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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
__________________________
FORM 10-Q
__________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 11, 2020
or
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: 001-08308 
__________________________
Luby's, Inc.
(Exact name of registrant as specified in its charter)
__________________________
Delaware 74-1335253
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
13111 Northwest Freeway, Suite 600 77040
Houston , Texas
(Address of principal executive offices) (Zip Code)
 
(713) 329-6800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange at which registered
Common Stock ($0.32 par value per share) LUB New York Stock Exchange
Common Stock Purchase Rights N/A New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 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  x    No   ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x   No  ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act: 
Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer x Smaller reporting company
Emerging growth company
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. ¨
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  x
As of May 27, 2020, there were 30,498,404 shares of the registrant’s common stock outstanding. 
1


Explanatory Note

As previously disclosed in the Current Report on Form 8-K filed by Luby’s, Inc. on April 20, 2020, Luby’s, Inc. delayed the filing of this Quarterly Report on Form 10-Q in reliance on the U.S. Securities and Exchange Commission’s order under Section 36 of the Securities Exchange Act of 1934, as amended, and certain rules thereunder (Release No. 34-88465) due to the outbreak of, and local, state and federal governmental responses to, the novel coronavirus pandemic (“COVID-19 pandemic”). Luby’s, Inc.’s operations have experienced disruptions due to the circumstances surrounding the COVID-19 pandemic including, but not limited to, suggested and mandated social distancing and stay home orders, a significant number of temporary store closings, and limited service in other stores. These mandates and orders and the resulting office closures and staff reductions have severely limited access to Luby’s Inc.’s facilities by its financial reporting and accounting staff and impacted its ability to fulfill required preparation and review processes and procedures. In light of the impact of the factors described above, Luby’s, Inc. was unable to compile and review certain information required in order to permit Luby’s, Inc. to timely file this Quarterly Report on Form 10-Q without unreasonable effort or expense.

Luby’s, Inc.
Form 10-Q
Quarter ended March 11, 2020
Table of Contents
 



Additional Information
 
We file reports with the Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. 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 http://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 our annual report on Form 10-K, quarterly reports on Form 10-Q, 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. 
2


Part I—FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
Luby’s, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
 
  March 11,
2020
August 28,
2019
   (Unaudited)  
ASSETS    
Current Assets:    
Cash and cash equivalents $ 7,080    $ 3,640   
Restricted cash and cash equivalents 8,704    9,116   
Trade accounts and other receivables, net 8,413    8,852   
Food and supply inventories 2,392    3,432   
Prepaid expenses 1,970    2,355   
Total current assets 28,559    27,395   
Property held for sale 13,770    16,488   
Assets related to discontinued operations 1,813    1,813   
Property and equipment, net 117,430    121,743   
Intangible assets, net 16,025    16,781   
Goodwill 514    514   
Operating lease right-of-use assets 24,296    —   
Other assets 890    1,266   
Total assets $ 203,297    $ 186,000   
LIABILITIES AND SHAREHOLDERS’ EQUITY    
Current Liabilities:    
Accounts payable $ 7,945    $ 8,465   
Liabilities related to discontinued operations   14   
Current portion of credit facility debt 2,567    —   
Operating lease liabilities-current 5,916    —   
Accrued expenses and other liabilities 24,015    24,475   
Total current liabilities 40,448    32,954   
Credit facility debt, less current portion 48,268    45,439   
Operating lease liabilities-noncurrent 23,047    —   
Other liabilities 922    6,577   
Total liabilities $ 112,685    $ 84,970   
Commitments and Contingencies
SHAREHOLDERS’ EQUITY    
Common stock, 0.32 par value; 100,000,000 shares authorized; shares issued were 30,751,629 and 30,478,972; and shares outstanding were 30,251,629 and 29,978,972 at March 11, 2020 and August 28, 2019, respectively
$ 9,841    $ 9,753   
Paid-in capital 35,478    34,870   
Retained earnings 50,068    61,182   
Less cost of treasury stock, 500,000 shares
(4,775)   (4,775)  
Total shareholders’ equity $ 90,612    $ 101,030   
Total liabilities and shareholders’ equity $ 203,297    $ 186,000   
  
The accompanying notes are an integral part of these consolidated financial statements.
3


Luby’s, Inc.
Consolidated Statements of Operations (unaudited)
(In thousands, except per share data)
  Quarter Ended Two Quarters Ended
  March 11,
2020
March 13,
2019
March 11,
2020
March 13,
2019
  (12 weeks) (12 weeks) (28 weeks) (28 weeks)
SALES:    
Restaurant sales $ 60,391    $ 65,369    $ 143,949    $ 156,468   
Culinary contract services 6,998    7,543    16,772    17,039   
Franchise revenue 1,158    1,421    2,865    3,644   
Vending revenue 14    90    124    190   
TOTAL SALES 68,561    74,423    163,710    177,341   
COSTS AND EXPENSES:    
Cost of food 17,399    18,145    41,341    43,226   
Payroll and related costs 23,782    24,730    55,915    59,244   
Other operating expenses 10,065    11,412    24,860    27,914   
Occupancy costs 3,783    4,166    8,773    10,041   
Opening costs   11    14    44   
Cost of culinary contract services 6,400    6,717    15,348    15,532   
Cost of franchise operations 409    247    974    519   
Depreciation and amortization 2,677    3,222    6,440    8,126   
Selling, general and administrative expenses 6,816    7,753    16,974    17,763   
Other Charges 1,509    1,263    2,748    2,477   
Provision for asset impairments and restaurant closings 661    1,195    1,770    2,422   
Net gain on disposition of property and equipment (2,527)   (12,651)   (2,498)   (12,501)  
Total costs and expenses 70,976    66,210    172,659    174,807   
INCOME (LOSS) FROM OPERATIONS (2,415)   8,213    (8,949)   2,534   
Interest income   19    28    19   
Interest expense (1,473)   (1,554)   (3,435)   (3,269)  
Other income, net 148    55    388    86   
Income (loss) before income taxes and discontinued operations (3,735)   6,733    (11,968)   (630)  
Provision for income taxes 62    93    156    213   
Income (loss) from continuing operations (3,797)   6,640    (12,124)   (843)  
Loss from discontinued operations, net of income taxes (6)   (8)   (17)   (13)  
NET INCOME (LOSS) (3,803)   6,632    (12,141)   (856)  
Income (loss) per share from continuing operations:
Basic $ (0.13)   $ 0.22    $ (0.40)   $ (0.03)  
Assuming dilution $ (0.13)   $ 0.22    $ (0.40)   $ (0.03)  
Loss per share from discontinued operations:
Basic $ 0.00    $ 0.00    $ 0.00    $ 0.00   
Assuming dilution $ 0.00    $ 0.00    $ 0.00    $ 0.00   
Net income (loss) per share:
Basic $ (0.13)   $ 0.22    $ (0.40)   $ (0.03)  
Assuming dilution $ (0.13)   $ 0.22    $ (0.40)   $ (0.03)  
Weighted average shares outstanding:
Basic 30,215    29,769    30,123    29,671   
Assuming dilution 30,215    29,799    30,123    29,671   
 The accompanying notes are an integral part of these consolidated financial statements.
4


