422
1,442
(684)
405,963
(3,324)
4
(2,247)
186
(5,381)
4,875
(10,256)
(90)
(10,346)
(0.35)
(0.35)
(0.00)
(0.00)
(0.35)
(0.35)
29,901
29,901
29,476
29,476
29,226
29,226
The accompanying notes are an integral part of these Consolidated Financial Statements.
Luby’s, Inc.
Consolidated Statements of Shareholders’ Equity
(In thousands)
Common Stock
Issued
Treasury
Balance at August 26, 2015
Net loss for the year
Common stock issued under
nonemployee director benefit plans
Common stock issued under employee
benefit plans
Increase in excess tax benefits from
sharebased compensation
Sharebased compensation expense
Balance at August 31, 2016
Net loss for the year
Common stock issued under
nonemployee director benefit plans
Common stock issued under employee
benefit plans
Sharebased compensation expense
Balance at August 30, 2017
Net loss for the year
Common stock issued under
nonemployee director benefit plans
Common stock issued under employee
benefit plans
Sharebased compensation expense
Balance at August 29, 2018
PaidIn
Capital
Retained
Earnings
(4,775) $ 29,006 $ 141,105 $
—
Total
Shareholders’
Equity
—
—
—
—
—
Shares Amount Shares Amount
29,135 $
—
60
177
—
68
29,440 $
—
83
7
94
29,624 $
—
87
183
109
30,003 $
(500) $
—
—
—
—
—
(500) $
—
—
—
—
(500) $
—
—
—
—
(500) $
9,323
—
19
57
—
22
9,421
—
26
2
31
9,480
—
28
59
35
9,602
—
—
—
—
—
—
—
—
(119)
1,455
(4,775) $ 30,348 $ 130,759 $
—
(2)
1,530
(4,775) $ 31,850 $ 107,497 $
—
(19)
25
(26)
(28)
(10,346)
—
—
—
—
(23,262)
—
—
—
(33,568)
—
—
—
(59)
2,109
(4,775) $ 33,872 $ 73,929 $
174,659
(10,346)
—
82
(119)
1,477
165,753
(23,262)
—
—
1,561
144,052
(33,568)
—
—
2,144
112,628
The accompanying notes are an integral part of these Consolidated Financial Statements.
Luby’s, Inc.
Consolidated Statements of Cash Flows
August 29,
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash provided (used) in operating
activities:
Provision for asset impairments and net loss (gain) on property dispositions
Depreciation and amortization
Amortization of debt issuance cost
Sharebased compensation expense
Excess tax deficit from sharebased compensation
Deferred tax provision
Cash provided (used) in operating activities before changes in operating assets
and liabilities
Changes in operating assets and liabilities:
Increase in trade accounts and other receivables
Decrease (increase) in food and supply inventories
Decrease in prepaid expenses and other assets
Increase (decrease) in accounts payable, accrued expenses and other liabilities
Net cash provided (used) in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of assets and property held for sale
Insurance proceeds
Repayment of note receivable
Purchases of property and equipment
Net cash provided (used) in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolver borrowings
Revolver repayments
Debt issuance costs
Proceeds on term loan
Term loan repayments
Excess tax deficit from sharebased compensation
Tax paid on equity withheld
Proceeds received on the exercise of employee stock options
Net cash provided (used) in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Cash paid for:
Income taxes
Interest
Year Ended
August 30,
2017
(In thousands)
August 31,
2016
$
$
$
(33,568) $
(23,262) $
(10,346)
3,619
17,453
534
2,144
—
8,192
(1,626)
(775)
432
808
(7,292)
(8,453)
14,191
2,070
—
(13,247)
3,014
8,762
20,438
348
1,561
—
2,792
10,639
(2,092)
143
504
446
9,640
9,286
—
—
(12,502)
(3,216)
734
21,906
313
1,477
119
4,707
18,910
(744)
(616)
215
(3,906)
13,859
4,794
—
17
(18,253)
(13,442)
147,600
(132,000)
(386)
—
(7,079)
—
(70)
—
8,065
2,626
1,096
3,722 $
107,800
(140,400)
(652)
35,000
(8,415)
—
—
—
(6,667)
(243)
1,339
1,096 $
106,000
(106,500)
(42)
—
—
(119)
—
82
(579)
(162)
1,501
1,339
426 $
2,499
411 $
1,787
357
1,873
The accompanying notes are an integral part of these Consolidated Financial Statements.
Luby’s, Inc.
Notes to Consolidated Financial Statements
Fiscal Years 2018, 2017, and 2016
Note 1. Nature of Operations and Significant Accounting Policies
Nature of Operations
Luby’s, Inc. is based in Houston, Texas. As of August29, 2018, the Company owned and operated 146 restaurants, with 114 in
Texas and the remainder in other states. In addition, the Company received royalties from 105 franchises as of August29, 2018
located primarily throughout the United States. The Company’s owned and franchised restaurant locations are convenient to
shopping and business developments, as well as, to residential areas. Accordingly, the restaurants appeal to a variety of
customers at breakfast, lunch, and dinner. Culinary Contract Services consists of contract arrangements to manage food
services for clients operating in primarily four lines of business: healthcare; senior living; business; and venues.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Luby’s, Inc. and its wholly owned subsidiaries.
Luby’s, Inc. was restructured into a holding company on February1, 1997, at which time all of the operating assets were
transferred to Luby’s Restaurants Limited Partnership, a Texas limited partnership consisting of two wholly owned, indirect
corporate subsidiaries of the Company. On July9, 2010, Luby’s Restaurants Limited Partnership was converted into Luby’s
Fuddruckers Restaurants, LLC, a Texas limited liability company (“LFR”). Unless the context indicates otherwise, the word
“Company” as used herein includes Luby’s, Inc., LFR, and the consolidated subsidiaries of Luby’s, Inc. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Reportable Segments
Each restaurant is an operating segment because operating results and cash flow can be determined for each restaurant which is
regularly reviewed by the chief operating decision maker. The Company has three reportable segments: Companyowned
restaurants, franchise operations, and Culinary Contract Services (“CCS”). Companyowned restaurants are aggregated into
one reportable segment because the nature of the products and services, the production processes, the customers, the methods
used to distribute the products and services, and the nature of the regulatory environment are alike.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments such as money market funds that have a maturity of three months
or less. The Company’s bank account balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to
$250,000 at each institution. However, balances in money market fund accounts are not insured. Amounts in transit from credit
card companies are also considered cash equivalents because they are both shortterm and highly liquid in nature and are
typically converted to cash within three days of the sales transaction.
Trade Accounts and Other Receivables, net
Receivables consist principally of amounts due from franchises, culinary contract service clients, catering customers and
restaurant food sales to corporations. Receivables are recorded at the invoiced amount. The allowance for doubtful accounts is
the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The
Company determines the allowance based on historical loss experience for CCS clients, catering customers and restaurant sales
to corporations and, for CCS receivables and franchise royalty and marketing and advertising receivables, the Company also
considers the franchisees’ and CCS clients’ unsecured default status. The Company periodically reviews its allowance for
doubtful accounts. Account balances are charged off against the allowance after all means of collection have been exhausted
and the potential for recovery is considered remote.
Inventories
Food and supply inventories are stated at the lower of cost (firstin, firstout) or net realizable value.
Property Held for Sale
The Company periodically reviews longlived assets against its plans to retain or ultimately dispose of properties. If the
Company decides to dispose of a property, it will be moved to property held for sale and actively marketed. Property held for
sale is recorded at amounts not in excess of what management currently expects to receive upon sale, less costs of disposal.
Depreciation on assets moved to property held for sale is discontinued and gains are not recognized until the properties are
sold.
Impairment of LongLived Assets
Impairment losses are recorded on longlived assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than the carrying amount. The Company evaluates
impairments on a restaurantbyrestaurant basis and uses cash flow results and other market conditions as indicators of
impairment.
Debt Issuance Costs
Debt issuance costs include costs incurred in connection with the arrangement of longterm financing agreements. The debt
issuance costs associated with the Term Loan are presented on the Balance Sheet as a direct deduction from longterm debt.
The debt issue costs associated with the Revolver are presented on the Balance Sheet as an asset. These costs are amortized
using the effective interest method over the respective term of the debt to which they specifically relate.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, trade accounts and other receivables, accounts payable and accrued expenses
approximates fair value based on the shortterm nature of these accounts. The carrying value of credit facility debt also
approximates fair value based on its recent renewal.
SelfInsurance Accrued Expenses
The Company selfinsures a significant portion of expected losses under its workers’ compensation, employee injury and
general liability programs. Accrued liabilities have been recorded based on estimates of the ultimate costs to settle incurred
claims, both reported and not yet reported. These recorded estimated liabilities are based on judgments and independent
actuarial estimates, which include the use of claim development factors based on loss history; economic conditions; the
frequency or severity of claims and claim development patterns; and claim reserve management settlement practices.
Effective January 1, 2018, we maintain a selfinsured health benefit plan which provides medical and prescription drug benefits
to certain of our employees electing coverage under the plan. Our exposure is limited by individual and aggregate stop loss
limits per 3rd party insurance carriers.We record expenses under the plan based on estimates of the costs of expected claims,
administrative costs and stoploss insurance premiums. Our selfinsurance expense is accrued based upon the aggregate of the
expected liability for reported claims and the estimated liability for claims incurred but not reported, based on historical claims
experience provided by our 3rd party insurance advisors, adjusted as necessary based upon management’s reasoned judgment.
Actual employee medical claims expense may differ from estimated loss provisions based on historical experience.
Revenue Recognition
Revenue from restaurant sales is recognized when food and beverage products are sold. Unearned revenues are recorded as a
liability for gift cards that have been sold but not yet redeemed and are recorded at their expected redemption value. When gift
cards are redeemed, revenue is recognized, and unearned revenue is reduced.
Revenue from culinary contract services is recognized when services are provided and reimbursable costs are incurred within
contractual terms.
Revenue from franchise royalties is recognized each fiscal period based on contractual royalty rates applied to the franchise’s
restaurant sales each fiscal period. Royalties are accrued as earned and are calculated each period based on the franchisee’s
reported sales. Area development fees and franchise fees are recognized as revenue when the Company has performed all
material obligations and initial services. Area development fees are recognized proportionately with the opening of each new
restaurant, which generally occurs upon the opening of the new restaurant. Until earned, these fees are accounted for as an
accrued liability.
Cost of CCS
The cost of CCS includes all food, payroll and related expenses, other operating expenses, and selling, general and
administrative expenses related to culinary contract service sales. All depreciation and amortization, property disposal, and
asset impairment expenses associated with CCS are reported within those respective lines as applicable.
Cost of Franchise Operations
The cost of franchise operations includes all food, payroll and related expenses, other operating expenses, and selling, general
and administrative expenses related to franchise operations sales. All depreciation and amortization, property disposal, and
asset impairment expenses associated with franchise operations are reported within those respective lines as applicable.
Marketing and Advertising Expenses
Marketing and advertising costs are expensed as incurred. Total advertising expense included in other operating expenses and
selling, general and administrative expense was $4.1 million, $5.7 million, and $6.3 million in fiscal 2018, 2017, and 2016,
respectively. We record advertising attributable to local store marketing and local community involvement efforts in other
operating expenses; we record advertising attributable to our brand identity, our promotional offers, and our other marketing
messages intended to drive guest awareness of our brands, in selling, general, and administrative expenses. We believe this
separation of our marketing and advertising costs assists with measurement of the profitability of individual restaurant locations
by associating only the local store marketing efforts with the operations of each restaurant.
Marketing and advertising expense included in other operating expenses attributable to local store marketing was $0.6 million,
$0.6 million, and $0.7 million in fiscal 2018, 2017, and 2016, respectively.
Marketing and advertising expense included in selling, general and administrative expense was $3.5 million, $5.1 million, and
$5.6 million in fiscal 2018, 2017, and 2016, respectively.
Depreciation and Amortization
Property and equipment are recorded at cost. The Company depreciates the cost of equipment over its estimated useful life
using the straightline method. Leasehold improvements are amortized over the lesser of their estimated useful lives or the
related lease terms. Depreciation of buildings is provided on a straightline basis over the estimated useful lives.
Opening Costs
Opening costs are expenditures related to the opening of new restaurants through its opening periods, other than those for
capital assets. Such costs are charged to expense when incurred.
Operating Leases
The Company leases restaurant and administrative facilities and administrative equipment under operating leases. Building
lease agreements generally include rent holidays, rent escalation clauses and contingent rent provisions for a percentage of
sales in excess of specified levels. Contingent rental expenses are recognized prior to the achievement of a specified target,
provided that the achievement of the target is considered probable. Most of the Company’s lease agreements include renewal
periods at the Company’s option. The Company recognizes rent holiday periods and scheduled rent increases on a straightline
basis over the lease term beginning with the date the Company takes possession of the leased space.
Income Taxes
The estimated future income tax effects of temporary differences between the tax bases of assets and liabilities and amounts
reported in the accompanying consolidated balance sheets, as well as operating loss and tax credit carrybacks and
carryforwards are recorded. Deferred tax assets and liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities (temporary differences) and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. A valuation allowance is recognized if, based on the weight of available
evidence, it is more likely than not a portion or all of the deferred tax asset will not be recognized. During fiscal 2018,
management concluded to increase their valuation allowance to reduce fully the Company’s net deferred tax asset balances, net
of deferred tax liabilities, including through the fiscal year ended August29, 2018.
Management makes judgments regarding the interpretation of tax laws that might be challenged upon an audit and cause
changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is
subject to audit in these jurisdictions as well as by the Internal Revenue Service (“IRS”). In management’s opinion, adequate
provisions for income taxes have been made for all open tax years. The potential outcomes of examinations are regularly
assessed in determining the adequacy of the provision for income taxes and income tax liabilities. Management believes that
adequate provisions have been made for reasonably possible outcomes related to uncertain tax matters.
Sales Taxes
The Company presents sales taxes on a net basis (excluded from revenue).
Discontinued Operations
Management evaluates unit closures for presentation in discontinued operations following guidance from ASC 2052055. To
qualify for presentation as a discontinued operation, management determines if the closure or exit of a business location or
activity meets the following conditions: (1) the operations and cash flows of the component have been (or will be) eliminated
from the ongoing operations of the entity as a result of the disposal transaction and (2) there will not be any significant
continuing involvement in the operations of the component after the disposal transaction. To evaluate whether these conditions
are met, management considers whether the cash flows lost will not be recovered and generated by the ongoing entity, the level
of guest traffic and sales transfer, the significance of the number of locations closed and expectancy of cash flow replacement
by sales from new and existing locations, as well as the level of continuing involvement in the disposed operation. Operating
and nonoperating results of these locations are then classified and reported as discontinued operations of all periods presented.
As of fiscal 2016, management evaluates unit closures for presentation in discontinued operations following guidance from
ASU 201408. Beginning in fiscal 2016, in accordance with ASU No. 201408, the Company will only report the disposal of a
component or a group of components of the Company in discontinued operations if the disposal of the components or group of
components represents a strategic shift that has or will have a major effect on the Company’s operations and financial results.
Adoption of this standard did not have a material impact on our consolidated financial statements.
ShareBased Compensation
Sharebased compensation expense is estimated for equity awards at fair value at the grant date. The Company determines fair
value of restricted stock awards based on the average of the high and low price of its common stock on the date awarded by the
Board of Directors. The Company determines the fair value of stock option awards using a BlackScholes option pricing model.
The BlackScholes option pricing model requires various judgmental assumptions including the expected dividend yield, stock
price volatility, and the expected life of the award. If any of the assumptions used in the model change significantly, share
based compensation expense may differ materially in the future, from that recorded in the current period. The fair value of
performance share based award liabilities are estimated based on a Monte Carlo simulation model. For further discussion, see
Note 16, “ShareBased Compensation,” below.
Earnings Per Share
Basic income per share is computed by dividing net income by the weightedaverage number of shares outstanding, including
restricted stock units, during each period presented. For the calculation of diluted net income per share, the basic weighted
average number of shares is increased by the dilutive effect of stock options, determined using the treasury stock method.
Accounting Periods
The Company’s fiscal year ends on the last Wednesday in August. Accordingly, each fiscal year normally consists of 13 four
week periods, or accounting periods, accounting for 364 days in the aggregate. However, every fifth or sixth year, we have a
fiscal year that consists of 53 weeks, accounting for 371 days in the aggregate; fiscal 2016 was such a year. Each of the first
three quarters of each fiscal year, prior to fiscal 2016, consisted of three fourweek periods, while the fourth quarter normally
consists of four fourweek periods.
Beginning in fiscal 2016, we changed our fiscal quarter ending dates with the first fiscal quarter end was extended by one
accounting period and the fiscal fourth quarter was reduced by one accounting period. The purpose of this change is in part to
minimize the Thanksgiving calendar shift by extending the first fiscal quarter until after Thanksgiving. With this change in
fiscal quarter ending dates, our first quarter is 16 weeks, and the remaining three quarters will typically be 12 weeks in length.
The fourth fiscal quarter will be 13 weeks in certain fiscal years to adjust for our standard 52 week, or 364 day, fiscal year
compared to the 365 day calendar year. Fiscal 2016 was such a year where the fourth quarter included 13 weeks, resulting in a
53 week fiscal year. Comparability between quarters may be affected by varying lengths of the quarters, as well as the
seasonality associated with the restaurant business.
Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the UnitedStates of America,
management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Correction of Immaterial Errors in Previously Issued Financial Statements
In the third quarter of fiscal 2018, management identified an accounting error in Trade accounts and other receivables, net that
overstated Culinary Contract Services (CCS) segment revenues by approximately $1.0 million, in the aggregate, through the
second fiscal quarter of 2018. Of the $1.0 million aggregate error, $0.1 million related to fiscal 2017 and $0.9 million related to
the first and second quarters of fiscal 2018.
The error resulted from a duplication in the general ledger of certain sales with our CCS segment. While this error was not
material to any previously issued annual or quarterly interim consolidated financial statements, management concluded that
correcting the cumulative error and related tax effects would be material to the Company's consolidated financial statements for
the fiscal quarter ended June 6, 2018.
Accordingly, the Company revised its consolidated financial statements for the quarters ended December 20, 2017 and March
14, 2018, to correct these errors. The prior period error corrections did not change the cash flows provided by or used in
operating, investing, or financing activities previously reported.
Recently Adopted Accounting Pronouncements
In August 2014, the FASB issued ASU No 201415. The amendments in ASU 201415 are intended to define management’s
responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and
to provide related footnote disclosures. Under GAAP, financial statements are prepared under the presumption that the
reporting organization will continue to operate as a going concern, except in limited circumstances. The going concern basis of
accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and
liabilities. Currently, GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt
about the organization’s ability to continue as a going concern or to provide related footnote disclosures. This ASU provides
guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing
and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The
Company adopted ASU 201415 in the quarter ended December 20, 2017. The provisions of ASU 201415 present that the
Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet
its obligations and obtain alternative financing to refund and repay the current debt owed under its Credit Agreement. Current
conditions raise substantial doubt about the Company’s ability to continue as a going concern. See Note 2. Management's
Assessment of Going Concern for further discussion on the impact to the Company.
In July 2015, the FASB issued ASU 201511, Simplifying the Measurement of Inventory (Topic 330). This update requires
inventory within the scope of the standard to be measured at the lower of cost and net realizable value. Net realizable value is
defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion,
disposal, and transportation. The Company adopted ASU 201511 in the quarter ended December 20, 2017. The provisions of
ASU 201511 did not have a material effect on the Company's financial condition, results of operations, or cash flows.
In November 2015, the FASB issued ASU 201517, Balance Sheet Classification of Deferred Taxes (Topic 740). This update
requires that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet. The Company adopted
ASU 201517 in the quarter ended December 20, 2017. The provisions of ASU 201517 did not have a material effect on the
Company's financial condition, results of operations, or cash flows.
In March 2016, the FASB issued ASU 201609,Improvements to Employee ShareBased Payment Accounting (Topic 718).
This update was issued as part of the FASB’s simplification initiative and affects all entities that issue sharebased payment
awards to their employees. The amendments in this update cover such areas as the recognition of excess tax benefits and
deficiencies, the classification of those excess tax benefits on the statement of cash flows, an accounting policy election for
forfeitures, the amount an employer can withhold to cover income taxes and still qualify for equity classification and the
classification of those taxes paid on the statement of cash flows.The Company adopted ASU 201609 in the quarter ended
December 20, 2017. The provisions of ASU 201609 did not have a material effect on the Company's financial condition,
results of operations, or cash flows.
New Accounting Pronouncements "to be Adopted"
In May 2014, the FASB issued ASU 201409, Revenue from Contracts with Customers (Topic 606). This update provides a
single, comprehensive revenue recognition model that requires a company to recognize revenue to depict the transfer of goods
or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or
services.
During 2015, 2016, and 2017, the FASB issued various amendments which provide additional clarification and implementation
guidance on ASU 201409 (collectively, with ASU 201409, “ASC 606”). Specifically, these amendments clarify how an entity
should identify the specified good or service for the principal versus agent evaluation and how it should apply the control
principle to certain types of arrangements, clarify how an entity should identify performance obligations and licensing
implementation guidance, as well as account for shipping and handling fees and freight service, assess collectability, present
sales tax, treat noncash consideration, and account for completed and modified contracts at the time of transition. The new
guidance requires enhanced disclosures, including revenue recognition policies to identify performance obligations to
customers and significant judgments in measurement and recognition.
The effective date and transition requirements for ASC 606 is for fiscal years, and for interim periods within those years,
beginning after December 15, 2017. The guidance allows for either a full retrospective or modified retrospective transition
method. We will adopt this guidance effective with the first quarter of fiscal year 2019, which is the first fiscal quarter of the
annual reporting period beginning after December 15, 2017. We will apply the modified retrospective transition method, which
involves recording a cumulative adjustment for the impact of transitioning to the new guidance on the transition date and
disclosing in the year of adoption the amount by which each financial statement line item was affected by applying ASC 606
and an explanation of significant changes. We will use the practical expedient to apply ASC 606 only to contracts not
completed by the beginning of fiscal year 2019 (the date of the initial application of ASC 606 and amendments).
We do not expect the adoption of ASC 606 to have an impact on its recognition of revenues from Company owned stores
(except for recognition of breakage on gift card sales discussed below), revenues from our culinary contract services, vending
revenue or ongoing franchise royalty fees, which are based on a percentage of franchise sales.
We expect the adoption of ASC 606 will require us to recognize initial and renewal franchise and development fees on a
straightline basis over the term of the franchise agreement, which is usually 20 years. Historically, we have recognized revenue
from initial franchise and development fees upon the opening of a franchised restaurant when we have completed all our
material obligations and initial services. We do not expect this change to have a material impact on our franchise revenues. The
cumulative effect adjustment to be recorded to retained earnings upon adoption is expected to consist of an increase in current
accrued expenses and other liabilities of approximately $0.6 million associated with the fees received through the end of fiscal
year 2018 that would have been deferred and recognized over the term of each respective franchise agreement if the new
guidance had been applied in the past. This liability will be recognized as revenue in future periods over the remaining term of
the respective franchise agreements.
ASC 606 will also change our reporting of marketing and advertising fund (“MAF”) contributions from franchisees and the
related marketing and advertising expenditures. Under the current guidance, we do not reflect MAF contributions from
franchisees and MAF expenditures in our statements of operations. Although the gross amounts of our revenues and expenses
will be impacted by the recognition of franchisee MAF fund contributions and related expenditures of MAF funds we manage,
increases to gross revenues and expenses will not result in a material net impact to our statement of operations.
Additionally, ASC 606 requires gift card breakage to be recognized as revenue in proportion to the pattern of gift card
redemptions exercised by our customers. Currently, we record breakage income within other (expense) income (and not within
revenue) when it is deemed remote that the unused gift card balance will be redeemed. We do not expect this change to have a
material impact on our Company owned store revenues. The cumulative effect adjustment to be recorded to retained earnings
upon adoption is expected to consist of a reduction to current accrued expenses and other liabilities within a range of
approximately $2.0 million to $3.1 million associated with the adjustment to unearned gift card revenue if the new guidance
had been applied in the past.
We are further evaluating the effect this guidance will have on our consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 201602, Leases (Topic 842). In January and July 2018, The FASB issued ASC 2018
01, 201810 and 201811, which were targeted improvements to ASU 201602 (collectively, with ASC 201602, “ASC 842”)
and provided entities with an additional (and optional) transition method to adopt the new leases standard.ASC 842 requires a
lessee to recognize on the balance sheet a liability to make lease payments and a corresponding rightofuse asset. The update
also requires additional disclosures about the amount, timing and uncertainty of cash flows arising from leases. This update is
effective for annual and interim periods beginning after December 15, 2018, which will require us to adopt these provisions in
the first quarter of fiscal 2020, and requires a modified retrospective transition approach with application in all comparative
periods presented (the “comparative method”), or alternatively, as of the effective date as the date of initial application without
restating comparative period financial statements (the “effective date method”). Thenew guidance also provides several
practical expedients and policies that companies may elect under either transition method. Based on a preliminary assessment,
the Company expects that most of its operating lease commitments will be subject to the new guidance and recognized as
operating lease liabilities and rightofuse assets upon adoption, resulting in a significant increase in the assets and liabilities on
our consolidated balance sheet. The Company is continuing its assessment of the impact of adoption, which may identify
additional impacts this standard will have on its consolidated financial statements and related disclosures and has not yet
determined the method of adoption.
In August 2016, the FASB issued ASU 201615, Statement of Cash Flows (Topic 230). This update provides clarification
regarding how certain cash receipts and cash payment are presented and classified in the statement of cash flows. This update
addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This update is
effective for annual and interim periods beginning after December 15, 2017, which will require us to adopt these provisions in
the first quarter of fiscal 2019 using a retrospective approach. Early adoption is permitted. We do not expect the adoption of this
guidance to have a material impact on our consolidated financial statements.
Subsequent Events
Events subsequent to the Company’s fiscal year ended August29, 2018 through the date of issuance of the financial statements
are evaluated to determine if the nature and significance of the events warrant inclusion in the Company’s consolidated
financial statements.
Note 2. Management's Assessment of Going Concern
The Company sustained a net loss of approximately $33.6 million and cash flow from operations was a use of cash of
approximately $8.5 million in fiscal 2018. The working capital deficit is magnified by the reclassification of the Company's
approximate $39.5 million debt under its Credit Agreement (as defined below) from longterm to shortterm due to the debt's
May 1, 2019 maturity date. Pursuant to the Third Amendment, the lenders agreed to waive the existing events of default as of
the effective date of the Third Amendment resulting from any breach of certain financial covenants or the limitation on
maintenance capital expenditures, in each case that may have occurred during the period from and including May 9, 2018 until
the effective date of the Third Amendment, and any related events of default. Additionally, the lenders agreed to waive the
requirements that the Company comply with certain financial covenants until December31, 2018, at which time the Company
will be in default without an additional waiver or alternative financing.
The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to
meet its obligations and its ability to obtain alternative financing to refund and repay the current debt owed under it's Credit
Agreement. The above conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going
concern; however, the above condition raises substantial doubt about the Company’s ability to do so. The financial statements
do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
Management has assessed the Company’s ability to continue as a going concern as of the balance sheet date, and for at least
one year beyond the financial statement issuance date. The assessment of a company’s ability to meet its obligations is
inherently judgmental. Without additional funding and the sale of assets, the Company may not have sufficient available cash to
meet its obligations coming due in the ordinary course of business within one year of the financial statement issuance date.
Although the Company has historically been able to successfully secure funding and execute alternative cash management
plans to meet its obligations as they become due, there are no assurances that the Company will complete its refinancing. The
following conditions were considered in management’s evaluation of going concern:
• The Company announced on September14, 2018 that it expects proceeds from the asset sales program initiated in
April 2018 and expanded in July 2018 to be between $25.0 million and $45.0 million. The sales of eight owned
properties were completed as of August29, 2018 with proceeds received totaling $11.6 million. As noted below, these
proceeds were and proceeds from future sales will be used to make prepayments on the Company’s outstanding term
loan and revolver under the 2016 Credit Agreement.
• On August24, 2018, the Company entered into the Third Amendment of the 2016 Credit Agreement with the lenders
and other counterparties, as further discussed in Note 12. Debt. Pursuant to this Third Amendment:
◦
◦
◦
the lenders agreed to waive the existing conditions of default through the date of the Third Amendment,
the lenders agreed to waive the requirement to comply with certain financial covenants until December 31,
2018,
the Company is required to make partial mandatory prepayments from the proceeds of certain asset
dispositions from and after the effective date of the Third Amendment, and
◦ The Company has engaged a thirdparty financial advisor to assist management in pursuing financing
transactions per conditions set forth in the debt waiver.
Note 3. Hurricane Harvey
Hurricane Harvey struck the Texas Gulf Coast on August26, 2017. It meandered along the upper Texas coast for several days
bringing unprecedented rain fall resulting in torrential flooding throughout the Greater Houston area. Over 55 Luby’s and
Fuddruckers locations in the Texas Gulf Coast region were temporarily closed over varying lengths of time due to the storm.
Restaurant sales were negatively impacted by approximately 200 operating days in the aggregate. Two Fuddruckers locations,
in the Houston region, were closed on a more than temporary basis, due to extensive flooding which required reconstruction
and renovation. The Company estimates that it incurred over approximately $2.0 million in lost sales from the store closures in
fiscal 2017. The Company estimates that Loss before income taxes and discontinued operations was negatively impacted by
approximately $1.5 million in fiscal 2017 due to the reduced sales and increased costs incurred as a result of the hurricane. In
fiscal 2018, the Company additionally incurred an approximate $0.7 million in direct costs for repairs and other costs related to
the hurricane. As of August29, 2018, the Company has recovered approximately $2.1 million in insurance proceeds, which
includes 1) approximately $0.5 million, in business interruption recovery that was recognized to Other operating expenses, 2)
approximately $0.3 million that was recognized as a reduction to Other operating expenses as reimbursement of certain direct
expenses incurred due to the storm and 3) approximately $1.3 million that was recognized, less the net book value of property
and equipment, as Net gain on disposition of property and equipment.