Luby’s, Inc.
Consolidated Statement of Shareholders’ Equity (unaudited)
(In thousands)
Common Stock     Total
Issued Treasury Paid-In Retained Shareholders’
Shares Amount Shares Amount Capital Earnings Equity
Balance at August 29, 2018 30,003    $ 9,602    (500)   $ (4,775)   $ 33,872    $ 73,929    $ 112,628   
Cumulative effect of accounting changes from the adoption of ASC Topic 606 —    —    —    —    —    2,479    2,479   
Net loss —    —    —    —    —    (7,489)   (7,489)  
Share-based compensation expense 42    13    —    —    426    —    439   
Common stock issued under employee benefit plans 81    26    —    —    (26)   —    —   
Common stock issued under nonemployee benefit plans 38    12    —    —    (12)   —    —   
Balance at December 19, 2018 30,164    $ 9,653    (500)   $ (4,775)   $ 34,260    $ 68,919    $ 108,057   
Net income —    —    —    —    —    6,632    6,632   
Share-based compensation expense 98    31    —    —    363    —    394   
Common stock issued under employee benefit plans 12      —    —    (4)   —    —   
Common stock issued under nonemployee benefit plans 15      —    —    (5)   —    —   
Balance at March 13, 2019 30,289    $ 9,693    (500)   $ (4,775)   $ 34,614    $ 75,551    $ 115,083   

  Common Stock     Total
  Issued Treasury Paid-In Retained Shareholders’
  Shares Amount Shares Amount Capital Earnings Equity
Balance at August 28, 2019 30,478    $ 9,753    (500)   $ (4,775)   $ 34,870    $ 61,182    $ 101,030   
Net loss —    —    —    —    —    (8,338)   (8,338)  
Cumulative effect of accounting changes from the adoption of ASC Topic 842 —    —    —    —    —    1,027    1,027   
Share-based compensation expense 58    19    —    —    347    —    366   
Common stock issued under employee benefit plans 45    15    —    —    (51)   —    (36)  
Common stock issued under nonemployee benefit plans 64    20 —    —    (20)   —    —   
Balance at December 18, 2019 30,645    $ 9,807    (500)   $ (4,775)   $ 35,146    $ 53,871    $ 94,049   
Net loss —    —    —    —    —    $ (3,803)   $ (3,803)  
Share-based compensation expense 101    32    —    —    334    —    366   
Common stock issued under employee benefit plans     —    —    (2)   —    —   
Balance at March 11, 2020 30,752    $ 9,841    (500)   $ (4,775)   $ 35,478    $ 50,068    $ 90,612   
 
The accompanying notes are an integral part of these consolidated financial statements. 
5


Luby’s, Inc.
Consolidated Statements of Cash Flows (unaudited)
(In thousands)
 
  Two Quarters Ended
  March 11,
2020
March 13,
2019
  (28 weeks) (28 weeks)
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $ (12,141)   $ (856)  
Adjustments to reconcile net loss to net cash used in operating activities:    
Provision for asset impairments and net (gains) losses on property sales (727)   (10,079)  
Depreciation and amortization 6,440    8,126   
Amortization of debt issuance cost 577    811   
Share-based compensation expense 732    823   
Cash used in operating activities before changes in operating assets and liabilities (5,119)   (1,175)  
Changes in operating assets and liabilities:    
Decrease (increase) in trade accounts and other receivables 509    (414)  
Increase in food and supply inventories (94)   (45)  
Decrease in prepaid expenses and other assets 197    1,115   
Decrease in operating lease assets 2,407    —   
Decrease in operating lease liabilities (3,541)   —   
Decrease in accounts payable, accrued expenses and other liabilities (263)   (7,110)  
Net cash used in operating activities (5,904)   (7,629)  
CASH FLOWS FROM INVESTING ACTIVITIES:    
Proceeds from disposal of assets and property held for sale 5,453    20,444   
Purchases of property and equipment (1,490)   (1,781)  
Net cash provided by investing activities 3,963    18,663   
CASH FLOWS FROM FINANCING ACTIVITIES:    
Revolver borrowings 3,300    34,500   
Revolver repayments —    (54,500)  
Proceeds from term loan 2,500    58,400   
Term loan repayments (831)   (35,169)  
Debt issuance costs —    (3,236)  
Taxes paid on equity withheld —    (12)  
Net cash provided by (used in) financing activities 4,969    (17)  
Net increase in cash and cash equivalents and restricted cash 3,028    11,017   
Cash and cash equivalents and restricted cash at beginning of period 12,756    3,722   
Cash and cash equivalents and restricted cash at end of period $ 15,784    $ 14,739   
Cash paid for:    
Income taxes, net of (refunds) $   $ 51   
Interest 2,647    1,951   
 
The accompanying notes are an integral part of these consolidated financial statements.
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Luby’s, Inc.
Notes to Consolidated Financial Statements (unaudited)
 
 
Note 1. Basis of Presentation
 
The accompanying unaudited consolidated financial statements of Luby’s, Inc. (the “Company”, "we", "our", "us", or “Luby’s”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements that are prepared for our Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the periods ended March 11, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending August 26, 2020.
 
On June 3, 2020, we announced that our Board of Directors approved a course of action whereby we will immediately pursue the sale of our operating divisions and assets, including our real estate assets, or the sale of the Company in its entirety, and distribute the net proceeds to our stockholders after payment of debt and other obligations. During the sale process, certain of our restaurants will remain open to continue to serve our guests.

We have not established a definitive timeframe for completing this process which will most likely lead to the adoption by the Board of Directors of a formal plan of sale and proceeds distribution followed by an orderly wind down of any remaining operations. Such a plan of sale and proceeds distribution will require shareholder approval. There can be no assurance that such a plan of sale and proceeds distribution will be adopted by the Board of Directors or approved by the shareholders.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. See Note 3. Going Concern.

The consolidated balance sheet dated August 28, 2019, included in this Quarterly Report on Form 10-Q (this “Form 10-Q”), has been derived from our audited consolidated financial statements as of that date. However, this Form 10-Q does not include all of the information and footnotes required by GAAP for audited, year-end financial statements. Therefore, these financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 28, 2019.

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. The first fiscal quarter consists of four four-week periods, or 16 weeks, and the remaining three quarters typically include three four-week periods, or 12 weeks, in length. The fourth fiscal quarter includes 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.

Reportable Segments
 
Each restaurant is an operating segment because operating results and cash flow can be determined for each restaurant. We aggregate our operating segments into reportable segments by restaurant brand due to the nature of the products and services, the production processes, the customers, the methods used to distribute the products and services, the similarity of store level profit margins and the nature of the regulatory environment are alike. The Company has five reportable segments: Luby’s cafeterias, Fuddruckers restaurants, Cheeseburger in Paradise restaurant, Fuddruckers franchise operations, and Culinary Contract Services (“CCS”).

Prior to the fourth quarter of fiscal 2019 our internal organization and reporting structure supported three reportable segments; Company-owned restaurants, Franchise operations and Culinary Contract Services. The Company-owned restaurants consisted of the three brands discussed above, which were aggregated into one reportable segment.  In the fourth quarter of fiscal 2019 we re-evaluated and disaggregated the Company-owned restaurants into three reportable segments based on brand name.  As such, as of the fourth quarter 2019, our five reportable segments are Luby’s cafeterias, Fuddruckers restaurants, Cheeseburger in Paradise restaurants, Fuddruckers franchise operations and Culinary Contract Services. Management believes this change better reflects the priorities and decision-making analysis around the allocation of our resources and better aligns to the economic characteristics within similar restaurant brands. We began reporting on the new structure in the fourth quarter of fiscal 2019 as reflected in our Annual Report on Form 10-K. The segment data for the comparable periods of fiscal 2019 has been recast to conform to the current period presentation. Recasting this historical information did not have an impact on the consolidated financial performance of Luby’s Inc. for any of the periods presented.
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Other Charges

Other charges includes those expenses that we consider related to our restructuring efforts or are not part of our recurring operations. These expenses were included in our Selling, general, and administrative cost expense line in previously reported quarters of fiscal 2019. See Note 8 to these unaudited consolidated financial statements.

Recently Adopted Accounting Pronouncements
On August 29, 2019, the first day of fiscal 2020, (the "Effective Date") we adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), along with related clarifications and improvements (“ASC 842”). ASC 842 requires lessees to recognize, on their consolidated balance sheet, a liability for lease obligations, which represents the discounted obligation to make future lease payments, and a corresponding right-of-use asset. The guidance requires lessors to classify leases as sales-type, direct financing or operating. The pronouncement also requires disclosure of key information about leasing arrangements that is intended to give financial statement users the ability to assess the amount, timing, and potential uncertainty of cash flows related to leases. We have implemented a new lease tracking and accounting system in connection with the adoption of ASC 842.

We elected the optional transition method to apply ASC 842 as of the effective date and therefore, we have not applied the standard to the comparative periods presented on our consolidated financial statements. We also elected the package of practical expedients that allowed us not to reassess previous accounting conclusions regarding lease identification, initial direct costs and classification for existing or expired leases as of the effective date. We did not elect the practical expedient that would have permitted us to use hindsight when determining the lease term, including option periods, and impairment of operating lease assets.

We have made an accounting policy election to account for lease components and non-lease components as a single lease component for all underlying classes of assets where (1) the lease component is predominant, (2) the lease component, if accounted for separately, would be classified as an operating lease and (3) the timing and pattern of the lease component and non-lease component are the same. We have also elected the short-term lease recognition exemption for all of our leases that allows us to not recognize right-of-use assets and related liabilities for leases with an initial term of 12 months or less and that do not include an option to purchase the underlying asset that we are reasonably certain to exercise. Our transition to ASC 842 represents a change in accounting principle.

Upon adoption of ASC 842, we recorded operating lease liabilities of approximately $32.5 million based on the present value of the remaining lease payments using discount rates as of the effective date. The current portion of the operating lease liabilities recorded was approximately $8.1 million. In addition, we recorded operating lease right-of-use assets of approximately $27.2 million , calculated as the initial amount of the operating lease liability, adjusted for amounts reclassified from other lease related asset and liability accounts (such as prepaid rent, favorable and unfavorable lease intangibles and straight-line rent timing differences), in accordance with the new guidance, and impairment of certain right-of-use assets recognized as a charge to retained earnings as of the effective date.

On the effective date, we recorded the $1.0 million net cumulative effect of the adoption as an increase to retained earnings. Included in the net cumulative effect was an adjustment of approximately $2.0 million to clear the unamortized balance for deferred gains from sale / leaseback transactions. For most future sale / leaseback transactions, the gain (adjusted for any off-market items) will be recognized immediately in the period that the sale / leaseback transaction occurs.

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The impact of adopting ASC 842 on effected lines of our opening consolidated balance sheet was as follows:
Balance at August 28, 2019 ASC 842 Adjustment Balance at August 29, 2019
(In thousands)
ASSETS
Trade accounts and other receivables, net $ 8,852    $ 70    $ 8,922   
Prepaid expenses 2,355    (225)   2,130   
Total Current Assets 27,395    (155)   27,240   
Intangible assets, net 16,781    (190)   16,591   
Operating lease right-of-use assets, net —    27,191    27,191   
Total Assets $ 186,000    $ 26,846    $ 212,846   
LIABILITIES
Operating lease liabilities-current $ —    $ 8,061    $ 8,061   
Accrued expenses and other liabilities 24,475    (1,002)   23,473   
Total Current Liabilities 32,954    7,059    40,013   
Operating lease liabilities-non-current —    24,360    24,360   
Other liabilities 6,577    (5,600)   977   
Total Liabilities $ 84,970    $ 25,819    $ 110,789   
SHAREHOLDERS’ EQUITY
Retained earnings $ 61,182    $ 1,027    $ 62,209   
Total Shareholders Equity 101,030    1,027    102,057   
Total Liabilities and Shareholders Equity $ 186,000    $ 26,846    $ 212,846   
New Accounting Pronouncements - "to be Adopted"

There are no issued accounting pronouncements that we have yet to adopt that we believe would have a material effect on our financial statements.