Note 4. Reportable Segments
The Company has three reportable segments: Companyowned restaurants, franchise operations and Culinary Contract
Services.
Companyowned restaurants
Companyowned restaurants consists of several brands which are aggregated into one reportable segment because of the nature
of the products and services, the production processes, the customers, the methods used to distribute the products and services,
the nature of the regulatory environment, and store level profit margin are similar. The chief operating decision maker analyzes
Companyowned restaurant store level profit which is defined as restaurant sales and vending revenue, less cost of food,
payroll and related costs, other operating expenses, and occupancy costs. The primary brands are Luby’s Cafeteria,
Fuddruckers World’s Greatest Hamburgers®, and Cheeseburger in Paradise. All Companyowned restaurants are casual dining
restaurants. Each restaurant is an operating segment because operating results and cash flow can be determined for each
restaurant.
The total number of Companyowned restaurants at the end of fiscal 2018, 2017, and 2016 were 146, 167, and 175,
respectively.
Culinary Contract Services
CCS, branded as Luby’s Culinary Contract Services, consists of a business line servicing healthcare, sport stadiums, corporate
dining clients, and sales through retail grocery stores. The healthcare accounts are full service and typically include inroom
delivery, catering, vending, coffee service, and retail dining. CCS had contracts with longterm acute care hospitals, acute care
medical centers, ambulatory surgical centers, retail grocery stores, behavioral hospitals, a senior living facility, sports stadiums,
government, and business and industry clients. CCS has the unique ability to deliver quality services that include facility design
and procurement as well as nutrition and branded food services to our clients. The Cost of Culinary Contract Services on the
Consolidated Statements of Operations includes all food, payroll and related costs, other operating expenses, and other direct
general and administrative expenses related to CCS sales. The total number of CCS contracts at the end of fiscal 2018, 2017,
and 2016 were 28, 25, and 24, respectively.
CCS began selling Luby's Famous Macaroni & Cheese and Fried Fish in December 2016 and February 2017, respectively, in
the freezer section of HEB stores, a Texasborn retailer. HEB stores now stock the familysized versions (approximately five
servings) of Luby's Classic Macaroni and Cheese and Luby's Jalapeño Macaroni and Cheese varieties and Luby's Fried Fish
(two regular size fillets that provide four LuAnnsized portions).
Franchise Operations
We only offer franchises for the Fuddruckers brand. Franchises are sold in markets where expansion is deemed advantageous to
the development of the Fuddruckers concept and system of restaurants. Initial franchise agreements have a term of 20 years.
Franchise agreements typically grant franchisees an exclusive territorial license to operate a single restaurant within a specified
area, usually a fourmile radius surrounding the franchised restaurant.
Franchisees bear all direct costs involved in the development, construction, and operation of their restaurants. In exchange for a
franchise fee, the Company provides franchise assistance in the following areas: site selection, prototypical architectural plans,
interior and exterior design and layout, training, marketing and sales techniques, assistance by a Fuddruckers “opening team” at
the time a franchised restaurant opens, and operations and accounting guidelines set forth in various policies and procedures
manuals.
All franchisees are required to operate their restaurants in accordance with Fuddruckers standards and specifications, including
controls over menu items, food quality, and preparation. The Company requires the successful completion of its training
program by a minimum of three managers for each franchised restaurant. In addition, franchised restaurants are evaluated
regularly by the Company for compliance with franchise agreements, including standards and specifications through the use of
periodic, unannounced, onsite inspections and standards evaluation reports.
The number of franchised restaurants at the end of fiscal 2018, 2017, and 2016 were 105, 113, and 113, respectively.
Segment Table
The table on the following page shows financial information as required by ASC 280 for segment reporting. ASC 280 requires
depreciation and amortization be disclosed for each reportable segment, even if not used by the chief operating decision maker.
The table also lists total assets for each reportable segment. Corporate assets include cash and cash equivalents, tax refunds
receivable, property and equipment, assets related to discontinued operations, property held for sale, deferred tax assets, and
prepaid expenses.
Sales:
Companyowned restaurants(1)
Culinary contract services
Franchise operations
Total
Segment level profit:
Companyowned restaurants
Culinary contract services
Franchise operations
Total
Depreciation and amortization:
Companyowned restaurants
Culinary contract services
Franchise operations
Corporate
Total
Total assets:
Companyowned restaurants(2)
Culinary contract services
Franchise operations (3)
Corporate
Total
Capital expenditures:
Companyowned restaurants
Culinary contract services
Corporate
Total
Loss before income taxes and discontinued operations:
Segment level profit
Opening costs
Depreciation and amortization
Selling, general and administrative expenses
Provision for asset impairments and restaurant closings
Net gain on disposition of property and equipment
Interest income
Interest expense
Other income (expense), net
Total
August 29,
2018
Fiscal Year Ended
August 30,
2017
(In thousands)
$
$
$
$
$
$
$
$
$
$
$
$
333,049 $
25,782
6,365
365,196 $
31,648 $
1,621
4,837
38,106 $
14,741 $
71
769
1,872
17,453 $
151,511 $
4,569
10,982
32,927
199,989 $
11,109 $
235
1,903
13,247 $
38,106 $
(554)
(17,453)
(38,725)
(8,917)
5,357
12
(3,348)
298
(25,224) $
351,365 $
17,943
6,723
376,031 $
42,943 $
2,169
4,990
50,102 $
16,948 $
64
770
2,656
20,438 $
189,990 $
3,342
11,325
21,800
226,457 $
11,374 $
3
1,125
12,502 $
50,102 $
(492)
(20,438)
(37,878)
(10,567)
1,804
8
(2,443)
(454)
(20,358) $
August 31,
2016
378,694
16,695
7,250
402,639
55,419
1,740
5,373
62,532
18,181
103
784
2,821
21,889
211,182
3,390
12,266
25,387
252,225
17,258
28
967
18,253
62,532
(787)
(21,889)
(42,422)
(1,442)
684
4
(2,247)
186
(5,381)
(1) Includes vending revenue of $531 thousand, $547 thousand, and $583 thousand for the years ended August29, 2018,August30, 2017,
and August31, 2016, respectively.
(2) Companyowned restaurants segment includes $8.4 million of Fuddruckers trade name, Cheeseburger in Paradise liquor licenses, and
Jimmy Buffettintangibles.
(3) Franchise operations segment includes approximately $9.9 million in royalty intangibles.
Note 5. Derivative Financial Instruments
The Company enters into derivative instruments, from time to time, to manage its exposure to changes in interest rates on a
percentage of its longterm variable rate debt. On December14, 2016, the Company entered into an interest rate swap, pay
fixed receive floating, with a constant notional amount of $17.5 million. The fixed rate we pay is 1.965% and the variable rate
we receive is onemonth LIBOR. The term of the interest rate swap is 5 years. The Company does not apply hedge accounting
treatment to this derivative; therefore, changes in fair value of the instrument are recognized in Other income (expense), net.
The changes in the interest rate swap fair value resulted in income of approximately $701 thousand and an expense of
approximately $266 thousand in fiscal 2018 and 2017, respectively.
The Company does not hold or use derivative instruments for trading purposes.
Note 6. Fair Value Measurement
GAAP establishes a framework for using fair value to measure assets and liabilities, and expands disclosure about fair value
measurements. Fair value measurements guidance applies whenever other statements require or permit assets or liabilities to be
measured at fair value.
GAAP establishes a threetier fair value hierarchy, which prioritizes the inputs used to measure fair value. These include:
• Level 1: Defined as observable inputs such as quoted prices in active markets for identical assets or liabilities as of the
reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency
and volume to provide pricing information on an ongoing basis.
• Level 2: Defined as pricing inputs other than quoted prices in active markets included in Level 1, which are either
directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued
using models or other valuation methodologies. These models are primarily industrystandard models that consider
various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current
market and contractual prices for the underlying instruments, as well as other relevant economic measures.
• Level 3: Defined as pricing inputs that are unobservable from objective sources. These inputs may be used with
internally developed methodologies that result in management's best estimate of fair value.
Recurring fair value measurements related to assets are presented below:
Fiscal Year
Ended August 29,
2018
Recurring Fair Value Assets
Continuing Operations:
Fair Value
Measurement Using
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(In thousands)
Derivative Interest Rate Swap(1)
(1) The fair value of the interest rate swap is recorded in Other assets on the Company's Consolidated Balance Sheet.
$
$
$
$
435
—
435
Valuation
Method
Discounted
Cash Flow
—
Recurring fair value measurements related to liabilities are presented below:
Fiscal Year
Ended August 29,
2018
Recurring Fair Value Liabilities
Continuing Operations:
TSR Performance Based Incentive Plan(1)
$
Fair Value
Measurement Using
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Valuation
Method
(In thousands)
21
$
—
$
21
$
—
Monte Carlo
Approach
(1) The fair value of the Company's 2017 Performance Based Incentive Plan liabilities was approximately $21 thousand. See Note 16 to the
Company's consolidated financial statements in Part II, Item 8 in this Form 10K for further discussion of Performance Based Incentive Plan.
Fiscal Year
Ended August 30,
2017
Recurring Fair Value Liabilities
Continuing Operations:
TSR Performance Based Incentive Plan(1)
Derivative Interest Rate Swap(2)
$
$
Fair Value
Measurement Using
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Valuation
Method
(In thousands)
831
266
$
$
—
—
$
$
831
266
$
$
—
—
Monte Carlo
Approach
Discounted
Cash Flow
(1) The fair value of the Company's 2015, 2016 and 2017 Performance Based Incentive Plan liabilities were approximately $496 thousand
$265 thousand, and $70 thousand, respectively. See Note 16 to the Company's consolidated financial statements in Part II, Item 8 in this Form
10K for further discussion of Performance Based Incentive Plan.
(2) The fair value of the interest rate swap is recorded in Other liabilities on the Company's Consolidated Balance Sheet.
Nonrecurring fair value measurements related to impaired property and equipment consist of the following:
Fiscal Year
Ended August 29,
2018
Fair Value
Measurement Using
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Impairments(4)
(In thousands)
Nonrecurring Fair Value Measurements
Continuing Operations:
Property and equipment related to
Companyowned restaurants(1)
Goodwill(2)
Property held for sale(3)
Total Nonrecurring Fair Value
Measurements
$
$
1,519
$
—
5,132
6,651
$
—
$
—
—
—
$
$
—
—
—
—
$
1,519
$
—
5,132
6,651
$
(4,052)
(513)
(3,062)
(7,627)
(1) In accordance with Subtopic 36010, longlived assets held and used with a carrying amount of approximately $5.6 million were written
down to their fair value of approximately $1.5 million, resulting in an impairment charge of approximately $4.1 million.
(2) In accordance with Subtopic 35020, goodwill with a carrying amount of approximately $513 thousand was written down to its implied
fair value of zero, resulting in an impairment charge of approximately $513 thousand. See Note 9 and Note 13 to the Company's consolidated
financial statements in this Form 10K for further discussion of goodwill.
(3) In accordance with Subtopic 36010, longlived assets held for sale with carrying values of approximately $12.9 million were written
down to their fair value, less costs to sell, of approximately $5.1 million, resulting in an impairment charge of approximately $3.1 million.
Proceeds on the sale of six properties previously recorded in Property held for sale amounted to approximately $4.7 million.
(4) Total impairments are included in Provision for asset impairments and restaurant closings in the Company's Consolidated Statement of
Operations for the fiscal year ended 2018.
Fair Value
Measurement Using
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
Fiscal Year
Ended August 30,
2017
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Impairments(4)
Nonrecurring Fair Value Measurements
Continuing Operations:
Property and equipment related to
Companyowned restaurants(1)
Goodwill(2)
Property held for sale(3)
Total Nonrecurring Fair Value
Measurements
$
$
(In thousands)
$
$
$
5,519
—
3,372
8,891
—
—
—
—
—
—
—
—
5,519
—
3,372
8,891
$
$
(8,571)
(537)
(977)
(10,085)
$
$
$
(1) In accordance with Subtopic 36010, longlived assets held and used with a carrying amount of approximately $14.1 million were written
down to their fair value of approximately $5.5 million, resulting in an impairment charge of approximately $8.6 million.
(2) In accordance with Subtopic 35020, goodwill with a carrying amount of approximately $537 thousand was written down to its implied
fair value of zero, resulting in an impairment charge of approximately $537 thousand. See Note 9 and Note 13 to the Company's consolidated
financial statements in this Form 10K for further discussion of goodwill.
(3) In accordance with Subtopic 36010, longlived assets held for sale with carrying values of approximately $5.5 million were written down
to their fair value, less cost to sell, of approximately $3.4 million, resulting in an impairment charge of approximately $1.0 million. Proceeds
on the sale of one property previously recorded in Property held for sale amounted to approximately $1.2 million.
(4) Total impairments are included in Provision for asset impairments and restaurant closings in the Company's Consolidated Statement of
Operations for the fiscal year ended 2018.
Note 7. Trade Receivables and Other
Trade and other receivables, net, consist of the following:
Trade and other receivables
Franchise royalties and marketing and advertising receivables
Unbilled revenue
Allowance for doubtful accounts
Total Trade accounts and other receivables, net
August 29,
2018
August 30,
2017
$
$
(In thousands)
6,697 $
764
1,557
(231)
8,787 $
5,966
687
1,633
(275)
8,011
CCS receivable balance at August29, 2018 was $6.7 million, primarily the result of 12 contracts with balances of
approximately $0.1 million to approximately $3.6 million per contract entity. These 12 collectively represented approximately
67% of the Company’s total accounts receivables. Contract payment terms for its CCS customers’ receivables are due within 30
to 45 days. Unbilled revenue, was approximately $1.6 million at August29, 2018 and approximately $1.6 million at August30,
2017. CCS contracts are billed on a calendar month end basis and represent the total balance of Unbilled revenue.
The Company recorded receivables related to Fuddruckers franchise operations royalty and marketing and advertising
payments from the franchisees, as required by their franchise agreements. Franchise royalty and marketing and advertising fund
receivables balance at August29, 2018 was approximately $0.8 million. At August29, 2018, the Company had 105 operating
franchise restaurants with no concentration of accounts receivable.
The change in allowances for doubtful accounts for each of the years in the threeyear periods ended as of the dates below is as
follows:
August 29,
2018
Fiscal Year Ended
August 30,
2017
(In thousands)
August 31,
2016
$
Beginning balance
Provisions (reversal) for doubtful accounts
Writeoffs(1)(2)
Ending balance
555
(18)
(456)
81
(1) The approximate $0.5 million Balance Sheet writeoff in fiscal 2018 primarily resulted from uncollectable receivables at seven Culinary
Contract Services accounts reserved in fiscal years 2015 through and including 2018.