Subsequent Events
We evaluated events subsequent to March 11, 2020 through the date the financial statements were issued to determine if the nature and significance of the events warrant inclusion in our consolidated financial statements. See Note 2. for subsequent events disclosures.

Note 2. Subsequent Events

COVID-19 Pandemic
On March 13, 2020, President Trump declared a national emergency in response to the novel coronavirus disease ("COVID-19") pandemic. On March 19, 2020, Governor Greg Abbott of Texas issued a public health disaster for the state of Texas to bring the entire state in line with CDC guidelines including, (1) closing of schools statewide, (2) ban on dine-in eating and gatherings of groups of more than 10 people, and (3) closing of gyms and bars. Governor Abbott followed with an essential services order on March 31, 2020, requiring anyone who is not considered an essential, critical infrastructure worker to stay home except for essential activity, essential businesses, essential government functions and critical care facilities. Most other states, including those states where we operate, have issued similar orders. The governor of Texas began relaxing some restrictions on businesses operating in Texas beginning May 1, 2020, which permitted a gradual reopening of businesses, including restaurants, with modified operations..
The spread of the COVID-19 pandemic has affected the United States economy, our operations and those of third parties on which we rely. Beginning on March 17, 2020, we began suspending on-premise dining at our restaurants and substantially all employees at those locations were placed on furlough. By March 31, 2020 we had suspended on-premise dining at all 118 of our company-owned restaurants and had suspended all operations at 50 of our Luby's Cafeteria's, 36 company-owned Fuddruckers restaurants and our one Cheeseburger in Paradise restaurant. The 28 Luby's Cafeteria's and 3 Fuddruckers
9


restaurants that remained open were providing take-out, drive-through and curbside pickup, or delivery with reduced operating hours and on-site staff. In addition, more than 50 percent of our general and administrative staff were placed on furlough and salaries were temporarily reduced by 50 percent for the remaining general and administrative staff and other salaried employees, including all senior management. Furthermore, our franchise owners suspended operations or moved to limited food-to-go operations at their locations, reducing the number of franchise locations in operation to 37 by early April 2020 from 90 prior to the COVID-19 pandemic.
Beginning in May 2020, we began to gradually reopen the dining rooms with state-mandated limits on guest capacity at the 28 Luby's locations and 3 Fuddruckers locations that had been previously operating with food-to-go service only. We also began to reopen restaurants that were temporarily closed. As of the date of this filing, there were 31 Luby's Cafeteria's and 8 Fuddruckers restaurants operating, all of which had their dining rooms open at limited capacity. There were 59 franchise locations in operation as of the date of this filing.
The full extent and duration of the impact of the COVID-19 pandemic on our operations and financial performance is currently unknown, and depends on future developments that are uncertain and unpredictable, including the duration of the spread of the pandemic, its impact of capital and financial markets on a macro-scale and any new information that may emerge concerning the severity of the virus, its spread to other regions, the actions to contain the virus or treat its impact, and consumer attitudes and behaviors, among others.
We are currently evaluating the potential short-term and long-term implications of the COVID-19 pandemic on our consolidated financial statements. The potential impacts will occur as early as the third quarter of fiscal 2020, and include, but are not limited to: impairment of long-lived assets, including property and equipment, definite-lived intangible assets and operating lease right-of-use assets related to our restaurants, impairment of goodwill and collectability of receivables.
See Note 3. Going Concern.
Payroll Protection Plan (PPP) Loan and Credit Facility Debt Modification
On April 21, 2020 we entered into a promissory note with Texas Capital Bank, N.A., effective April 12, 2020 that provides for a loan in the amount of $10.0 million (the "PPP loan") pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). The PPP Loan matures on April 12, 2022 and bears interest at a rate of 1.0% per annum. Monthly amortized principle and interest payments are deferred for six months after the date of disbursement. The PPP Loan funds were received on April 21, 2020. The PPP Loan contains events of default and other provisions customary for a loan of this type. The Payroll Protection Program provides that the use of PPP Loan amount shall be limited to certain qualifying expenses and may be partially forgiven in accordance with the terms of CARES Act to the extent applicable. We are not yet able to determine the amount that might be forgiven.
Additionally, we entered into the Third Amendment to Credit Agreement, dated April 21, 2020 (the "Third Amendment"). The Credit Agreement is further described at Note 15. Debt. The Third Amendment permitted us to incur indebtedness under the PPP Loan and terminated the $5.0 million undrawn portion of the delayed draw term loan upon receipt of the PPP Loan.
Note 3. Going Concern

The Company sustained a net loss of approximately $15.2 million and cash flow from operations was a use of cash of approximately $13.1 million in fiscal year ended August 28, 2019. In the two quarters ended March 11, 2020 (a period prior to the COVID-19 pandemic), the Company sustained a net loss of $12.1 million and cash flow from operations was a use of cash of $5.9 million. On March 13, 2020, shortly after the end of the Company's second quarter, President Trump declared a national emergency in response to the COVID-19 pandemic followed by Governor Greg Abbott of Texas issuing a public health disaster for the state of Texas on March 19, 2020. The Company took the necessary actions described in "Note 2. Subsequent Events" which further stressed the liquid financial resources of the Company. In response, the company borrowed the remaining $1.4 million available on its revolving line of credit with MSD Capital, borrowed $2.5 million on its Delayed Draw Term Loan, and applied for and received a $10.0 million PPP Loan as described in "Note 2. Subsequent Events". As of the date of this filing, the Company has no undrawn borrowing capacity under the Credit Agreement. Further, the Company does not believe that it would be able to secure any additional debt financing currently.
The full extent and duration of the impact of the COVID-19 pandemic on our operations and financial performance is currently unknown. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations and its ability to generate proceeds from real estate property sales to meet its obligations. The above conditions and events, in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern. Notwithstanding the aforementioned substantial doubt, the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. 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
10