(2) The approximate $0.5 million Balance Sheet writeoff in fiscal 2016 resulted from uncollectable receivables at three Culinary Contract
Services accounts reserved for in fiscal 2011, 2012, and 2013.
275 $
464
(508)
231 $
81 $
200
(6)
275 $
$
Note 8. Income Taxes
The following table details the categories of total income tax assets and liabilities for both continuing and discontinued
operations resulting from the cumulative tax effects of temporary differences:
Deferred income tax assets:
Workers’ compensation, employee injury, and general liability claims
Deferred compensation
Net operating losses
General business and foreign tax credits
Depreciation, amortization and impairments
Straightline rent, dining cards, accruals, and other
Subtotal
Valuation allowance
Total deferred income tax assets
Deferred income tax liabilities:
Property taxes and other
Total deferred income tax liabilities
Net deferred income tax asset
August 29,
2018
August 30,
2017
(In thousands)
507 $
280
4,401
12,105
6,796
2,917
27,006
(25,873)
1,133
1,133
1,133
— $
486
437
2,140
11,599
7,515
4,392
26,569
(16,871)
9,698
1,916
1,916
7,782
$
$
On December22, 2017, President Donald J. Trump signed into law U.S. tax reform legislation that is commonly referred to as
the Tax Cuts and Jobs Act (the “Tax Act”). The enactment date occurred during the second quarter of fiscal 2018 and the impact
on our income tax accounts of the Tax Act are accounted for in the period of enactment, in accordance with ASC 740. The Tax
Act makes broad and complex changes to the U.S. tax code and most notably to the Company, the Tax Act lowered the federal
statutory tax rate from 35% to 21% effective January1, 2018. In accordance with the application of IRC Section 15, the
Company's federal statutory tax rate for fiscal 2018 was 25%, representing a blended tax rate for the current fiscal year based
on the number of days in the fiscal year before and after the effective date. For subsequent years, the Company's federal
statutory tax rate is anticipated to be 21%. The Company was also required to remeasure its deferred tax assets and liabilities
using the new federal statutory tax rate in the second quarter of fiscal 2018, upon enactment of the Tax Act. At that time, the
Company's deferred tax balance was $7.8 million, and the Tax Act reduction in the federal statutory tax rate resulted in a one
time noncash reduction to the Company's net deferred tax balance of approximately $3.2 million with a corresponding increase
to the provision for income taxes in the second quarter of fiscal 2018.
The effects of the Tax Act on the Company's income tax accounts were reflected in the fiscal 2018 financial statements as
determined or as reasonably estimated provisional amounts based on available information, subject to interpretation in
accordance with the SEC's Staff Accounting Bulletin No. 118 ("SAB 118"). SAB 118 provides guidance on accounting for the
effects of the Tax Act where such determinations are incomplete; however, the Company was able to determine a provisional
estimate of the effects of the Tax Act on its income tax accounts.
The Company currently considers the deferred tax assets not to be realizable and maintains a full valuation allowance against
the Company’s net deferred tax asset balance at August29, 2018. The most significant deferred tax asset prior to valuation
allowance is the Company’s general business tax credits carryovers to future years of approximately $11.6 million. This item
may be carried forward up to twenty years for possible utilization in the future. The carryover of general business tax credits,
beginning in fiscal 2002, will begin to expire at the end of fiscal 2022 through 2038, if not utilized by then.
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements, which will result in taxable or deductible amounts in the future, as well as from tax net
operating losses and tax credit carryovers. We establish a valuation allowance when we no longer consider it more likely than
not that a deferred tax asset will be realized. In evaluating our ability to recover our deferred tax assets, we consider available
positive and negative evidence, including scheduled reversals of deferred tax liabilities, taxplanning strategies and existing
business conditions, including amendment to our credit agreement(s) to avoid default and results of recent operations.
We evaluated new negative evidence during the third quarter of fiscal 2018, in connection with our response to a default in
certain of the Company’s Credit Agreement financial covenants, a condition that raised substantial doubt as to the Company
continuing as a going concern for a reasonable period of time. This circumstance and its added negative evidence, supported
management’s conclusion that a full valuation allowance on the Company’s net deferred tax assets in the amount of $25.3
million was necessary during the third quarter of fiscal 2018. Management's conclusion for a full valuation allowance reduces
fully the Company’s net deferred tax balances, net of deferred tax liabilities, through and including the fiscal year ended
August29, 2018.
An analysis of the provision for income taxes for continuing operations is as follows:
Current federal and state income tax expense
Current foreign income tax expense
Deferred income tax expense
Provision for income taxes
August 29,
2018
$
$
405 $
71
7,254
7,730 $
August 30,
2017
(In thousands)
August 31,
2016
329 $
84
2,025
2,438 $
128
82
4,665
4,875
Relative only to continuing operations, the reconciliation of the expense for income taxes to the expected income tax expense,
computed using the statutory tax rate, was as follows:
$
Income tax benefit from continuing
operations at the federal rate
Permanent and other differences:
Federal jobs tax credits (wage
deductions)
Stock options and restricted stock
Other permanent differences
State income tax, net of federal
benefit
General Business Tax Credits
Impact of U.S. Tax Reform
Other
Change in valuation allowance
Provision for income taxes from
continuing operations
$
Fiscal Year Ended
August 30,
2017
%
(In thousands and as a percent of pretax loss from continuing operations)
August 31,
2016
August 29,
2018
Amount
Amount
%
%
Amount
(6,405)
25.4 % $
(6,922)
34.0 % $
(1,830)
34.0 %
129
67
41
145
(506)
3,167
487
10,605
7,730
(0.5)
(0.3)
(0.2)
(0.6)
2.0
(12.6)
(1.8)
(42.0)
(30.6)% $
200
129
62
(45)
(589)
—
84
9,519
2,438
(1.0)
(0.6)
(0.3)
0.2
2.9
—
(0.4)
(46.8)
(12.0)% $
226
165
74
94
(665)
—
(94)
6,905
4,875
(4.2)
(3.1)
(1.4)
(1.7)
12.4
—
1.7
(128.3)
(90.6)%
For the fiscal year ended August29, 2018, including both continuing and discontinued operations, the Company is estimated to
report a federal taxable loss of approximately $14.2 million.
For the fiscal year ended August30, 2017, including both continuing and discontinued operations, the Company generated
federal taxable loss of approximately $3.0 million.
For the fiscal year ended August31, 2016, including both continuing and discontinued operations, the Company generated
federal taxable income of approximately $3.1 million.
Our income tax filings are periodically examined by various federal and state jurisdictions. The State of Louisiana is currently
examining tax returns for fiscal 2014 and 2015.
There were no payments of federal income taxes in fiscal 2016, 2017 or 2018. The Company has income tax filing
requirements in over 30 states. State income tax payments were approximately $0.4 million, $0.4 million, and $0.4 million in
fiscal 2018, 2017, and 2016, respectively.
The following table is a reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of fiscal 2016,
2017 and 2018 (in thousands):
Balance as of August 26, 2015
Decrease based on prior year tax positions
Interest Expense
Balance as of August 31, 2016
Decrease based on prior year tax positions
Interest Expense
Balance as of August 30, 2017
Decrease based on prior year tax positions
Interest Expense
Balance as of August 29, 2018
$
$
$
$
63
(18)
—
45
(20)
—
25
—
—
25
The unrecognized tax benefits would favorably affect the Company’s effective tax rate in future periods if they are recognized.
There is no interest associated with unrecognized benefits as of August29, 2018. The Company has included interest or
penalties related to income tax matters as part of income tax expense.
It is reasonably possible that the amount of unrecognized tax benefits with respect to our uncertain tax positions could
significantly increase or decrease within 12 months. However, based on the current status of examinations, it is not possible to
estimate the future impact, if any, to recorded uncertain tax positions as of August29, 2018.
Management believes that adequate provisions for income taxes have been reflected in the financial statements and is not aware
of any significant exposure items that have not been reflected in the financial statements. Amounts considered probable of
settlement within one year have been included in the accrued expenses and other liabilities in the accompanying consolidated
balance sheet.
Note 9. Property and Equipment, Intangible Assets and Goodwill
The cost, net of impairment, and accumulated depreciation of property and equipment at August29, 2018 and August30, 2017,
together with the related estimated useful lives used in computing depreciation and amortization, were as follows:
Land
Restaurant equipment and furnishings
Buildings
Leasehold and leasehold improvements
Office furniture and equipment
Construction in progress
Less accumulated depreciation and amortization
Property and equipment, net
Intangible assets, net
Goodwill
August 29,
2018
August 30,
2017
Estimated
Useful Lives (years)
(In thousands)
46,817 $
69,678
131,557
60,414
73,411
153,041
27,172
3,596
—
278,820
(140,533)
138,287 $
18,179 $
555 $
26,953
3,684
35
317,538
(144,724)
172,814
19,640
1,068
$
$
$
$
3
20
3
—
to
to
Lesser of lease
term or
estimated useful
life
to
—
15
33
10
15
to
21
Depreciation expense for the fiscal years 2018, 2017, and 2016 was $16.1 million, $19.0 million, and $20.5 million,
respectively.
Intangible assets, net, consist primarily of the Fuddruckers trade name and franchise agreements and will be amortized. The
Company believes the Fuddruckers brand name has an expected accounting life of 21 years from the date of acquisition based
on the expected use of its assets and the restaurant environment in which it is being used. The trade name represents a respected
brand with customer loyalty and the Company intends to cultivate and protect the use of the trade name. The franchise
agreements, after considering renewal periods, have an estimated accounting life of 21 years from the date of acquisition, July
2010, and will be amortized over this period of time.
Intangible assets, net, also includes the license agreement and trade name related to Cheeseburger in Paradise and the value of
the acquired licenses and permits allowing the sales of beverages with alcohol. These assets have an expected accounting life of
15 years from the date of acquisition December 2012.
The aggregate amortization expense related to intangible assets subject to amortization for fiscal 2018, 2017, and 2016 was
approximately $1.4 million, $1.4 million, and $1.4 million, respectively. The aggregate amortization expense related to
intangible assets subject to amortization is expected to be approximately $1.4 million in each of the next five successive years.
The following table presents intangible assets as of August29, 2018 and August30, 2017:
August 29, 2018
(In thousands)
Accumulated
Amortization
Net
Carrying
Amount
August 30, 2017
(In thousands)
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Gross
Carrying
Amount
Intangible Assets Subject to
Amortization:
Fuddruckers trade name and
franchise agreements
Cheeseburger in Paradise
trade name and license
agreements
Intangible assets, net
$
$
$
29,486
$
(11,350) $
421
$
29,907 $
(378) $
(11,728) $
18,136
$
43
$
18,179 $
29,486
$
(9,943) $
421
$
29,907 $
(324) $
(10,267) $
19,543
97
19,640
Goodwill, net of accumulated impairments of approximately $1.6 million and $1.1 million in fiscal 2018 and 2017,
respectively, was approximately $0.6 million as of August29, 2018 and $1.1 million as of August30, 2017 and relates to our
Companyowned restaurants reportable segment. Goodwill has been allocated to and impairment is assessed at the reporting
unit level, which is the individual restaurants within our Fuddruckers and Cheeseburger in Paradise brands that were acquired
in fiscal 2010 and fiscal 2013, respectively. The net Goodwill balance at the end of fiscal 2018 is comprised of amounts
assigned to the one Cheeseburger in Paradise restaurant that is still operated by us, two Cheeseburger in Paradise restaurants
that were converted to Fuddruckers restaurants, and the goodwill from the Fuddruckers acquisition in 2010. The Company
performs a goodwill impairment test annually as of the end of the second quarter of each year and more frequently when
negative conditions or a triggering event arise. Management prepares valuations for each of its restaurants using a discounted
cash flow analysis (Level 3 inputs) to determine the fair value of each reporting unit for comparison with the reporting unit’s
carrying value in determining if there has been an impairment of goodwill at the reporting unit level.
The Company recorded goodwill impairment charges of approximately $513 thousand, $537 thousand, and $38 thousand in
fiscal 2018, 2017, and 2016, respectively.
Note 10. Current Accrued Expenses and Other Liabilities
The following table sets forth current accrued expenses and other liabilities as of August29, 2018 and August30, 2017:
August 29,
2018
August 30,
2017
$
Salaries, compensated absences, incentives, and bonuses(1)
Operating expenses
Unredeemed gift cards
Taxes, other than income
Accrued claims and insurance
Income taxes, legal and other(2)
Total
5,339
1,041
7,298
9,423
1,505
3,470
28,076
(1) Salaries, compensated absences, incentives, and bonuses include the award value of the 2015 Performance Based Incentive Plan liability
in the amount of $496 thousand at August30, 2017.
(2) Income taxes, legal and other includes accrued lease termination costs. See Note 13 to our consolidated financial statements in Part II,
Item 8 in this Form 10K for further discussion of lease termination costs.
(In thousands)
6,073 $
1,068
7,213
9,247
2,958
5,196
31,755 $
$
Note11. Other LongTerm Liabilities
The following table sets forth other longterm liabilities as of August29, 2018 and August30, 2017:
Workers’ compensation and general liability insurance reserve
Capital leases
Deferred rent and unfavorable leases
Deferred compensation(1)
Fair value derivative Interest Rate Swap
Other
Total
August 29,
2018
August 30,
2017
(In thousands)
1,002 $
137
4,380
106
—
156
5,781 $
923
109
5,297
426
266
290
7,311
$
$
(1) Deferred compensation includes 2017 Performance Based Incentive Plan liabilities in the amount of approximately $21 thousand at
August29, 2018 and 2016 and 2017 Performance Based Incentive Plan liabilities in the amount of approximately $266 thousand and
approximately $70 thousand, respectively, at August30, 2017.
Note12. Debt
The following table summarizes credit facility debt, less current portion at August29, 2018 and August30, 2017.
LongTerm Debt
2016 Credit Agreement Revolver
2016 Credit Agreement Term Loan
Total credit facility debt
Less unamortized debt issue costs
Total credit facility debt, less unamortized debt issuance costs
Current portion of credit facility debt
Total Credit facility debt, less current portion$
August 29,
2018
August 30,
2017
(In thousands)
20,000
19,506
39,506
(168)
39,338
39,338
— $
4,400
26,585
30,985
(287)
30,698
—
30,698
Senior Secured Credit Agreement
On November 8, 2016, the Company entered into a $65.0 million Senior Secured Credit Facility with Wells Fargo Bank,
National Association, as Administrative Agent and Cadence Bank, NA and Texas Capital Bank, NA, as lenders (“2016 Credit
Agreement”). The 2016 Credit Agreement, prior to the amendments discussed below, is comprised of a $30.0 million 5year
Revolver (the “Revolver”) and a $35.0 million 5year Term Loan (the “Term Loan”). The maturity date of the 2016 Credit
Agreement is November 8, 2021. For this section of the form 10K, capitalized terms that are used but not otherwise defined
shall have the meanings give to such terms in the 2016 Credit Agreement.
The Term Loan and/or Revolver commitments may be increased by up to an additional $10.0 million in the aggregate.
The 2016 Credit Agreement also provides for the issuance of letters of credit in an aggregate amount equal to the lesser of $5.0
million and the Revolving Credit Commitment, which was $30.0 million as of November 8, 2016. The 2016 Credit Agreement
is guaranteed by all of the Company’s present subsidiaries and will be guaranteed by the Company's future subsidiaries.
At any time throughout the term of the 2016 Credit Agreement, the Company has the option to elect one of two bases of
interest rates. One interest rate option is the highest of (a)the Prime Rate, (b)the Federal Funds Rate plus 0.50% and (c) 30day
LIBOR plus 1.00%, plus, in each case, the Applicable Margin, which ranges from 1.50% to 2.50%per annum. The other
interest rate option is LIBOR plus the Applicable Margin, which ranges from 2.50% to 3.50%per annum. The Applicable
margin under each option is dependent upon the Company's Consolidated Total Lease Adjusted Leverage Ratio ("CTLAL") at
the most recent quarterly determination date.
The Term Loan amortizes 7.00% per year (35% in 5 years) which includes the quarterly payment of principal. On December
14, 2016, The Company entered into an interest rate swap with a notional amount of $17.5 million, representing 50% of the
initial outstanding Term Loan.
The Company is obligated to pay to the Administrative Agent for the account of each lender a quarterly commitment fee based
on the average daily unused amount of the commitment of such lender, ranging from 0.30% to 0.35%per annum depending on
the CTLAL at the most recent quarterly determination date.
The proceeds of the 2016 Credit Agreement are available for the Company to (i) pay in full all indebtedness outstanding under
the 2013 Credit Agreement as of November 8, 2016, (ii) pay fees, commissions, and expenses in connection with the
Company's repayment of the 2013 Credit Agreement, initial extensions of credit under the 2016 Credit Agreement, and (iii) for
working capital and general corporate purposes of the Company.
The 2016 Credit Agreement, as amended,contains the following covenants among others:
• CTLAL of not more than (i) 5.00 to 1.00 at all times through and including the third fiscal quarter of the Borrower’s
fiscal 2018, and (ii) 4.75 to 1.00 at all times thereafter,
• Consolidated Fixed Charge Coverage Ratio of not less than 1.25 to 1.00, at the end of each fiscal quarter,
• Limit on Growth Capital Expenditures so long as the CTLAL is at least 0.25x less than the thenapplicable permitted
maximum CTLAL,
restrictions on mergers, acquisitions, consolidations and asset sales,
restrictions on the payment of dividends, redemption of stock and other distributions,
restrictions on incurring indebtedness, including certain guarantees and capital lease obligations,
restrictions on incurring liens on certain of our property and the property of our subsidiaries,
restrictions on transactions with affiliates and materially changing our business,
restrictions on making certain investments, loans, advances and guarantees,
restrictions on selling assets outside the ordinary course of business,
•
•
•
•
•
•
•
• prohibitions on entering into sale and leaseback transactions, and
•
restrictions on certain acquisitions of all or a substantial portion of the assets, property and/or equity interests of any
person, including share repurchases and dividends.
The 2016 Credit Agreement is secured by substantially all of the Company’s personal property, including without limitation the
equity interest in each subsidiary of the Company. The 2016 Credit Agreement also includes customary events of default. If a
default occurs and is continuing, the lenders’ commitments under the 2016 Credit Agreement may be immediately terminated
and/or the Company may be required to repay all amounts outstanding under the 2016 Credit Agreement.
Second Amendment to 2016 Credit Agreement
On April 20, 2018, the Company entered into the Second Amendment to the 2016 Credit Agreement, effective as of March 14,
2018 (as amended, the "Credit Agreement). The amendment accelerates the maturity date of the Credit Agreement to May 1,
2019, approximately 9 months after the balance sheet date, August29, 2018. The amendment included the following changes:
• Aggregate commitments under the senior secured revolving credit facility (“Revolver”) were reduced from $30.0
million to $27.0 million beginning August 29, 2018.
• Changed the maturity date of the Revolver and Term Loan to May 1, 2019.
• Reduced the letter of credit sublimit from $5.0 million to $2.0 million.
•
Interest rate on LIBOR Rate Loans (LIBOR + Applicable Margin) changed to the following:
◦ LIBOR + 4.50% April20, 2018 June30, 2018
◦ LIBOR + 4.75% July1, 2018 September30, 2018
◦ LIBOR + 5.00% October1, 2018 December31, 2018
◦ LIBOR + 5.25% January1, 2019 March31, 2019
◦ LIBOR + 5.50% April1, 2019 Maturity Date
•
Interest rate margin on Base Rate Loans changed to the following:
◦ 100 basis points less than the Applicable Margin for LIBOR Rate Loans
• Maximum Consolidated Total LeaseAdjusted Leverage Ratio (“CTLAL”) is changed to 6.50 to 1.00 at March 14,
2018; 6.75 to 1.00 at June6, 2018 and August29, 2018; and 6.50 to 1.00 at each measurement period in fiscal 2019.
• Minimum Consolidated EBITDA covenant required at $7.0 million (thirteen consecutive accounting periods) tested
monthly, prior to the second fiscal quarter fiscal 2019 and $7.5 million for each fiscal quarter thereafter (consisting of
thirteen consecutive accounting periods).
• Minimum liquidity covenant requiring for at least $2.0 million in liquidity at all times.
• Maximum annual maintenance capital expenditures not to exceed $9.6 million for the fiscal year ending August29,
2018 and $8.5 million in fiscal 2019.
• Within 30 days of the date of amendment, a senior security interest in and lien on any of the Company's real estate
properties identified by the Administrative Agent and loan to value ratio of 0.50 to 1.00 on collateral real estate.
• Excess liquidity provision requiring any consolidated cash balances of the Borrower and its Subsidiaries in excess of
$1.0 million, as reported in the 13week cash flow reports, used to repay Revolving Credit Loans.
Management has identified approximately 14 owned properties inclusive of assets currently classified as Assets related to
discontinued operations and Property held for sale on the Company’s Balance Sheet, as of June6, 2018, as part of a limited
asset disposal plan to accelerate repayment of its outstanding term loans. The Board approved the limited asset sales plan on
April18, 2018. The Company estimates that such additional limited asset sales plan will be implemented over the course of the
next 18 months. These asset disposal plans, in conjunction with other operational changes, are designed to lower the
outstanding debt and to improve the Company’s financial condition as the Company pursues a new credit facility.
As of March 14, 2018, the Company would not have been in compliance with the Company’s Lease Adjusted Leverage Ratio
and Fixed Charge Coverage Ratio covenants of the Credit Agreement prior to the Second Amendment thereto, which became
effective on March 14, 2018. At any determination date, if the results of the Company's covenants exceed the maximums or
minimums permitted under its 2016 Credit Agreement, the Company would be considered in default under the terms of the
agreement which could cause a substantial financial burden by requiring the Company to repay the debt earlier than otherwise
anticipated. Due to negative results in the first three quarters of fiscal 2018, continued under performance in the current fiscal
year could cause the Company's financial ratios to exceed the permitted limits under the terms of the Credit Agreement.
Third Amendment to 2016 Credit Agreement
On August24, 2018, the Company entered into the Third Amendment to Credit Agreement (the “Third Amendment”)
amending the Credit Agreement dated as of November 8, 2016, as amended by the Second Amendment to Credit Agreement
dated as of April 20, 2018 (together, with the Third Amendment, the “Credit Agreement”), by and among the Company, the
other credit parties party thereto, the lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent
for the lenders (the “Administrative Agent”).
The Third Amendment amended the interest rate on LIBOR rate loans (LIBOR + applicable margin) to (i) LIBOR + 6.50%
from the effective date of the Third Amendment through the date the term loan has been paid in full in cash and (ii) LIBOR +
5.50% from the date following the date the term loan has been paid in full in cash and thereafter. The interest rate on base rate
loans is 100 basis points less than the applicable margin for LIBOR rate loans.
Pursuant to the Third Amendment, the lenders agreed to waive the existing events of default as of the effective date of the Third
Amendment resulting from any breach of certain financial covenants or the limitation on maintenance capital expenditures, in
each case that may have occurred during the period from and including May 9, 2018 until the effective date of the Third
Amendment, and any related events of default. Additionally, the lenders agreed to waive the requirements that the Company
comply with certain financial covenants until December31, 2018, at which time the Company will be in default without an
additional waiver or alternative financing.
The Third Amendment requires the Company to make mandatory principal prepayments upon certain asset dispositions as
follows: (i) 50% of the first $12.0 million of net cash proceeds from asset dispositions received by the Company; (ii) 75% of
the next $8.0 million of net cash proceeds from asset dispositions received by the Company; and (iii) 100% of all net cash
proceeds in excess of the first $20.0 million of net cash proceeds from asset dispositions received by the Company, in each case
from and after the effective date of the Third Amendment.
Additionally, the Company agreed to grant liens on additional properties of the Company to secure borrowings under the Credit
Agreement.
At August29, 2018, the Company had approximately $8.5 million available to borrow under the Revolver in the 2016 Credit
Agreement.
As of August29, 2018, under the 2016 Credit Agreement, the Company had $39.5 million in total outstanding loans and
approximately $1.3 million committed under letters of credit, which is used as security for the payment of insurance
obligations, and approximately $0.2 million in other indebtedness.
2013 Credit Agreement
We were party to a revolving credit agreement with Wells Fargo Bank, National Association, as Administrative Agent, and ZB,
N.A. dba Amegy Bank (formerly Amegy Bank, N.A.), as Syndication Agent (the “2013 Credit Facility”). The 2013 Credit
Facility matured and was refunded on November 8, 2016, through the entering of the 2016 Credit Agreement, and there were
no amounts outstanding under the 2013 Credit Facility at August 30, 2017.
Interest Expense
Total interest expense incurred for fiscal 2018, 2017, and 2016 was approximately $3.3 million, $2.4 million, and $2.2 million,
respectively. Interest paid was approximately $2.5 million, $1.8 million, and $1.9 million in fiscal 2018, 2017, and 2016,
respectively. No interest expense was allocated to discontinued operations in fiscal 2018, 2017, or 2016. No interest was
capitalized on properties in fiscal 2018, 2017, or 2016.
Note13. Impairment of LongLived Assets, Store Closings, Discontinued Operations and Property Held for Sale
Impairment of LongLived Assets and Store Closings
The Company periodically evaluates longlived assets held for use and held for sale whenever events or changes in
circumstances indicate that the carrying amount of those assets may not be recoverable. The Company analyzes historical cash
flows of operating locations and compares results of poorer performing locations to more profitable locations. The Company
also analyzes lease terms, condition of the assets and related need for capital expenditures or repairs, as well as construction
activity and the economic and market conditions in the surrounding area.
For assets held for use, the Company estimates future cash flows using assumptions based on possible outcomes of the areas
analyzed. If the undiscounted future cash flows are less than the carrying value of the location’s assets, the Company records an
impairment loss based on an estimate of discounted cash flows. The estimates of future cash flows, based on reasonable and
supportable assumptions and projections, require management’s subjective judgments. Assumptions and estimates used include
operating results, changes in working capital, discount rate, growth rate, anticipated net proceeds from disposition of the
property and if applicable, lease terms. The span of time for which future cash flows are estimated is often lengthy, increasing
the sensitivity to assumptions made. The time span is longer and could be 20 to 25 years for newer properties, but only 5 to 10
years for older properties. Depending on the assumptions and estimates used, the estimated future cash flows projected in the
evaluation of longlived assets can vary within a wide range of outcomes. The Company considers the likelihood of possible
outcomes in determining the best estimate of future cash flows. The measurement for such an impairment loss is then based on
the fair value of the asset as determined by discounted cash flows.
The Company recognized the following impairment charges (credits) to income from operations:
Provision for asset impairments and restaurant closings
Net gain on disposition of property and equipment
Total
Effect on EPS:
Basic
Assuming dilution
$
$
$
$
August 29,
2018
Fiscal Year Ended
August 30,
2017
(In thousands, except per share data)
August 31,
2016
8,917 $
(5,357)
10,567 $
(1,804)
1,442
(684)
3,560 $
8,763 $
758
(0.12) $
(0.12) $
(0.29) $
(0.29) $
(0.03)
(0.03)
The approximate $8.9 million impairment charge in fiscal 2018 is primarily related to assets impaired at 21 property locations,
goodwill at three property locations, ten properties held for sale written down to their fair value, and a reserve for 15 restaurant
closings of approximately $1.3 million.
The approximate $5.4 million net gain on disposition of property and equipment in fiscal 2018 is primarily related to the gain
on the sale of ten properties of approximately $4.9 million, and approximately $1.3 million of insurance proceeds received for
property and equipment damaged by Hurricane Harvey, partially offset by asset retirements at eight restaurant location
closures.
The approximate $10.6 million impairment charge in fiscal 2017 is primarily related to assets impaired at 17 property locations,
goodwill at six property location, five properties held for sale written down to their fair value, and a reserve for ten restaurant
closings of approximately $482 thousand.
The approximate $1.8 million net gain on disposition of property and equipment in fiscal 2017 is primarily related to the gain
on the sale of six properties of approximately $2.4 million partially offset by routine asset retirements.
The approximate $1.4 million impairment charge in fiscal 2016 is primarily related to four property locations, goodwill at one
property location, and a reserve for four restaurant closings of approximately $202 thousand.
The approximate $0.7 million net gain on disposition of property and equipment in fiscal 2016 is primarily related to the gain
on the sale of two properties of approximately $1.0 million partially offset by routine asset retirements.
Discontinued Operations
On March 21, 2014, the Board of Directors of the Company approved a plan focused on improving cash flow from the acquired
Cheeseburger in Paradise leasehold locations.This underperforming Cheeseburger in Paradise leasehold disposal plan called
for five or more units to be closed or converted to Fuddruckers restaurants. As of August29, 2018, no locations remain
classified as discontinued operations in this plan.
As a result of the first quarter fiscal 2010 adoption of the Company’s Cash Flow Improvement and Capital Redeployment Plan,
the Company reclassified 24 Luby’s Cafeterias to discontinued operations. As of August29, 2018, one location remains held
for sale.
The following table sets forth the assets and liabilities for all discontinued operations:
Property and equipment
Deferred tax assets
Assets related to discontinued operations—noncurrent
Deferred income taxes
Accrued expenses and other liabilities
Liabilities related to discontinued operations—current
Other liabilities
Liabilities related to discontinued operations—noncurrent
August 29,
2018
August 30,
2017
(In thousands)
1,813 $
—
1,813 $
— $
14
14 $
16 $
16 $
1,872
883
2,755
354
13
367
16
16
$
$
$
$
$
$
As of August29, 2018, under both closure plans, the Company had one property classified as discontinued operations. The
asset carrying value of the owned property was approximately $1.8 million and is included in assets related to discontinued
operations. The Company is actively marketing this property for sale and has one property with a ground lease previously
impaired to zero.