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.
On June 3, 2020, the Company announced that the Board of Directors of the Company will aggressively pursue a sale of its operations and assets and distribute the net proceeds to our stockholder, after payment of debt and other obligations. This course of action is more fully explained in "Note 1 - Basis of Presentation". We have not established a timeframe, nor have we committed to a plan, but such a plan could extend beyond one year. Until an actionable plan is approved, we believe we will be able to meet our obligations for the next 12 months when they come due through 1) cash flow from operating certain restaurants, 2) available cash balances, and 3) proceeds generated from real estate property sales as discussed below.
Throughout April and May of 2020, the Company reviewed and modified many aspects of its operating plan within its restaurants and corporate overhead. The Company is now operating at an increased level of operational cost efficiency. These efforts are expected to mitigate the adverse impacts of COVID-19. Additionally, the sale of some assets will likely be necessary for the Company to generate cash to fund its operations. The Company has historically been able to successfully generate proceeds from property sales. Although the Company has been successful in these endeavors in the past, there are no assurances the Company will generate sufficient funds to meet all its obligations as they become due. The following conditions were considered in management’s evaluation of going concern and its efforts to mitigate that concern:
Revamping restaurant operations to generate cost efficiencies resulting in higher restaurant operating margins even if sales levels do not return to pre-COVID-19 pandemic levels. As the restaurants adapted to the new operating environment, a lower cost labor model was deployed, food costs declined as menu offerings were concentrated among the historically top selling items, and various restaurant service and supplier costs were reevaluated.
Restructuring of corporate overhead earlier in calendar 2020 prior to the pandemic, including a transition to 3rd party provider for certain accounting and payroll function. Significant further restructuring took place in April and May of 2020, as we reviewed all corporate service providers, information technology needs, and personnel requirements to support a reduced level of operations going forward.
Securing the PPP Loan which was necessary for funding continuing operations. We believe that a portion of the loan will be eligible for forgiveness; however, that amount cannot currently be calculated.
Continued efforts to close real estate sales transactions with anticipated aggregate sales proceeds in excess of $20.0 million prior to the end of fiscal 2020. In addition, the we have identified other real estate properties that may be sold to generate funds for ongoing operations should the identification of a buyer for one or more of the operating divisions not occur timely.
We believe these plans are sufficient to overcome the significant doubt whether we can meet our liquidity needs for the 12 months from the issuance of these financial statements. However, we can not predict with certainty that these efforts will be successful or sufficient.

Note 4. Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within our consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows:
March 11,
2020
August 28,
2019
(in thousands)
Cash and cash equivalents $ 7,080    $ 3,640   
Restricted cash and cash equivalents 8,704    9,116   
Total cash and cash equivalents shown in our consolidated statements of cash flows $ 15,784    $ 12,756   

Amounts included in restricted cash represent those required to be set aside for (1) maximum amount of interest payable in the next 12 months under the 2018 Credit Agreement (see Note 15), (2) collateral for letters of credit issued for potential insurance obligations, which letters of credit expire within 12 months and (3) prefunding of the credit limit under our corporate purchasing card program.

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Note 5. Revenue Recognition

Restaurant Sales
Restaurant sales consist of sales of food and beverage products to restaurant guests at our Luby’s cafeterias and our Fuddruckers and Cheeseburger in Paradise restaurants. Revenue from restaurant sales is recognized at the point of sale and is presented net of discounts, coupons, employee meals and complimentary meals. Sales taxes that we collect and remit to the appropriate taxing authority related to these sales are excluded from revenue.
We sell gift cards to our customers in our venues and through certain third-party distributors. These gift cards do not expire and do not incur a service fee on unused balances. Sales of gift cards to our restaurant customers are initially recorded as a contract liability, included in accrued expenses and other liabilities, at their expected redemption value. When gift cards are redeemed, we recognize revenue and reduce the contract liability. Discounts on gift cards sold by third parties are recorded as a reduction to accrued expenses and other liabilities and are recognized, as a reduction to revenue, over a period that approximates redemption patterns. The portion of gift cards sold to customers that are never redeemed is commonly referred to as gift card breakage. We recognize gift card breakage revenue in proportion to the pattern of gift card redemptions exercised by our customers, using an estimated breakage rate based on our historical experience.
Culinary contract services revenue
Our Culinary Contract Services segment provides food, beverage and catering services to our clients at their locations. Depending on the type of client and service, we are either paid directly by our client and/or directly by the customer to whom we have been provided access by our client.
We typically use one of the following types of client contracts:
Fee-Based Contracts Revenue from fee-based contracts is based on our costs incurred and invoiced to the client for reimbursement along with the agreed management fee, which may be calculated as a fixed dollar amount or a percentage of sales or other variable measure. Some fee-based contracts entitle us to receive incentive fees based upon our performance under the contract, as measured by factors such as sales, operating costs and client satisfaction surveys. This potential incentive revenue is allocated entirely to the management services performance obligation. We recognize revenue from our management fee and payroll cost reimbursement over time as the services are performed. We recognize revenue from our food and 3rd party purchases reimbursement at the point in time when the vendor delivers the goods or performs the services.
Profit and Loss Contracts Revenue from profit and loss contracts consist primarily of sales made to consumers, typically with little or no subsidy charged to clients. Revenue is recognized at the point of sale to the consumer. Sales taxes that we collect and remit to the appropriate taxing authority related to these sales are excluded from revenue.
As part of client contracts, we sometimes make payments to clients, such as concession rentals, vending commissions and profit share. These payments are accounted for as operating costs when incurred.
Revenue from the sale of frozen foods includes royalty fees based on a percentage of frozen food sales and is recognized at the point in time when product is delivered by our contracted manufacturers to the retail outlet.
Franchise revenues
Franchise revenues consist primarily of royalties, marketing and advertising fund (“MAF”) contributions, initial and renewal franchise fees, and upfront fees from area development agreements related to our Fuddruckers restaurant brand. Our performance obligations under franchise agreements consist of: (1) a franchise license, including a license to use our brand and MAF management, (2) pre-opening services, such as training and inspections and (3) ongoing services, such as development of training materials and menu items as well as restaurant monitoring and inspections. These performance obligations are highly interrelated, so we do not consider them to be individually distinct. We account for them as a single performance obligation, which is satisfied over time by providing a right to use our intellectual property over the term of each franchise agreement.
Royalties, including franchisee MAF contributions, are calculated as a percentage of franchise restaurant sales. MAF contributions paid by franchisees are used for the creation and development of brand advertising, marketing and public relations, merchandising research and related programs, activities and materials. The initial franchisee fee is payable upon execution of the franchise agreement and the renewal fee is due and payable at the expiration of the initial term of the franchise agreement. Our franchise agreement royalties, including advertising fund contributions, represent sales-based royalties that are related entirely to our performance obligation under the franchise agreement and are recognized as franchise sales occur.
Initial and renewal franchise fees and area development fees are recognized as revenue over the term of the respective agreement. Area development fees are not distinct from franchise fees, so upfront fees paid by franchisees for exclusive
12