The following table sets forth the sales and pretax losses reported for all discontinued locations:
Sales
Pretax loss
Income tax benefit on discontinued operations
$
$
$
August 29,
2018
Fiscal Year Ended
August 30,
2017
(In thousands, except locations)
August 31,
2016
— $
(80) $
(534) $
— $
(28) $
(438) $
(466) $
0
—
(136)
46
(90)
0
Loss on discontinued operations
Discontinued locations closed during the period
The following table summarizes discontinued operations for fiscal 2018, 2017, and 2016:
(614) $
0
$
Discontinued operating losses
Impairments
Gains
Net loss
Income tax benefit (expense) from discontinued operations
Loss from discontinued operations, net of income taxes
Effect on EPS from discontinued operations—decrease—
basic
August 29,
2018
Fiscal Year Ended
August 30,
2017
(In thousands, except per share data)
August 31,
2016
$
$
$
$
(21) $
(59)
—
(80) $
(534)
(614) $
(28) $
—
—
(28) $
(438)
(466) $
(161)
—
25
(136)
46
(90)
(0.02) $
(0.02) $
(0.00)
Within discontinued operations, the Company offsets gains from applicable property disposals against total impairments. The
amounts in the table described as “Other” include employment termination and shutdown costs, as well as operating losses
through each restaurant’s closing date and carrying costs until the locations are finally disposed.
The impairment charges included above relate to properties closed and designated for immediate disposal. The assets of these
individual operating units have been written down to their net realizable values. In turn, the related properties have either been
sold or are being actively marketed for sale. All dispositions are expected to be completed within one to two years. Within
discontinued operations, the Company also recorded the related fiscal yeartodate net operating results, employee terminations
and basic carrying costs of the closed units.
Property Held for Sale
The Company periodically reviews longlived assets against its plans to retain or ultimately dispose of properties. If the
Company decides to dispose of a property, it will be reclassified to property held for sale and actively marketed. The Company
analyzes market conditions each reporting period and records additional impairments due to declines in market values of like
assets. The fair value of the property is determined by observable inputs such as appraisals and prices of comparable properties
in active markets for assets like the Company’s. Gains are not recognized until the properties are sold.
Property held for sale includes unimproved land, closed restaurant properties and related equipment for locations not classified
as discontinued operations. The specific assets are valued at the lower of net depreciable value or net realizable value. The
Company actively markets all locations classified as property held for sale.
At August29, 2018, the Company had 15 owned properties recorded at approximately $19.5 million in property held for sale.
The pretax profit (loss) for the disposal group of locations operating in fiscal 2018, 2017, and 2016 was approximately $(1.2)
million, $1.3 million, and $2.2 million, respectively.
At August30, 2017, the Company had four owned properties recorded at approximately $3.4 million in property held for sale.
The Company’s results of continuing operations will be affected to the extent proceeds from sales exceed or are less than net
book value.
A roll forward of property held for sale for fiscal 2018, 2017, and 2016 is provided below (in thousands):
Balance as of August 26, 2015
Disposals
Net transfers to property held for sale
Adjustment to fair value
Balance as of August 31, 2016
Disposals
Net transfers to property held for sale
Adjustment to fair value
Balance as of August 30, 2017
Disposals
Net transfers to property held for sale
Adjustment to fair value
Balance as of August 29, 2018
$
$
$
$
$
4,536
(1,488)
2,937
(463)
5,522
(1,173)
0
(977)
3,372
(7,916)
27,075
(3,062)
19,469
Abandoned Leased Facilities Reserve for Store Closing
As of August29, 2018, the Company classified seventeen leased locations in Arizona, Arkansas, Florida, Illinois, Indiana,
Maryland, New York, Oklahoma, Texas, Virginia and Wisconsin as abandoned. Although the Company remains obligated under
the terms of the leases for the rent and other costs that may be associated with the leases, the Company decided to cease
operations and has no foreseeable plans to occupy the spaces as a company restaurant in the future. Therefore, the Company
recorded a charge to earnings, in provision for asset impairments and restaurant closings for fiscal years 2018, 2017, and 2016
of approximately $1.3 million, $0.5 million, and $0.2 million, respectively. The liability is equal to the total amount of rent and
other direct costs for the remaining period of time the properties will be unoccupied plus the present value, calculated using a
creditadjusted risk free rate, of the amount by which the rent paid by the Company to the landlord exceeds any rent paid to the
Company by a tenant under a sublease over the remaining period of the lease terms. Accrued lease termination expense was
approximately $2.0 million and $0.5 million as of August29, 2018 and August30, 2017, respectively.
Note14. Commitments and Contingencies
OffBalance Sheet Arrangements
The Company has no offbalance sheet arrangements, except for operating leases for the Company’s corporate office, facility
service warehouse, and certain restaurant properties.
Claims
From time to time, the Company is subject to various other private lawsuits, administrative proceedings and claims that arise in
the ordinary course of its business. A number of these lawsuits, proceedings and claims may exist at any given time. These
matters typically involve claims from guests, employees and others related to issues common to the restaurant industry. The
Company currently believes that the final disposition of these types of lawsuits, proceedings, and claims will not have a
material adverse effect on the Company’s financial position, results of operations, or liquidity. It is possible, however, that the
Company’s future results of operations for a particular quarter or fiscal year could be impacted by changes in circumstances
relating to lawsuits, proceedings, or claims.
Construction Activity
From time to time, the Company enters into noncancelable contracts for the construction of its new restaurants or restaurant
remodels. This construction activity exposes the Company to the risks inherent in this industry including but not limited to
rising material prices, labor shortages, delays in getting required permits and inspections, adverse weather conditions, and
injuries sustained by workers. The Company had no noncancelable contracts as of August29, 2018.
Cheeseburger in Paradise, Royalty Commitment
The license agreement and trade name relates to a perpetual license to use intangible assets including trademarks, service marks
and publicity rights related to Cheeseburger in Paradise owned by Jimmy Buffett and affiliated entities. In return, the Company
will pay a royalty fee of 2.5% of gross sales, less discounts, at the Company's operating Cheeseburger in Paradise locations to
an entity owned or controlled by Jimmy Buffett. The trade name represents a respected brand with positive customer loyalty,
and the Company intends to cultivate and protect the use of the trade name.
Note15. Operating Leases
The Company conducts part of its operations from facilities that are leased under noncancelable lease agreements. Lease
agreements generally contain a primary term of five to 30 years with options to renew or extend the lease from one to 25 years.
As of August29, 2018, the Company has lease agreements for 88 properties which include the Company’s corporate office,
facility service warehouse, two remote office spaces, and restaurant properties. The leasing terms of the 88 properties consist of
13 properties expiring in less than one year, 50 properties expiring between one and five years and the remaining 25 properties
having current terms that are greater than five years. Of the 88 leased properties, 74 properties have options remaining to renew
or extend the lease.
A majority of the leases include periodic escalation clauses. Accordingly, the Company follows the straightline rent method of
recognizing lease rental expense.
As of August29, 2018, the Company has entered into noncancelable operating lease agreements for certain office equipment
with terms ranging from 36 to 60 months.
Annual future minimum lease payments under noncancelable operating leases with terms in excess of one year as of August29,
2018 are as follows:
Fiscal Year Ending:
August 28, 2019
August 26, 2020
August 25, 2021
August 31, 2022
August 30, 2023
Thereafter
Total minimum lease payments
(In thousands)
10,790
8,572
6,892
5,522
4,399
16,640
52,815
$
$
Most of the leases are for periods of five to 30 years and some leases provide for contingent rentals based on sales in excess of
a base amount. As of August29, 2018, aggregate future minimum rentals to be received under noncancelable subleases was
approximately $3.9 million.
Total rent expense for operating leases for fiscal 2018, 2017, and 2016 was as follows:
Minimum rentfacilities
Contingent rentals
Minimum rentequipment
Total rent expense (including amounts in discontinued
operations)
Percent of sales
$
$
August 29,
2018
Year Ended
August 30,
2017
(In thousands, except percentages)
August 31,
2016
10,584
77
801
11,462
$
$
11,849
86
758
12,693
$
$
12,341
164
712
13,217
3.1%
3.4%
3.3%
The future minimum lease payment table and the total rent expense table above include amounts related to two leases with
related parties, which are further described at Note 17. Related Parties.
Note16. ShareBased Compensation
We have two active sharebased stock plans, the Luby's Incentive Stock Plan, as amended and restated effective December 5,
2015 (the "Employee Stock Plan") and the Nonemployee Director Stock Plan. Both plans authorize the granting of stock
options, restricted stock, and other types of awards consistent with the purpose of the plans.
Of the aggregate 2.1 million shares approved for issuance under the Nonemployee Director Stock Plan, (which amount includes
shares authorized under the original plan and shares authorized pursuant to the amended and restated plan effective as of
February9, 2018), 1.3 million options, restricted stock units and restricted stock awards were granted, 0.1 million options were
cancelled or expired and added back into the plan, since the plans inception. Approximately 0.9 million shares remain available
for future issuance as of August29, 2018. Compensation cost for sharebased payment arrangements under the Nonemployee
Director Stock Plan, recognized in selling, general and administrative expenses for fiscal 2018, 2017, and 2016 was
approximately $0.5 million, $0.7 million, and $0.7 million, respectively.
Of the 4.1 million shares approved for issuance under the Employee Stock Plan (which amount includes shares authorized
under the original plan and shares authorized pursuant to the amended and restated plan effective as of December 5, 2015), 7.2
million options and restricted stock units were granted, 3.8 million options and restricted stock units were cancelled or expired
and added back into the plan, since the plans inception in 2005. Approximately 0.7 million shares remain available for future
issuance as of August29, 2018. Compensation cost for sharebased payment arrangements under the Employee Stock Plan,
recognized in selling, general and administrative expenses for fiscal 2018, 2017, and 2016 was approximately $0.9 million,
$0.9 million, and $1.0 million, respectively. Included in these costs for fiscal 2016 was approximately $252 thousand, which
represented accelerated sharebased compensation expense as a result of the rescission of 312,663 stock options.
Stock Options
Stock options granted under either the Employee Stock Plan or the Nonemployee Director Stock Plan have exercise prices
equal to the market price of the Company’s common stock at the date of the grant. The market price under the Employee Stock
Plan is the closing price at the date of the grant. The market price under the Nonemployee Director Plan is the average of the
high and the low price on the date of the grant.
Option awards under the Nonemployee Director Stock Plan generally vest 100% on the first anniversary of the grant date and
expire ten years from the grant date. No options were granted under the Nonemployee Director Stock Plan in fiscal 2018, 2017,
or 2016. No options to purchase shares remain outstanding under this plan, as of August29, 2018.
Options granted under the Employee Stock Plan generally vest 50% on the first anniversary of grant date, 25% on the second
anniversary of the grant date and 25% on the third anniversary of the grant date, with all options expiring ten years from the
grant date. All options granted in fiscal 2018, 2017, and 2016 were granted under the Employee Stock Plan. Options to
purchase 1,653,414 shares at options prices from $2.82 to $5.95 per share remain outstanding as of August29, 2018.
The Company has segregated option awards into two homogenous groups for the purpose of determining fair values for its
options because of differences in option terms and historical exercise patterns among the plans. Valuation assumptions are
determined separately for the two groups which represent, respectively, the Employee Stock Plan and the Nonemployee
Director Stock Option Plan. The assumptions are as follows:
• The Company estimated volatility using its historical share price performance over the expected life of the option.
Management believes the historical estimated volatility is materially indicative of expectations about expected future
volatility.
• The Company uses an estimate of expected lives for options granted during the period based on historical data.
• The riskfree interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term
of the option.
• The expected dividend yield is based on the Company’s current dividend yield and the best estimate of projected
dividend yield for future periods within the expected life of the option.
The fair value of each option award is estimated on the date of the grant using the BlackScholes option pricing model which
determine inputs as shown in the following table for options granted under the Employee Stock Plan:
Dividend yield
Volatility
Riskfree interest rate
Expected life (in years)
August 29,
2018
Fiscal Year Ended
August 30,
2017
(In thousands, except percentages)
August 31,
2016
0%
34.80%
2.19%
5.87
0%
37.65%
1.99%
5.87
0%
39.64%
1.82%
5.58
A summary of the Company’s stock option activity for fiscal 2018, 2017, and 2016 is presented in the following table:
Outstanding at August 26, 2015
Granted
Exercised
Forfeited
Expired
Outstanding at August 31, 2016
Granted
Cancelled
Forfeited
Expired
Outstanding at August 30, 2017
Granted
Forfeited
Expired
Outstanding at August 29, 2018
Exercisable at August 29, 2018
Shares
Under
Fixed
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(Years)
1,288,099 $
279,944
(21,249)
(55,893)
(9,000)
1,169,238 $
295,869
(9,290)
(55,893)
(37,689)
1,345,916 $
449,410
(97,111)
(44,801)
1,653,414 $
1,066,103 $
4.76
4.89
3.51
4.80
3.44
4.76
4.26
4.49
4.80
5.39
4.64
2.82
4.02
7.89
4.10
4.53
6.5 $
—
—
—
—
6.6 $
—
—
—
—
6.4 $
—
—
—
6.5 $
5.2 $
(In thousands)
350
—
—
—
—
178
—
—
—
—
0
—
—
0
0
The intrinsic value for stock options is defined as the difference between the market value at August 29, 2018 and the grant
price.
At August29, 2018, there was approximately $0.3 million of total unrecognized compensation cost related to unvested options
that are expected to be recognized over a weightedaverage period of 1.7 years.
The weightedaverage grantdate fair value of options granted during fiscal 2018, 2017, and 2016 was $1.05, $1.66, and $1.92
per share, respectively.
During fiscal 2017 and 2018, no options were exercised. During fiscal 2016 cash received from options exercised was
approximately $82 thousand.
Restricted Stock Units
Grants of restricted stock units consist of the Company’s common stock and generally vest after three years. All restricted stock
units are cliffvested. Restricted stock units are valued at market price of the Company’s common stock at the date of grant.
The market price under the Employee Stock Plan is the closing price at the date of the grant. The market price under the
Nonemployee Director Plan is the average of the high and the low price on the date of the grant.
A summary of the Company’s restricted stock unit activity during fiscal years is presented in the following table:
Unvested at August 26, 2015
Granted
Vested
Forfeited
Unvested at August 31, 2016
Granted
Vested
Forfeited
Unvested at August 30, 2017
Granted
Vested
Forfeited
Unvested at August 29, 2018
Restricted Stock
Units
Weighted
Average
Fair Value
409,417 $
172,212
(257,482)
(9,314)
314,833 $
200,549
(92,058)
(18,960)
404,364 $
244,748
(99,495)
(32,326)
517,291 $
(Per share)
5.98
4.87
6.19
5.37
5.23
4.26
6.30
4.55
4.54
2.83
4.42
3.87
3.79
Weighted
Average
Remaining
Contractual
Term
(In years)
1.6
—
—
—
1.9
—
—
—
1.8
—
—
—
1.8
At August29, 2018, there was approximately $0.8 million of total unrecognized compensation cost related to unvested
restricted stock units that is expected to be recognized over a weightedaverage period of 1.8 years.