development rights are deferred and apportioned to each franchise restaurant opened by the franchisee. The pro-rata amount apportioned to each restaurant is accounted for as an initial franchise fee.
Revenue from vending machine sales is recorded at the point in time when the sale occurs.
Contract Liabilities
Contract liabilities consist of (1) deferred revenue resulting from initial and renewal franchise fees and upfront area development fees paid by franchisees, which are generally recognized on a straight-line basis over the term of the underlying agreement, (2) liability for unused gift cards and (3) unamortized discount on gift cards sold to 3rd party retailers. These contract liabilities are included in accrued expenses and other liabilities in our consolidated balance sheets. The following table reflects the change in contract liabilities:
Gift Cards, net of discounts Franchise Fees
(In thousands)
Balance at August 28, 2019 $ 2,882    $ 1,287   
Revenue recognized that was included in the contract liability balance at the beginning of the year (978)   (20)  
Increase, net of amounts recognized as revenue during the period 1,455    —   
Balance at March 11, 2020 $ 3,359    $ 1,267   

The following table illustrates the estimated revenues expected to be recognized in the future related to our deferred franchise fees that are unsatisfied (or partially unsatisfied) as of March 11, 2020:
Franchise Fees
(In thousands)
Remainder of fiscal 2020 $ 17   
Fiscal 2021 38   
Fiscal 2022 38   
Fiscal 2023 38   
Fiscal 2024 38   
Thereafter 343   
Total operating franchise restaurants 512   
Franchise restaurants not yet opened(1)
755   
Total $ 1,267   

(1) Amortization of the deferred franchise fees will begin when the restaurant commences operations and revenue will be recognized straight-line over the franchise term (which is typically 20 years). If the franchise agreement is terminated, the deferred franchise fee will be recognized in full in the period of termination.







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Disaggregation of Total Revenues (in millions):
Quarter Ended Two Quarters Ended
March 11, 2020 March 13, 2019 March 11, 2020 March 13, 2019
(in millions)
Revenue from performance obligations:
Satisfied at a point in time $ 63.8    $ 69.2    $ 152.0    $ 165.0   
Satisfied over time 4.8    5.2    11.7    12.3   
Total Sales $ 68.6    $ 74.4    $ 163.7    $ 177.3   

See Note 7. Reportable Segments for disaggregation of revenue by reportable segment.

Note 6. Leases

Lessee
We determine if a contract contains a lease at the inception date of the contract. Our material operating leases consist of restaurant locations and administrative facilities ("Property Leases"). U.S. GAAP requires that our leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the date on which the leased asset is available for our use (the “Commencement Date”) and the lease term used in the evaluation includes the non-cancellable period for which we have the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option would result in an economic penalty (the "Reasonably Certain Lease Term"). Our lease agreements generally contain a primary term of five to 30 years with one or more options to renew or extend the lease generally from one to five years each. In addition to leases for our restaurant locations and administrative facilities, we also lease vehicles and administrative equipment under operating leases. As of March 11, 2020, we did not have any finance leases.
At the inception of a new lease, we recognize an operating lease liability and a corresponding right of use asset, which are calculated as the the present value of the total fixed lease payments over the reasonably certain lease term using discount rates as of the effective date.
Property lease agreements may include rent holidays, rent escalation clauses and contingent rent provisions based on a percentage of sales in excess of specified levels. Contingent rental expenses (“variable lease cost”) are recognized prior to the achievement of a specified target, provided that the achievement of the target is considered probable. Most of our lease agreements include renewal periods at our option. We include the rent holiday periods and scheduled rent increases in our calculation of straight-line rent expense.
Lease cost for operating leases is recognized on a straight-line basis and includes the amortization of the right-of-use asset and interest expense related to the operating lease liability. We use the reasonably certain lease term in our calculation of straight-line rent expense. We expense rent from commencement date through restaurant open date as opening expense. Once a restaurant opens for business, we record straight-line rent expense plus any additional variable contingent rent expense (such as common area maintenance, insurance and property tax costs) to the extent it is due under the lease agreement as occupancy expense for our restaurants and selling, general and administrative expense for our corporate office and support facilities. The interest expense related to the lease liability for abandoned leases is recorded to provision for asset impairments and store closings. Rental expense for lease properties that are subsequently subleased to franchisees or other third parties is recorded as other income.
We make judgments regarding the reasonably certain lease term for each property lease, which can impact the classification and accounting for a lease as a finance lease or an operating lease, the rent holiday and/or escalations in payments that are taken into consideration when calculating straight-line rent, and the term over which leasehold improvements for each restaurant are amortized. These judgments may produce materially different amounts of depreciation, amortization and rent expense than would be reported if different assumed lease terms were used.
The discount rate used to determine the present value of the lease payments is the Company’s estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, as the Company generally cannot determine the interest rate implicit in the lease.
14