Performance Based Incentive Plan
For fiscal years 2015 2018, The Company approved a Total Shareholder Return ("TSR") Performance Based Incentive Plan
(“Plan”). Each Plan’s award value varies from 0% to 200% of a base amount, as a result of the Company’s TSR performance in
comparison to its peers over the respective measurement period. Each Plan’s vesting period is three years.
The Plans for fiscal years 2015 2017 provides for a right to receive an unspecified number of shares of common stock under
the Employee Stock Plan based on the total shareholder return ranking compared to a selection of peer companies over the
threeyear vesting period, for each plan year. The number of shares at the end of the threeyear period will be determined as the
award value divided by the closing stock price on the last day of each fiscal year, accordingly. Each threeyear measurement
period is designated a plan year name based on year one of the measurement period. Since the plans provide for an
undeterminable number of awards, the plans are accounted for as liability based plans. The liability valuation estimate for each
plan year has been determined based on a Monte Carlo simulation model. Based on this estimate, management accrues expense
ratably over the threeyear service periods. A valuation estimate of the future liability associated with each fiscal year's
performance award plan is performed periodically with adjustments made to the outstanding liability at each reporting period to
properly state the outstanding liability for all plan years in the aggregate as of the respective balance sheet date. As of
August29, 2018, the valuation estimate which represents the fair value of the performance awards liability for all plan years
2016 and 2017, resulted in an approximate $0.3 million decrease in the aggregate liability. The 2015 TSR Performance Based
Incentive Plan vested for each active participant on August 30, 2017 and a total of 187,883 shares were awarded under the Plan
at 50% of the original target. The fair value of the 2015 plan's liability in the amount of $496 thousand was converted to equity
and the number of shares awarded for the 2015 TSR Performance Based Incentive Plan was based on the Company's stock
price at closing on the last day of fiscal 2017. The fair value of the 2016 TSR Plan was zero at the end of the threeyear
measurement period and at August29, 2018 no shares vested due to the relative ranking of the Company's stock performance.
The number of shares at the end of each plan's threeyear periods will be determined as the award value divided by the
Company's closing stock price on the last day of the plan's fiscal year.
The 2018 TSR Performance Based Incentive Plan provides for a specified number of shares of common stock under the
Employee Stock Plan based on the total shareholder return ranking compared to a selection of peer companies over a threeyear
cycle. The Fair Value of the 2018 Plan has been determined based on a Monte Carlo simulation model for the threeyear period.
The target number of shares for distribution at 100% of the plan is 373,294. The 2018 TSR Performance Based Incentive Plan
is accounted for as an equity award since the Plan provides for a specified number of shares. The expense for this Plan year is
amortized over the threeyear period based on 100% target award.
Noncash compensation expense related to the Company's TSR Performance Based Incentive Plans in fiscal 2018, 2017, and
2016 was a credit to expense of $15 thousand, and expenses of $38 thousand, and approximately $684 thousand, respectively,
and is recorded in Selling, general and administrative expenses.
A summary of the Company’s restricted stock Performance Based Incentive Plan activity during fiscal 2018 is presented in the
following table:
Unvested at August 30, 2017
Granted
Vested
Forfeited
Unvested at August 29, 2018
Units
Weighted Average
Fair Value
—
561,177
(187,883)
—
373,294
(Per share)
—
3.33
2.64
—
3.68
At August29, 2018, there was approximately $1.1 million of total unrecognized compensation cost related to 2018 TSR
Performance Based Incentive Plan that is expected to be recognized over a weightedaverage period of 2.0 years.
Restricted Stock Awards
Under the Nonemployee Director Stock Plan, directors are granted restricted stock in lieu of cash payments, for all or a portion
of their compensation as directors. Directors may receive a 20% premium of additional restricted stock by opting to receive
stock over a minimum required amount of stock, in lieu of cash. The number of shares granted is valued at the average of the
high and low price of the Company’s stock at the date of the grant. Restricted stock awards vest when granted because they are
granted in lieu of a cash payment. However, directors are restricted from selling their shares until after the third anniversary of
the date of the grant.
Supplemental Executive Retirement Plan
The Company has an unfunded Supplemental Executive Retirement Plan (“SERP”). In 2005, the Board of Directors voted to
amend the SERP and suspend the further accrual of benefits and participation. The net benefit recognized for the SERP for the
years ended August29, 2018, August30, 2017, and August31, 2016, was zero, and the unfunded accrued liability included in
“Other Liabilities” on the Company’s consolidated Balance Sheets as of August29, 2018 and August30, 2017 was
approximately $39 thousand and $45 thousand, respectively.
Nonemployee Director Phantom Stock Plan
The Company’s has a Nonemployee Director Phantom Stock Plan (“Phantom Stock Plan”). Authorized shares (100,000 shares)
under the Phantom Stock Plan were fully depleted in early fiscal 2003; since that time, no deferrals, incentives or dividends
have been credited to phantom stock accounts. As participants cease to be directors, their phantom shares are converted into an
equal number of shares of common stock and issued from the Company’s treasury stock. As of August29, 2018, 17,801
phantom shares remained outstanding and unconverted under the Phantom Stock Plan.
401(k) Plan
The Company has a voluntary 401(k) employee savings plan to provide substantially all employees of the Company an
opportunity to accumulate personal funds for their retirement. The Company matches 25% of participants’ contributions made
to the plan up to 6% of their salary. The net expense recognized in connection with the employer match feature of the voluntary
401(k) employee savings plan for the years ended August29, 2018, August30, 2017, and August31, 2016, was approximately
$243 thousand, $359 thousand, and $350 thousand, respectively.
Note17. Related Parties
Affiliate Services
The Company’s Chief Executive Officer, Christopher J. Pappas, and HarrisJ.Pappas, a Director of the Company, own two
restaurant entities (the “Pappas entities”) that may, from time to time, provide services to the Company and its subsidiaries, as
detailed in the Amended and Restated Master Sales Agreement dated August 2, 2017 among the Company and the Pappas
entities.
Under the terms of the Amended and Restated Master Sales Agreement, the Pappas entities continue to provide specialized
(customized) equipment fabrication, primarily for new construction, and basic equipment maintenance, including stainless steel
stoves, shelving, rolling carts, and chef tables. The total costs under the Master Sales Agreement of customfabricated and
refurbished equipment in fiscal 2018, 2017, and 2016 were approximately $31 thousand, $4 thousand, and $2 thousand,
respectively. The Company also incurred $2 thousand of other operating expenses in fiscal 2018 from the Pappas entities.
Services provided under this agreement are subject to review and approval by the Finance and Audit Committee of the
Company’s Board of Directors.
Operating Leases
In the third quarter of fiscal 2004, Messrs. Pappas became partners in a limited partnership which purchased a retail strip center
in Houston, Texas. Messrs. Pappas collectively own a 50% limited partnership interest and a 50% general partnership interest
in the limited partnership. A third party company manages the center. One of the Company’s restaurants has rented
approximately 7% of the space in that center since July 1969. No changes were made to the Company’s lease terms as a result
of the transfer of ownership of the center to the new partnership.
On November22, 2006, the Company executed a new lease agreement with respect to this shopping center. Effective upon the
Company’s relocation and occupancy into the new space in July 2008, the new lease agreement provides for a primary term of
approximately 12 years with two subsequent fiveyear options and gives the landlord an option to buy out the tenant on or after
the calendar year 2015 by paying the then unamortized cost of improvements to the tenant. The Company paid rent of $22.00
per square foot plus maintenance, taxes, and insurance during the remaining primary term of the lease. Thereafter, the lease
provides for increases in rent at set intervals. The Company made payments of approximately $460 thousand, $419 thousand,
and $417 thousand, in fiscal 2018, 2017, and 2016, respectively, under the lease agreement. The new lease agreement was
approved by the Finance and Audit Committee.
In the third quarter of fiscal 2014, on March 12, 2014, the Company executed a new lease agreement for one of the Company’s
Houston Fuddruckers locations with Pappas Restaurants, Inc. The lease provides for a primary term of approximately six years
with two subsequent fiveyear options. Pursuant to the new ground lease agreement, the Company paid rent of $28.06 per
square foot plus maintenance, taxes, and insurance from March 12, 2014 until May 31, 2020. Thereafter, the new ground lease
agreement provides for increases in rent at set intervals. The Company made payments of $168 thousand, $162 thousand, and
$160 thousand, in fiscal 2018, 2017, and 2016, respectively.
Affiliated rents paid for the Houston property lease represented 3.1%, 2.7%, and 2.6% of total rents for continuing operations
for fiscal 2018, 2017, and 2016, respectively.
Board of Directors
Pursuant to the terms of a separate Purchase Agreement dated March9, 2001, entered into by and among the Company,
Christopher J. Pappas and Harris J. Pappas, the Company agreed to submit three persons designated by Christopher J. Pappas
and Harris J. Pappas as nominees for election at the 2002 Annual Meeting of Shareholders. Messrs. Pappas designated
themselves and Frank Markantonis as their nominees for directors, all of whom were subsequently elected. Christopher J.
Pappas and Harris J. Pappas are brothers and Frank Markantonis is an attorney whose principal client is Pappas Restaurants,
Inc., an entity owned by Harris J. Pappas and Christopher J. Pappas.
Christopher J. Pappas is a member of the Advisory Board of Amegy Bank, a Division of ZB, N.A. (formerly, Amegy Bank,
N.A.), which was a lender and syndication agent under the Company’s 2013 Credit Facility. This facility matured and was
refunded on November 8, 2016, through the entering of the 2016 Credit Agreement, and there were no amounts outstanding
under the 2013 Credit Facility at August 30, 2017.
Key Management Personnel
The Company entered into a new employment agreement with Christopher Pappas on December 11, 2017. The new
employment agreement contains a termination date of August 28, 2019. Mr.Pappas continues to devote his primary time and
business efforts to the Company while maintaining his role at Pappas Restaurants, Inc.
Peter Tropoli, a director of the Company and the Company’s General Counsel and Secretary, is an attorney and stepson of
Frank Markantonis, who is a director of the Company.
Paulette Gerukos, Vice President of Human Resources of the Company, is the sisterinlaw of Harris J.Pappas, who is a
director of the Company.
Note18. Common Stock
At August29, 2018, the Company had 500,000 shares of common stock reserved for issuance upon the exercise of outstanding
stock options.
Treasury Shares
In February 2008, the Company acquired 500,000 treasury shares for $4.8 million.
Note19. Earnings Per Share
A reconciliation of the numerators and denominators of basic earnings per share and earnings per share assuming dilution is
shown in the table below:
Numerator:
Loss from continuing operations
NET LOSS
Denominator:
Denominator for basic earnings per share—weightedaverage
shares
Effect of potentially dilutive securities:
Employee and nonemployee stock options
Denominator for earnings per share assuming dilution
Loss from continuing operations:
Basic
Assuming dilution (a)
Net loss per share:
Basic
Assuming dilution (a)
August 29,
2018
Fiscal Year Ended
August 30,
2017
(In thousands, except per share data)
August 31,
2016
$
$
$
$
$
$
(32,954) $
(33,568) $
(22,796) $
(23,262) $
29,901
—
29,901
(1.10) $
(1.10) $
(1.12) $
(1.12) $
29,476
—
29,476
(0.77) $
(0.77) $
(0.79) $
(0.79) $
(10,256)
(10,346)
29,226
—
29,226
(0.35)
(0.35)
(0.35)
(0.35)
(a) Potentially dilutive shares, not included in the computation of net income per share because to do so would have been
antidilutive, totaled no shares in fiscal 2018, 3,000 shares in fiscal 2017, and 55,000 shares in fiscal 2016. Additionally, stock
options with exercise prices exceeding market close prices that were excluded from the computation of net income per share
amounted to 1,653,000 shares in fiscal 2018, 1,346,000 shares in fiscal 2017, and 494,000 shares in fiscal 2016.
Note 20. Shareholder Rights Plan
On February15, 2018, the Board of Directors adopted a rights plan with a 10% triggering threshold and declared a dividend
distribution of one right initially representing the right to purchase one half of a share of Luby’s common stock, upon specified
terms and conditions. The rights plan was effective immediately.
The Board adopted the rights plan in view of the concentrated ownership of Luby’s common stock as a means to ensure that all
of Luby’s stockholders are treated equally. The rights plan is designed to limit the ability of any person or group to gain control
of Luby’s without paying all of Luby’s stockholders a premium for that control. The rights plan was not adopted in response to
any specific takeover bid or other plan or proposal to acquire control of Luby’s.
If a person or group acquires 10% or more of the outstanding shares of Luby’s common stock (including in the form of
synthetic ownership through derivative positions), each right will entitle its holder (other than such person or members of such
group) to purchase, for $12.00, a number of shares of Luby’s common stock having a thencurrent market value of twice such
price. The rights plan exempts any person or group owning 10% or more (35.5% or more in the case of Harris J. Pappas,
Christopher J. Pappas and their respective affiliates and associates) of Luby’s common stock immediately prior to the adoption
of the rights plan. However, the rights will be exercisable if any such person or group acquires any additional shares of Luby’s
common stock (including through derivative positions) other than as a result of equity grants made by Luby’s to its directors,
officers or employees in their capacities as such.
Prior to the acquisition by a person or group of beneficial ownership of 10% or more of the outstanding shares of Luby’s
common stock, the rights are redeemable for 1 cent per right at the option of Luby’s Board of Directors.
The dividend distribution was made on February28, 2018 to stockholders of record on that date. Unless and until a triggering
event occurs and the rights become exercisable, the rights will trade with shares of Luby’s common stock.
Luby’s financial condition, operations, and earnings per share was not affected by the adoption of the rights plan.
Note21. Quarterly Financial Information
The following tables summarize quarterly unaudited financial information for fiscal 2018 and 2017.
Restaurant sales
Franchise revenue
Culinary contract services
Vending revenue
Total sales
Loss from continuing operations
Loss from discontinued operations
Net loss
Net loss per share:
Basic
Assuming dilution
$
$
$
$
$
Quarter Ended (1)
August 29,
2018
(84 days)
June 6,
2018
(84 days)
March 14,
2018
(84 days)
December 20,
2017
(112 days)
(In thousands, except per share data)
$
$
$
$
$
$
77,803
1,444
6,639
118
86,004
(14,133)
(463)
74,351
1,401
5,889
151
81,792
(11,461)
(110)
75,782
1,633
6,369
119
83,903
(1,858)
(6)
(1,864) $
(14,596) $
(11,571) $
104,582
1,887
6,885
143
113,497
(5,502)
(35)
(5,537)
(0.06) $
(0.06) $
(0.48) $
(0.48) $
(0.39) $
(0.39) $
(0.19)
(0.19)
Costs and Expenses (as a percentage of restaurant sales)
Cost of food
Payroll and related costs
Other operating expenses
Occupancy costs
27.8%
37.5%
17.7%
6.4%
28.6%
37.8%
19.3%
5.9%
28.5%
38.3%
19.3%
6.3%
28.5%
36.5%
18.6%
6.0%
(1) Quarterly results reflect corrections of immaterial errors as disclosed in Note 1 to our consolidated financial statements in Part II, Item 8
in this Form 10K.