Lessor
We occasionally lease or sublease certain restaurant properties to our franchisees or to third parties. The lease descriptions, terms, variable lease payments and renewal options are generally similar to our lessee leases described above. Similar to our lessee accounting, we elected the lessor practical expedient that allows us to not separate non-lease components from lease components in regard to all property leases where we are the lessor. As of March 11, 2020, we did not have any sales-type or direct financing leases.
Supplemental balance sheet information related to our leases was as follows:
Operating Leases Classification March 11, 2020
(in thousands)
Right-of-use assets Operating lease right-of-use assets $ 24,296   
Current lease liabilities Operating lease liabilities-current $ 5,916   
Non-current lease liabilities Operating lease liabilities-noncurrent 23,047   
Total lease liabilities $ 28,963   
Weighted-average lease terms and discount rates at March 11, 2020 were as follows:
Weighted-average remaining lease term 6.02 years
Weighted-average discount rate 9.6%
Components of lease expense were as follows:
12 Weeks Ended 28 Weeks Ended
March 11, 2020
(in thousands)
Operating lease expense $ 1,874    $ 4,412   
Variable lease expense 257    553   
Short-term lease expense 62    125   
Sublease expense 161    382   
Total lease expense $ 2,354    $ 5,472   
Operating lease income is included in other income on our consolidated statements of operations and was comprised of:
12 Weeks Ended 28 Weeks Ended
March 11, 2020
(in thousands)
Operating lease income $ 213    $ 503   
Sublease income 114    286   
Variable lease income 33    109   
Total lease income $ 360    $ 898   
Supplemental disclosures of cash flow information related to leases were as follows:
12 Weeks Ended 28 Weeks Ended
March 11, 2020
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities $ 2,431    $ 5,282   
Right-of-use assets obtained in exchange for lease liabilities $ 903    $ 903   
15


Operating lease obligations maturities in accordance with Topic 842 as of March 11, 2020 were as follows:
(in thousands)
Remainder of FY 2020 $ 3,323   
FY 2021 8,273   
FY 2022 6,066   
FY 2023 5,133   
FY 2024 4,244   
Thereafter 11,855   
Total lease payments 38,894   
Less: imputed interest (9,931)  
Present value of operating lease obligations $ 28,963   
The operating lease obligation and rent expense tables above include amounts related to two leases with related parties, which are further described at "Note 14. Related Parties".
Annual future minimum lease payments under non-cancelable operating leases with terms in excess of one year as of August 28, 2019 in accordance with the previous lease accounting standard (ASC 840) are as follows:
Fiscal Year Ending: (In thousands)
August 26, 2020 $ 8,841   
August 25, 2021 7,155   
August 31, 2022 5,643   
August 30, 2023 4,410   
August 28, 2024 3,768   
Thereafter 10,312   
Total minimum lease payments $ 40,129   

Note 7. Reportable Segments
 
As more fully discussed at "Note 1. Basis of Presentation", in the fourth quarter of fiscal 2019, the Company reevaluated its reportable segments and has disaggregated its Company-owned restaurants into three reportable segments; Luby’s cafeterias, Fuddruckers restaurants and Cheeseburger in Paradise restaurants. We began reporting on the new structure in the fourth quarter of fiscal 2019. The segment data for the comparable periods presented has been recast to conform to the current period presentation. We have five reportable segments: Luby’s cafeterias, Fuddruckers restaurants, Cheeseburger in Paradise restaurants, Fuddruckers franchise operations, and Culinary contract services.
 
Company-owned restaurants
 
Company-owned restaurants consists of Luby’s cafeterias, Fuddruckers restaurants and Cheeseburger in Paradise restaurant reportable segments. We consider each restaurant to be an operating segment because operating results and cash flow can be determined for each restaurant. We aggregate our operating segments into reportable segments by restaurant brand because the nature of the products and services, the production processes, the customers, the methods used to distribute the products and services, the long-term store level profit margins, and the nature of the regulatory environment are similar. The chief operating decision maker analyzes 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. All Company-owned Luby’s cafeterias, Fuddruckers and Cheeseburger in Paradise restaurants are casual dining restaurants.

The Luby’s cafeterias segment includes the results of our company-owned Luby’s Cafeterias restaurants. The total number of Luby’s cafeterias at March 11, 2020 and August 28, 2019 were 78 and 79, respectively.

The Fuddruckers restaurant segment includes the results of our company-owned Fuddruckers restaurants. The total number of Fuddruckers restaurants at March 11, 2020 and August 28, 2019 were 39 and 44, respectively.

The Cheeseburger in Paradise restaurant segment includes the results of our Cheeseburger in Paradise restaurants. The total number of Cheeseburger in Paradise restaurants at both March 11, 2020 and August 28, 2019 was one.
16



Culinary Contract Services ("CCS")
 
CCS, branded as Luby’s Culinary 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 in-room delivery, catering, vending, coffee service, and retail dining. CCS had contracts with long-term 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 our 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 March 11, 2020 and August 28, 2019 were 28 and 31, respectively.

CCS began selling Luby's Famous Fried Fish, Macaroni & Cheese and Chicken Tetrazzini in February 2017, December 2016, and May, 2019, respectively, in the freezer section of H-E-B stores, a Texas-born retailer. H-E-B stores now stock the family-sized versions of Luby's Classic Macaroni and Cheese , Chicken Tetrazzini, and Luby's Fried Fish. HEB also stocks single serve versions of these three items as well as Jalapeno Macaroni and Cheese.

Fuddruckers 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 generally have a term of 20 years. Franchise agreements typically grant franchisees an exclusive territorial license to operate a single restaurant within a specified area.
 
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. 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, on-site inspections and standards evaluation reports.
 
The number of franchised restaurants at March 11, 2020 and August 28, 2019 were 90 and 102, respectively.

Segment Table

The tables below show segment financial information. The table also lists total assets for each reportable segment. Corporate assets include cash and cash equivalents, restricted cash, property and equipment, assets related to discontinued operations, property held for sale, deferred tax assets, and prepaid expenses.