Restaurant sales
Franchise revenue
Culinary contract services
Vending revenue
Total sales
Loss from continuing operations
Loss from discontinued operations
Net loss
Net loss per share:
Basic
Assuming dilution
$
$
$
$
$
Quarter Ended
August 30,
2017
(91 days)
June 7,
2017
(84 days)
March 15,
2017
(84 days)
December 21,
2016
(112 days)
(In thousands, except per share data)
$
$
$
82,594
1,477
4,515
133
88,719
$
$
81,064
1,819
3,306
125
86,314
(12,836)
(343)
(377)
(19)
79,078
1,556
5,825
130
86,589
(4,069)
(32)
(4,101) $
(396) $
(13,179) $
108,082
1,871
4,297
159
114,409
(5,514)
(72)
(5,586)
(0.14) $
(0.14) $
(0.01) $
(0.01) $
(0.45) $
(0.45) $
(0.19)
(0.19)
Costs and Expenses (as a percentage of restaurant sales)
Cost of food
Payroll and related costs
Other operating expenses
Occupancy costs
28.3%
36.1%
18.6%
6.4%
27.8%
35.7%
16.7%
6.0%
27.9%
36.1%
17.0%
6.6%
28.5%
35.8%
18.2%
6.0%
Item9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
We have had no disagreements with our accountants on any accounting or financial disclosures.
Item9A. Controls and Procedures
Evaluation of Disclosure Control and Procedures
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer,
has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of August29, 2018. Based on that evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that, as of August29, 2018, our disclosure controls and
procedures were effective in providing reasonable assurance that information required to be disclosed by us in the reports that
we file or submit under the Exchange Act is (i)recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms and (ii)accumulated and communicated to the issuer’s management, including its principal
executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Exchange Act Rules 13a15(f) and 15d15(f). Because of its inherent limitations, internal control over financial
reporting may not prevent or detect material misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our
internal control over financial reporting based on the framework in Internal Control – Integrated Framework2013 issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, we concluded that our internal
control over financial reporting was effective as of August29, 2018.
Grant Thornton LLP, the independent registered public accounting firm that audited the Consolidated Financial Statements
included in this report, has also audited the effectiveness our internal control over financial reporting as of August29, 2018, as
stated in their attestation report which is included under Item8 of this report.
Attestation Report of the Registered Public Accounting Firm
Included in Item8 of this report.
Changes in Internal Control over Financial Reporting
Except as noted above, there were no changes in our internal control over financial reporting during the quarter ended
August29, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
Item9B. Other Information
None.
PART III
Item10. Directors, Executive Officers and Corporate Governance
There is incorporated in this Item10 by reference that portion of our definitive proxy statement for the 2019 annual meeting of
shareholders appearing therein under the captions “Election of Directors,” “Corporate Governance,” “Section 16(a) Beneficial
Ownership Reporting Compliance,” “Executive Officers,” and “Certain Relationships and Related Transactions.”
We have in place a Policy Guide on Standards of Conduct and Ethics applicable to all employees,as well as the Board of
Directors, and Supplemental Standards of Conduct and Ethics for the Chief Executive Officer, Chief Financial Officer,
Controller, and all senior financial officers. This Policy Guide and the Supplemental Standards were filed as exhibits to the
Annual Report on Form 10K for the fiscal year ended August26, 2003 and can be found on our website at www.lubys.com.
We intend to satisfy the disclosure requirement under Item5.05 of Form 8K regarding amendments to or waivers from the
code of ethics or supplementary code of ethics by posting such information on our website at www.lubys.com.
Item11. Executive Compensation
There is incorporated in this Item11 by reference that portion of our definitive proxy statement for the 2019 annual meeting of
shareholders appearing therein under the captions “Compensation Discussion and Analysis—Executive Compensation,” “—
Executive Compensation Committee Report,” “—Compensation Tables and Information,” “—Director Compensation,” and
“Corporate Governance—Executive Compensation Committee—Compensation Committee Interlocks.”
Item12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
There is incorporated in this Item12 by reference that portion of our definitive proxy statement for the 2019 annual meeting of
shareholders appearing therein under the captions “Ownership of Equity Securities in the Company” and “Principal
Shareholders.”
Item13. Certain Relationships and Related Transactions, and Director Independence
There is incorporated in this Item13 by reference that portion of our definitive proxy statement for the 2019 annual meeting of
shareholders appearing therein under the captions, “Corporate Governance Guidelines—Director Independence” and “Certain
Relationships and Related Transactions.”
Item14. Principal Accountant Fees and Services
There is incorporated in this Item14 by reference that portion of our definitive proxy statement for the 2019 annual meeting of
shareholders appearing therein under the caption “Fees Paid To The Independent Registered Public Accounting Firm.”
Item15. Exhibits, Financial Statement Schedules
PART IV
1.
2.
Financial Statements
The following financial statements are filed as part of this Report:
Consolidated balance sheets at August 29, 2018 and August 30, 2017.
Consolidated statements of operations for each of the three years in the period ended August 29, 2018.
Consolidated statements of shareholders’ equity for each of the three years in the period ended August 29, 2018.
Consolidated statements of cash flows for each of the three years in the period ended August 29, 2018.
Notes to consolidated financial statements
Reports of Independent Registered Public Accounting Firm Grant Thornton LLP
Financial Statement Schedules
All schedules are omitted since the required information is not present or is not present in amounts sufficient to require
submission of the schedule or because the information required is included in the financial statements and notes thereto.
3.
Exhibits
The following exhibits are filed as a part of this Report:
3(a)
3(b)
3(c)
Amended and Restated Certificate of Incorporation of Luby’s, Inc. (incorporated by reference to Exhibit 3.1 to the
Company’s Quarterly Report on Form 10Q for the quarter ended February11, 2009, filed on March 20, 2009(File
No. 00108308)).
Bylaws of Luby’s, Inc., as amended through July 9, 2008 (incorporated by reference to Exhibit 3.1 to the
Company’s Current Report on Form8K filed on July 14, 2008 (File No. 00108308)).
Amendment to Bylaws of Luby’s, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report
on Form 8K filed on October 22, 2015 (File No. 00108308)).
3(d)
4
10(a)
Amendment No. 2 to Bylaws of Luby’s Inc., effective as of August 31, 2018 (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8K filed on August 31, 2018 (File No. 00108308)).
Rights Agreement, dated as of February 15, 2018, by and between the Company and American Stock Transfer &
Trust Company, LLC, as rights agent (which includes the Form of Rights Certificate as Exhibit A thereto)
(incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8A, filed on February
16, 2018 (File No. 00108308)).
Second Amended and Restated Nonemployee Director Stock Plan of Luby’s, Inc. adopted January25, 2013
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form10Q for the quarter ended
February 13, 2013, filed March 25, 2013 (File No. 00108308)).*
10(b)
10(c)
10(d)
10(e)
10(f)
10(g)
10(h)
10(i)
10(j)
10(k)
10(l)
10(m)
10(n)
10(o)
Registration Rights Agreement dated March 9, 2001, by and among Luby’s, Inc., ChristopherJ.Pappas, and Harris
J. Pappas (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8K filed March
15, 2001 (File No. 00108308)).
Luby’s, Inc. Amended and Restated Nonemployee Director Phantom Stock Plan effective September28, 2001
(incorporated by reference to Exhibit 10(dd) to the Company’s Quarterly Report on Form 10Q for the quarter
ended February13, 2002, filed on March 29, 2002 (File No. 00108308)).*
Form of Indemnification Agreement entered into between Luby’s, Inc. and each member of its Board of Directors
initially dated July23, 2002 (incorporated by reference to Exhibit 10(gg) to the Company’s Annual Report on
Form 10K for the fiscal year ended August28, 2002, filed on November 27, 2002 (File No. 00108308)).
Amended and Restated Master Sales Agreement effective November16, 2011, by and among Luby’s, Inc.,
PappasRestaurants, L.P., and Pappas Restaurants, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10Q for the quarter ended May 9, 2012, filed on June 15, 2012 (File No. 00108308)).
Amended and Restated Master Sales Agreement effective August 2, 2017, by and among Luby’s, Inc.,
PappasRestaurants, L.P., and Pappas Restaurants, Inc. (incorporated by reference to Exhibit 10(j) to the Company's
Annual Report on Form 10K for the fiscal year ended August 30, 2017, filed on November 13, 2017 (File No.
00108308)).
Restated Employment Agreement dated December 11, 2017, between Luby's, Inc. and Christopher J. Pappas
(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8K filed on December 12,
2017 (File No. 00108308)).*
Form of Restricted Stock Award Agreement pursuant to the Luby’s Incentive Stock Plan (incorporated by reference
to Exhibit 10.1 to the Company’s Current Report on Form 8K filed on November 16, 2007 (File No. 00108308)).
Form of Incentive Stock Option Award Agreement pursuant to the Luby’s Incentive Stock Plan (incorporated by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8K filed on November 16, 2007 (File No.
00108308)).
Luby's Incentive Stock Plan, effective as of December 5, 2015 (incorporated by reference to Annex A to the
Company's Definitive Proxy Statement on Schedule 14A filed on December 16, 2016 (File No. 001083038)).
Form of Restricted Stock Award Agreement pursuant to the Luby’s Incentive Stock Plan (incorporated by reference
to Exhibit 10.2 to the Company’s Current Report on Form 8K filed on November 16, 2015 (File No. 00108308)).
Form of Incentive Stock Option Award Agreement pursuant to the Luby’s Incentive Stock Plan (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8K filed on November 16, 2015 (File No.
00108308)).
Form of Incentive Stock Option Award Agreement to Luby’s 2015 Incentive Stock Plan (incorporated by reference
to Exhibit 10.2 to the Company’s Current Report on Form 8K filed on December 12, 2017 (File No. 00108308)).
Form of Restricted Stock Unit Agreement to Luby’s 2015 Incentive Stock Plan (incorporated by reference to
Exhibit 10.3 to the Company’s Current Report on Form 8K filed on December 12, 2017 (File No. 00108308)).
Credit Agreement, dated as of November 8, 2016, among the Company, the other credit parties thereto, the lenders
from time to time party thereto, Cadence Bank, N.A. and Texas Capital Bank, N.A., as cosyndication agents and
Wells Fargo Bank, National Association, as administrative agent, swingline lender, issuing lender, sole lead
arranger and sole bookrunner (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form
8K filed on November 15, 2016 (File No. 00108308)).
10(p)
10(q)
10(r)
10(s)
10(t)
14(a)
14(b)
21
23.1
31.1
31.2
32.1
32.2
99(a)
Second Amendment to Credit Agreement, dated as of April 20, 2018, among the Company, the other credit parties
party thereto, the lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10Q filed on April 23,
2018 (File No. 00108308)).
Third Amendment to Credit Agreement, dated as of August 24, 2018, among the Company, the other credit parties
party thereto, the lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8K filed on August 28, 2018
(File No. 00108308)).
Consent and Waiver, by and among the Company, each other Credit Party party thereto, the Lenders party thereto
and Wells Fargo as Administrative Agent for the Lenders (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8K filed on July 17, 2018 (File No. 00108308)).
Consent and Waiver, by and among the Company, each other Credit Party party thereto, the Lenders party thereto
and Wells Fargo as Administrative Agent for the Lenders (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8K filed on August 13, 2018 (File No. 00108308)).
Consent and Waiver, by and among the Company, each other Credit Party party thereto, the Lenders party thereto
and Wells Fargo as Administrative Agent for the Lenders (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8K filed on August 16, 2018 (File No. 00108308)).
Policy Guide on Standards of Conduct and Ethics applicable to all employees,as well as the board of directors
(incorporated by reference to Exhibit 14(a) to the Company’s Annual Report on Form 10K for the fiscal year
ended August 26, 2003, filed on November 25, 2003 (File No. 00108308)).
Supplemental Standards of Conduct and Ethics for the Chief Executive Officer, Chief Financial Officer, Controller,
and all senior financial officers (incorporated by reference to Exhibit 14(b) to the Company’s Annual Report on
Form 10K for the fiscal year ended August 26, 2003, filed on November 25, 2003 (File No. 00108308)).
Subsidiaries of the Company.
Consent of Grant Thornton LLP.
Rule 13a14(a)/15d14(a) certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes
Oxley Act of 2002.
Rule 13a14(a)/15d14(a) certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes
Oxley Act of 2002.
Section 1350 certification of the Principal Executive Officer pursuant to Section 906 of the SarbanesOxley Act of
2002.
Section 1350 certification of the Principal Financial Officer pursuant to Section 906 of the SarbanesOxley Act of
2002.
Corporate Governance Guidelines of Luby’s, Inc., as amended October28, 2004 (incorporated by reference to
Exhibit99(a) to the Company’s Annual Report on Form 10K for the fiscal year ended August29, 2007, filed on
November 9, 2007 (File No. 00108308)).
101.INS XBRL Instance Document
101.SCH XBRL Schema Document
101.CAL XBRL Calculation Linkbase Document
101.DEF XBRL Definition Linkbase Document
101.LAB XBRL Label Linkbase Document
101.PRE XBRL Presentation Linkbase Document
__________________________
* Denotes management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of Section13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
November 30, 2018
Date
LUBY’S,INC.
(Registrant)
By:
/s/CHRISTOPHER J. PAPPAS
Christopher J. Pappas
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Date
November 30, 2018
November 30, 2018
November 30, 2018
November 30, 2018
November 30, 2018
November 30, 2018
November 30, 2018
November 30, 2018
November 30, 2018
November 30, 2018
Signature and Title
/S/GASPER MIR, III
Gasper Mir, III, Director and Chairman of the Board
/S/CHRISTOPHER J. PAPPAS
Christopher J. Pappas, Director, President and Chief
Executive Officer
(Principal Executive Officer)
/S/K. SCOTT GRAY
K.ScottGray,SeniorVicePresidentandChiefFinancial
Officer,andPrincipal Accounting Officer
(Principal Financial and Accounting Officer)
/S/PETER TROPOLI
Peter Tropoli, Director
/S/HARRIS J. PAPPAS
Harris J. Pappas, Director
/S/GERALD W. BODZY
Gerald W. Bodzy, Director
/S/JUDITH B. CRAVEN
Judith B. Craven, Director
/S/JILLGRIFFIN
Jill Griffin, Director
/S/FRANK MARKANTONIS
Frank Markantonis, Director
/S/JOE C. MCKINNEY
Joe C. McKinney, Director
BR549282-1218-10K