17


  Quarter Ended Two Quarters Ended
  March 11, 2020 March 13, 2019 March 11, 2020 March 13, 2019
  (12 weeks) (12 weeks) (28 weeks) (28 weeks)
(In thousands)
Sales:
Luby's cafeterias $ 47,886    $ 48,621    $ 115,031    $ 117,229   
Fuddruckers restaurants 11,872    16,246    27,551    37,879   
Cheeseburger in Paradise restaurants 647    592    1,492    1,550   
Culinary contract services 6,998    7,543    16,772    17,039   
Fuddruckers franchise operations 1,158    1,421    2,865    3,644   
Total $ 68,561    $ 74,423    $ 163,711    $ 177,341   
Segment level profit:    
Luby's cafeterias $ 4,877    $ 6,153    $ 12,786    $ 15,148   
Fuddruckers restaurants 527    959    494    1,416   
Cheeseburger in Paradise restaurants (28)   (106)   (95)   (331)  
Culinary contract services 598    826    1,424    1,507   
Fuddruckers franchise operations 749    1,174    1,890    3,125   
Total $ 6,723    $ 9,006    $ 16,499    $ 20,865   
Depreciation and amortization:    
Luby's cafeterias $ 1,738    $ 2,039    $ 4,182    $ 5,042   
Fuddruckers restaurants 387    548    937    1,881   
Cheeseburger in Paradise restaurants 19    26    47    81   
Culinary contract services   24    17    46   
Fuddruckers franchise operations 178    177    414    413   
Corporate 350    408    843    663   
Total $ 2,677    $ 3,222    $ 6,440    $ 8,126   
Capital expenditures:    
Luby's cafeterias $ 414    $ 447    $ 1,238    $ 1,404   
Fuddruckers restaurants 90    39    139    148   
Cheeseburger in Paradise restaurants —    11      11   
Culinary contract services —    (44)   —     
Fuddruckers franchise operations —    —    14    —   
Corporate 41    209    97    209   
Total 545    $ 662    $ 1,490    $ 1,781   




18


Quarter Ended Two Quarters Ended
March 11, 2020 March 13, 2019 March 11, 2020 March 13, 2019
(12 weeks) (12 weeks) (28 weeks) (28 weeks)
(In thousands)
Income (loss) before income taxes and discontinued operations:    
Segment level profit $ 6,723    $ 9,006    $ 16,499    $ 20,865   
Opening costs (2)   (11)   (14)   (44)  
Depreciation and amortization (2,677)   (3,222)   (6,440)   (8,126)  
Selling, general and administrative expenses (6,816)   (7,753)   (16,974)   (17,763)  
Other charges (1,509)   (1,263)   (2,748)   (2,477)  
Provision for asset impairments and restaurant closings (661)   (1,195)   (1,770)   (2,422)  
Net gain on disposition of property and equipment 2,527    12,651    2,498    12,501   
Interest income   19    28    19   
Interest expense (1,473)   (1,554)   (3,435)   (3,269)  
Other income, net 148    55    388    86   
Total $ (3,735)   $ 6,733    $ (11,968)   $ (630)  


  March 11, 2020 August 28, 2019
  (In thousands)
Total assets:
Luby's cafeterias $ 106,132    $ 107,287   
Fuddruckers restaurants (1)
37,984    25,725   
Cheeseburger in Paradise restaurants (2)
363    829   
Culinary contract services 7,212    6,703   
Fuddruckers franchise operations (3)
9,494    10,034   
Corporate 42,112    $ 35,422   
Total $ 203,297    $ 186,000   

(1) Includes Fuddruckers trade name intangible of 7.2 million and 7.5 million at March 11, 2020 and August 28, 2019, respectively.
(2) Includes Cheeseburger in Paradise liquor licenses, and Jimmy Buffett intangibles of $45 thousand and $46 thousand at March 11, 2020 and August 28, 2019, respectively.
(3) Fuddruckers franchise operations segment includes royalty intangibles of $8.8 million and $9.2 million at March 11, 2020 and August 28, 2019 respectively.


19


Note 8. Other Charges
Other charges includes those expenses that we consider related to our restructuring efforts or are not part of our ongoing operations.

Quarter Ended Two Quarters Ended
March 11
2020
March 13
2019
March 11
2020
March 13
2019
(In thousands)
Proxy communication related $ —    $ 1,061    $ —    $ 1,802   
Employee severances 544    173    1,162    645   
Restructuring related 966    30    1,586    30   
Total Other charges $ 1,510    $ 1,264    $ 2,748    $ 2,477   

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Note 9. Fair Value Measurements

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 authoritative accounting guidance requires or permits assets or liabilities to be measured at fair value.
 
GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used to measure fair value. These tiers 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 industry-standard 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.

The fair values of the Company's cash and cash equivalents, restricted cash and cash equivalents, trade receivables and other receivables, net, and accounts payable approximate their carrying value due to their short duration. The carrying value of the Company's total credit facility debt, net of unamortized discounts and debt issue costs, at March 11, 2020 and August 28, 2019 was approximately $50.8 million and $45.4 million, respectively, which approximates fair value because the applicable interest rate is adjusted frequently based on short-term market rates (Level 2).

There were no recurring fair value measurements related to assets at March 11, 2020 or March 13, 2019 . We terminated our interest rate swap in the first quarter of fiscal 2019 and received cash proceeds of approximately $0.3 million which is recorded in other income.

There were no recurring fair value measurements related to liabilities at March 11, 2020. The fair value of the Company's 2017 Performance Based Incentive Plan liabilities was zero at March 13, 2019.

Non-recurring fair value measurements related to impaired property held for sale and property and equipment consisted of the following:
    Fair Value
Measurement Using
 
  March 11, 2020 Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Impairments(3)
Nonrecurring Fair Value Measurements   (In thousands)    
Continuing Operations          
Property held for sale (1)
$ 3,362    $ —    $ —    $ 3,362    $ (14)  
Operating lease right-of-use assets (2)
—    —    —    —    (1,181)  
Total Nonrecurring Fair Value Measurements $ 3,362    $ —    $ —    $ 3,362    $ (1,195)  
(1) In accordance with Subtopic 360-10, long-lived assets held for sale with a carrying value of approximately $3.4 million were written down to their fair value, less cost to sell, of approximately $3.4 million, resulting in an impairment charge of approximately $14 thousand.
(2) In accordance with Subtopic 360-10, operating lease right-to-use assets with a carrying value of approximately $1.2 million were written down to their fair value of zero, resulting in an impairment charge of approximately $1.2 million.
(3) Total impairments for continuing operations are included in provision for asset impairments and restaurant closings in our consolidated statement of operations for the two quarters ended March 11, 2020.
21



    Fair Value
Measurement Using
 
  March 13, 2019 Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Impairments(3)
Nonrecurring Fair Value Measurements   (In thousands)